Week 4 – Role of Finance in Business – Part 2

Week 4 – Role of Finance in Business – Part 2 > The Financial System – The Federal Reserve > Overview of the Federal Reserve

• The Federal Reserve System or the “Fed” as it’s commonly called, is the central bank to the United States since its creation in 1913 the fed’s essential mission has remained unchanged to establish and maintain the public’s confidence in our nation’s monetary and banking system overtime that original mission has expanded to include responsibility for providing a stable healthy and growing economy but the confidence that exists today did not exist during much of our country’s early history.
• Throughout much of the 1800’s almost any organization that wanted could print its own money as a result many states, banks, and even one New York Druggist did just that in fact that one time who over 30 thousand different varieties of currency in circulation Imagine the confusion not only with their multitude of currencies some were redeemable in gold and silver others were back by bombs issues by regional governments it was not unusual for people to lose faith both in the value of their currency into the entire financial system.
• With many people trying to withdraw their deposits at once sometimes the banks didn’t have enough money on hand to pay their depositors then when the funds ran out the bank suspended payment temporarily and some even closed.
• This Act created the Federal Reserve System to provide a safer and more stable monetary and banking system.
• The Fed was designed to be a decentralized central bank the Fed consists of two primary parts a board of governors which guides most of the policy of the Fed, and 12 regional Federal Reserve banks and their branches, which are the operating arms that provide services to banks and the public in their region’s.
• The 12 Reserve Bank’s and the local citizens on their boards of directors represent the private sector this structure provides accountability while avoiding centralized governmental control of banking and monetary policy.
• The regional Reserve Bank’s work with the board of governors to establish and implement monetary policy for the nation they provide a variety of financial services and the responsible for supervision of banks bank holding companies of course all three rules are designed to fulfil the Fed’s main goal a stable economy characterized by higher employment and production steady growth overall stable prices no small feat.
• In it’s supervisory role the Fed monitors banks and bank holding companies, that is banks that own or control 1 or more banks in the US operations over foreign banks.
• Federal examiners look at such items as financial records the potential risk to the bank’s investments and they also check to see if the bank is following up with all applicable laws this supervision may be done either off-site using automated screening tools or on the banks promises In either case the bank receives a rating if a potential problems discovered the Fed will require that the bank take corrective action.
• Whether its supervisory role or in its regulatory role the feds aim is once again to maintain a stable and healthy banking system capable of supporting economic growth from its beginning the Fed has provided numbers services to our country’s financial institutions the Fed plays a vital role in the nation’s payments system that is transferring funds or payments from one bank to another this is done either as cash or checks and electronic transfers because this role the Fed is often referred to as the bankers bank One of its roles is to act as the fiscal agent or as the bank for the United States maintains the US Treasuries accounts paychecks gonna Treasury facilitates the collection of federal taxes and is responsible for issuing servicing and redeeming treasury securities.
• Have you ever thought about how much currency is actually in circulation? Believe me it’s a lot – almost half a trillion dollars including me about about currency used in other countries am it’s up to the Fed to make sure that there’s always enough money in circulation This means issue in currency and coin to banks working with banks to ensure that the currency that is in circulation is genuine and in good condition.
• The Fed transfers funds from bank to bank in the former checks electronic payments when you write a check drawn on your bank account the business receiving the check will then deposit it in their bank account.
• In order to have value, the funds from your bank have to be transferred to the bank receiving a check for the deposit.
• The transfer of value from one bank account for the other bank account is called settlement.
• Many businesses use direct deposit for their payroll payments to employees the federal government makes money payments through direct deposit including those to Social Security recipients and military personnel monetary policy Banking Supervision and financial services was again these are the three primary responsibilities that the Fed responsibilities to determine how the Fed helps to establish a strong economy.