The condition of the economy and the effectiveness of monetary policy depend on a stable financial system. The Federal Reserve System supervises and regulates a wide range of financial institutions and activities. By supervising and regulating financial institutions, the Federal Reserve is able to make policy decisions that are more effective. The FRS works in conjunction with other federal and state authorities to ensure that financial institutions safely manage their operations and provide fair and equitable services to consumers. Bank examiners also gather information on trends in the financial industry, which helps the FRS meet its other responsibilities, including determining monetary policy. Banking supervision by the FRS helps keep financial institutions running things properly.

The most important aspect of the Federal Reserve is its' use of monetary policy on the economy. Monetary policy refers to what the Federal Reserve does to influence the amount of money and credit in the US economy. Changes in the money supply and credit, affects interest rates and the stability of the economy. There are goals that set by the FOMC in order to make monetary policy effective. The goals of monetary policy are to promote continual economic growth, full employment, stable prices, and a consistent pattern of international payments. Through monetary policy, the FRS is able to maintain stable price levels, thus endorsing economic growth and full employment. When there is instability in the economy, the FRS must implement monetary policy. So when it wants to change the money supply and interest rates, the FRS usually uses open-market operations. Open market operations involve the buying and selling of U.S. government securities bonds. The term "open market" means that the FRS doesn’t decide on its own which securities dealers it will do business with. Instead, the choice comes from an "open market" in which the various securities dealers that the FRS does business with, the primary dealers, compete on the basis of price. The FRS’s goal in trading the securities is to affect the federal funds rate, the rate at which banks borrow reserves from each other. When it wants to increase reserves, it buys securities and

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