After this, the government had a monopoly on banking and money again, and they used it to the fullest extent possible. One of the main problems with the banking system, though, was that there were still a lot of cash flow problems and other weaknesses that led to panics for individuals who were holding onto bank notes (Wells, 1987). There were many restrictions placed on new banks, and they could do virtually nothing. This was very frustrating for them, and they were not able to do anything that actually worked to help the economy in any way. Part of this came from a lack of branching out, but most was related to the strict control that was held over them.
Allowing the branching out of banks would have made things run more smoothly, as branching out did not require a new charter in the way that opening an entirely new bank would have. There would not be any need for all the red tape, a naming of officers, and everything else that would come along with the opening of a new bank. Branching made things a lot simpler for everyone involved, and it also allowed money to be distributed and collected more easily than separate banks would have allowed for (Dunbar, 1917). By branching out and restructuring themselves carefully, the banks could take advantage of different legal statuses and get tax breaks and other things that they otherwise would have missed, but they would need to turn themselves into bank holding companies, which would then acquire various banks as part of their business model. These banks would be managed by a company, which is different from the way that a normal bank is usually managed.
Another problem that the banks were facing was that they were required to hold a certain amount of money which could be used to secure the banknotes that they had issued. Being required to keep a lot of money on hand made things difficult for them, as they were quickly limited as to how many banknotes they could issue. If they had been allowed to keep a lower ratio of money to banknotes, they would have been in a much better position with both the government and those who held the banknotes.
Clearinghouses were becoming more popular as more banks struggled to keep a proper balance between the collateral they had to hold and the banknotes they wanted to loan. These clearinghouses worked by allowing banks to use a loan certificate to pay their debts instead of using their actual currency. These banks had to have a lot of collateral that they could use to pledge to get the certificates, but this was generally not seen as a problem. This helped to stretch the amount of currency that was available, and banks that had plenty would take the certificates because they could earn an interest rate of six percent on them (Timberlake, 1984).
In the present day, the banking system is made up of twelve member banks that belong to a more centralized system. In 1951, the Federal Reserve was officially established as a separate entity, apart from any other type of governing body. It has gone from taking a role in things that was very passive to being highly active within the monetary system of the United States. Even the past Federal Reserve Chairman Alan Greenspan has admitted that the Reserve had learned a lot in the eighty-three years that it had been in existence, but there was still more to learn, and there was always the chance of making mistakes, even after learning all that one can learn from the past and those experiences (Crutsinger, 2002).
Even though the people who make up the policies for the current banking system in the United States know a great deal, no one can know everything about banking. There are times when policy-makers have chosen the wrong path simply because they did not have all the knowledge that they really needed to make the proper...
It is also worth noting that the Fed must understand how the relationship between its actions and the outcomes changes under different circumstances. For example, open market transactions put more money into the economy; they do not imply that spending will increase. Thus, more money in the economy will not necessarily lead to more growth, lower unemployment or higher inflation, even though the typical relationship is that they will. The
The 12 Federal Reserve Banks are the private sector check and balance to the Federal Reserve. They have three primary roles: 1) To Establish and implement sound monetary policy, 2) To provide a number of financial services to banks (hence the term, Banker's bank -- loans, clearing house, etc.), and 3) The supervision of banks or bank holding companies (companies who own several banks). This system keeps the nation's banks
Federal Reserve Policies 2000- The first decade of the 21st century saw the U.S. economy on a peripatetic through tumultuous events, euphoric highs, and abysmal lows. The ten-year window highlighted three periods: 2000-2004, 2004-2007, and 2007-2010 in which the Federal Reserve actively utilized their policy levers to achieve their dual policy mandate of full employment and low inflation. The Fed's policy bag includes: the Fed funds rate, open market operations, discount
" (Structure of the Federal Reserve System) The 12 Federal Reserve Banks extend banking service to the depository institutions and also to the federal government. To the financial institutions it takes the responsibility of maintaining reserve and clearing out accounts and entails various payment services incorporating checks, electronically transferring funds and circulating and receiving coins and currency notes. As the banker of the Federal Government they function as fiscal agents. They
This is the interest rate that banks lend their balances on at the Federal Reserve to other banks. It exercises this control by influencing the demand for and supply of these balances through the following means: Open market operations -- the purchase or sale of securities, primarily U.S. Treasury securities, in the open market to influence the level of balances that depository institutions hold at the Federal Reserve Banks (The
During most of the last 20 years (from August 1987 to January 2006), the Fed was headed by Alan Greenspan whose personal economic philosophy to a large extent guided the Fed's actions. One of the features of the Federal Reserve's "accommodative" policies was encouraging low interest rates, which was partly responsible for the longest period of economic expansion in U.S. history in the 1990s. Assessment of the Efficacy of the
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