The Federal Reserve (Fed, the Federal Reserve) - an independent federal agency to perform the functions of the central bank and the implementation of centralized control over the commercial banking system of the United States of America. The basis for the creation of a Federal Reserve Act of December 23, 1913. In the management of the Fed's decisive role played by the state, although the ownership of capital is private - Share with the special status of the shares.
Federal Reserve is an independent agency of the US government. As the nation's central bank, the Federal Reserve is authorized by the US Congress. Independence in the work provided by the fact that decisions on monetary policy should not be approved by the President of the United States or by any other of the executive or legislative branches of government, the Fed does not receive funding from Congress, the term of office of members of the Governing Council of the Federal Reserve covers several presidential terms and members of Congress. At the same time the Fed controlled Congress, which is often analyzes the activity of the Fed and the Fed can change the duties of the legislative manner.
Since February 2006, as chairman of the board of the Federal Reserve Ben Bernanke takes. December 17, 2009 US Senate Banking Committee approved the head of the Federal Reserve System (Fed) Chairman Ben Bernanke for a second term. For his candidacy voted 16 senators, seven were against.
History of the Federal Reserve:
Chronology of the US central bank:
1791 - 1811: First Bank of the United States
1811 - 1816: The Central Bank was absent
1816 - 1836: Second Bank of the United States
1837 - 1862: "The era of free banking"
1863 - 1913: National Bank
1913 - present: the Federal Reserve System.
During the last quarter of the XIX century and the beginning of the XX century the US economy has gone through a series of financial panics. The main impetus for the creation of the third central bank became the Panic of 1907. Many economists and the Federal Reserve System argued that the previous system had two major drawbacks: "inelastic" currency and lack of liquidity. In 1908, after the financial crisis of 1907, Congress passed an act-Aldrich Vreel on which the National Monetary Commission was created in order to study possible options for monetary and banking reform.
Senator Nelson Aldrich established two commissions: one for in-depth study of the American monetary system, and the other (which was headed by Aldrich himself) - to study and prepare reports on the European banking system. Arriving in Europe with a negative attitude to the central banks, Aldrich changed his mind, studied German banking system, and came to the conclusion that its advantages over the system of state bonds issued, which Aldrich chose earlier. The idea of a central bank met tough criticism from opposition politicians, who treated her with suspicion and advanced against Aldrich charges of bias because of his close relationship with the rich bankers (such as J. P. Morgan) and in view of the marriage of his daughter with John D. Rockefeller, Jr..
In 1910, the leading US financiers (Nelson Aldrich himself, bankers Paul Warburg, Frank Vanderlip, Harry Davidson, Benjamin Strong, assistant secretary of the US Treasury Piatt Andrew) within ten days was carried out "brainstorming" on Jekyll Island to produce a compromise on the structure and functions the future central bank. The result is a scheme which Aldrich presented to the US Congress.
Aldrich played for completely private central bank with minimal government intervention, but went to the concession that the state should be represented on the board. Most Republicans approved a plan Aldrich, but their support was not enough for the passage of the law in Congress. Progressive Democrats preferred backup system, owned and managed by the state, not controlled by bankers and traders to. Conservative Democrats defended the idea of private, but decentralized backup system that would be deduced through decentralization of control Wall Street. Law of the Federal Reserve, passed by Congress in 1913, mainly reflecting the opinion of the representatives of the Democratic Party of the United States; most Republicans opposed its adoption.
1923 - to coordinate the activities of the Federal Reserve Committee established investment open market (Open Market Investment Committee (OMIC)). It includes the Federal Reserve Bank of New York, Boston, Philadelphia, Chicago and Cleveland.
1930 - to replace the Association Committee came open market policy (Open Market Policy Conference (OMPC)), composed of managers and members of the board of directors of the 12 Federal Reserve banks.
1933 - formed by the FDIC (Federal Deposit Insurance Corporation (FDIC)). Federal Reserve Board has acquired the right to make changes in reserve requirements of banks, members of the Federal Reserve.
1935 - after the adoption of the Banking Act (Banking Act) structure of the Fed got kind that exists to this day: The Council has received the name of the Board of Governors (Board of Governors) Fed, consisting of 7 people, one of whom is the Chairman of the Board. The Board no longer included the Minister of Finance and the Comptroller of the Currency control. Governor of the Reserve bank was renamed President, Association of open market policy was called the Federal Open Market Committee (Federal Open Market Committee (FOMC)).
In July 1979, President Jimmy Carter appointed Paul Volcker Fed chairman. Walker was able to rein in galloping inflation, reducing it to 1% by reducing the money supply and monetary policy tightening. As chairman of the Federal Reserve Paul Volcker in 1987, was succeeded by Alan Greenspan. In February 2006, as chairman of the Federal Reserve Ben Bernanke took.
