2009

Oct
26

The Federal reserve

Федеральная Резервная Система СШАThe Federal reserve (The fed, The Federal reserve) (eng. Federal Reserve System) — specially designed to 1913 year the Federal Reserve act (eng. Federal Reserve Act) system, which collectively perform the role of the Central Bank of the United States of America. In the management of the Federal reserve important role played by the state, although the ownership of capital is private joint stock with the special status of stock.


The fed's structure:

  • twelve regional Federal reserve banks are fiscal agents of the U.S. Treasury
  • numerous private banks (receiving inalienable, fixed income shares of Federal reserve banks in exchange for contributed capital reserve)

The control system is fed:

  • The Board of governors (just 7, appointed by the President of the United States)
  • The Federal open market Committee (eng. Federal Open Market Committee)
  • various Advisory councils

February 2006 years as Chairman of the Board of governors of the Federal reserve is Ben Bernanke.

The fed's history

The first institution, performing the functions of the Central Bank of the United States was the First Bank of the United States, created by Alexander Hamilton in 1791 year. His powers were not renewed in 1811 year. In 1816 year was formed the Second Bank of the United States; his powers were not renewed in 1836 after, how he became a target of criticism by President Andrew Jackson. With 1837 at 1862 years in the Era of Free Banks the Central Bank had not formally existed. With 1862 to 1913 gg. in the United States under the relevant law was a system of national banks. A series of banking panics — in 1873, 1893 and 1907 gg. created serious demand for the creation of a centralized banking system.

Chronology of the Central banks in the US:

  • 1791 — 1811: The first Bank of the United States
  • 1811 — 1816: The Central Bank was absent
  • 1816 — 1836: The second Bank of the United States
  • 1837 — 1862: The Era Of Free Banks
  • 1863 — 1913: National banks
  • 1913 — present: The Federal reserve.

Creation of third Central Bank

During the last quarter of the XIX century and early XX century, the U.S. economy went through a series of financial panics. The main impetus to the creation of third Central Bank became a crisis 1907 year. Many economists and supporters of the Federal Reserve System argued, the previous system had two major shortcomings: "inelastic" currency, and a lack of liquidity. In 1908 year Congress passed the Aldrich act-Vreeland, which created the national Monetary Commission to explore possible options for monetary and banking reform.

The Federal Reserve act

Senator Nelson Aldrich was founded by two commissions: one to study the American monetary system, another (headed by Aldrich himself) — to study and report on European banking systems. Arriving in Europe with a negative attitude to Central banks, Aldrich changed his mind, after reviewing the German banking system and came to the conclusion about its advantages over the system produced by the state bond, that Aldrich chose earlier. The idea of a Central Bank was met with stiff criticism from opposition politicians, who treated her with suspicion and put forward against the Aldrich charges of bias because of his close relationship with rich bankers (such, as J.. P. Morgan) and because the marriage of his daughter with John D. Rockefeller Jr..

In 1910 year, the leading financiers of the USA: Sam Nelson Aldrich, bankers Paul Warburg, Frank Vanderlip, Harry Davidson, Benjamin Strong, the assistant Secretary of the U.S. Treasury Piatt Andrew during 10 days spent "brainstorming" at Jekyll island to produce a compromise regarding the structure and functions of the future Central Bank. The result was a scheme, that Aldrich submitted to Congress.

Aldrich advocated a completely private Central Bank with minimal state intervention, but has made concessions that, that the state should be represented on the Board of Directors. Most Republicans approve of the Aldrich plan, but their support was insufficient to pass the law in Congress. Progressive Democrats preferred backup system, owned and managed by the state, not under the control of the financial system on wall street.. Conservative Democrats defended the idea of private, but a decentralized reserve system, through which decentralization will be bred out of control wall street. The Federal Reserve act, passed by Congress in 1913 year, reflect the views primarily of representatives of the US Democratic party; most Republicans were opposed to its adoption.

The modern history of the fed

In July 1979 the U.S. President Carter appointed Paul Volcker Chairman of the Federal reserve. Walker was able to rein in galloping inflation, reducing it to 1 % by reducing the money issue and the tightening of monetary policy. On a post of the Chairman of the Federal reserve Paul Volcker in 1987 year was replaced by Alan Greenspan. In February 2006 the recently appointed fed Chairman took Ben Bernanke.

