Banks are in many ways like any other business. They want to provide a service to their customers and make a reasonable profit. Banks do that by lending out money to members of the community, such as a small business or a homebuyer, who can repay what they borrow, plus interest.
The latest in the Atlanta Fed's animated video series explains how the Fed makes sure banks are healthy—because, as the video explains, "the healthier the bank, the healthier the economy and the communities it serves."
Through its supervision and regulation activities, the Fed ensures that banks are doing business safely and providing fair and equitable services to their communities. One way they do this is by sending examiners to banks big and small, where they gather information on whether the bank is making good investments and following safe banking rules, for example.
Over time, the Fed's supervision and regulation of banks has evolved along with changes in the banking system. For instance, in addition to gauging the health of individual banks, the Fed takes a broader view of risks across the financial system. This approach, called macroprudential regulation, "makes the financial system more resilient to systemic shocks," the video explains.
The Fed also considers whether banks are lending fairly—by judging each loan application based on the borrower's ability to repay, not on race, religion, or neighborhood—and makes sure they follow consumer protection laws.
Be sure to watch the video for more information about how the Fed helps keep the banking system safe and sound.