To understand the purpose and role of the Federal Reserve System, we must first know the origin of the central bank of the United States. On December 23, 1913 President Woodrow Wilson signed The Federal Reserve Act. The primary purpose of the act was to make sure that a supply of money and credit would be available in the United States to meet banking demands by establishing Federal Reserve Banks which would hold the responsibility of supporting the credit structure during periods of financial strain. Other banks were expected to rely on the Federal Reserve for emergency cash and credit. Government and banking influence would select the management, primarily a board of directors chosen by banks. Supervision would be by the Federal Reserve Board. The intent in 1913 was to create eight to twelve centrally located district Federal Reserve Banks and national banks would be required to keep a part of their reserve with the Federal Reserve. The Federal Reserve would receive deposits from the government and receive deposits and lend to member banks only. It took almost a year to determine the boundaries of the decided twelve districts and establish the twelve Reserve Banks (one of the four components of the Federal Reserve). Named after the city in which they are located, the twelve Banks are Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
The Federal Reserve plays a significant role in maintaining the stability and liquidity (the ability to turn an asset into cash) of the financial system by working towards low and stable inflation and also strive to encourage growth in output and employment . A second component, the Federal Reserve Board...
... middle of paper ...
...y 10). Retrieved May 23, 2012, from Board of Governors of the Federal Reserve System: http://www.federalreserve.gov/newsevents/press/other/20110110a.htm
Press Release. (2012, January 11). Retrieved May 23, 2012, from Board of Governors of the Federal Reserve System: http://www.federalreserve.gov/newsevents/press/other/20120110a.htm
(1914). The Federal Reserve Act of 1913. In O. Sprague, The Quarterly Journal of Economics, Vol. 28 No. 2 (pp. 213-254). Oxford University Press.
The Budgetary Impact and Subsidy Costs of the Federal Reserve's Actions During the Financial Crisis. (n.d.). Retrieved May 21, 2012, from CBO: http://www.cbo.gov/publication/21491
Who are the members of the Federal Reserve Board, and how are they selected? (n.d.). Retrieved May 21, 2012, from Board of Governors of the Federal Reserve System: http://www.federalreserve.gov/faqs/about_12591.htm
Curry & Shibut (2000), The Cost of the Savings and Loan Crisis: Truth and Consequence .Retrieved July 20, 2010 from www.fdic.gov/bank/analytical/banking/2000dec.
According to federalreservehistory.org “The Federal Reserve is about the Central Bank of the United States it was created by Congress to provide the nation with a safer, more flexible and more stable monetary and financial system. The Federal Reserve was created in 1913 with the enactment of the Federal Reserve Act” (federalreservehistory.org). According to investopedia.com “the Fed is headed by a government agency in Washington known as the Board of Governors of the Federal Reserve. There are 12 regional Federal Reserve banks located in
-2. The background of the financial crisis.—what kind of monetary policy the federal reserve made?
...an Buren declared that he would retain Jackson’s Specie Circular. Within a week, on May 10th, the Panic of 1837 erupted in New York with banks refusing to redeem in specie. It turned out that none of the banks had hard cash available. Van Buren and his successor President William Henry Harrison were unable to solve the depression. On June 8th, 1840 a bill was passed in the Senate providing for the repeal of the Independent Treasury Act. The bill passed the House and it was signed by the newly elected Whig President Tyler. Although victorious Whigs repealed the Independent Treasury in 1841, they were unable to replace it with a national bank. Revived in 1846 by a new Democratic administration, the Independent Treasury remained in operation until the Federal Reserve System was created in 1913.
Another federal legislation that was passed into law during the period was the Federal Reserve Act. The Federal Reserve Act of 1913, focused its energies on creating a new banking system with twelve regional Federal Reserve Banks, and each of whom were owned by member banks in its district. Also, all of the national banks automatically were members while state banks could join if they wished.
Over the past few years we have realized the impact that the Federal Government has on our economy, yet we never knew enough about the subject to understand why. While taking this Economics course it has brought so many things to our attention, especially since we see inflation, gas prices, unemployment and interest rates on the rise. It has given us a better understanding of the effect of the Government on the economy, the stock market, the interest rates, etc. Since the Federal Government has such a control over our Economy, we decided to tackle the subject of the Federal Reserve System and try to get a better understanding of the history, the structure, and the monetary policy of the power that it holds.
What at first seemed to be an economic slump turned into a brutal crisis, and all eyes looked to the Government and Federal Reserve to help the economy. With the large amount of debt the economy faced the Federal Reserve stepped in and bailed out the banks in an attempt to smooth over the financial struggles of the economy. The banks that survived took precautionary measures, making it difficult for businesses and consumers to borrow (Love, 2011). Thus leading to businesses failing and less jobs being created. The large amount of debt had also taken its toll on the job market. Between 2007 and 2009 employment dropped by 8 million workers, causing the unemployment rate to go from 4.7 percent to 10 percent (McConnell, 2012).
Reserve Bank of Australia (2010). Minutes of the monetary policy meeting of the board – 3 August 2010. Retrieved August 20, 2010, from http://www.rba.gov.au/monetary-policy/rba-board-minutes/2010/03082010.html.
U.S Federal Deficit and Debts:Understanding the history and context. (2011, November 1). Utah Foundation. Retrieved January 25, 2014, from http://www.utahfoundation.org/img/pdfs/rr7
Before we begin our investigation, it is imperative that we understand the historical role of the central bank in the United States. Examining the traditional motives of this institution over time will help the reader observe a direct correlation between it and its ability to manipulate an economy. To start, I will examine one of its central policies...
In 1913, Wilson and Congress passed the Federal Reserve Act to make a decentralized national bank containing twelve local offices. By and large, all the private banks in every district possessed and worked that separate area's branch. In any case, the new Federal Reserve Board had the last say in choices influencing all branches, including setting financing costs and issuing money. This new managing an account framework settled national funds and credit and helped the monetary framework survive two world wars and the Great
United States Federal Reserve. (February 11, 2014). Monetary Policy Report. Retrieved June 18, 2014, from http://www.federalreserve.gov/monetarypolicy/mpr_20140211_summary.htm
Author Unknown (1994). The Federal Reserve System: Purposes and Functions (5th ed.) Published by Library of Congress
Ritter, Lawrence R., Silber, William L., Udell, Gregory F. 2000, Money, banking, and Financial Markets, 10th edn, USA.
The Social Studies Help Center (n.d.). Monetary and Fiscal Policy. Retrieved November 5, 2011, from http://www.socialstudieshelp.com/eco_mon_and_fiscal.htm