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Example research essay topic: Federal Reserve System Depository Institutions - 2,025 words

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... nail advises the board on its responsibilities under consumer credit protection laws (The Federal Reserve System 4). The Board of Governors was established as a federal agency. It is made up of seven members appointed by the President and confirmed by the Senate. The full term of a member is fourteen years with appointments staggered so that the terms expire on January 31 of each even-number year.

The chairman of the Board is appointed for a four-year term that starts midway through each presidential term. The board monitors domestic and international financial economic developments. A Washington staff of about one thousand and seven hundred people supports the Board. The Board is audited annually by a major public accountant firm and is also subject to audit by the General Accounting Office, an arm of Congress (Andelman 54). The Federal Open Market committee (FOMC) exercises an influence over monetary policy.

FOMC sets Fed policy for trading government securities (Treasury bills, Treasury bonds and Treasury notes) and it is responsible for open market operations. The committee consists of the Board of Governors, the presidents, who serves on a rotating basis, although all members participate fully in deliberations. The Federal Open Market meets eight times a year. The meetings usually feature summaries of international economic developments, reports on conditions in the domestic financial markets and the banking system. The Fed also gives a presentation on the United States economy as a whole and a forecast for the future. Policy options are discussed and votes are taken to decide whether or not the Fed will act.

Reserve Bank boards of directors research departments and regional business leaders contribute vital information and insight that are used to formulate monetary policy. Both the public and the private sectors contribute to these decisions (The Federal Reserve 35 - 41). Open market operations is the buying and selling of United States Government securities on the open market for the purpose of influencing short term interest rates and the growth of money and credit. If there is a need for an increase in the growth rate of the money supply, credit is needed, or a downward pressure on short-term interest rates, the Fed buys securities from brokers or dealers, which adds money to the reserve accounts of the banks of brokers or dealers. Then the banks credit the accounts of the brokers and dealers, which increases the amount of money and credit available in the market. Whenever the growth of money and credit needs to be slowed down, the Fed sends securities to brokers and dealers, taking payment by debiting the accounts of banks of the brokers and dealers.

Reserves leave the banking system, which reduces the money supply and cuts back the expansion of credit. Even though the Fed has enormous influence over the financial markets, it cannot force banks to raise or lower interest rates, which have remained at historically high levels ever since the early 1980 's. The Fed does not control the market, but it does hold sway over short-term interest rates because it is influenced by the open markets operations. Its a vital participant in providing a strong central bank during times of crisis (Cooper & Madigan 24). The discount rate is the interest rate at which banks can borrow from the Federal Reserve System for short-term liquidity needs. The discount rate is changed infrequently and can discourage or encourage financial institutions lending and investment activities.

It is usually lower than the Federal Funds Rate because troubled institutions can borrow to get them through short periods of problems. Originally, it was designed to help end "runs on the bank. " Banks only borrow in this way if they need the help. The reserve requirement is the percentage of deposits in demand deposit account that financial institutions must set aside and hold in reserve. If the Fed raises the reserve requirement, banks have less money to lend, which slow the growth of the money supply. If the Fed lowers the reserve requirement, banks have more money to lend and the money supply increases. The Federal Reserve System is responsible for providing the total amount of reserves consistent with the monetary needs of the economy at reasonable stable prices.

Changes in the volume of reserves influence the money supply, the available credit, and interest rates. As result, the volume of spending Depository institutions feel the impact of changes first, but the effects spread quickly to the entire financial structure of the nation, the domestic economy and often to the international economy as well. The board proclaims the Feds policies on monetary, as well as banking, matters. On account of the fact that the board is not an operating agency, a majority of the day-to-day implementation of policy decisions is given to the district Federal Reserve banks.

The stock in these banks is owned by the commercial banks that are members of the Federal Reserve System. However, ownership in this instance does not necessarily imply control, for the Board of Governors, and the heads of the Reserve banks, normally orient their policies toward public interest rather than to the advantage of the private banking system (Andelman 55). At the foundation of the Federal Reserve System are the individual member commercial banks. Every national bank is required to join the system, although membership of state-chartered institutions is voluntary. Each member is required to purchase capital stock in his or her individual district Reserve bank. The benefit is that they are entitled to a sanctioned six percent stock dividend and also the right to vote for the directors of that particular district bank.

The Monetary Control Act of 1980 ordained a reserve requirement on all depository institutions, but at the same time also permits them to borrow from the Federal Reserve and to acquire payment-mechanism services from the Fed (The Federal Reserve System). In addition, the act mandates that the Federal Reserve charges a fee for all services provided. By enabling these banks to borrow reserves from the Reserve banks, the liquidity of the entire banking system is further increased. The twelve individual districts Reserve banks are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Georgia, Chicago, St.

Louis, Minneapolis, Kansas City, Missouri, Dallas, and San Francisco. Each one of these banks is formally responsible to a nine-member board of directors. This board of directors is divided into three unique classes. The member banks elect Class A and B directors; the Board of Governors appoints class C directors.

