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The Federal Reserve Bank Abstract: The whole system of the Federal Reserve Bank in the United States is aimed to help maintain and secure the countrys economy. This will try to illustrate how this goal can be achieved by this government backed institution. The paper will present the structure of the institution and describe its various components with their roles and functions in the scheme of things. The impact on the country as a whole and on the economy in particular will also be discussed.
Outline: What is it? History Importance Structure How does it function in the US Banking System? What is its role in the banking industry? Conclusion Impact The Federal Reserve Bank of the United States of America is a quasi-governmental banking system whose role is to regulate the nation's financial institutions.
The Fed, as it is informally referred to, is in essence the bank of the government of the United States. It watches over one of the world's largest economy. The Fed determines and prescribes the economic and monetary policies of the country. It must be noted that these have profound impacts on individuals and groups in the U. S. as well as around the world.
The Federal Reserve System was created via the Federal Reserve Act of December 23 rd, 1913. The Reserve Banks opened for business on November 16 th, 1914 (Hafer, 2005). The conception of the national banking system was brought about by the ever increasing currencies floating around the country at that time. Almost everyone and anyone are issuing their own notes. There were many problems that have stemmed from this situation including the fact that the value of these currencies was not regulated -- - some are worth more than the others. In consequence, banks were unstable many were failing and the economy swung wildly from one extreme to the next.
The solution is the establishment of a centralized banking system which will standardize all economic activities in the country. Systems Structure The United States Congress designed the structure of the Federal Reserve System to give it a broad perspective on the economy and on economic activity in all parts of the nation. It is a centralized system, composed of a chief, governmental agency the Board of Governors in Washington, D. C. with seven presidential appointed members, and twelve regional Federal Reserve Banks, located in major cities scattered throughout the nation acting as economic agents for the U. S.
Treasury, each with their own nine-member board of directors. The Board of Governors is composed of seven members duly appointed by the president and confirmed by the Senate. The full term of a Board member is fourteen years with no possibility of reappointment although if a member leaves the Board before his or her term expires, however, the person appointed and confirmed to serve the remainder of the term may later be reappointed to a full term. The appointments of each seven members are staggered so that one term expires every January 31 st of each even-numbered year. Although appointed by the president, once one becomes a part of the Board of Governors he or she functions mostly independently when it comes to making decisions regarding their duties and functions as members of the board.
The Board of Governors does not receive funding from Congress, and the terms of the seven members of the Board span multiple presidential and congressional terms. The Board is required to make an annual report of operations to the Speaker of the U. S. House of Representatives. The Board of Governors is composed of the Chairman and the Vice Chairman also appointed by the President and confirmed by the Senate. The nominees must already be members of the Board or must be simultaneously appointed to the Board; their term of office is four years.
The Boards main responsibility requires thorough analysis of domestic and international financial and economic developments. The Board also administers most of the nations laws regarding consumer credit protection, exercises broad responsibility in the nations payments system and supervises and regulates the operations of the regional Federal Reserve Banks. The twelve Reserve Banks are each responsible for a particular geographic area or district of the United States. They carry out a variety of functions similar to those of the Board of Governors although these are limited and are all concentrated on each of their own districts.
Besides carrying out functions for the System as a whole, each Reserve Bank acts as a depository for the banks in its own District and fulfills other District responsibilities. The network of twelve Federal Reserve Banks and their Branches (twenty five as of 2004) act as the operating arm of the central bank and do most of the work of the Fed in their own regions. The Board and the Reserve Banks share responsibility for supervising and regulating certain financial institutions and activities although the 12 reserve banks are under the auspices and regulation of the Board of Governors. Together, they provide banking services to depository institutions and the federal government, and ensure the rights and privileges of the American consumers to receive adequate information and fair treatment in their business with the banking system. A major component of the System is the Federal Open Market Committee (FOMC), which is made up of the members of the Board of Governors, the president of the Federal Reserve Bank of New York, and presidents of four other Federal Reserve Banks, who serve on a rotating basis.
