The Federal reserve system

Résumé du document

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.

Extraits

[...] By contrast, the commercial banks which are chartered by the state are not required to be members of the Federal Reserve System but if they wish it they can become members. 1/3 of the commercial banks in the USA are members of the Fed. In of commercial banks were member of the Fed. Before 1980, only member banks were required to keep reserves as deposits at the Federal Reserve Bank. Non-member banks were subjected to reserve requirement determined by their states. Non-member banks were allowed to hold much of their reserves in interest-bearing and securities. [...]

[...] How would it generate inflation? Politicians in America as in other countries are chiefly preoccupied with their re-election. Therefore, politicians are unlikely to concentrate on long-term objectives. Although short-term solutions may have bad consequences in the long-term, they choose short term-solutions because they want to act quickly on situations like high unemployment or high interest rates. The people who recommend the independence of the Fed believe that if the Fed is politically insulated it is more likely to be concerned with long-term objectives and consequently to be defender of a sound dollar and a stable price level. [...]

[...] This legislation is likely to be modified whenever it is necessary. 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. [...]

[...] The term of the chairman of the board is not necessary concurrent with the term of the president so a president may have to deal with a chairman of the board who was appointed from a previous administration. Conclusion: We can say that the Fed enjoys extraordinary independence for a central bank but it is not completely free form political pressures. Should the Fed be independent? The case for independence: The strongest argument for the independence of the FED lies on the view that subjecting the Fed to more political pressures would generate inflation. [...]

[...] The first question is to know how central banks work. Who controls them? Who determines their actions? Who holds the reins of power? The institution structure of the Fed Origin of the FED 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. [...]