The legal status of the Federal Reserve:
Law of the Federal Reserve determines that the Fed is composed of regional Federal Reserve banks, which have the status of an independent legal entity, but controlled by a presidentially-appointed Board of Governors of the US Federal Reserve.
In general, the whole system is the Fed is an independent federal agency of the US government.
In 1982, the Court Central District of California ruled in the case of "John Lewis against the United States", which determined that the Federal Reserve banks within the structure of the Fed, not the institutions, which may be sued by individuals Claims Act to government agencies and employees (Federal Law tort Claims). This court order refers to the practice of the Federal Law Tort Claims to the Federal Reserve Bank and makes no definitions regarding the status of the Fed as a whole.
Functions of the Federal Reserve:
- Performance of duties of the US central bank
- Maintaining a balance between the interests of commercial banks and national interests
- Provision of supervision and regulation of banking institutions
- Protection of the credit rights of consumers
- Management of money supply (with often conflicting goals: minimization of unemployment, to maintain price stability, providing moderate interest rates)
- Ensuring the stability of the financial system, the control of systemic risk in the financial markets
- Provision of financial services to the depositary, including the US government and official international institutions
- Participate in the system of international and domestic payments
- Elimination of liquidity problems at the local level
The organizational structure of the Federal Reserve:
12 regional Federal Reserve Banks - provide banking services to depository institutions and the federal government. They serve the depository accounts of institutions and provide various services payments, including encashment of checks, electronic funds transfer, engaged in the distribution and collection of cash (notes and coins). For the federal government Reserve Banks act as fiscal agent (the institution manages its funds the state, including control by the State, dedicated to reflect tax and other revenues, as well as for public expenditure; storing the official state reserves; control internal and external public debt, in particular, organizing the placement of government bonds and other similar government securities, the role of such an agent performs the central bank).
Member banks - are legally obliged to subscribe for shares in their regional Federal Reserve banks in the amount of 6 per cent of their capital, with 3 per cent to be paid at once, and 3 more to be paid upon request of the Board of Governors. According to the law, for those shares they receive fixed annual dividend of 6 per cent, and also have the right to participate in the selection of members (class A and class B) Board of Directors of the Reserve Banks.
National banks - banks that receive charter (right to carry out banking activities) from the federal government. On 19 January 2012 the total number of the bank in 1933. These banks are members of the Federal Reserve Act.
State banks - banks registered the state authorities and leading operations within it. On 19 January 2012 the total number of 5430 state banks, including members of the Federal Reserve are 829 banks.
Federal Reserve Board - the federal authority consisting of 7 members, who are appointed by the president and confirmed by the US Senate.
The governing body of the Fed is the Federal Reserve Board system consisting of 7 members appointed by the President with the approval of the Senate. Each member of the Board shall be appointed for a term of 14 years non-renewable mandate. Every two years, one member appointed by the Council, and every president, thus, may appoint only two members (or four, if the president is elected for a second term), provided that one does not relieve the post ahead of time.
The Governing Council is headed by the chairman and his deputy, who chooses the president of the seven members of the Board for a term of four years, with no restrictions on the extension of the mandate.
The Federal Reserve Act provides for the right of US President to dismiss any member of the Council (for example, President Reagan fired the Chairman of the Board Paul Volcker in 1987).
Fed Headquarters located in Washington.
The functions of the Council:
- Supervision of the Federal Reserve system functioning;
- Decision-making in the field of regulation;
- The definition of requirements for foreign exchange reserve.
The Federal Reserve Banks
Governing Council are subject to the 12 regional offices of the Fed, called "Federal Reserve banks." Regional offices are geographically located in 25 branches and exercise their powers in the allocated states that is called by the name of those cities are located their headquarters (San Francisco, Kansas City, and so on. N.).
Each regional office has its own board of governors consisting of 9 members and divided into classes A, B and C, according to three people in each:
- Three control Class A selected member banks of the Federal Reserve of its own representatives (one of the major banks, one medium, one of the small ones).
- Three control Class B selected member banks of the Federal Reserve the number of people who are not working in the banking system (one of the major banks, one medium, one of the small ones). None of the control class B can not be official, manager or employee of any other bank.
- Three control Class C appointed Board of Governors of the Fed. As well as the control class B, they do not have the right to be official, manager, employee and shareholder of any other bank.
The President of each regional office shall be appointed with the consent of the Board of Governors of the Federal Reserve.
The functions of the regional offices of the Federal Reserve:
- To set interest rates with the permission of the board of the Federal Reserve;
- Monitor the status of local economic and financial institutions;
- To provide financial services to the US government and other depositories.
The Federal Open Market Committee
Between the Board of Governors of the Federal Reserve and the regional offices of the Federal Reserve is organizing the Federal Open Market Committee (FOMC), which is the key body, the head of the monetary policy. Its solutions are aimed at stimulating economic growth while maintaining price stability and monetary circulation.