The FOMC oversees open market operations, which is the main tool used by the Federal Reserve to influence overall monetary and credit conditions. Included in the Federal Banking System is a working group which is tasked to be its policy-making branch called the Federal Open Market Committee, better known as the FOMC. It is composed the seven members of the Board of Governors and the presidents of five Federal Reserve Banks traditionally headed by the chair of the board. The president of the Federal Reserve Bank of New York plus the presidents of four other Reserve Banks who serve on a one-year rotating basis comprises the voting members. The remaining Reserve Bank presidents are still expected to participate in FOMC policy discussions whether they are voting members or not. The FOMC makes the important decisions on interest rates and other monetary policies.
Other components of the system include numerous private and national banks plus some state-chartered banks referred to as member banks and various advisory councils. It should be noted that financial institution can only considered members if they can subscribe to required amounts of non-transferable stock in their regional Federal Reserve Bank. Federal Banking System Roles and Functions The Fed is mandated by the US Congress "to promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates. " It is primary created to foster a sound banking system and a healthy economy. To ensure the delivery of the systems goal, the Federal Reserve Banking System has four major functions: 1) it serves as the banker's bank, 2) it is the government's bank, 3) it regulates financial institutions, and 4) acts as the nation's money manager. Banker's Bank Each of the twelve Federal Reserve Banks spread around the major cities in the country provide services to financial institutions in the same way that regular banks provide services to individuals. It provides financial services to depository institutions, the U.
S. government, and foreign official institutions, including playing a major role in operating the nations payments system. The US Government's Bank All government revenue generated by taxes all over the country and all outgoing government payments are handled through the US account with the Fed. Included in the Feds service is the selling and redeeming of government securities such as savings bonds and Treasury bills, notes and bonds. The Fed also issues all coin and paper currency, the U.
S. Treasury actually produces the cash, but they distribute these to financial institutions. They also check bills for wear and tear and take damaged currency out of circulation. Regulator and Supervisor The Federal Reserve Board acts aside policeman for banking activities within the U.
S. and abroad. It ensures the safety and soundness of the nations banking and financial system and protects the credit rights of consumers by helping to develop federal laws governing consumer credit. It also monitors member banks of the system and their activities, the international banking facilities in the U. S. , the foreign activities of member banks and the U.
S. activities of foreign-owned banks. It maintains the stability of the financial system and contains systemic risk that may arise in financial markets. Money Manager The primary responsibility of the Federal Banking System is to devise and implement monetary policy.
It is the gatekeeper of the US economy tasked to influence the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates. It monitors and regulates the performance of the U. S. economy. The Fed undertakes to reduce the cost of credits, in doing so, more people and firms will borrow money and the economy will heat up. Although the other roles are very important, this is the main reason why the Fed is created in 1913.
Conclusion The Federal Banking System of America is the nations banks of all banks including the bank of one of the worlds biggest government, the United States. As such, the Fed has more power and influence on the financial market. Its monetary decisions and policies intensely affect the economy of the country and in a way the global economy. It has the power to manipulate and control -- -stimulate or slow down the economy -- - by raising and / or lowering interest rates, creating liquidity in the money supply. The Fed can change the money supply by increasing or decreasing reserves in the banking system through the buying and selling of securities. The changes in the money supply, in turn, affect interest rates.
This manipulation helps maintain low inflation, high employment rates, and manufacturing output. Works Cited Epstein, Lita & Martin, Preston. The Complete Idiot's Guide to the Federal Reserve. New York, NY: Alpha Books, 2003. Greater, William. Secrets of the Temple.
Canada: Simon & Schuster, 1987. Meyer, Lawrence H. A Term at the Fed: An Insider's View. Harper Business, 2004. R.
W. Hafer. The Federal Reserve System: An Encyclopedia. Westport, CT: Greenwood Press, 2005.
Wicker, Elms. The Great Debate on Banking Reform: Nelson Aldrich and the Origins of the Fed. Columbus, OH: Ohio State University Press, 2005. Wells, Donald R. The Federal Reserve System: A History. Jefferson, NC: McFarland and Company, 2004.
n. a. The Federal Banking Reserve website. n.
d. Retrieved on May 1, 2007 at < web >.
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Research essay sample on The Federal Reserve Bank