The legal status of the fed

The legal status of the fed is defined by the Law on the fed in the form of special financial institutions, comprising features as an independent legal entity, public and state Agency.

Independence of the emission center from the government due to the desire to provide a balance between taxpayers and the government (being in a relationship "employer" and "contractor"), as well as historically in the US banking system, and to prevent the possibility of using the money emission in the short-term interests of the US Government (for example, to cover the budget deficit).

In 1982 year court for the Central district of California ruled in the case of "John Lewis V. United States", where identified, the Federal reserve banks, included in the structure of the fed (cm. below), are not institutions, which can be sued by private persons under the law on claims against governmental entities and employees (Federal Tort Claims Act). The court decision refers to the practice of application of the law Federal Tort Claims Act to Federal reserve banks and makes no definitions as to the status of the fed as a whole.

Functions of the fed

The current functions of the fed:

  • the responsibilities of the Central Bank of the United States
  • maintaining a balance between the interests of commercial banks and national interests
  • oversight and regulation of banking institutions
  • protecting credit rights of consumers
  • management of the money supply (with often conflicting goals: minimizing unemployment, maintaining price stability, providing moderate interest rates)
  • the stability of the financial system, control over systemic risks in the financial markets
  • the provision of financial services to Depository, including the US Government and official international institutions
  • participation in the functioning of domestic and international payments
  • the elimination of liquidity problems at the local level

] Member banks of the regional Federal Reserve

Any commercial Bank, the relevant standard requirements of fed, can become a member (shareholder) local regional offices. Currently (2008 year) the structure of the fed includes 38 % all banks and credit unions in the U.S. (about 5,6 thousands of legal entities).

Full list of shareholder banks of the fed are published on the websites of the respective regional offices of the fed (example: [1]).

Organizational structure

Senior management

The fed governing body is the Board of governors (eng. Board of Governors) in the composition 7 members, appointed by US President with Senate approval of the U.S. Congress. Each member of the Board shall be appointed for 14 years, renewable.

Act fed establishes the right of the US President to dismiss any Trustee of the fed (in practice this rule was not applied).

The governing Council is headed by the Chairman and his Deputy.

Currently Council members are:

  • Ben Bernanke — Chairman;
  • Donald Kohn — Vice Chairman;
  • Elizabeth Duke;
  • Kevin Warsh;
  • Daniel Tarullo;
  • (2 places currently temporarily vacant).

Headquarters of the fed located in Washington.

The Functions Of The Council:

  • supervision of system functioning fed;
  • decision-making in the field of regulation;
  • the requirements for currency reserves.

Federal reserve banks

Карта региональных отделений ФРС
The map of the regional offices of the fed

The Board of governors are subject to 12 regional branches of the fed, - called "Federal reserve banks". Regional offices geographically located in 25 branches and exercise their powers in their assigned States, calling on the name of those cities, where are their headquarters (San Francisco, Kansas city and t. p.).

Each regional office has its own Board of governors. 9 members of the Council are divided into classes A, B and C:

  • 3 governors of A class are elected by shareholders of the Federal reserve of their own representatives (one from the major banks, one medium, one from small)
  • 3 class B managers are elected by shareholders fed from a number of people, not working in the banking system (one from the major banks, one medium, one from small)
  • 3 governing of class C shall be appointed by the Board of governors of the Federal reserve.

The President of each regional office shall be appointed with the consent of the Board of governors of the Federal reserve. A list of all governors of the regional banks of the fed is published ).

Each region has an alphanumeric designation in alphabetical order according to the list:

Room areasLetterThe location of the centerFederal Reserve BankThe website
1ABostonFederal reserve Bank of Bostonhttp://www.bos.frb.org
2BNew YorkFederal reserve Bank of new Yorkhttp://www.newyorkfed.org
3CPhiladelphiaFederal reserve Bank of Philadelphiahttp://www.philadelphiafed.org
4DClevelandFederal reserve Bank of Clevelandhttp://www.clevelandfed.org
5ERichmondFederal reserve Bank of Richmondhttp://www.richmondfed.org
6FAtlantaFederal reserve Bank of Atlantahttp://www.frbatlanta.org
7GChicagoFederal reserve Bank of Chicagohttp://www.chicagofed.org
8HSt. LouisFederal reserve Bank of St. Louishttp://www.stlouisfed.org
9IMinneapolisFederal reserve Bank of Minneapolishttp://www.minneapolisfed.org
10JKansas CityFederal reserve Bank of Kansas cityhttp://www.kansascityfed.org
11KDallasFederal reserve Bank of Dallashttp://www.dallasfed.org
12LSan FranciscoFederal reserve Bank of San Franciscohttp://www.frbsf.org

