![]() It is important to recognize that the Fed is technically not part of the federal government. The Fed is limited in the profits it is allowed to earn its “excess” profits are returned to the Treasury. ![]() The Fed is thus not dependent on a Congress that might otherwise be tempted to force a particular set of policies on it. This activity is a profitable one that allows the Fed to pay its own bills. One member of the board is selected by the president of the United States to serve as chairman for a four-year term.Īs a further means of ensuring the independence of the Fed, Congress authorized it to buy and sell federal government bonds. To ensure a large measure of independence from any one president, the members of the Board of Governors have 14-year terms. The seven members of the board are appointed by the president of the United States and confirmed by the Senate. The board of directors for the entire Federal Reserve System is called the Board of Governors. Several provisions of the Federal Reserve Act seek to maintain the Fed’s independence. Congress passed the Federal Reserve Act in 1913, creating the Fed and giving it all the powers of a central bank.įigure 9.8 The 12 Federal Reserve Districts and the Cities Where Each Bank Is Located Bank failures were so widespread, and depositor losses so heavy, that concerns about centralization of power gave way to a desire for an institution that would provide a stabilizing force in the banking industry. The bank panic of 1907 proved to be the final straw. A series of bank panics slowly increased support for the creation of a central bank. While a central bank was often proposed, there was resistance to creating an institution with such enormous power. performs five primary functions: (1) it acts as a banker to the central government, (2) it acts as a banker to banks, (3) it acts as a regulator of banks, (4) it conducts monetary policy, and (5) it supports the stability of the financial system.įor the first 137 years of its history, the United States did not have a true central bank. A central bank A bank that acts as a banker to the central government, acts as a banker to banks, acts as a regulator of banks, conducts monetary policy, and supports the stability of the financial system. ![]() Japan’s central bank is the Bank of Japan the European Union has established the European Central Bank. The Federal Reserve System of the United States, or Fed, is the U.S.
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