The Federal Reserve is a federal government department that is independent from political influence, so that they can regulate, and grant insurance to the people of the United States. It also functions as a backer of banks so that people do not lose their money. In addition they regulate the curricula ion of the money flow and set requirements that banks must follow. In the following we will explore the functions of the twelve Federal Reserve banks, and the reason that the Federal Reserve is considered the bankers bank. In addition the role of the Federal open Market committee will be explored in their role in economic policy. Also there will be exploration into why federal would want to decrease the money supply.
The twelve Federal Reserve banks have three main functions that they must do, to keep the economy and money flow correct. The first is inspection of local banks within their jurisdiction to ensure they are living up to the regulations set by the Federal Reserve. There second main function is to infuse or take out money from circulation so that the circular flow is maintained at a proper level. In addition they process thousands of checks, and ensure that debit and credit transaction goes through smoothly [ (smale, 2010) ]. These main actions are essential in ensuring the economy and money flow operates correctly without problems.
The reserve banks are considered the banker banks because; they store currency and make money available for the member banks. They also process the checks and debits from the member banks. They are king of banks and regulate the banking industry in the process. They also control the flow of money, so that the value of it stays consistent and does not drop. This is essential in controlling the money flow and economic prosperity of the United States Economy. [ (education.org, 2012) ]
The Federal open market committee is a committee that is made up of seven member board of governors, and five Federal Reserve Bank presidents. There role in monetary policy is that they determine what is best in day to day regulations of both the reserve banks and their members. In addition they set certain policies that affect the economy in different ways. They determine the amount of money and credit that will be available in the United States economy. There is to maintain stability and growth in the United States economy. They try to ensure enough reserve of money to encourage expansion of money and credit to the banks in their network. [ (board, 2012) ]
The Federal Reserve would consider cutting the money supply to sure up the economy. If there is too much money out there and not enough want to use that money, it is not good for the economy. They control the money supply with rising or falling of interest rates. Higher interest rate result in less borrowing, this tightens up the money supply and allows the economy to even out in the long run. If they want to put more money into the economy they would lower interest rates and as a result more people are willing to borrow more money. They would want to cut the supply when they want and need to borrow money is not high. They would do this is the economy was starting to slow, and would keep the money supply lowered till the need and want for that money is granted again.
Before the Federal Reserve was created there was times when people would not use banks, because if the bank failed they would lose all their money they had in the bank. This would result in people being scared to put money in the bank during economic hard times because of their fear of losing there life’s savings. The creation of the Federal Reserve gave people an insurance that there money would not be lost in the case of a bank going under. The Federal Reserve would promise to pay this back to them if that happened. The Federal Reserve would also make economic decisions in the economy that would keep it more stable than before.
The Federal reserve is a responsible for ensuring that the economy and money supply stays stable, and ensures that member banks run up to federal standards. The main functions of the open market committee are to regulate the flow of currency and keep in reserve of money so that it creates a stable United States economy and federal regulation. People were afraid to put money in the banks before the creation of the Federal Reserve banks. This would change after the creation of the federal banking system. At some points the Federal Reserve’s needs to limit the amount of money in the economy to ensure economic supply and demand.
board, T. f. (2012). The structure of the federal reserve. Retrieved January 15, 2012, from federalreserve.gov: http://www.federalreserve.gov/pubs/frseries/frseri2.htm education.org, F. (2012). The structure of the federal reserve. Retrieved January 15, 2012, from Federalreserve education.org: http://www.federalreserveeducation.org/about-the-fed/structure-and-functions/ smale, P. (2010, Novemeber 10). Congressional research service. Retrieved January 15, 2012, from www.fas.org: http://www.fas.org/sgp/crs/misc/RS20826.pdf