What is the Fed? This is the US central bank or "secret society". Federal Reserve System (FRS) – US Federal Reserve System. What is it and what are its functions? How does FRS stand for?

An organization that performs the functions of the United States Central Bank. An independent agency within the US government.

Source: https://www.youtube.com/watch?v=KggHsajMwYo

Since February 2015, Janet Yellen has been the Chairman of the Federal Reserve.

History of the creation of the Federal Reserve System

The Federal Reserve System began in 1913, when the Federal Reserve Act was passed. Before the creation of the Fed, there was a system of private banks that were unable to create an effective centralized country. The creation of the Fed was the result of counteracting a series of interbank crises in 1873, 1893 and 1907, which made the need for a single regulatory and issuing body apparent.

Composition of the Federal Reserve System

The Fed includes 12 Federal Reserve Banks located in the largest cities, about three thousand commercial so-called member banks, a presidentially appointed Board of Governors (consisting of seven people appointed by the President of the United States and approved by Congress for a period of 14 years) Federal Open Market Committee market and advisory advice.

Functions of the Federal Reserve System

fulfilling the tasks of the Central Bank of the country;
maintaining a balance between the public interests in the United States and the interests of commercial banks;
supervision and regulation of the country's banking system, protecting the interests of investors and clients;
carrying out the issue of money - US dollars;
regulation and stabilization of financial markets, risk control;
providing depository services for the US government and official international institutions;
participation in the functioning of the system of international and domestic payments;
eliminating liquidity problems at the local level and providing loans to credit institutions;
strengthening the US role in.

Features of the Federal Reserve System

The main feature is that the system is built not on state, but on private capital.

The activities of the Federal Reserve are monitored by the House of Representatives of the US Congress, to which it must report annually, and the Congressional Banking Committee (reports twice a year). The Federal Reserve is audited annually. In addition, from the point of view of the law, the US President can fire any Fed governor, but this rule has never been applied to date.

Part of the Fed's profit, received from government securities, as well as as a result of operations on open markets, goes to pay salaries to employees and dividends to banks participating in the system. The main share of income is transferred to the federal budget.

The Federal Reserve System, or Fed, serves as the central bank of the United States. As such, it is responsible for the development and implementation of monetary policy, banking supervision, and the provision of financial services to depository institutions and the federal government. Being an independent institution, it does not depend on either the US Congress or the government.

The structure of the Fed is different from that of most central banks in the world. Thus, decision-making functions are distributed among twelve regional members of the system. The Fed can control the money supply, which influences interest rates. Because the level of interest rates is a key variable in determining whether an economy grows or shrinks, the Fed actually influences the future state of the economy.

History of the Federal Reserve System

Before the creation of today's Federal Reserve System, there were two attempts to create a central bank in the United States. The first attempt was initiated by Alexander Hamilton and resulted in the formation of the first Bank of the United States, which was chartered in 1791 and operated until 1811. A second attempt, made in 1816, led to the creation of the second Bank of the United States. This bank was chartered by Congress to curb inflation that followed the War of 1812.

From the very beginning, the idea of creating a central bank that could concentrate enormous power had many opponents. Opposition to the creation of a central bank was led by President Andrew Jackson, who believed that a private bank would not be up to the task of ensuring currency stability and would also be too privileged, making its creation itself unconstitutional. President Jackson's "banking war" against the creation of the Bank of the United States was ultimately won in 1833, when Jackson withdrew all federal government deposits from the bank. This controversial move so weakened the bank that when the bank's license expired in 1836, it ceased to exist.

The Federal Reserve System was established by the US Congress in December 1913 with the passage of the Federal Reserve Act. The main proponents of this act were President Woodrow Wilson and Virginia Senator Carter Glass. The main purpose of its creation was to protect the banking system from regular crises that weaken it. The panics of 1893 and 1895 and, most of all, the deep crisis of 1907 caused serious damage to the economy, and there was growing demand for a centralized system that could stabilize the economy by controlling the money supply. In fact, the Fed's function was to serve as a "bank for banks" by ensuring the stability of the banking system.

The Fed's ownership structure is unique and therefore subject to periodic criticism. In theory, the Fed is owned by all commercial banks operating in the system, since member banks are required to purchase Fed securities in their region. However, the Fed is also viewed as a government agency. This unusual ambivalence led to a lawsuit brought in 1930 by several congressmen. They argued that since the Fed was privately owned, its building in Washington should be subject to property taxes. After several years of legal maneuvering, including an attempt to auction off the building in 1941, the Fed was eventually declared an independent branch of government. Federal Reserve Banks are officially called government instrumentalities, which are corporations authorized by the federal government to act in the public interest.

