The job of the Fed is to manage the nationís money supply. In essence the Fed tries to keep the economy running smoothly by making sure just the right amount of money and credit is in the market. The Fed is set up as a central banking system with the Board of Governors at the top, then the 12 district banks, followed by member banks of the system. The following illustration should help make this system more clear:
12 District Banks
Each of the District Banks has its own members, which are the commercial banks that we are familiar with, such as Key or Fleet Banks. It is not necessary for a commercial bank to be a member of the Federal Reserve System, but all deposit institutions must follow many of the same rules, such as deposit requirements.