Discussing the origins of Federal Reserve System is significant because out of all the central banks, the structure of Federal Reserve System is unusual and different. The origin of Federal Reserve System dates back to 1913 when it was created. The American politics is known for…
e American public to the existence of central bank resulted in the failure of two banks in 1811 (First Bank of United States) and 1836 (Second Bank of United States) (Mishkin & Eakins).
Since the aim of establishing these two banks was to police the banking function, therefore, their failure caused problems for American financial markets because of the unavailability of lender of last resort. As a result bank panics were seen frequently during the nineteenth and early twentieth centuries. Finally, the panic of 1907 and the loss to depositors convinced the public regarding the importance of central bank system in an economy.
Even after being convinced, the fear of the American public opposed the establishment of a centralized authority or central bank (Bank of England). Moreover, the fears were also seen about the interference of government in the affairs of private banks. The major disagreement was that whether central bank should be a private bank or a government body. Finally the disagreement ended with the Federal Reserve Act of 1913 with its 12 regional Federal Reserve banks. Congress wrote the detailed system of checks and balances into this Act.
To diffuse power along the regional lines, between government and private sector, business community and public, the formal structure of Federal Reserve System was defined. Following are the four entities of Federal Reserve System.
In addition, more than 3000 commercial banks are the members of Federal Reserve System. Mishkin and Eakins (2007) systematically highlight the relationship between these entities and three policy tools of Fed.
The current European Central Bank was founded as a result of a treaty between European Central Bank and European System of Central Banks in 1999. Based in Frankfurt, Germany, European Central Bank consists of Executive board including president, vice president and four members and Policy group including executive group and governors of central banks from 11 member countries.
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Founded by Congress, the Federal Reserve was created to provide the nation with a safer, more flexible, and more stable monetary system. The structure of the Federal Reserve itself was designed to give a broad outlook on the economy and economic matters, and bring some stability to a currency.
In simple terms, the Federal Reserve came into being by enactment of the Congress. Consequently, the Congress has the obligation of overseeing the monetary policy and the Federal Reserve. This paper analyzes the importance of the Federal Reserve and strategy in stabilizing the economy of the country.
Over the years, the system and structure if the federal reserve has evolved to meet the effects of economic crisis and great depression in the economy. The Federal Reserve System was created under the Federal Reserve Act in order to address the issue of panic in the banking industry and acts as the final check point and regulator in the clearing system and the banking industry.
The structure, roles and the responsibilities of the Federal Reserve has undergone rapid changes over the years which have been mainly stimulated by the events like the Great Depression, Global Financial Crisis, etc. The structure of the Federal Reserve System is composed of a governing board, the open market committee, regional Federal Reserve banks, privately owned banks in US and the advisory councils.
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The Federal Reserve System includes the Federal Open Market Committee, the Board of Governors, and the Federal Reserve Bank Presidents.
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