Federal Reserve Bank
Financial services as an industry has progressed to become one of the widely transforming sectors of the global economy, having significant changes in information transference and processing, innovation in terms of commodities and processes, and rapid competition among the financial institutions -- among themselves and also among their several customers. The industry and its part in the transformations in the economy show that the supervising and regulatory structure also needs to be reevaluated periodically. The aim of bank regulation is mostly the same -- to attain maximum static and dynamic efficiency levels in the midst of a politically and economically permissible framework which is stable and equal. However the profits are always associated with a cost by means of stability and equity. A more stable and equal financial system usually need sacrifices with regard to efficiency. (Saunders, p. 3)
A properly functioning, effective banking system is necessary for the successful functioning of a capitalist economy: banks lead savings to facilities for investment when they choose a portfolio and they are a significant part of the corporate governance system because they supervise firm managers and provide a medium of exchange by means of the issuance of demand deposits and the payments associated and also by means of the clearing systems. (Gorton; Winton, p. 57) The Federal Reserve Bank -- Fed is the central bank of the U.S. And acts as the banker to the banking community as well as the government, besides issuing the national currency, framing monetary policies and contributing significantly to the supervision and regulation of banks and bank holding companies. The Board of Governors holds the primary powers which are important in a several policy matters regarding bank control and supervision and in case of vital facets of monetary control. The board declares the Fed's strategies on monetary and banking issues. Since the Board is not a functional body, majority of the routine implementation of policy decisions is handled by the Fed, stock in which there is ownership by the commercial banks which are members of the Fed. Ownership in this case does not construe control; the Board of Governors and the heads of the Reserve Banks direct their strategies to the public interest instead to the benefit of the private banking system.
With the enactment of the National Bank Act, 1864, the banking system was split into three groups: Central reserve city banks with the first being situated in NY City and Chicago, Illinois, and St. Louis, Missouri, were added to the tally in 1887; Reserve city banks in other 16 large cities, and the third group is the Country banks. It is imperative for the national banks to keep cash reserves; however the country banks could hold a percentage of these deposits in every reserve city banks. At the time when country banks needed further reserves to fulfill their customers' demand for cash they will be demanding their reserves from the reserve city banks, which would in turn demand funds from central reserve city banks. In case a reserve bank had insufficient cash to meet the demand, there will be a system failure leading to a collapse, and the economy would not have sufficient cash to fulfill the requirements of the economy.
At the bottom of the Federal Reserve System lie the commercial banks that are the members. It is obligatory on the part of every national; or federally charted bank to join the system; membership of the state-chartered institutions is not compulsory. Members have been mandated to buy capital stock in their respective district Federal Reserve Bank in the amount of 6% of their net capital leaving aside retained earnings, and achieve the right to vote in favor of 6 out of the 9 directors of that particular district bank. The Monetary Control Act passed in 1980 made it obligatory for maintaining a reserve requirement upon every depository institution, inclusive of non-members of the Fed, but also allows them from the Federal Reserve and utilize the services provided by the Fed, like encashment of checks, electronic funds transfers -- EFT, and safe custody of securities. Through letting Banks to borrow reserves from the Fed the liquidity of the total banking system is enhanced. (Federal Reserve System: Encyclopedia Article)
Various Reporting Formats employed by the Banks:
The FR 2644 takes the data every week on the amount outstanding of selected loans, securities, other assets, and borrowings from a sample of U.S. commercial banks. Information collected from this report, coupled with the information from the Weekly Report of Assets and Liabilities for Large Banks (FR 2416) and the Weekly Report of Assets and Liabilities for Big U.S. Branches and Agencies of Foreign Banks (FR 2069), are applied to make estimates of...
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