During the later year of the 20th century, the US financial plan was important but managing the overall economy was transferred from economic policy to monetary policy, which is the province of the Federal Reserve System. The federal system includes twelve regional banks and 25 Federal Reserve System branches. Legally, all commercial banks are obligated to be members of the Federal Reserve System with an exception of the state chartered banks.
A bank that is a member of the Federal System uses the Reserve Bank in its region in the same way that a person uses a bank in his community. The Federal Reserve System is administered by the Board of Governors. Its seven members, who serve overlapping 14 year terms, are appointed by the president. Its monetary policy decisions are made by the Federal Open Market Committee, which consists of the seven governors. The governors are, by law, independent from congress and the president.
The Federal Reserve System must report on its actions to the congress. The important policy decisions are conducted in privacy and often disclosed only after a period of time has elapsed. Its operating expenses are generated from investment income and fees.
For maintaining control over the supply of money, the Federal Reserve adopts three tools. The most important tool is relevant to open market operations or buying and selling of government securities. The Federal Reserve buys government securities from banks, other businesses, or individuals, to increase the supply of money.
New reserves are created when the federal checks are deposited. The bank can lend or invest some of it. Government securities are sold to the banks to reduce money supply. When banks have lower reserves, they must reduce their lending, and the money supply drops accordingly.
http://economics.about.com/od/monetaryandfiscalpolicy/a/money.htm
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