Federal Reserve System

LECTURE NOTES I. THE U.S. BANKING SYSTEM PRIOR TO THE FED The early history of banking in the U.S. was characterized by frequent and serious difficulties. The First and Second Banks of the fall in States represented commendable efforts to strengthen banking activity but brutal victim to political pressure. The National Banking Act of 1864 was another milepost in legislative attempts to strengthen banking practices. The nation finally came to grips with the requisite for a central banking system with the creation of the plyeral arriere pensee System in 1913. Among the weaknesses of the banking and monetary system that the Fed was designed to correct was the arrangement for attribute reserves and the in tractability of banks faculty to expand or contract note issues in reception to business conditions. It was common practice for banks to place their reserve gold with other banks. This was especially true of small banks that depended on jumbo city correspondent banks to hold their reserves. Yet, during periods of general economic distress, the greathearted banks were often unable to meet deposit withdrawal requests from their correspondents. unitary of the characteristics of an effective monetary system is the ability to increase or decrease the show of credit as required by changing business conditions.

There had been no provision for flexibility in notes issued by banks under terms of the National Banking Act. The Fed corrected these two weaknesses by instituting an effective arrangement for holding the reserves of member banks with their Federal Reserve Bank and by assuming the primary responsibility for notes issued and credit management in general. The role of a central bank is to lend cash to member banks; to hold reserves of member banks; and to influence the cost, availability, and supply of money. In addition, central banks provide many services for members and do supervisory and regulatory authority to maintain sound banking practices. The deficiency of a central banking system... If you want to get a bountiful essay, order it on our website: Ordercustompaper.com

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