Organization of the Federal Reserve System

The main elements of the Federal Reserve are the Board of Governors, the Federal Open Market Committee (FOMC), 12 regional Federal Reserve Banks, Advisory Councils and member banks. Each of these bodies participates in the decision-making process. Let's look at each of these elements.

The Board of Governors of the Federal Reserve is the highest authority within the Federal Reserve. Its functions are similar to those of a corporate board of directors in that it provides direction and oversight of the implementation of the Federal Reserve's directives and policies. The Council consists of 7 members appointed by the President of the United States and approved by the US Congress. Initially, Council members were appointed for a term of 10 years. The Banking Act of 1933 extended the terms to 12 years, and the subsequent Banking Act of 1935 extended them even further to today's 14 years. These terms are designed to ensure continuity of Fed policy, with one governor's term expiring in every even-numbered year.

The board of governors is surrounded by an aura of enormous power. In particular, the Chairman of the Council is perceived by the public as a person with a deep understanding of economics. To maintain this image, the chairman almost always votes with the majority, even if this means changing his position after the vote.

Chairman of the Council. The Chairman of the Council twice a year, in February and July, submits a report to the US Congress on the Fed's monetary policy, the state of the economy and other financial issues. As mandated by the Full Employment and Balanced Growth Act, also known as the Humphrey-Hawkins Act, the Chairman must report to the Senate Committee on Banking , Housing, and Urban Aff airs), as well as the House Committee on Banking, Finance, and Urban Aff airs on the Fed's targets. He also regularly meets with the President of the United States and the Secretary of the Treasury.

The Chairman of the Board of Governors of the Federal Reserve is also a member of the National Advisory Council on International Monetary and Financial Problems of the US government. In addition, the Chairman is also one of the US representatives to the International Monetary Fund (IMF).

One of the seven members of the Council is appointed by the President of the United States to serve as Chairman for a term of four years. Traditionally, a Chairman who is not re-elected leaves the Council, regardless of the time remaining before the end of his 14-year term as a member of the Council. This explains the historical fact that the terms of service of the Council Chairmen were very different. The record for holding this position belongs to William McChesney Martin, who was chairman from 1951 to 1970.

Functions of the Board of Governors. One of the council's most important tasks is to determine the goals of US monetary policy. In addition, the board sets the required reserve ratio for banks and approves discount rates set by regional reserve banks. In total, the board oversees twelve Federal Reserve Banks. In addition, the board oversees and regulates the activities of commercial banks that are members of the Federal Reserve System, as well as bank holding companies. All members of the Board of Governors are also voting members of the Federal Open Market Committee.

The Governing Council initiates studies of the overall financial condition of the economy. Many of these studies are conducted by the Fed's own economists, who constantly have their finger on the pulse of the economy. The board of governors also publishes the Federal Reserve Bulletin, a monthly journal of economic and financial information, and the Federal Reserve Regulatory Service, in which the board provides information related to the Federal Reserve's regulatory missions.

FEDERAL OPEN MARKET COMMITTEE

The primary way the Federal Reserve regulates the money supply is through the actions of the Federal Open Market Committee (FOMC). The law requires the FCOR to meet at least once every four years. In practice, committee members meet approximately eight times a year.

All seven members of the Board of Governors are members of the committee. In addition, 5 of the 12 presidents of regional reserve banks are also members of the Federal Reserve Bank. Of these five, the permanent member is the President of the Federal Reserve Bank of New York.

The other four positions are distributed each year to the presidents of the remaining 11 Reserve Banks. Although only 5 presidents of regional banks can vote on the FCOR, all 12 presidents are usually present and participate in discussions.

The FCOR was established by the President of the New York Federal Reserve Bank to coordinate the open market operations of the 12 Reserve Banks. In the first year, four and then five presidents of regional banks made up the FCOR. By 1923, the importance of open market operations had grown, and the board abolished the original committee structure while creating an Open Market Investment Committee (OMIC) under its control. In 1930, the OMC was reorganized into the Open Market Policy Conference, which included representatives from all 12 Reserve Banks but required board approval for all of its decisions. In 1935, the structure of today's FCOR emerged. Since that time, the structure has undergone virtually no changes.

