Bank for the Federal Government - You and the Fed - Economic Education

Education

Elementary and Middle School

High School

College and Graduate School

Financial Education for All

Course Readings for University Educators


	View Education Contacts

You and the Fed

Bank for the Federal Government

Helping the Government Borrow
Fiscal Agent for the Government

The Fed serves as a bank, not only for other banks, but also for the Federal Government. The Government maintains accounts at the Fed, and makes its payments by writing checks against these accounts or by transferring funds from the account electronically.

When a Social Security payment or a Federal income tax refund is sent, it consists of a check or electronic payment from a Government account at the Fed.

Helping the Government Borrow

The Fed helps the Government borrow funds that it needs. It processes the vast majority of bids that individuals and institutions make to buy securities at the Treasury’s weekly, monthly, and quarterly auctions.

More About Treasury Securities

Securities that mature in three months and six months are sold each week
Securities with longer maturities are sold less frequently
The term bills, notes, and bonds are used to refer to Treasury securities of different maturities
Bills mature in a year or less, notes in 2 to 10 years, and bonds in 30 years

The Fed also issues and redeems U.S. Savings Bonds for the Federal Government. Whether a Savings Bond is bought through payroll deduction or by placing an order at a bank, the application is processed by the Fed, which then sends the bond to the buyer.

Difference between Savings Bonds and Treasury Securities

Although both are obligations of the U.S. Government, there are differences:

Savings bonds are sold in paper form while other Government IOUs are issued only as book entries—that is, as electronic accounting entries on Fed and bank computers. This allows the securities to be transferred more easily and reduces their vulnerability to theft and loss
Unlike savings bonds, Treasury bills, notes, and bonds are transferable, and can be bought or sold in the securities market
Treasury bills, notes, and bonds can be bought for a minimum of $1,000, while savings bonds can be bought for as little as $25

Top

Fiscal Agent for the Government

The Reserve Banks, as the operating units of the nation's central bank, provide several important services to the Federal government. As the banker for the Federal Government, the Fed clears checks drawn on the Treasury's account. Acting as fiscal agents for the Government, the Reserve Banks sell, service and redeem Treasury securities.

Further, currency and coins are placed into or are withdrawn from circulation in response to seasonal and cyclical shifts in the public's need for cash. Almost all U.S. currency now consists of Federal Reserve notes, which were first issued in 1914.

September 2007

Top

Introduction

Monetary Policy

Tools of Monetary Policy

Fed's International Roles

Bank for Banks

Bank for the Federal Government

Supervision and Regulation

Structure of the FRS