central-bankWhat is(are) consider reserved in Federal Reserve? Or, what does the “reserve” means in Federal Reserve? Aside from the 11 billion in gold stock, the FED has in assets are loans, credits, bills etc.
To make my question less broad, can someone tell me what reserve does the Federal Reserve begins with and what causes this reserve grow over time?
I don’t think your question is overly broad, in fact it is quite specific:
What does the “reserve” means in Federal Reserve?
The “reserve” in Federal Reserve comes from the fact that private banks deposit their “reserve” funds at the Federal Reserve. This was a bigger deal in 1913 than it is today because reserve requirements have been greatly relaxed since then.
It’s also slightly confusing because the Federal Reserve has many other functions besides reserves.
What is(are) consider reserved in Federal Reserve?
I guess you mean what items are included in the reserves?
Actually, surprisingly little. The reserves only includes the money deposited by banks.
The Fed has many assets (as you point out), but these are not included in the reserves. The reserves themselves are created mostly electronically and so they are not backed by currency or gold.
In fact, reserves are actually a liability of the Fed, not an asset. Currency is also a liability, but it is accounted separately from reserves.
(see http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab9)
What reserve does the Federal Reserve begins with and what causes this reserve grow over time?
I’m not a Fed historian, but I believe when the Fed was originally created, banks were compelled to place their reserve funds (which they should have already had) at the Fed. At the time, the dollar was backed by gold so this would have involved transferring gold to the central bank.
In the modern era, reserves are increased (or decreased) either through electronic credit (or debit) on the part of the Fed, and through fractional reserve banking.
It is both a reserve of gold (which is held for various reasons, such as a store of value, a guarantee to redeem promises to pay depositors, note holders (e.g., paper money), or trading peers, or to secure a currency), and a reserve of the currency in case some banks need more of it for withdrawals (to prevent so called “runs on the bank”, where people want to withdraw all of their money and bankrupt the bank).
In the US, national banks have to be members of their regional Federal Reserve Bank; State banks can choose to be members. All private banks that are members, place reserves with their regional Federal Reserve Bank. The reserves that a private bank deposits at its regional Reserve Bank, together with the private bank's vault cash, form the reserves that back that private bank's legally-defined reservable liabilities.
The reservable liabilities, and their reserve requirements, change over time, and are set out on the central bank's web page.
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