: Importance of the Federal Reserve Bank in the Business and Financial World

 
Position Paper: Importance of the Federal Reserve Bank in the Business and Financial
World
Business is a vast field of study which encompasses other areas of concentration that
stimulates arrays of day-to-day issues all over the world. Business can be classified into
Economic, Marketing, Business Administration, Business law, Accounting, and so many other
fields. Economics on one hand is the study of how scarce resources are used to satisfy unlimited
wants. Economics can be sub-divided into Micro and Macro-Economics. Macro-Economics
deals with majority of the Micro part of Economics but also the aggregate of all economic issues
a specific country. Economic issues may tend topics like fiscal and monetary policies. Without
further break-down, the main topic discussed in this essay is the prominence of the Federal
Reserve bank in the legislation, execution, and promotion of monetary policies, despite various
arguments that the FED does not deserve to exist, and several of its practices require debunking.
With the use of its numerous powers such as setting reserve ratios and market rates in terms of
borrowing and lending money from the member banks, the Federal Reserve Bank deserves
accreditation for its formidable work in ensuring the safety of money supply in the country.
To get the ball rolling, the argument for the importance of the FED deserves some
historical analysis, structural representation, and functional depictions. Based on the studies of
Roger T. Johnson who wrote the “Historical Beginnings”; an insightful biography and historical
report of the various banking systems that existed in the U.S, “For the next quarter century
America’s banking was a carried on by a myriad of state-chartered banks with no federal
regulation.” (Johnson 30). These banks were called state banks. They issued bank notes which
were redeemable for gold. After these banks came the national banks. But both banking systems
exist today, which divides the U.S banking system into State and National Banks. Later that 
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century, the U.S was in panic of depositors wanting to withdraw their money due to the downfall of some financial institution which aroused the public. According to Roger T. Johnson, this
called for a plan. “Frank A. Vanderlip, president of the National City Bank of New York,
appeared before the Senate banking Committee and proposed an entirely new banking and
currency plan, which he had prepared at the request of….the committee’s three Democrats. The
Vanderlip plan called for the establishment of one Federal Reserve Bank.” (Johnson 32). This
new banking system would hold the publics subscribed capital, and those of the government, and
national banks.
The Federal Reserve Bank is not just on central bank, but is divided into 12 Federal
Reserve Districts around the U.S. These 12 banks represented the cities they were located in and,
thus, were named after these cities, for example, the bank in New York, Chicago, Boston, etc.
The Federal Reserve Bank is made up of seven members of the Board of Governors who are
appointed by the President and confirmed by the Senate to run for a term that ran for 14 years.
The President also designated two members of the Board of Governors to be Chairman and ViceChairman for a term of four-years who are confirmed by the senate. Members of the Board were
chosen from any Federal Reserve District, basically, one per district. The primary objective of
the Board is the formulation of monetary policy. These seven Board members are also
representatives of the Federal Open Market Committee which comprises of 12 members in total
and are allowed to make decisions regarding cost and availability of credit in the economy. The
remaining five members of the FOMC are presidents of any of the 12 Reserve Banks. The
FOMC’s organization set-up is different from the FRD. Its Chairman is also the Chairman of the
Board of Governors and its Vice-Chairman is also the president of the New York Banks, who
today is Timothy F. Geithner. 
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The primary function of the Federal Reserve Bank is to make sure that there is enough
money and credit in the banking system required to empower a growing economy. The Board of
Governors sets requirements for the reserve and shares the obligations with the Reserve Banks
for discount rate policies. According to the text on Macro Economics by William A. McEachern,
“The Federal Reserve was also granted other powers: to buy and sell government securities, to
extend loans to member banks, to clear checks in the banking system, and to require that member
banks hold reserves equal to at least some specified fraction of their deposits.” (McEachern 213)
These functions constitute the monetary policy tools of the Federal Reserve System.
The Federal Reserve does not only deal with monetary policies, but also deals with
regulatory and supervisory responsibilities. They regulate member banks, holding companie