The law requires the board to keep a thorough record of all actions taken by the committee regarding policy. For this purpose, after each committee meeting, a Record of Policy Actions is prepared, which, however, is not disclosed until the next committee meeting. Another protocol, Minutes of Actions, contains details of all decisions made, whether they are of strategic importance or not.

FEDERAL RESERVE BANKS

The Federal Reserve System includes 12 districts. Each district has its own reserve bank, which supervises the activities of member banks of the Federal Reserve, sets the discount rate for the district (although the Board of Governors actually controls this rate through its veto power) and performs other banking operations. Each Reserve Bank may have branches in the major economic centers of the district. In addition, it may open offices in other cities.

Every state-licensed bank must be a member of the Federal Reserve System. One of the conditions of membership is the purchase of securities of the regional reserve bank. The purchase volume must be 6% of the bank's capital. However, only half of this amount must be paid, while the other half is paid only at the request of the board.

All member banks receive a statutory 6% annual dividend on their paid-in capital. Unlike common stock, reserve bank securities cannot be sold, transferred, or used by a member bank as collateral for a loan.

Owning shares in a Reserve Bank gives member banks the right to elect 6 of its 9 directors. Three of these directors become Class A directors and must be professional bankers. The other three are Class B directors and must represent non-banking businesses. The final three directors of a reserve bank are called Class C and are appointed by the Board of Governors. Of the three Class C directors, the Board of Governors appoints a Chairman and a Vice-Chairman of the Board of Directors of each of the regional banks. This is another demonstration of the high position of the Board of Governors in the system.

The 12 Federal Reserve Banks issue licenses to banks in their regions. They also conduct clearing operations, make loans to depository institutions, and issue paper money known as Federal Reserve Notes. In addition, the Fed's regional banks publish periodic academic articles on current topics.

Over the years, the Fed has created several advisory councils to assist the Board of Governors. Although these boards do not have decision-making power, they can influence the Governing Council's implementation of monetary policy. The main councils are the Federal Advisory Council, the Consumer Advisory Council and the Thrift Advisory Council.

Federal Advisory Council. Created at the outset by the Federal Reserve Act, this board includes 12 members, usually influential bankers, from each Fed region. Each of the 12 regional reserve banks selects one member of the Federal Advisory Council.

Because board members are typically the chairmen of the largest U.S. banks, they are perceived by many as insiders who can influence Fed policy to their advantage. In addition, these insiders may be privy to the Fed's monetary policy plans before the information becomes known to the general public. In some cases, recommendations from the Federal Advisory Council have helped the Governing Council improve its performance.

Consumer Advisory Council. The Fed board also listens to the Consumer Advisory Council when making strategic decisions. This board was created by an act of the US Congress in 1976 to make recommendations to the Board of Governors in the area of consumer protection to comply with the provisions of the Consumer Protection Act. It includes 30 members who serve on the council for 3 years. The council includes representatives from the financial community, consumer unions, academics and consumer lawyers. The Council meets with members of the Board of Governors three to four times a year.

Advisory Council of Savings Institutions. This board was established by the Board of Governors in 1980 in accordance with the requirements of the Depository Institution Deregulation and Monetary Control Act (DIDMCA). The Council consists of representatives of savings banks, credit unions, and savings and loan associations. The Advisory Council brings to the attention of the Board of Governors of the Federal Reserve issues relevant to depository institutions.

FED MEMBER BANKS

Any bank with a state license must be a member of the Federal Reserve System. In addition, any bank licensed to operate within a state can become a member of the Fed. All member banks are required to hold their reserves with their regional reserve bank. Bank interest is not charged on these reserves.

Throughout the 1970s, the number of member banks steadily declined. By the end of the decade, the trend had reached alarming proportions. Banks withdrew from the Fed because it meant diverting funds in the form of reserves from circulation, while reserve standards for banks operating within the state were lower, and these funds generated income. As interest rates rose, the lost profits from not using reserves became too great for an ever-increasing number of banks. As a result, many banks threatened to exit the system.

