Dept. of the Treasury vs The Fed

Dept. of the Treasury

The Department of the Treasury is an executive department and the treasury of the United States federal government. The Treasury prints and mints all paper currency and coins in circulation through the Bureau of Engraving and Printing and the United States Mint. The Department also collects all federal taxes through the Internal Revenue Service, and manages U.S. government debt instruments, with the major exception of the Federal Reserve System.

The basic functions of the Department of the Treasury mainly include:

  • Producing all currency, coinage and postage stamps of the U.S.;
  • Collecting taxes, duties and money paid to and due to the U.S.:
  • Paying all bills of the U.S.;
  • Managing the federal finances;
  • Managing government accounts and the United States public debt;
  • Supervising national banks and thrift institutions;
  • Advising on domestic and international financial, monetary, economic, trade and tax policy (fiscal policy being the sum of these, and the ultimate responsibility of Congress);
  • Enforcing federal finance and tax laws;
  • Investigating and prosecuting tax evaders;
  • Publishing statistical reports.

The Fed

The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States. The Congress established three key objectives for monetary policy—maximum employment, stable prices, and moderate long-term interest rates—in the Federal Reserve Act. The first two objectives are sometimes referred to as the Federal Reserve’s dual mandate.

Its duties have expanded over the years, and today, according to official Federal Reserve documentation, include conducting the nation’s monetary policy, supervising and regulating banking institutions, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions.

Current functions of the Federal Reserve System include:

  • To address the problem of banking panics
  • To serve as the central bank for the United States
  • To strike a balance between private interests of banks and the centralized responsibility of government
    • To supervise and regulate banking institutions
    • To protect the credit rights of consumers
  • To manage the nation’s money supply through monetary policy
  • to achieve the sometimes-conflicting goals of
    • maximum employment
    • stable prices, including prevention of either inflation or deflation
    • moderate long-term interest rates
  • To maintain the stability of the financial system and contain systemic risk in financial markets
  • To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system
    • To facilitate the exchange of payments among regions
    • To respond to local liquidity needs
  • To strengthen U.S. standing in the world economy

The Difference

The U.S. Treasury is an entirely separate entity from the Federal Reserve System, the central banking system of the United States. The Federal Reserve is independent within the government, and its Board of Governors (including its chairman and vice-chairman) are chosen by the President and confirmed by the Senate. Monetary policy decisions of the Federal Reserve System, in distinction to the Treasury’s decisions, “do not have to be approved by the President or anyone else in the executive or legislative branches of government.”

The Federal Reserve is a nonprofit company. After their expenses are paid, any remaining profits are paid to the Department of the Treasury. The Department of the Treasury then uses that money to fund government spending.

Working Together

The Department of the Treasury and Federal Reserve work together in an effort to maintain a stable economy. The Federal Reserve serves as the government’s banker, processing transactions, such as accepting electronic payments for Social Security taxes, issuing payroll checks to government employees and clearing checks for tax payments and other government receivables

The Federal Reserve and the Department of the Treasury also work together to borrow money when the government needs to raise cash. The Federal Reserve issues U.S. Treasury securities and conducts Treasury securities auctions, selling these securities on behalf of the Department of the Treasury.

The Federal Reserve and the Department of the Treasury can also work in concert to help support government-sponsored enterprises. When these entities run into financial trouble, the Federal Reserve can provide access to funds at a discounted borrowing rate, while the Department of the Treasury can increase the line of credit that it makes available and even purchase stock in the entities.

The assistance they provide can also be extended to non-governmental corporations. The near collapse of investment bank Bear Stearns in 2008 is one such example. Officials from the two entities loaned around $29 billion in taxpayer funds to facilitate JP Morgan’s purchase of Bear Stearns. While the U.S. government initiated the bailout as a Federal Reserve-led action, any losses incurred would come out of the Treasury’s funds.

See here for more discussion of their relationship with other govt institutions.

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Wikipedia, “Federal Reserve System“, “United States Department of the Treasury

Howstuffworks, “How the Fed Works

Investopedia, “The Treasury and the Federal Reserve

Also see this out-of-date but entertaining Federal Reserve Publication

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