The Federal Reserve System
Formation. The serious financial panic of 1907 convinced people that the formation of a central bank was essential. The Federal Reserve Act of 1913, which set up the Fed, was the compromise rising out of this controversy. Instead of a single central bank, the Federal Reserve Act divided the country into twelve Federal Reserve districts, each with its own central bank. The boards of directors for these twelve banks were not made up of bankers alone but of appointees who were both bankers and representatives of the community at large. A Federal Reserve board was established in Washington to oversee the operations of the whole system, but initially it had very little power.
Structure and operation:
1. All banks chartered by (that is, licensed to operate as a bank by the federal government) were required to become the members of the Fed. These are known as national banks. All other banks chartered by state governments were encouraged, but not required to join.
2. To give it increased credibility, the new system was to become the bank for the federal government.The US Treasury had previously performed this function.
3. Member banks were required to keep a proportion of their deposit liabilities with the Fed as a reserve, called the reserve requirement. The Fed was to apply strict auditing rules to member banks.
4. Each Federal reserve bank was empowered to issue the new national currency, called federal reserve notes.
5. The Federal reserve banks were authorized to loan to member banks at rates of interest determined by the Fed. The idea was this: if a bank found itself short of funds to pay depositors, it could turn to the Federal Reserve Bank in the district for help.
The new system of national banking cannot be said to have taken the banking community by storm. All 7,597 national banks were, by law, members of the Fed in 1915.But only 17 of the 19,793 state chartered banks had joined in the first year.
Growth of the Fed
Even today, there are more banks outside the Fed than there are in it. But the assets of those banks that are members far exceed the assets of those banks that are not. The Fed dominates the U.S. banking system today, and even those banks that are not members are influenced by its actions.
The Fed’s growth to a dominating position was, not surprisingly, slow. The banking community had to be convinced that membership was worthwhile and that the system itself was going to succeed. At the beginning, nobody really understood what a central bank was supposed to do. But two world wars and the Great Depression were effective schools for imparting an understanding of the principles of central banking. There is no doubt that the Fed has made many mistakes, some of severe consequences for the economy. What is not so clear is whether the Fed has made more serious mistakes than the system itreplaced might have made.
|
|
|
The Fed has come to realize over time that its main function is to control the money supply, thus enabling the economy to achieve its domestic and international goals. Instead of passively waiting for member banks to come to borrow, the Fed acts continuously to hit a target growth rate of the money supply. Further, the whole question of protecting the bank depositors was resolved by ensuring deposits through The Federal Deposit Insurance Corporation. As a result of those charges, the power of the twelve district Federal banks has declined and power of the Board of Governors (the former Federal Reserve Board) in Washington has expanded enormously.
Text 3
Дата добавления: 2016-01-04; просмотров: 17; Мы поможем в написании вашей работы! |
Мы поможем в написании ваших работ!