deposits and extends loans to individuals and businesses.

Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities.
Committee

A group of people officially delegated to perform a function.

Common stock

A kind of ownership in a corporation that entitles the investor to share any profits remaining after all other obligations have been met.
Community Reinvestment Act (CRA)

Enacted by Congress in 1977, the CRA encourages banks to help meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes, while maintaining safe and sound operations.
Comparative advantage

Describes the ability of a person, company or country to produce a good or service at a lower cost relative to other goods and services. Even though a country may have an absolute advantage over another country, it still will be better off specializing in the good or service iChapter 7 A provision of bankruptcy laws wherein a company is required to liquidate its assets to pay of its creditors. See Bankruptcy.
Character

A borrower's trustworthiness.
Check

A written order to a bank to pay the amount specified from funds on deposit.
Check clearing

The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts. The Federal Reserve operates a nationwide check-clearing system.
Clearinghouse

An institution where mutual claims are settled between accounts of member depository institutions. Clearinghouses among banks have traditionally been organized for check-

clearing purposes, but more recently have cleared other types of settlements, including electronic fund transfers.
Clearinghouse Interbank Payments System (CHIPS)

An automated clearing system used primarily for international payments. This system is owned and operated by the New York Clearinghouse banks and engages Fedwire for settlement.
Capacity

A person's ability (present and future) to meet financial obligations.

Capacity utilization rate

The percentage of the economy's total plant and equipment that is currently in production. Usually, a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion.
Capital

A person's savings and other assets, which can be used as collateral for loans.
Capital Assets Management Earnings Liquidity Sensitivity (CAMELS)

Rating system used by Federal Reserve examiners to help measure the safety and soundness of a bank.
Capital market

The market in which corporate equity and longer-term debt securities (those maturing in more than one year) are issued and traded.
Cash

Payment for goods or services in the form of coin or currency.

Cash flow

Money coming to an individual or business less money being paid out during a given period.
Cease-and-desist order

An order issued after notice and opportunity for hearing, requiring a depository institution, a holding company or a depository institution official to terminate unlawful, unsafe or unsound banking practices. Cease-and-desist orders are issued by the

appropriate federal regulatory agencies under the Financial Institutions Supervisory Act and can be enforced directly by the courts.
Central bank

The principal monetary authority of a nation, which performs several key functions, including issuing currency and regulating the supply of credit in the economy. The Federal Reserve is the central bank of the United States.
Central bank intervention

The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements.
Centralized

To bring under a single, central authority.

Certificate of Deposit (CD)

A form of time deposit at a bank or savings institution; a time deposit cannot be withdrawn before a specified maturity date without being subject to an interest penalty for early withdrawal. Small-denomination CDs are often purchased by individuals. Large CDs of $100,000 or more are often in negotiable form, meaning they can be sold or transferred among holders before maturity.
Certified check

A check for which a bank guarantees payment. When the check is certified, it legally becomes an obligation of the banks, and the funds to cover it are immediately from the depositor's account.
Chapter 13

Adjustments of debts of an individual with regular income under the Federal Bankruptcy Code. Chapter 13 enables a debtor who is an individual to develop and perform a plan for the repayment of creditors

Financial Services
Test your knowledge about the financial services function of the Federal Reserve through this quiz or word search. Additional quizzes and word searches are also available.

ACH

The Automated Clearinghouse (ACH) is an electronic payment network through which depository institutions send each other electronic credit and debit transfers. Some examples are payroll deposits, corporate payments to vendors, Social Security payments, insurance premium payments and utility payments.

Fedwire
The Fedwire funds transfer system is a large-dollar electronic payment system owned and operated by the Federal Reserve Banks that transfers funds between financial institutions. Participants typically transfer large dollar, time-critical payments, such as to disburse or repay large loans or to settle real estate transactions. The majority of Fedwire transactions are initiated on-line and all transactions are completed in seconds.

Savings Bonds:
The Federal Reserve Banks issue, service, and redeem tens of millions of U.S. savings bonds each year on behalf of the Treasury. Savings bonds are a contract evidencing a loan made to the United States. For more information about savings bonds, visit the United States Department of the Treasury Web site.

Cash
It's up to the Fed to make sure there is enough money in circulation. Reserve Bank offices maintain cash and coin processing operations to accept deposits and distribute cash and coin to financial institutions. When cash and coin are deposited with the Reserve Banks, notes that are suspected of being counterfeit are separated from the rest and forwarded to the Secret Service. Notes that are too worn for recirculation are destroyed using a shredding machine and their face value is deducted from the total amount of Federal Reserve notes outstanding. Each of the twelve Federal Reserve Banks is authorized by the Federal Reserve Act to issue currency. Currency must be secured by legally authorized collateral, most of which is in the form of U.S. Treasury and federal agency securities held by the Reserve Banks. The notes are designed and printed by the Bureau of Engraving and Printing of the Department of the Treasury and are delivered to the Reserve Banks for circulation.

Check Collection
The Federal Reserve System operates a nationwide check clearing system that processes checks, drafts and similar items. When a depository institution receives deposits of checks drawn on other institutions, it may send the checks for collection to a Federal Reserve Bank. For checks collected through the Federal Reserve Banks, the accounts of the collecting institutions are credited for the value of the checks deposited for collection and the accounts of the paying banks are debited for the value of checks presented for

payment. Most checks are collected and settled within one business day. A 2004 federal law, the Check Clearing for the 21st Century Act, also known as Check 21, facilitates the electronic exchange of checks. Check 21 permits banks to replace original checks with substitute checks, special paper copies of the front and back of the original check that are the legal equivalent of the original check. Banks can now make an image of a check, send the image electronically to another location and then print a substitute check from the image to present for payment locally.

A Bank for the Government

Additionally, the Federal Reserve acts as a fiscal agent or bank to the federal government by providing financial services to the United States Department of Treasury and by selling and redeeming government securities such as Savings Bonds and Treasury bills. One of the core responsibilities of the Federal Reserve Banks is to serve as fiscal agent and depository for the United States government. In this role, the Reserve Banks act as the federal government's bank and perform several services for the Treasury. These services include:

Maintaining accounts for U.S. Treasury Processing government checks, postal money orders and U.S. savings bonds Collecting federal tax deposits