TITLE: MONETARY POLICY AND THE FEDERAL RESERVE

Monetary Policy and the Federal Reserve

Monetary Policy and the Federal Reserve

Introduction

Federal Reserve System was created in 1939 and it is considered, like America's central bank. Since its creation, it has benefited the United States' economy. Federal system has marinated many services for the United States of America and the American's citizens. Regulation of financial institutions, maintaining of the payments system, consumer protection laws and conducting and overseeing the monetary policy are the services which have provided by Federal Reserve System. 

A logical and stable network is required to accomplish the mentioned services, whose principles would adapt to economic issues and crises as they arise. The Federal Reserve System--which has changed and evolved since its first conception--has several distinctive characteristics that set it apart from other financial institutions. As mentioned before, it is America's central bank; however, contrary to the cursory implications of the title, the Federal Reserve System is essentially decentralized. (Marrs 2000)

Discussion

The Federal Reserve System is comprised of twelve districts. These districts were created in an effort to protect the interests of individuals; no one bank of the Federal Reserve System was to become more powerful than another and each bank was to be held responsible and accountable to local needs. As a result, the dispersal of banks throughout the country ensured this fulfillment of those requisites. However, after the Great Depression, Congress transferred power to the Federal Reserve Board in Washington D.C., which made the Federal Reserve System more of a centralized entity. Nonetheless, private corporations and individuals own shares--similar to stock--in the Federal Reserve System; this allows privately-owned member banks to elect most of directors and limits the role of the government.

These complex attributes that the Federal Reserve System have gained can be accredited to a unified, logical and efficient structure. The structure of the Federal Reserve System is much like that of the executive branch of government. A Board whose members are appointed by the presiding president--consists of seven members who serve fourteen-year terms; this Board of governors controls the activities of the Federal Reserve System. (Wicker 2005) It also sets the general policies for the Federal Reserve and its member banks to follow, as well as regulates certain operations of state-chartered member commercial banks.

While the Board controls some aspects of monetary policy, the Federal Open Market Committee regulates most of the decisions regarding the growth of the money supply and interest rates. The two aforementioned branches control most of the Federal Reserve System, though the Federal Advisory Council convenes four times per year with the Board and has a small impact on the decisions made therein. These three entities carry out most of the responsibilities of the Federal Reserve System. The Federal Reserve System has, overall, the responsibility to protect the economy of the United States. There are several duties entailed therein, one of the most important being the supervision of state member banks. (Paul 2002)

Such supervision involves checking for adequate reserves for customers' deposits, which is thus used to clear checks and a method of controlling the money supply. Further regulation of domestic banking is carried out through holding companies, or a form of the corporation that owns one or more banks. Ironically, the initial conception of the holding company was to avoid strict government regulations and restrictions during the Great ...