Federal Reserve Essay

1669 words - 7 pages

In America today, many people have heard of the Federal Reserve, yet a portion of Americans do not know the history, the structure or the entire function of the central bank. The Federal Reserve’s purpose was to provide the nation with a safe, more flexible and more stable monetary financial system. Whether or not the Federal Reserve today has provided that, or if it is needed, is still being debated today. Though good or bad, the Federal Reserve plays a tremendous role in our economy. This essay reviews the history, structure, and function of the Federal Reserve as well as discusses some pros and cons to this central banking system we have today.
The Federal Reserve today is not the first U.S. central bank. Congress had made two attempts at central banking that were ultimately unsuccessful. The first attempt was established in 1791 with the mandate to manage the government's money and to regulate the nation's credit {CITE}. This bank was mainly controlled by private investors while a smaller portion was maintained by the Federal government. This bank failed due to the citizen’s fear of the size of the bank and believed it to be dominated by private interests.
After the first central bank closed came four years of bank runs and economic instability. Congress, convinced that another central bank will fix these problems, established another central bank in 1816. Though like the first bank, the Second Bank of the United States was primarily controlled by private investors. The bank’s charter expired and the central bank ceased to be. Once more America was plagued by private currencies, financial instability and bank panics by the commercial banks that held too much power. Then following a severe bank panic in 1907, Congress created the National Monetary Commission to study the nation's money and banking system and to recommend changes. {CITE} After much debate, the Congress passed the Federal Reserve act that President Woodrow Wilson signed into law in December 1913 in hopes to bring stability to America’s economy, and decrease the power of commercial banks.
The act established the Federal Reserve Banks, whose purpose would be to furnish an elastic currency for the country and to establish more effective banking supervision. The System was specifically designed to be insulated from short-term political pressures, to be a partnership of public and private control, and to represent regional economies and various sectors of the economy. {CITE}
2. The Federal Reserve is the central bank of America. It is split up into twelve regional Reserve banks each with their own residing president: Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco and St. Louis.

These regional banks serve the member banks, national banks, which reside in the district. National banks are required to be member banks, but optional for state bank. An estimate of 38% of all commercial banks are member banks....

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