The Federal Reserve Bank - Essay Example

It was established in the year 1791 with its charter signed by George Washington. The bank used to perform all the major banking functions. After the expiry of the charter 20 years hence, country was without a central bank for few years resulting into inflation. Again a second bank came into existence in 1816 with a charter signed by James Madison. In 1833 again the charter expired and United States went without a central bank for 40 years. In 1873, gold was standardized into bimetallic standard.

Then a private set up by the name of JPMorgan came into existence who was the lender of the last resort for the banks who are facing crisis. Federal Reserve Act of December 23, 1913 created the Federal Reserve System. A new central bank was established which would act as the lender of the last resort to banks facing crisis, assured the investors not to disinvest their money. Federal Reserve Bank was opened in 1914. Federal Reserve notes were provided by the Congress so that the currency supply in the economy remains flexible.

The Federal Reserve System is the independent agency, that exists outside the Cabinet of the executive and its powers are derived from congress. Fed has acquired power over the past century and has played a strict role in supervising the banks in US and the legal status of the Federal Reserve Bank is that they are independent and controlled corporation. Purpose of Federal Reserve Bank Federal Reserve Bank is the central banking system in USA. Major purpose of the bank is to support the favorable economic conditions which will help to stabilize the monetary policy of USA.

This factor includes price stabilization, money supply, acquisition of credit and increase in overall growth and employment. As a central bank it also needs to monitor and supervise the operations of other commercial banks to make sure the safety and security and to protect the interest of the customers. It also maintains the strength of financial system to mitigate the risk of financial markets. The most important purpose of Federal Reserve is controlling inflation and employment opportunities in United States.

It also helps the US govt. and other financial institutions in US in their operations. Other important purposes of Federal Reserve are to solve the problem of other banks in order to balance the interest of banks and responsibilities of the govt. Maintaining money supply in the nation to prevent unemployment and to maximize the utilization of resources which will help to control inflation or deflation. Financial stability is also a look out of Federal Reserve Bank and as a central bank it has to meet the liquidity needs among regions.

The structure of Federal Reserve Bank Federal Reserve System is divided into two parts:- a centralized authority which is known as board of governors in Washington and the second part is decentralization of 12 Fed banks which is located in 12 districts in the country. Monetary policy of USA is set by the Federal Open Market Committee and it includes the board of governors and presidents of the bank. The structure includes:- Board of governors:- it is an independent lawmaking agency which governs and look out the whole federal reserve system.

Board of governors is the central main structure of Federal Reserve in Washington, D.C. It includes seven board members and other staffs and