Federal Reserve System - What Is It?
The Federal Reserve System is the latest in a series of monetary management institutions formed in the United States. The first was the Constitutional Gold Standard, followed by the First and Second Banks of the United States, the Independent Treasury, the National Banking System, Clearinghouse Associations, and the National Reserve Association. Even though it has survived many years of turmoil and economic roller coasters, those who founded the Federal Reserve, also known as the Fed, would never recognize it as it stands today.
In December of 1913 the Federal Reserve Act became a law. This revealed a new way of banking for the United States, which required a reserve holder and supplier for the commercial banking that would take place within the country. There are 12 Federal Reserve Branches around the U.S., who were to “furnish an elastic currency”. This was done by discounting bills of exchange, the volume of sales and time are governed with accommodations for commerce and business, depending on the credit situation of the country.
This sounds like a lot of work, but really it just means that the Fed is supposed to manage the money and make sure that it is lent out and spent properly and that there is enough of a supply of money in circulation. Central bank is not a part of the title, because everyone was intimidated by having one central, all-powerful bank to run the country although that is exactly what the Federal Reserve Bank is.
Instead, the Federal Reserve was divided into 12 branches without the central bank label, because they wanted to promote the democracy of this nation. There were many faults in the current banking system of the time, and these needed to be fixed before the Fed could be successful in its efforts to do its new job. By implementing the Federal Reserve System, many people felt that the problems might just go away. However, it didn’t happen overnight.
The 12 banks were to be located in major cities and to be able to operate independently within each region. There was a committee assigned to determining where the banks would go. Also, the Fed had a system of board members and executive management that rivaled commercial banks, which allowed commercial banks to join the ranks of the Fed by meeting certain criteria. After criteria were met, the commercial banks then were known as stockholders in the Federal Reserve Banks.
Washington D.C. was to house a Federal Reserve Board within the Treasury Department as a part of this act. These banks were finally operational during World War I, and have changed greatly over the years, but still remain in tact to serve the same purpose as always: to regulate and assist the economic spending and monetary system in the United States which is why they are so involved in the economic turmoil of today’s troubled times.
It is interesting to note that the current Treasury Secretary, Timothy Geithner, was the President of The Federal Reserve Bank In New York before his nomination to Secretary Of The Treasury.