US Federal system Components, entities and functions

11/05/2021 0 By indiafreenotes

The Structure of the Federal Reserve System is unique among all the assets within central banks, with both public and private aspects. It is described as “independent within the government” rather than “independent of government”.

The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics (particularly the panic of 1907) led to the desire for central control of the monetary system in order to alleviate financial crises. Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System

The Federal Reserve does not require public funding, instead it remits its profits to the federal government. It derives its authority and purpose from the Federal Reserve Act, which was passed by Congress in 1913 and is subject to Congressional modification or repeal.

Purpose

The primary declared motivation for creating the Federal Reserve System was to address banking panics. Other purposes are stated in the Federal Reserve Act, such as “to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes”. Before the founding of the Federal Reserve System, the United States underwent several financial crises. A particularly severe crisis in 1907 led Congress to enact the Federal Reserve Act in 1913. Today the Federal Reserve System has responsibilities in addition to stabilizing the financial system.

Current functions of the Federal Reserve System include:

  • To address the problem of banking panics
  • To serve as the central bank for the United States
  • To strike a balance between private interests of banks and the centralized responsibility of government
  • To supervise and regulate banking institutions
  • To protect the credit rights of consumers
  • To manage the nation’s money supply through monetary policy to achieve the sometimes-conflicting goals of
  • Maximum employment
  • Stable prices, including prevention of either inflation or deflation
  • Moderate long-term interest rates
  • To maintain the stability of the financial system and contain systemic risk in financial markets
  • To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system
  • To facilitate the exchange of payments among regions
  • To respond to local liquidity needs
  • To strengthen U.S. standing in the world economy

Composition

  • The presidentially appointed Board of Governors (or Federal Reserve Board), an independent federal government agency located in Washington, D.C.
  • The Federal Open Market Committee (FOMC), composed of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents, which oversees open market operations, the principal tool of U.S. monetary policy.
  • Twelve regional Federal Reserve Banks located in major cities throughout the nation, which divide the nation into twelve Federal Reserve districts. The Federal Reserve Banks act as fiscal agents for the U.S. Treasury, and each has its own nine-member board of directors.
  • Numerous other private U.S. member banks, which own required amounts of non-transferable stock in their regional Federal Reserve Banks.
  • Various advisory councils.