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What is the Federal Reserve?

The Federal Reserve is the central banking system in the United States. When the National Bank Act of 1863 proved to be ineffective in managing the nation's banking system, Congress (the law-making body of the United States) passed the Federal Reserve Act in 1913. This act created twelve regional federal reserve banks located in Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The banks operate as "bankers' banks," supplying funds to member banks in the same way that consumers use their accounts at commercial banks. Although all national banks must be members of the Federal Reserve system, state banks may join the Federal Reserve only if they meet certain requirements. A Board of Governors, a seven-member body appointed by the president of the United States, supervises the Federal Reserve system.

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