Federal Reserve System

Federal Reserve System is the central bank of United States. The bank does not conduct commercial banking in any manner whatsoever, its main aim is to achieve a stable economic growth in the nation, control the flow of money and credit in the economy. FORMATION The Federal Reserve System emerged in 1791 from the idea of Alexander Hamilton who was the secretary of Treasure under George Washington to have the first bank of the united state. The idea of central bank was to facilitate the creation of the banking industry of the country and serve the treasury in its revenue collection and distribution functions.

Even though the secretary of state at that time went against Hamilton plan, the charter of the first bank passed in 1791. The first National bank was regarded as a successful and profitable institution. The bank was criticized by the opponent who were mainly the state-chartered banks terming the bank had monopoly power and was operated by foreigners. This ended the reigning period of the first American National bank in 1811. This resulted to the collapse of the American banking system. Due to the increasing number of State Charted private banks, occurrences of bank notes and disruption of the systems regarding interregional payments.

The second bank developed a distinctive power and effective system of monetary regulation. Nicholas Biddle, the president of the bank at that time expanded the functionality of the bank in the American economy inducing fear to the citizens. They saw the bank as an instrument for rich and powerful. The bank collapse after Nicholas Biddle resignation in 1841. The absence of central bank authority lead to the deteriorating system related to violent fluctuation in the monetary system making the Clearinghouse associations to perform regulatory activities, such as controlling interest rates on deposit and conducting member bank examination.

Since then, Federal Reserve became the central bank of the united state. The structure of Federal Reserve System is based on five components: board of governors, federal open market committee, Federal Reserve banks, member banks and advisory committee. BOARD OF GOVERNORS The seven Board members are appointed by the president of the united state and approved by the senate. The main task of the board is to determine and implement the monetary policy , it also take part in supervisory and regulatory activities such as bank mergers, acquisitions, international banking operations in the united states, interest regulation and consolidations.

The board reports to the congress every so often and its chairman is one of the economic advisors to the president. THE FEDERAL OPEN MARKET COMMITTEE The committee consists of board of governors and five presidents from twelve Federal Reserve banks the board chairman acts as the committee chairman. The main duty of the committee is to determine and direct the open market operations for the Federal Reserve, it also expand its operation to international exchange market. FEDERAL RESERVE BANKS

These are 12 Federal Reserve banks with 25 branch banks in each district. The stock ownership of the banks does not award the privilege of financial controlling interest as does common stock owners. MEMBER BANKS Member banks include most of the united state largest commercial banks, national banks and state-charted banks. ADVISORY COMMITTEE There are several advisory committee and councils facilitating the flow of operations and communication within the Federal Reserve System. CONDITIONS LEAD TO THE FORMATION

? To control and regulate banks and financial institutions ? To implement regulations of consumer credit legislation ? To act as a fiscal agent to united state treasury ? To formulate and improve monetary policies REFERENCES ? Federal Mediation & Conciliation Service (FMCS) ? A Monetary Chronology of the United States ? FRB: Monetary Policy, Open Market Operations ? Mishkin, Frederic S. (2007). The Economics of Money, Banking, and Financial Markets (Alternate Edition). Boston: Addison Wesley,