Question

The Federal Reserve System consists of 12 regional Federal Reserve Banks. Each bank is sponsored and wholly owned by private commercial banks, who own all of the Bank's stock and receive stock dividends. Nonetheless, Mishkin describes the Federal Reserve Banks as "quasi-public" institutions.

(a) Explain what aspects of the Federal Reserve System allow Mishkin to consider the Federal Reserve Banks semi-public entities.

Answer 1

SOLUTION

ASPECTS OF THE FEDERAL SYSTEM ALLOW MISHKIN TO CONSIDER THE FEDERAL RESERVE BANKS SEMI-PUBLIC ENTITIES

The Federal Reserve system is the central bank of the United states. It generally performs five general aspects to promote the effective operation of the economy and more generally, the public interest. The Federal Reserve

Conducts the nation's monetary policy to promote maximum employment, stable prices and moderate long term investment in the economy.

• Promotes the stability of the financial system and seeks to minimize and contain systematic risks through active monitoring and engagement in the U.S and abroad
• Promotes the safety and soundness of individuals financial institutions and monitors their impact on the financial system as a whole
• Fosters payment and settlement system safety and effeciency through the services to the banking industry and the U.S government that facilitate U.S dollar transactions and payments
• Promotes consumer protection and community development through consumer-focused supervision and examination, research and and analysis of emerging consumer issues and trends, community economic developement activities and the administration of consumer laws and regulations.
• These aspects also includes influencing the supply of money and credit, regulating the supervising financial institutions, serving as a banking and fiscal agent of the United States government and supplying payment services to the public through depository institutions like banks.
• Mishkin says, Changes in the ability to process information more effectively have allowed a lot of lending to be move out to the opaque into the more transperent. This has meant that the importance of banks in the futher financial system in terms of lending has decreased
• Futher he added, One thing the Federal Reserve system has done is to create LGBO( large complex banking organization) program where we do special monitoring of the largest finacial institutions, because there is recognition thnat if one of these institutions fails, it can have much more systematic implifications for the economy.