Question

Please provide your thought related the below paragraph:

The Federal Reserve was the third attempt at creating a central bank for the United States and instead of the bank being a charter bank it was created under the Federal Reserve Act. Congress at the time, did not want to place all the power in one bank or in one location; therefore, it distributed economic power three ways: “among bankers and business interests, among states and regions, and between government and the private sector” (Hubbard & O’Brien, 2014, p. 389). Once Congress had distributed the economic power into three categories, it made the decision to divide the United States into 12 districts which would encompasses agricultural, manufacturing, rural, urban and service-related industries to ensure that there is a variety of businesses and needs within each district. These 12 districts would have the primary function to make discount loans to banks in its region which would provide liquidity to banks and eliminating the role as a lender of last resort and end bank. In more detail, “the Fed’s roles in the payment system, control of the money supply and financial regulation” can be broken down into more detail to manage check clearing, manage currency, discount lending, supervisory role over mergers, serve on FOMC and provide services to businesses. (Hubbard & O’Brien, 2014, p. 391). Legislation than created four groups: The Federal Reserve Banks, private commercial member banks, the Board of Governors, and the Federal Open Market Committee (FOMC) to perform separate duties.

Answer 1

The distribution of bankiong power among the bankers and business interests, among state and regions, and between government and private sector would have been brought the economic efficiency. If the banking power were concentrated in a single firm that would have been lead to the policitical pressure in the decisons of the bank. By dividing the United states into 12 districts which encompasses various industries, this action would have been much easier for identifying the needs of the 12 banks and for giving them proper funding. A central bank's primary role in a economy would be controlling money supply and financial activities the other activities should be considered as secondary.