To overcome the crisis, in 1980 the US Congress passed the Depository Institution Deregulation and Monetary Control Act (DIDMCA). This law effectively eliminated the distinction between types of depository institutions. In addition, the above-mentioned law established the same mandatory reserve standards for all banks, regardless of their membership in the system. These new reserve requirements also applied to all other depository institutions, including savings and loan associations and credit unions. To compensate for this tightening of rules, banks that were not members of the Fed were allowed to use Fed services, such as clearing, under the same conditions as members of the system.

With this act the desired result was achieved. In 1981, shortly after the act was passed, 5,500 (37%) of the 15,000 commercial banks in the United States were members of the Federal Reserve. By 1991, this number had increased to 6,000 (43%) of 14,000. It is interesting to note that most commercial banks are not members of the Federal Reserve.

Fed Monetary Policy Tools

The Fed's main instruments of monetary policy are reserve requirements, open market operations, and the discount rate. With each of these tools, the Fed influences the money supply in the economy. In the early years of the Fed, the main one of these tools was the discount window. In recent years, the most significant instrument of monetary policy has been open market operations.

RESERVE REQUIREMENTS

In theory, a portion of all funds received by a depository institution should be held at the Fed, either as deposits or as currency. The percentage of funds that must remain in the Federal Reserve is called the required reserve ratio. This rate varies depending on the volume and type of funds accepted by the depository institution.

The Depository Institution Deregulation and Monetary Control Act (DIDMCA) established the same reserve requirements for all depository institutions. Under this act, depository institutions included commercial banks, savings and loan associations, credit unions, agencies and branches of foreign banks, and Edge Act corporations.

The Federal Reserve Board of Governors has the authority to change required reserve requirements within the framework established by the Depository Institutions Liberalization and Monetary Control Act. For example, the reserve ratio for a certain amount of funds in current accounts can vary from 8 to 14%. However, the Fed does not have the authority to set reserve requirements for certain types of deposits. Thus, funds on time deposits of individuals are not subject to reservation, except in exceptional circumstances.

For depository institutions, a minimum amount of the amount of their liabilities is established, which must be kept in the form of required reserves. However, institutions typically reserve more than the required minimum in the form of excess reserves. Reserve requirements should burden smaller institutions less.

Reserved amounts are divided into borrowed and non-borrowed. Non-borrowed funds can only be made available to depository institutions by purchasing them on the open market. Borrowed funds can be borrowed from the reserve bank through its discount window.

OPEN MARKET OPERATIONS

Open market transactions refer to the purchase and sale of securities on the open market floor of the Federal Reserve Bank of New York. On a daily basis, the Manager for Domestic Operations carries out these operations in accordance with the directives of the Federal Open Market Committee (FOMC)10. Open market operations are the most powerful weapon in the Fed's arsenal. In essence, through them the volume of non-borrowed funds available to depository institutions is determined. If the Fed buys securities, the system's reserves grow; When selling, the volume of reserves decreases. When a depository institution has excess reserves, that is, excess over the required minimum, the institution will expand its loan portfolio to the point where the amount of reserves decreases to the required minimum. Thus, the Fed directly influences the behavior of depository institutions, the volume of loans issued and, through them, interest rates and the economy.

The Federal Reserve can influence the money supply simply by buying or selling government securities because the Fed has the unique ability to make demands on itself. Moreover, by definition, any claim by a depository institution on the Fed is considered a reserve. This occurs when the Fed issues a check to be presented to itself, for example, to pay an individual for government securities. This check will eventually return to the Fed from some depository institution for clearing, or redemption. To clear a check, the Fed simply increases the amount in that depository institution's reserve account. This increase in the reserve is the first stage in the money creation process.

DISCOUNT WINDOW

With the passage of the Depository Institutions Liberalization and Monetary Control Act of 1980, all depository institutions were able to access the Fed's discount window. Individuals, partnerships and corporations can also use the discount window to obtain loans under “unusual exigent circumstances.” Indeed, it is the discount window that allows the Fed to be considered the nation's lender of last resort. Thus, the discount window adds stability to the financial system, especially during periods of crisis.

The Federal Reserve Act of 1913 required that all loans made through the discount window be collateralized. In practice, US government securities are used as collateral. The interest charged on loans issued through the discount window is called the discount rate. This rate is set by the boards of directors of the regional reserve banks every 14 days, but must be approved by the Board of Governors. Although in theory each Fed district could have a different discount rate, in practice the rate is the same for all 12 districts because the U.S. economy as a whole is so highly integrated. The discount rate changes infrequently. So, during the decade of the 1980s, for example, this rate changed only 28 times, with intervals between each change ranging from 2 weeks to 20 months. Historically, the minimum rate was 0.5% between 1942 and 1946; the maximum rate of 14% was in effect from May to November 1981.

