Federal reserve system (Essay Sample)

Federal Reserve Systems.
Name:
Institution:
The United States suffered one of the worst Banking Crisis, leading to bank failures and business bankruptcies. This continued to occur every ten years from the onset of the civil war. This periodical crisis prompted the rise of the Federal Reserve System. In 1913 through an act of Congress, the Federal Reserve System was created to cure this defect of the banking systems thus creating the Central Bank of the United States of America. The act gave the Federal Reserve System amongst other duties the mandate to provide society with one of its most public goods; a sound and efficient payment system. In addition, the act allowed the US dollar’s usage as an international currency. (International origins of the federal Reserve System, 1997, page preface xi)
The Federal Reserve system was founded with its main business being the discounting of commercial paper and acceptances governed by the real bills doctrine and subject to the gold standard rule. (A History of the Federal Reserve vol2).
In creating the Federal Reserve System, the intention of the founders was the creation of a passive but responsive institution with limited powers, with semi-independent regional branches setting their own discount rates at which members could borrow. The borrowing initiative remained solely with the members. In the past, the American Banking system had many different banks, which operated individually. The Federal Reserve System act allows the banks to continue with all their essential functions, but federates them into a unified system, which is democratic in its organization and nationwide in its field of operation- a system dedicated to public service. (ABC of federal reserve system, 1922, page 23).
The purpose of the Federal Reserve System all into four general areas this includes:
Conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.
Supervising and regulating Banking institutions to ensure, the safety and soundness of the nation’s banking and financial systems and to protect the credit rights of consumers.
Maintaining the stability of the financial system and containing systematic risk that may arise in financial markets.
Provision of financial services to depository institutions, the US government and foreign official institutions, including playing a major role in operating the nation’s payment system. (The Federal Reserve systems, Purpose and functions, 2005, page1).
The Structure of the Federal Reserve System.
The Federal Reserve System is composed of the following:
Board of Directors: This is a federal government agency, composed of seven members appointed by the president of the United States of America and confirmed by the senate.
The board plays a major role in supervision and regulation of the US banking system. (The Federal Reserve Systems, Purposes and Functions, June 2005, page 4)
Federal Reserve Banks: consists of a network of 12 reserve banks and their branches.
It carries out a variety of functions including operation of the nationwide payment system, distributing nation’s currency, supervising, and regulating member banks and serving as a banker for the US treasury. (The Federal Reserve Systems, Purpose and Functions, 2005, page 6).
Federal Open Market committee: made up of the members of the board of governors, the President of the board of governors, the President of the Federal Reserve banks of New York, and Presidents of four other Federal Reserve banks.
Its duty is to oversee the ...