Functions of the regional offices of the fed:

  • to set the discount rate with the permission of the Board of governors of the Federal reserve
  • to monitor the status of local economic and financial institutions
  • to provide financial services to the US Government and other depositories

Federal reserve Bank of new York

The most important of the regional offices of the fed is the Federal reserve Bank of new York, responsible for international financial operations and operations on the open market. Unlike the other Federal reserve banks, the reserve Bank has a permanent vote in the Federal open market Committee. Considered, that the President of the Board of governors of the Federal reserve Bank of new York is the second largest in the governance structure of the fed.

In the Administration of the 44th President Barack Obama as the 75th of the Minister of Finance was occupied by Timothy Geithner (en: Timothy F. Geithner), formerly head of new York fed.

The Federal open market Committee

Between the Council of Governors and the regional offices of the fed's organizational is the Federal open market Committee (FOMC), a key on, head of monetary policy. His decision is aimed at stimulating economic growth while maintaining price stability, and monetary circulation.

The right to vote in the Committee belongs to 7 fed Governor and 5 representatives of the regional offices, delegated according to the principle of staff rotation.

The minutes of the Committee meetings are regularly published on the official website of the fed.[3] Calendar of meetings and the timing of the publication of protocols known in advance and are significant financial news.

Banks-shareholders

On the lower level of the organizational structure of the fed are the banks — the shareholders of the fed.

Any commercial Bank, meets the requirements of the fed, can become owner (shareholder) local regional offices. Currently (2009 year) the structure of the fed includes 38 % all banks and credit unions in the U.S. (about 5,6 thousands of legal entities).

Shares of the fed, received by banks in exchange for reserve capital, have some limitations: they cannot be sold or exchanged, thereon shall be paid a fixed dividend — 6 % annual, not dependent on the profits of the fed[4].

Functions of the shareholder banks of the fed:

  • receive a fixed dividend on shares of the fed in return for Deposit
  • participation in the elections 6 from 9 governors of local regional offices (classes A and B)

Lists of banks, members of the fed, published on the websites of the respective regional office (example: [3])

Features of the fed as the Central Bank

Form of ownership of capital

Capital fed is purely stock form of ownership. In this respect, the U.S. differs from countries, where the capital of the Central Bank is fully owned by the state (UK, Canada) or is joint with the state share in it (Belgium, Japan).

Operating profit

The fed carries out monetary issue, which mainly aims at the purchase of obligations (bonds) U.S. Treasury (in special cases, and other assets). Thus, exchange transactions with dollars based on the credibility of the U.S. Government and the U.S. financial system as a whole.

In addition seniorage, the fed's income is interest payments on Treasury bonds, income from payment transactions, deposits, operations with securities.

The size of salaries of the administrator of the fed are appointed by Congress. In 2008 year the annual salary of the Chairman amounted to 191 300 $ , the rest of the governing Council 172 200 $ .

After the payment of the salaries of the Manager and employees of the fed and fixed dividends, The fed remits the balance of the profits to the accounts of the Treasury, coming to the income part of budget. For example, in 2006 year, the fed had net income 34,195 billion U.S. dollars, of which 871 million was paid as dividends to shareholders, in the revenue part of the budget received 4,272 billion, interest payments to the U.S. Treasury amounted to 29,052 billion ([4]).

The current balance sheet of the fed: The statistical report of the Federal reserve, section H. 4.1(eng.)

Independence

The granting broad autonomy of the fed in the decision-making combined with accountability and verifiability of activities, to be held in the framework of the legally stipulated.

According to the Federal reserve act, The fed reports annually to the House of Representatives of the United States Congress, twice a year — before the Banking Committee of the U.S. Congress.

The operation of the fed more 100 just passed the audit of the accounts Chamber of the USA (eng. Government Accounting Office), and also periodically checked by independent audit firms[5].


The Federal reserve
HeadquartersWashington, United States Of America
President(Chairman)Ben Bernanke
CurrencyThe US dollar
The basic discount rate0.25% (-0.75%) 16.12.2008g.
Base Deposit rate0.50 % (-0.75%) 16.12.2008g.
Web sitewww.federalreserve.gov
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