The structure of the Federal Reserve System (Federal Reserve or Fed) is quite unusual and to understand why it is unusual we must analyze its history. The Fed
was created in 1913 with the enactment of the Federal Reserve Act, and was largely a response to a series of financial crises, particularly a severe crisis in
1907. There were severe resistances to the establishment of this central bank in America, mainly due to a constant fixation in American mentality and American political tradition, namely the fear of centralized fear. This is why concerning American politics, the functioning of institutions is characterized by states' rights and by checks and balances (the means used to restrict or to limit the power of central government). However, the fear of central power isn't the only element to explain the resistance to the establishment of a central bank in America. Another source of resistance was the traditional American distrust of money interest.
Before 1913, there were two experiments which have failed. The first was the creation of the bank of America, but unfortunately this bank collapsed in 1811 and the second experiment was the charter of the second bank of America which was vetoed in 1832 by President Andrew Jackson.
[...] The board of governors: The Federal Reserve System is headed by the board of governors headquarted in Washington DC. The board of governors was consisted of seven members. Each governor is appointed by the president of the USA; the appointment is confirmed by the Senate. The governors serve one non renewable term of fourteen years with one governor's term expiring every other January. This has been achieved to restrict the control of the president of the USA over the Fed and to insulate the system from political pressures. [...]
[...] The Federal Reserve System now functions as a central bank with affiliates in twelve cities. Who controls the board of governors since the board of governors is everything? The chairman of the board has no legal authority to exercise control over the board itself. But his ability to act as a spokesman for the Fed to negotiate with congress and the president of the USA makes him the real boss of the USA Central Bank. His influence is very big, he sets the agenda of the board and also of Federal Open Market Committee weeding and its personality which is proficient makes him a key figure in the American establishment: he speaks first in monetary matters and he supervises the staff of professional economic and advisors of the board. [...]
[...] American Congress elaborated a system of checks and balances which led to the Federal Reserve Act which was voted in 1913 and which created the Federal Reserve System headquartered in Washington. II) The formal structure of the Fed: The formal structure reflects the determination of the builders of Federal Reserve Act to divide power between the private sector and government, and to divide power among bankers, public and business people. It is not concentrated in certain hands or in a single place. [...]
[...] When you look back at its history, you can realize that when congress is dissatisfied with the behavior of the Fed it threatens to take control of the Fed's finances. In 1996, two senators (Dorgan and Reid), wanted congress to have budgetary authority over non-monetary activities of the Fed. In 1975, congress passed a resolution, and this resolution requires the Fed to announce its objectives for the growth rates of monetary aggregate. This resolution is known as the House concurrent resolution 133. [...]
[...] The Fed performs a certain number of functions: - It clears check (compensation) - It issues new currency (devise) - It withdraws damaged currency from circulation - It evaluates proposed mergers and acquisitions for banks to expend their activities - It makes and administers discount loans to banks in its district - It acts as liaison between the business community and the Federal Reserve System - It examines bank holding companies and state chartered member banks - It collects data on local business condition - It uses its staff of professional economist to research on topics related to the conduct of monetary policy. [...]
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