Currently, the term “discount rate” is not entirely correct. Today, loans issued by the Federal Reserve accumulate interest, which is paid upon repayment. However, until 1971, the Fed made loans on a discount basis, meaning interest on the loan was deducted at the time it was made. The term "discount window" comes from the fact that in the past, in order to obtain a loan, banks had to bring securities as collateral and pass them through the teller window. Sometimes the Fed raises rates by 2-4%, especially for large depository institutions that use the discount window too often. The purpose of this increase is to minimize abuse. Indeed, the discount window is perceived as a last resort that an institution can resort to when there are no other options to meet its obligations. In other words, the Fed views using the discount window as a privilege, not a right.

Loans issued through the discount window usually take the form of adjustment credits, that is, loans issued to cover short-term reserve shortfalls. The Fed also provides seasonal loans to small institutions to help them cope with seasonal fluctuations in the inflows or outflows of funds. Seasonal loans are not available to institutions with more than $500 million in deposits because the Fed believes such institutions are able to meet their needs through the money market. These two forms of loans are independent of each other, that is, the presence of a seasonal loan does not affect the depository institution’s ability to attract an adjustment loan.

Changes in the discount rate affect the cost of depository institutions raising reserves to support deposit growth. Since changes in the discount rate affect the behavior of depository institutions, it is an important tool for implementing monetary policy.

FED BALANCE SHEET

The bulk of the assets are invested in US government securities - securities make up more than 85% of the balance sheet currency. By comparison, loans to depository institutions account for less than 1%. Since securities transactions are conducted on the open market and loans are issued through the discount window, it is obvious how open market operations are more important as a tool of monetary policy than loans issued.

Among liabilities, Federal Reserve notes account for the largest share. This amount represents almost the entire volume of currency in the country. The share of Federal Reserve notes is about 88% of the balance sheet currency. The next most important are deposits – about 8%.

MONEY AND FED ACTIONS

Since its inception in 1914, the Fed has been attacked by critics for being a semi-secret institution, closed to public observation. Critics argue, for example, that even when the Fed publishes its decisions, it does so with a significant delay. Specifically, the Federal Open Market Committee's discussions are published in the Federal Reserve Bulletin, but only after the next committee meeting.

Before the Humphrey-Hawkins Act was passed in 1978, the Fed was not required to announce money supply targets for growth. The adoption of this act obliged the chairman of the Board of Governors of the Federal Reserve to discuss and explain policy goals to the US Congress twice a year. Even so, some observers say the Fed's announcements are too general and vague.

The Fed's apparent desire to remain opaque may be because public acceptance of money requires a great deal of trust. In this sense, the Fed acts as the custodian of that trust. After all, money can be a simple piece of paper or an electronic record on a computer, so the value of money is not inherent in it. The value of money depends on the desire of society to accept it as a means of circulation.

There are plenty of examples of societies losing faith in their currency, with dire consequences. The most notorious example from relatively recent times is Germany in the 1920s, when people literally carried money around in wheelbarrows and prices often doubled overnight. The importance of this economic disaster cannot be overstated, as it led to the rise of Hitler and ultimately to the Second World War.

In some societies, monetary regulation was associated with religion. For example, in ancient times, Jews conducted banking transactions in temples. Coins were also minted in temples and then blessed by priests, making them acceptable to society. Roman coins were made in the temple of the goddess Juno, also called "moneta" - the root of the Latin word "money" - money. However, even today, central bank buildings often resemble temples.

Based on materials from the book “Financial Institutions and Markets” by Robert W. Kolb, Ricardo J. Rodriguez

The Federal Reserve System (FRS) was created by the US Congress to serve as the central bank of the United States. President Woodrow Wilson signed the Federal Reserve Act on December 23, 1913. Until this point, the US economy had suffered from frequent stock market panics, bank failures, and money supply shortages.

American colonists were limited to using European coinage as their primary medium of exchange until independence from British rule. Concerned about the shortage of European money and the inefficiency of the barter system, many colonies began minting coins and issuing banknotes towards the end of the 17th century. Colonial banks did not accept deposits from the population and did not issue loans. Instead, they issued securities backed by real estate or precious metals such as gold.