The board of directors is responsible for the administration of the individual bank and for appointing the banks president and vice president, which is subject to the approval of the Board of Governors. In addition, the directors set the discount rate, which is also subject to review by the Board of Governors (Federal Reserve System 7 - 10). The Fed also has many various responsibilities for writing rules or enforcing a number of major laws that offer consumers protection in their financial dealings. The Fed enforces truth in lending, which ensures that accurate information on the cost of credit is available to consumers. They make sure everyone has equal credit opportunity, which prohibits discrimination in lending.

The Federal Reserve System ensure there are home mortgage disclosures, which requires depository institutions to disclose the geo-graphic distribution of their mortgages and home improvement loans. In the age of technology the Fed also take on the responsibility of electronic fund transfers. They identify the rights, liabilities and responsibilities of consumers and financial institutions for electronic transfer services, such as automated teller machines, ATMs. An important law the Federal Reserve enforces is the Community Reinvestment Act. The Fed discourages red lining.

The depository institutions are expected by the Fed to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods (Samuelson 37 - 39). Sometimes the Federal Reserve is thought of as a fourth branch of the U. S. government because it is composed of a powerful group of national policymakers that are free from the usual restrictions of governmental checks and balances.

And in fact, the Board of Governors is formally independent of the executive branch of the government and protected by tenure far beyond that allotted to the president. A very unique working relationship has evolved between the two as the Federal Reserve works in accordance with the objectives of economic and financial policy that is established by the executive branch of the government (Andelman 48). The relationship that exists between the Federal Reserve and Congress is a bit more complex. On one hand, the central bank is clearly a component of Congress, being responsible to it for its mandate and its continued existence, while on the other hand, the self-financing characteristic of the Federal Reserve takes away from Congress its primary source of influence, which is the agency budget.

In this way the Federal Reserve is somewhat free from partisan political pressures, although it must report quite frequently to the Congress on the conduct of monetary policy (Samuelson 33). The United States has the Federal Reserve System set into place to protect the well being of the country. History has proven in order to have a healthy economy there is a need to have powerful central network to maintain the economy. Therefore without proper structure in some form, this country would no longer be the powerful nation it is today.

The United States is able to provide support and structure to other nations of the world. While the system is by no means a perfect one, it is essentially stable for the most part, providing a sense of security for the entire country, if not the entire world. Andelman, David A. Central banker to the world. (US Federal Reserve System).

Management Review, (1997) July-August, v 86 n 7. Cooper, James C. ; Madigan, Kathleen. With Rates Down, Things are Looking Up. Crabbe, Leland.

The International Gold Standard and U. S. Monetary policy from World War I to the New Deal. Federal Reserve Bulletin, (1989): June, v 75 n 6. The Federal Reserve System: Purposes & Functions. 8 th Ed. Washington D.

C. : Federal Reserve System, 1994. Online. (25 March 2000). Parsley, David C. ; Popper, Helen A. Exchange rates, domestic prices, and central bank actions: recent U.

S. experience. Southern Economic Journal, (1998): April, v 64 n 4. Samuelson, Robert. Secrets of the Temple: How the Federal Reserve Runs the Economy. The New Republic, (1988): February, v 198 n 8.

Bibliography: WORKS CITED Andelman, David A. Central banker to the world. (US Federal Reserve System). Management Review, (1997) July-August, v 86 n 7. Cooper, James C. ; Madigan, Kathleen. With Rates Down, Things are Looking Up. Business Week, (1998): December.

Crabbe, Leland. The International Gold Standard and U. S. Monetary policy from World War I to the New Deal. Federal Reserve Bulletin, (1989): June, v 75 n 6. The Federal Reserve System: Purposes & Functions. 8 th Ed.

Washington D. C. : Federal Reserve System, 1994. Online. (25 March 2000). Parsley, David C. ; Popper, Helen A. Exchange rates, domestic prices, and central bank actions: recent U. S.

experience. Southern Economic Journal, (1998): April, v 64 n 4. Samuelson, Robert. Secrets of the Temple: How the Federal Reserve Runs the Economy.

The New Republic, (1988): February, v 198 n 8. WORKS CITED Andelman, David A. Central banker to the world. (US Federal Reserve System). Management Review, (1997) July-August, v 86 n 7. Cooper, James C. ; Madigan, Kathleen. With Rates Down, Things are Looking Up.

Business Week, (1998): December. Crabbe, Leland. The International Gold Standard and U. S. Monetary policy from World War I to the New Deal. Federal Reserve Bulletin, (1989): June, v 75 n 6.

The Federal Reserve System: Purposes & Functions. 8 th Ed. Washington D. C. : Federal Reserve System, 1994. Online. (25 March 2000). Parsley, David C. ; Popper, Helen A. Exchange rates, domestic prices, and central bank actions: recent U.

S. experience. Southern Economic Journal, (1998): April, v 64 n 4. Samuelson, Robert.

Secrets of the Temple: How the Federal Reserve Runs the Economy. The New Republic, (1988): February, v 198 n 8.


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Research essay sample on Federal Reserve System Depository Institutions

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