Broadly speaking, the responsibilities of the Federal Reserve System include setting and implementing monetary policy, regulating and supervising certain financial institutions, acting as fiscal agent for the United States Treasury, and helping to maintain financial stability. Not every responsibility is shared by each component of the Federal Reserve System. For example, the Board of Governors regulates financial institutions. The Federal Open Market Committee sets monetary policy. And the New York Fed serves as a fiscal agent for the United States Treasury. But, collectively, these are the functions of the central bank of the United States. The New York Fed, where I serve as general counsel, is one of the twelve regional banks. Its district includes New York City—the financial center of the United States. The New York Fed implements monetary policy pursuant to the directives of the Federal Open Market Committee. Monetary policy refers to the actions taken by the Federal Reserve to influence the availability and cost of money and credit to help promote economic goals. The New York Fed helps to accomplish these goals by, among other things, purchasing and selling securities. And, like other Federal Reserve Banks, we make loans to commercial banks and pay interest on deposits by commercial banks. In addition, the New York Fed manages the operation of wholesale payment services—known as Fedwire® Services—on behalf of the other Federal Reserve Banks. The New York Fed also participates in the regional and international distribution of United States currency and coins.
Pursuant to authority delegated by the Board of Governors, the New York Fed plays a significant role in the supervision of some of the largest financial institutions in the United States and most of the foreign banks that do business in the United States. Supervision means the monitoring, inspecting, and examining of financial institutions to ensure that they comply with rules and regulations, and that they operate in a safe and sound manner. Supervision of financial institutions is tailored based on the size and complexity of the institution. The New York Fed also participates in much of the Federal Reserve’s work in the international arena. We manage the foreign reserves of the Federal Reserve System and the United States Treasury. We offer deposit and custody accounts, and provide related services, to foreign official institutions, including other central banks. And we maintain a current understanding of foreign markets and laws. Our analysis helps us to carry out our responsibilities and to assess the risks posed by an increasingly interconnected global financial system. Risk in banking Now that you have some idea of what the New York Fed does, I will share some thoughts on the roles of risk in banking. For starters, and to state the obvious, risk is inherent in banking. Economic growth requires taking chances. Taking risks is part of what banks do. When depositors leave their money in a bank, they are actually lending it to the bank.