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What Is The Federal Reserve

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If you ask the average American what they know about the Bank, the answer is likely to be that they simply do notknow much. What an unfortunate fact, since the Federal Reserve Bank has such ahuge impact on the entire American, and by extension, world economy.

The current United States Federal Reserve banking systemis not the first attempt at creating a central bank in the U.S. The firstcentral bank was created in 1791 for the purpose of monitoring commercial banksand conducting currency transactions, and only lasted for twenty years. Itscharter was not renewed due to its misuse of funds. The second central bank wascreated shortly after the War of 1812. It went to work attempting to fix theeconomic crisis of the nation by creating money and financing banks. When thecentral bank stopped flooding the economy with money, bankruptcies andforeclosures resulted for many borrowers. Much of the property that waspurchased with the funds from the more liberal initial policies of the bankended up back in the hands of the lenders.

What about our current central banking system? The currentFederal Reserve System was created in 1913 by the enactment of the FederalReserve Act. This Act gave the System the responsibility for setting themonetary policy of the United States. This System consists of fiveseparate components:

? The Board of Governors - Headquartered in Washington, D.C.,the Federal Reserve Board of Governors is comprised of seven members who arenominated by the U.S. President and confirmed by Senate. No two governors maybe from the same Federal Reserve District. The Board of Governors isresponsible for setting the discount rate and reserve requirements.

? The Federal Open Market Committee - The Federal OpenMarket Committee is responsible for the purchase and sale of U.S. Treasury andfederal agency securities, which is known as "open marketoperations." This is one of the most importanttools for implementing monetary policy. The Federal Open Market Committeeconsists of the seven members of the Board of Governors, the President of theFederal Reserve Bank of New York,and four other Reserve Bank Presidents, who serve rotating one year terms.

? Twelve regional Federal Reserve Banks - These twelveregional Federal Reserve Banks are located in major cities throughout the United States.The following cities are home to regional Federal Reserve Banks: Boston, Massachusetts; New York, New York; Philadelphia, Pennsylvania;Cleveland, Ohio;Richmond, Virginia;Atlanta, Georgia;Chicago, Illinois;St. Louis, Missouri;Minneapolis, Minnesota;Kansas City, Missouri;Dallas, Texas;and San Francisco, California. Each regional Federal ReserveBank has its own nine-member board of directors.

? Member banks - Many privately owned U.S. banks aremembers of the Federal Reserve System. This means that they own stock in aregional Federal Reserve bank. This stock cannot be publicly traded like moststocks, but the member banks do receive a fixed 6% annual dividend on theirstock, and have voting rights on six of the nine member of the board ofdirectors for the Reserve Bank they which it holds stock.

? Advisory committees - There are various advisorycommittees that help shape the monetary policies of the Federal Reserve System.Three committees directly advise the Board of Governors. These are the FederalAdvisory Council, the Consumer Advisory Council, and the Thrift InstitutionsAdvisory Council.

The various parts of the Systemwork together to use three main tools to set the monetary policy of the UnitedStates by 1) setting the discount rate, which is rate at which banks lend moneyto one another, 2) controlling open market operations, and 3) implementingrequirements concerning the amount of money that member banks must hold inreserve. As you can see, these actions have a huge impact on the U.S. economy bydirectly controlling interest rates and the amount of currency available, andindirectly shaping inflation and economic growth.

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Frank has sinced written about articles on various topics from Network Marketing, Music and Site promotion. Frank Graham is an internet entrepreneur and a finance expert. You can find him and his articles here on recessionsource.com. You can even ask or take his guidance on ?how to take care of your money in the global-recession?.. Frank's top article generates over 8100 views. to your Favourites.

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