The Federal Reserve

Topics: Monetary policy, Federal Reserve System, Central bank Pages: 9 (2763 words) Published: January 15, 2013
Group Members:

Brian “Joe” Biddle

Ryan Gusstason


Trevor Bristow

History of the Fed:

The Federal Reserve Bank serves as the United States of America’s central bank. From the beginning of the nation, the need for management of the country’s money supply, assistance in the fiscal operations of the federal government and stabilization of the nation’s credit was recognized.

Laws that created the Fed:

As an attempt to achieve these need and others, several attempts at creating centralized banking have been tried and all have failed save for the Federal Reserve System. Some of these failed attempts at creating structured central banking were the First and Second Banks of the United States, the Independent Treasury, the National Banking System, clearinghouse associations, and the National Reserve Association. These previous systems failed for many different reasons, lack of support, lack of financing, poor organization and economic events were at the root cause of their demise. It wasn’t until December 1913, with Woodrow Wilson’s signing of the Federal Reserve act, that the FRS became the official central bank of the United States of America.

Immediate problems with the Fed:

Almost immediately after the formation of the Federal Reserve System, its strength and design was being tested. The Fed’s first test was financing the war effort in Europe. This financial demand was a strong test of the FED’s ability to aid the federal government in fiscal issues. Another early problem addressed by the FRS was the need for monitoring the money supply. The FED accomplished this with OMOs, or Open Market Operations. Starting in the 1920s, the Fed used OMOs to be able to buy and sell government issued bonds on the open market. This buying and selling of bonds altered the interest rates and the supply of money in the nation’s economy, allowing the FED to put the economy in a favorable state. The greatest of the early issues for the Federal Reserve System was jump starting the economy after the Great Depression. This act took the Fed over a decade to return the economy back from its crippled state. Despite all of the above early challenges and others later in U.S. history, the nation still functions under the Federal Reserve System almost one hundred years later.

The structure of the Fed:

The structure of the FRS is a pyramid styled organization. The top of this organization is the chairman. The chairman serves as head of the Board of Governors. This board is made up of seven President approved and Congress confirmed governors. Within the Board of Governors lies the Federal Open Market Committee (FOMC). The responsibilities of the FOMC include the controlling and making of monetary policy decisions for the United States.

Below the Board of Governors are the Federal Reserve Banks. There are twelve of these banks and they represent various regions of the U.S. Federal Reserve Banks are often referred to as the “banker’s banks” due to their serving as the bankers for commercial banks. The Federal Reserve Banks serve as the nation’s actual bank, making payments, storing coin etc. whereas the Board of Governors make policies and economic decisions.

Under the Federal Reserve Banks, lie the commercial banks then the public. These commercial banks or member banks are the equivalent of the stockholders for the Reserve Banks. The public supply their money to the commercial banks that makes them indirectly a part of the Federal Reserve System.

Fed as an entity:

The question arises on whether or not the Federal Reserve System is public or private? In reality it’s neither but has elements of both. The president appointing top officials and the FED giving profits to the U.S. Treasury give the FRS public elements. Being made up of thousands of private banks would make one believe the FED is a private entity. Self funding and the lack of outside control of policy making...

Bibliography: Meltzer, Allan. "What 's Wrong With the Federal Reserve?" July 9, 2012
About The US Economy
Next Wave. Admin. October 28, 2008. November 28, 2012.
“Monetary Policy and the Economy.” September 18, 2006
“Federal Open Market Committee.” May 30, 2012. November 25, 2012.
"Federal Reserve Education." The Structure of the Federal Reserve System -. N.p., n.d. Web. 03 Dec. 2012. <>.
"Federal Reserve System." : The Concise Encyclopedia of Economics. N.p., n.d. Web. 03 Dec. 2012. <>.
"The Ludwig Von Mises Institute." The Free Market: The Feds Before the Fed. N.p., n.d. Web. 03 Dec. 2012. <>.
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