Question

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Central Bank (US Federal Reserve Bank)

Explain and discuss the significance of fractional reserve banking system and the 12 districts in the US Federal Reserve Banking System (Central Bank).

Answer 1

The Federal Reserve System is the central banking system of the United States.It was created to address banking panics.

Fractional-reserve banking is the practice whereby a bank accepts deposits, makes loans or investments, but is required to hold reserves equal to only a fraction of its deposit liabilities. Reserves are held as currency in the bank, or as balances in the bank's accounts at the central bank.It is only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties

The Federal Reserve System has a unique structure that is both public and private and is described as independent within the government rather than independent of government with 12 Districts, each with a separately incorporated Reserve Bank which is responsible for member banks located in its district. The size of each district was set based upon the population distribution by law.

Significant factors we're:

1. Depository institutions-( transaction, or checking, accounts to the public, and may maintain accounts of their own at their local Federal Reserve Banks), thrifts, and credit unions; and
2. Federal Reserve System advisory committees, which make recommendations to the Board of Governors and to the Reserve Banks regarding the System's responsibilities.