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The Federal Reserve Bank is also known as the Fed, is the central bank of the United States of America. It was created on 23rd December in 1913 with the depiction of The Federal Reserve act. After evident turbulences observed in the financial domain, there was an excessive need for a central banking authority or monetary regulatory to supervise the existing economic and capital resources predicaments. The Federal Reserve was aimed to limit and regulate financial threats such as the Great Depression and Great Recession in the 1930s and 2000, respectively. The main objective of the Federal Reserve was to observe a noticeable expansion in the original roles and responsibilities of the central banking authority. They were responsible for maximizing, employ and stabilize the current crisis and regulating the long-term interest rates. Currently, the Federal Reserve Bank is known has expanded its objectives and duties over the years. It has been successfully supervising and regulating the entire family of banks. In addition to that, adjustability of the financial system and the delivery of financial services to the depository institutions is a well-known mandate for The Federal Reserve bank. The Fed also consists of different economic and financial analysis branches and works on the countries’ economies’ perspectives.
Who Owns the Federal Reserve?
Federal Reserve or FED is not owned by any organization because it is an independent government agency created by Congress that serves the public. Located in Washington, D.C., the Board of Governors is the governing body of the Federal Reserve System.
Which organization provides leadership for the Federal Reserve system?
Board of Governors provides leadership for the Federal Reserve system!
Currently, the Federal Reserve System is structured systematically. It has a board of governors that the president appoints explicitly. In addition, there is a separate umbrella of 12 regional-based Federal Reserve ties that are solely responsible for monitoring, supervising, assisting, and regulating commercial banks’ activities. The decisions and mandate layout by The Federal Reserve, directly and indirectly, affect the current structure of the US economy consequently the world. The indirect influence of the Federal Reserve’s responsibilities on the world’s economy makes it an indirect powerful actor for the global economy. The Federal Reserve Bank is an independent entity operating on independent clauses. It is not a government-related agency or a publicly owned company and has no elected official. Because of this reason, The Federal Reserve bank is not subjected to voters or shareholders. Since it is operated an independent mandate, privately owned banks and the leading financial activities are observed by the Federal Bank.
Historically, it has been mentioned that President Woodrow Wilson was in favor of a government-oriented central authority; however, Congress wanted to have 12 further sub-branches of the reserve to protect the diverse population of America. As a result of this compromise, The Federal Reserve is currently the most significant factor in the United States as it is not only overseeing the central banks. Still, he is also responsible for the additional financial activity throughout the country.
What was the purpose of the Federal Reserve Act Apex?
The purpose of the Federal Reserve Act Apex was to create a central banking system and create the Federal Reserve System.
The ownership of The Federal Reserve bank is in limbo. The president appoints and selects the chair of The Federal Reserve, currently Jerome Powell. The president and congress must team up to choose the Federal Reserve board of governors; however, the board members operate independently. Their terms and conditions do not coincide with the elected officials. After the president’s appointment, Congress must also provide its approval for the chair responsible for reporting back to Congress regarding the actions carried out t by the Fed.
The relationship between Congress and the Fed is directly proportional. Congress has the authority to modify and re-define the decrees demarcated by the Fed. Congress can limit, enhance and modify the Fed’s existing and subsequent powers. For example, Dodd-Frank Wall Street reform the Consumer Protection Act that reduced the Federal Reserve’s power to audit emergency loans by the Fed. This act required the Government Accountability Office to audit the emergency loans taken by the Fed during the 2008 financial predicament. The show also stipulated to reveal the names of commercial banks that receive emergency loans and TARP funds.
Federal Reserve Funding
The decisions of Congress are directly influential to the Fed; however, Congress does not receive the funding. The primary source of funds for the Fed is through investments. The funds are acquired through the interest from US treasury notes received through open market operations. The interests are received through foreign currency investments, and the Fed also receives extra fees through the services provided to privately owned commercial banks. The benefits include check clearing, transference of funds, and automated clearinghouse operations. The bank also receives its funding through interest applicable on loans it provides to the sister banks. The central authority then utilizes these funds to complete its pending bills and profit the US treasury department.
What happened when the Federal Reserve limited the money supply?
When FED limits the money supply, the limited access to currency stifles business growth. At that moment, the money market is scarce, and the price of the money (interest rate ) rises.
Federal Reserve Structure
The dual mandate of The Federal Reserve bank allows 12 regional franchises to superintend the private banks. These branches are responsible for storing currency, exercising checks, formulate loans and provide it to the private banks within their jurisdiction. These private banks are also Part of The Federal Reserve banking system and must maintain reserve requirements. These private banks can borrow money from each other within their membership at the Fed funds rate whenever required. They also have the advantage of borrowing from the Fed’s discounted opportunity at a discounted rate.
To be a part of the Federal Reserve System, the commercial banks should own shares of stock in the 12 Federal Reserve banks. However, the stocks cannot be traded and do not provide complete voting authority to the sister banks. The member banks are asked to pay out dividends at a 6% rate by the law. The member banks should return all the profits after deducting expenses back to the US treasury.
The Federal Reserve Bank needs to stand independently and away from all sorts of political influences and pressure. The central bank can only fulfill its original intent if they are prevented from short-term and long-term political impact. A complete range of authority and liberty must be provided to the state to maintain expectations and operate effectively. The Fed would not pursue its role if governmental agencies and pillars were constantly interfering in its mandate. The hierarchical structure of The Federal Reserve bank consists of well-known and eminent economists and analysts. They are equipped with professional knowledge in public policy, economics finance, and central banking.
When does a Commercial bank borrow from a Federal Reserve Bank?
The Commercial bank borrows from a Federal Reserve bank when the Commercial bank’s lending ability is increased. Additionally, Commercial banks try to meet reserve requirements when their cash on hand is low before the close of a business day, so they borrow from a Federal Reserve Bank.
How can the Federal Reserve fight recession?
The Federal Reserve can fight recession by lowering the interest rates. Usually, FED can fight recession using the following regulations: open market asset purchases, reserve regulation, discount lending, and forward guidance to manage market expectations.
Accountability of FED
Despite its independence, the Fed is accountable and liable to the public and Congress. Being independent does not mean that fit can draft out its expectations for self-fulfillment. They are unsuitable to Congress, government institutions, and the public regarding forming rules and regulations. They communicate with the essential failures of the government to progress reports. They are required to provide a detailed analysis to Congress. The board members and the fact chair deliver a comprehensive been meticulously analyze monetary policy report twice a year. All these initiatives are propagated to ensure the accountability of it all to double-check the effectiveness of the central bank.
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