Federal Reserve Essay

Submitted By jpanuto
Words: 475
Pages: 2

Federal Reserve

The Federal Reserve System is a key independent agency of the federal government set up to regulate the banking and financial industry. It was established in 1913 and has become the major factor in setting economic policy in the United States. “The Federal Reserve Board has four major responsibilities: (1) to control the supply of money, or monetary policy; (2) to regulate banks and other financial institutions; (3) to manage regional and national checking account procedures, or check clearing; and (4) to supervise the federal deposit insurance programs of banks belonging to the Federal Reserve System.” (Ferrell, Hirt, & Ferrell, 2009, p. 468)
“The Federal Reserve System "The Fed" controls the money supply in the United States by controlling the amount of loans made by commercial banks. . . . The funds that banks can potentially loan are those in their excess reserves, so to control loans, checkable deposits, and ultimately the money supply, the Fed influences the excess reserves that banks have available to them. The three ways that it does this are: 1– through changing the required reserve ratio, 2– allowing banks to borrow from it (the Fed) at the discount rate, and 3– conducting open market operations (buying and selling bonds).” ("How Does The Federal Reserve Control The Money Supply?," 2008, p. 1)
The advantage of this system is that “through monetary policies, the Federal Reserve is able to contribute to the protection of the U.S. dollar's purchasing power, encourage economic conditions that will help in sustaining financial growth and employment and to foster long term transactions with foreign countries. . . . The Federal Reserve has been put up to satisfy the need for a more consistent and organized banking system that will uplift or alleviate economic situations of the U.S. as well as organize its monetary matters into a more coherent system that will…