Liberty Bond Act, as amended,<sup>11</sup> subject to the debt ceiling established by Congress.<sup>12</sup> It manages the public debt by issuing and servicing U.S. Treasury marketable securities, and well as US savings bonds and other special government securities.

# **B.  FEDERAL RESERVE SYSTEM**

The US Federal Reserve System was founded in 1913 by Congress to guarantee the soundness of US banks by ensuring that a capital reserve would be held against all deposits in national banks, and to provide for a safer and more flexible monetary system. The Federal Reserve System consists of the Board of Governors of the Federal Reserve and 12 regional Federal Reserve banks. It is an independent government agency, subject to Congressional oversight.<sup>13</sup> The Federal Reserve has four main functions: (i) conducting US monetary policy; (ii) supervising and regulating banking institutions; (iii) maintaining the stability of the US financial system; and (iv) providing financial services to the US government, the public, financial institutions, and foreign official institutions.<sup>14</sup> The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve implements monetary policy by: (i) conducting open market operations (buying and selling US Treasury securities); (ii) setting discount rates (the rate charged commercial banks and other depositary institutions when they borrow from the Fed); and (iii) establishing reserve requirements for the nation’s banks and other depositary institutions. It also acts as the agent for the US Treasury in selling, by auction, new issues of Treasury securities.

The Federal Open Market Committee is composed of the Board of Governors, the president of the Federal Reserve Bank of New York (FRBNY) and four presidents of the other Federal Reserve Banks who serve on a rotating basis. The Open Market Committee oversees the open market operations, the main tool that the Federal Reserve uses to oversee the money and credit supply and to implement monetary policy.<sup>15</sup> Open market operations are conducted mostly in short-term securities and affect the money supply almost immediately because trades must be settled in three days.

# **C.  US SECURITIES AND EXCHANGE COMMISSION**

The US Securities and Exchange Commission (SEC) was created by Congress in 1934 as an independent agency in charge of regulating the US securities markets. The SEC’s primary mission is to protect investors and maintain the integrity of the securities markets. The SEC also oversees key participants in the securities markets, including stock exchanges, broker-dealers, investment advisors, and mutual funds. As part of its

> 11 31 USC Section 3102.

> 12 31 USC  Section 3101.

> 13 Article I, Section 8 of Constitution gives Congress the power to regulate and control the value of money. It thus oversees the Federal Reserve.

> 14 _See_ the Federal Reserve website, www.federalreserve.gov.

> 15 By selling Treasury securities, the Federal Reserve reduces the money supply and, conversely, by buying securities, it increases the money supply.  Restricting the money supply causes prices to remain stable or go down, and causes interest rates to increase.

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