The history of central banking in the United States began with the ratification of the Constitution in 1789. Treasury Secretary Alexander Hamilton (an extremely important figure in US economic history) developed the Fed plan to solve the country's credit problems after the Revolutionary War. Hamilton's plan, drawing on the commercial and financial interests of the northeastern states, called for the creation of a federal bank that would lend to government and business, and the creation of a national currency. The Federal Bank will act as the government's financial agent and provide a safe place to store government funds.

In 1907, the United States experienced a financial crisis caused by the collapse of stocks on the stock exchanges. There is an opinion that it was artificially provoked by circles close to.

By providing the banking sector with a loan of $25 million at 10% per annum and paying dividends ahead of schedule, Morgan stabilized the situation in the country.

However, the crisis has created a favorable situation for raising the question of the need to create a mega-regulator in the US banking market. As a result, in 1913, after discussions, criticism and coordination of interests of different groups, the US Federal Reserve System was created.

The direct participation of the largest capital in the process of creating the Federal Reserve prompts criticism regarding the greater loyalty of the system to certain groups that have monopolized/ Morgan who overhauled the country's banking system.

The first Bank of the United States was founded in 1791, but state banks began issuing paper money in unlimited quantities. Congress attempted to solve the country's financial problems by creating the Second Bank of the United States in 1816. President Andrew Jackson declared it unconstitutional and vetoed its establishment in 1836.

By 1860, nearly 8,000 state banks were issuing their own currency. The need for reliable financing during the Civil War led to the passage of the National Banking Act in 1863. Thus, a single national currency was created, but a strong one had not yet emerged.

History of the Fed

As the industrial economy grows, the shortcomings of the decentralized banking system become more acute. There is a stock market panic; many banks do not have enough funds to meet the sharply increased demand. Panic arose simply from the spread of rumors about the collapse of one bank or another, customers rushing to withdraw deposits, and the bank does not have enough cash. A particularly severe banking crisis occurred in 1907, and then the major financier J. Morgan personally intervened and organized emergency loans for financial institutions. This episode initiated the reforms that prompted Congress to establish the Federal Reserve System in 1913.

Opinion: The Fed was invented at the beginning of the 20th century by a group of bankers - the Morgans, Rockefellers, Coons, Loebs, Goldmans, Mellons, Sachses, Du Ponts - who met at the end of 1910 at the hunting lodge of John Morgan on Jekyll Island off the east coast of the United States. Republican Senator Nelson Aldrich, father-in-law of John Rockefeller, began lobbying for the Federal Reserve Act.

What is the Fed?

The Federal Reserve System is an independent federal agency, the US Central Bank, that exercises control over the US banking system. The Federal Reserve is a system consisting of many organizations: 12 Federal Reserve Banks located in major cities, about three thousand commercial so-called member banks, includes the Board of Governors, the Federal Open Market Committee and advisory councils.

Formally, the Federal Reserve is controlled and managed by the state, but the organization’s capital is private, in joint-stock form. However, owning shares of the Federal Reserve is somewhat different from owning shares of a regular company.

Criticism of the Fed

Given the specifics and history of the agency, the Fed often becomes the target of criticism both from completely respectable institutions and from the position of home-grown conspiracy theorists.

Money for Nothing is an extremely interesting film:

A memorable moment in the film was the words of Alan Greenspan - “The United States can pay off a debt of any size, because we can always print money for this, so the probability of default is zero.”

There have been debates over the nature and appearance of the American central bank among financial specialists (as well as among ordinary “whistleblowers from journalism”) for many years. On the one hand, arguments are made that the Fed is a completely private organization that has no connection with the American government. On the other hand, there are voices of apologists for the Federal Reserve System, pointing to the fact that the highest governing bodies of the Fed are directly profiled with the US executive authorities.

The truth, as always, is in the middle. And to understand it, it is necessary to remember that the ideology of “equal rights and opportunities” deeply rooted in early American society was in sharp conflict with the very idea of creating a private structure that would usurp the sovereign right of the American people enshrined in the Constitution to public control over the coinage. However, the idea of creating a private central bank was finally realized in 1913, when US President William Wilson and Congress authorized the creation of the Federal Reserve System.

At first glance, the structure of the Federal Reserve System is very complex and confusing (Figure 5.3). It consists of a number of organs, which are composed differently and have different types of subordination. The literature available today in large quantities covering this issue does not allow us to fully understand it. To do this, it is necessary to turn to the analysis of American legislation relating to the Federal Reserve. It is his study that sheds light on all controversial and ambiguous aspects of the problem.