The Federal Open Market Committee consists of 12 members:
7 members of the Board of Governors of the Federal Reserve
4 members from the Federal Reserve Bank presidents - elected for one year on a rotational basis. Rotation is that every year the Fed Board of Governors elects one member from among Fed President in each of four groups:
Boston, Philadelphia, and Richmond.
Cleveland and Chicago.
Atlanta, St. Louis, and Dallas.
Minneapolis, Kansas City, and San Francisco
president of the Federal Reserve Bank of New York serves on a permanent basis. It is believed that the presidency of the Board of Governors of the Federal Reserve Bank of New York is the second largest in the governing structure of the Fed. In the administration of the 44th US President Barack Obama's post 75th Minister of Finance took Secretary Timothy Geithner, formerly head of the Federal Reserve Bank of New York.
Non-voting Fed President attend Committee meetings, participate in discussions, and participate in the assessment of the economy and development options. Minutes of committee meetings are regularly published on the official website of the Federal Reserve. Calendar of meetings and the time of publication of protocols known in advance and are important financial news.
Any commercial bank that meets the Fed may become the owner (shareholder) of the local regional office.
On 19 January 2012, the number of national banks is 1933 Bank are all members of the Federal Reserve. State banks - banks 5430, of which 829 are members of the Federal Reserve Bank. Thus, from 7363 the banks are members of 2762, accounting for about 38% of the total.
Functions shareholder banks FRB:
receive a fixed dividend on shares in return for the Federal Reserve Bank introduced into by a deposit;
participation in elections 6 of 9 local regional branch managers (Class A and B).
Lists of banks that make up the Federal Reserve published on the website of the relevant regional offices.
Features of the Fed as the central bank. Ownership of capital.
Capital Federal Reserve Banks has a joint-stock form of ownership, and is formed in the sale of shares in these banks. The main customers are commercial banks, which do not get the right to vote, but may elect 6 of 9 local regional branch managers, as well as to receive dividends. In this regard, the United States differ from countries where the central bank's capital is wholly owned by the government (UK, Canada) is a joint stock or with the state share in it (Belgium, Japan).
Shares of Federal Reserve banks, the banks received in exchange for the capital reserve, have a number of limitations: they can not be sold or exchanged, are entitled to a fixed dividend - 6% per annum, which is independent from the profits of the Fed.
Fed implements monetary emission, which mainly aims at the purchase obligations (bonds) US Treasury (in special cases - and other assets). Thus, the exchange transactions with dollars based on confidence in the US government and the US financial system as a whole.
In addition to seigniorage income Fed up interest payments on the bonds treasury income from payment transactions, deposits, securities transactions.
Salaries Fed governor appointed by Congress. In 2008, the annual salary of the chairman of the 191,300 US dollars, the rest of the Governing Council - 172 200 USD.
After the payment of salaries to employees and managers Fed and the fixed dividends on shares of Fed transfer the balance of return on Treasury bills that come to the revenue side of the budget.
For example, in 2010 the Fed had net income of 81.689 billion US dollars, of which 1.583 billion was paid out as dividends to shareholders, the revenue side of the budget received 884 million, the payment of the US Treasury totaled 79.268 billion.
Providing a broad autonomy of the Fed decision-making combined with accountability and verifiability of activities that should take place within the legally stipulated limits.
According to the law of the Federal Reserve, the Fed report annually to the House of Representatives of the US Congress twice a year - before the Banking Committee of the US Congress.
The activities of banks the Fed at least once a year, audited the Accounts Chamber of the United States (Government Accounting Office), and the largest independent auditing firms at the national level. Adopted in 1978, an amendment to the law on "Accounting and audit" in 1950, regulates the activities of auditors. For example, audits, conducted by the Federal Reserve, do not include consideration of actions and decisions related to monetary policy (including operations with bank loans), and any other transactions authorized FOMC.
- In the XVIII century, the United States, being a British colony, rebelled against the metropolis. The true cause of the revolution, from the words of Benjamin Franklin, was the desire to be financially independent country. In turn, the reason for this desire was a sharp increase in taxes on the colonies from Great Britain.
- Alan Greenspan served as chairman of the Federal Reserve for 19 years. During his career, he "experienced" many US presidents belonging to both the Democrats and the Republicans. In his book "The Age of Turbulence", Alan Greenspan, wrote the following: "The Federal Reserve is formally independent of the White House."
- According to German Gref, a significant role in the crisis of 2008-2009 played a "contradictory role of the Federal Reserve System (FRS). It is also the center of national emissions and emission centers the world's reserve currency. "However, this contradiction was well known long before the crisis. Its formulated in the early 1960s, Robert Triffin, and since then it has been known in the economic literature as Triffin dilemma.
- On August 8, 2013 US federal debt of 16.7 trillion.