central banking notes

Topics: Monetary policy, Federal Reserve System, Central bank Pages: 5 (1446 words) Published: November 21, 2013
Central Banks
A central bank or reserve bank is a public institution that controls a state's currency, money supply, and interest rates. Central banks usually control the commercial banking system of their countries. Compare to a commercial bank, a central bank have a monopoly on increasing the amount of money in the nation, and usually also prints the national currency, which usually serves as the nation's legal tender. The primary function of a central bank is to manage the nation's monetary policy, with active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis. Central banks usually also have supervisory powers, intended to prevent bankrupts and to reduce the risk that commercial banks and other financial institutions engage in fraudulent behavior. Central banks in most developed nations are institutionally designed to be independent from political interference. Functions of a central bank may include implementing monetary policies, determining interest rates, controlling the nation's entire money supply, the Government's banker and the bankers' bank, managing the country's foreign exchange and gold reserves and the Government's stock register, regulating and supervising the banking industry, setting the official interest rate and ensuring that this rate takes effect via a variety of policy mechanisms. Central banks follow a country's chosen monetary policy. At the most basic level, this involves establishing what form of currency the country may have, whether a fiat currency, gold-backed currency, currency board or a currency union.

Federal Reserve Bank
Federal Reserve Bank, also known as FED or Federal Reserve System is created on December 23, 1913. It was founded for responding to a series of financial panics, particularly a severe panic in 1907. The seven-member Board of Governors is a federal agency. It is charged with the overseeing of the 12 District Reserve Banks and setting national monetary policy. It also supervises and regulates the U.S. banking system in general. Governors are appointed by the President of the United States and confirmed by the Senate for staggered 14-year terms. The Chairman and Vice Chairman of the Board of Governors are appointed by the President from among the sitting Governors. They both serve a four-year term and they can be chosen as many times as the President chooses, until their terms on the Board of Governors expire. There are 12 Federal Reserve Banks located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Each reserve Bank is responsible for member banks located in its district. The size of each district was set based with the population distribution of the United States. Each regional Bank has a president, who is the chief executive officer of their Bank. Each regional Reserve Bank's president is chosen by their Bank's board of directors. Presidents serve five-year terms and may be reappointed. The primary aim 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.

The Government's Bank
The Federal Reserve acts as the banker for the U.S. government. In this role, the Federal Reserve maintains the Treasury Department's checking account and clears U.S. Treasury checks. The Fed processes a wide range of electronic payments for the government, such as Social Security and payroll checks. The Fed...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Central Banking Essay
  • Central Banking Essay
  • The Central Bank and the Banking System in Morocco Essay
  • Notes on Central Banking as Global Governance by Rodney Bruce Hall Essay
  • Essay on Commercial Banking Notes
  • Central Banking Essay 5 Revised
  • The Main Functions of Central Banking Essay
  • The Role of Central Banking in the Global Economic and Financial Crisis Essay

Become a StudyMode Member

Sign Up - It's Free