The top level of the Federal Reserve structure is Federal Reserve Board of Governors. It is an independent government agency outside the executive branch (its status is similar to that of the CIA and NASA). The seven members of the Federal Reserve Board of Governors, under current law, are appointed by the President of the United States and confirmed by the Senate for 14-year terms with the right of reappointment. The president appoints one of the seven governors as chairman of the Fed.

Despite the fact that the Board of Governors reports once a year to the Speaker of the House of Representatives of Congress, it functions virtually independently: no authority has the right to veto decisions of the Board of Governors.

The president can dismiss managers “if there are sufficient grounds,” but in practice the rotation of personnel on the council is very slow and, judging by the composition of the council, depends far from the level of professionalism of its members. The only limitation is that, according to the law, a member of the Board of Governors cannot be a person affiliated with any bank or other commercial entity.

The Board of Governors exercises control over the activities 12 reserve banks , forming the “body” of the Federal Reserve System (Fig. 5.4). They are the direct levers through which the Board of Governors implements financial policies. Through them, the Fed injects issued dollars and securities into the economy.

Reserve banks make loans to private banks and thus the financial system is saturated with money supply. The Reserve Bank Board of Directors consists of nine members, six of whom represent the non-banking sectors of the economies of the states included in the banking district (three of whom are appointed by the Board of Governors of the Federal Reserve System), and three representatives of the largest banks. The Board of Directors selects the bank's president, who is approved by the Federal Reserve Board of Governors.

The Federal Reserve Banks are not government organizations. These are private structures indirectly connected with the state through the Board of Governors of the Federal Reserve System.

Reserve banks not only perform their direct functions, but are also information centers that monitor the economy of the banking district.

About 8 thousand banks have the status of members of the Federal Reserve System (member banks). They are directly affiliated with the reserve banks through participation in their authorized capital (by holding shares). The status of a member of the Federal Reserve gives the right to claim annual dividends in the amount of 6% of the member bank’s share in the authorized capital of the reserve bank. This also opens up the opportunity to participate in the selection of the board of directors. At the same time, shares of the Reserve Bank are inalienable and cannot be the object of trading on the stock exchange.

The list of functions of the Federal Reserve is quite wide (Fig. 5.5), but in practice they are distributed between two relatively independent structures - the Board of Governors and the Open Market Committee. If the Federal Reserve Board of Governors develops a foreign exchange strategy, the Open Market Committee (FOMC) determines the volume of purchases and sales of government securities or, in other words, the dynamics of dollar emission.

The Open Market Committee (FOMC) is one of the most important structures within the Federal Reserve. (Fig. 5.6). Its immediate function is to develop policies in the field of transactions with securities and determining the interest rate , against which banks can lend to each other. The committee consists of twelve people - seven members of the Board of Governors and five presidents of the Reserve Banks.

The Committee decides on the sale of US government treasury obligations on the securities market. He also regulates the size of their turnover, buying them back if necessary by issuing dollars. Thus, along with the 12 Reserve Banks that issue loans in issued dollars, the Open Market Committee is the main instrument for saturating the US economy with the money supply.

Moreover, it is the Federal Reserve Board of Governors that has exclusive authority to determine the volume of dollar emissions.

The dollar has the status of a Treasury bill of the Federal Reserve System, to which the right to print dollars was delegated by Congress by the Act establishing the Federal Reserve System.

The mechanism for issuing dollars is very confusing. Contrary to popular belief, the Fed does not issue money arbitrarily. According to the Federal Reserve Act and subsequent amendments thereto, the Federal Reserve issues dollars secured by an appropriate amount of securities. This closely links the issuance procedure to the securities market and the institutions issuing bonds. This is how the US Department of the Treasury indirectly takes part in the issue. The scheme for issuing dollars is shown in Fig. 5.7.

Thus, the dollar, the US currency, is issued in the form of Treasury securities by the Federal Reserve. In addition, the council sets the refinancing rate and the amount of required reserves that commercial lending institutions must maintain at the Federal Reserve Banks.

The profits that the Federal Reserve receives as the financial and issuing center of the United States are transferred in full to the Treasury, with the exception of the amount used to pay dividends to the member banks of the Federal Reserve.

The Fed regulates the volume of dollar emission, making decisions on issuing cash for the purchase of government securities, lending to the American government with its own printed money. Interest payments on bonds received by the Fed amount to hundreds of billions of dollars and do not appear in any reporting. To be able to pay interest, the US government issues additional bonds and sells them to the same Fed. Thus, there is a typical financial pyramid.

In addition, the Fed has a number of preferences, the number of which is growing. In particular, it is exempt from federal and local taxes, with the exception of real estate taxes. Congress passed an income tax bill that helped build a system that could generate virtually unlimited federal government debt while ensuring that interest on that debt was paid to the Fed's owners. And this despite the fact that the emission center is virtually independent of American congressmen and voters.

It is clear that the Fed is largely opaque. The US Government General Accounting Office has the formal right to check it, but in the area of making key decisions (the Fed's international activities and its financial policy), the Board of Governors and the Open Market Committee are actually not accountable to anyone. Once a year, the Fed chairman reports to Congress, but this procedure is largely formal. There are forces in Congress that have been demanding a full independent audit of the Fed for several years now. Thus, Republican Congressman R. Paul, being one of the prominent opponents of the Fed’s policy, has been talking about this from the rostrum of the House of Representatives for several years. However, so far the Governing Council has been able to maintain the current state of affairs.

Thus, the Fed is a hybrid multi-level structure with public and private presence.

The Open Market Committee, which includes governors appointed by the president and presidents of the reserve banks elected by private banks, is the body at which the real process of reconciling private and public interests takes place.

The state participates in the activities of the Fed through the Board of Governors appointed by the president; the Fed transfers its direct profits to the Ministry of Finance, but the state character of the Fed is generally limited to this. The practical irremovability of members of the Board of Governors elected for a 14-year term, their complete independence in matters of management of the US financial system, the opacity of the Fed's activities, the officially recognized private nature of the Federal Reserve Banks - all this testifies in favor of the thesis that the Federal Reserve System is par excellence a private corporation.

Although the Federal Reserve has not changed structurally since its creation in 1913, the share of this “department” in the American and world economy has grown significantly. Moreover, there is an increase in the independence of this “center of power” from the American state. In particular, the rule of the mandatory presence of two representatives of the Ministry of Finance on the Board of Governors was in effect only until 1933. The abolition of this condition coincided with the end of the Great Depression and was accompanied by a number of Fed preferences. The complex and confusing legal position of the Federal Reserve System hides the existing mechanisms for manipulating US financial and economic policy and transferring crisis phenomena outside the country.

Federal Reserve(Fed) is an organization that performs the functions of the US Central Bank.

The history of the Federal Reserve dates back to 1913, when the Federal Reserve Act was adopted. The predecessors of the Fed were successively several private banks, which were unable to create an effective centralized financial system for the country. The creation of the Fed was the result of counteracting a series of interbank crises in 1873, 1893 and 1907, which made the need for a single regulatory and issuing body apparent.

Today, the Federal Reserve System assumes the following functions:

fulfilling the tasks of the Central Bank of the country;
maintaining a balance between the public interests in the United States and the interests of commercial banks;
supervision and regulation of the country's banking system, protection of the interests of investors and clients of credit institutions;
carrying out the issue of money - US dollars;
regulation and stabilization of financial markets, risk control;
providing depository services for the US government and official international institutions;
participation in the functioning of the system of international and domestic payments;
eliminating liquidity problems at the local level and providing loans to credit institutions;
strengthening the role of the United States in the global economy.

Today, the Fed includes the following main structural units: a board of governors, consisting of seven people appointed by the President of the United States and approved by Congress for a term of 14 years; The Federal Open Market Committee, the Federal Advisory Council, 12 Federal Reserve Banks, which are regional representatives of the Federal Reserve, and other credit institutions that are participants in the system.

The peculiarity of the Federal Reserve System (unlike traditional central banks of other countries, for example the Bank of England or the Central Bank of the Russian Federation) is that it is built not on public, but on private capital. Any credit institution that meets the Federal Reserve's requirements can purchase its shares. This allows you to receive a fixed dividend income, and also gives you the right to vote in the election of six of the nine managers of regional branches.

One of the most important functions of the Federal Reserve System is the issue of money. In practice, it is done as follows. The money issued is used primarily to purchase U.S. government debt—Treasuries. Only then do the banknotes go into circulation.