Question

1. Compare the similarities and differences in term of the structure and independence of the European System of Central Banks (ESCB) and the Federal Reserve System.

Answer 1

The US federal reserve system has following features thay distinguish it:

1. Setting apart centralized authority into many divisions.

2. Ownership and control by member banks.

3. Optional membership in the fed of some banks.

Federal reserve system is a decentralized central bank. Its authority is vested in the board of governors and the presidents of twelve Regional Reserve Banks(district banks). Its functions are as follows:

1. Serving Government:

- Federal government's Banker

-Government Securities Auctions

-Issuing currencies

2. Serving Banks

- Check clearings

-Supervising lending practices

-Lender of last resort.

3. Regulating the banking system

-Reserves

- Bank examinations

4. Regulating the money supply

Structure:

In establishing the US Federal System, the United States was divided geographically into 12 districts, each with a separately incorporated Reserve Bank. District boundaries were based on prevailing trade regions that existed in 1913 and related economic considerations. So they do not necessarily coincide with state lines.

The structure of Federal Reserve System is based on five components: the Board of Governors of the Federal Reserve System, the Federal Open Market Committee, the Federal Reserve Banks, member banks and advisory committees.

The European Central Bank (ECB) is one of the seven institutions of the EU and the central bank for the entire Eurozone. It is one of the most critically important central banks in the world, supervising over 120 central and commercial banks in the member states. The ECB works with the central banks in each EU state to formulate monetary policy to help maintain stable prices and strengthen the Euro.

members meet twice a month at the institution’s offices in Germany. The minutes of their meetings are required to be published prior to the next meeting.

One of the primary functions of this body is the formulation of monetary policy for the Euro area. In this regard, they make decisions on monetary objectives, interest rates, and the supply of reserves in the Eurosystem. Every six weeks, the President and Vice-President of the ECB must chair a press conference to explain in detail their monetary policy decisions. The Governing Council also makes necessary decisions that ensure the performance of the functions of ECB and the Eurosystem.

The Executive Board

The Executive Board comprises the President, Vice-President, and four other executive members appointed by the European Council. The executive members serve for an 8-year non-renewable term. The role of the Executive Board is to implement the monetary policy as defined by the Governing Council and manage the day-to-day operations of the ECB, alongside the Chief Services Officer. Also, the board prepares the Governing Council meetings and exercises power delegated to it by the Governing Council. It holds meetings every Tuesday.

The General Council

The General Council is a transitional body that carries out responsibilities taken over from the European Monetary Institute (EMI). It comprises the President, Vice-President, and Governors of the national central banks of the EU member states. The body will continue to exist until all EU member states have adopted the Euro. As of 2017, only 19 out of the 28 EU member states have taken up the Euro as their single currency.

As a transitional body, the General Council is tasked with fixing the exchange rates of currencies for countries taking up the Euro. The council also contributes to the preparation of the ECB annual report, setting conditions of employment for the European Central Bank members of staff and collecting data.

The Supervisory Board

The Supervisory Board comprises the chair, vice-chair, four ECB representatives, and representatives of national supervisors. The board plans and executes the supervisory function of the ECB. It also proposes draft decisions for the Governing Council through the non-objection procedure.

There is a Steering Committee that supports the board’s activities, including organizing the board’s meetings. The Steering Committee members comprise the Chair and Vice-Chair of the Supervisory Board, One ECB representative, and five representatives of national supervisors. Hence both are similar in terms of structure as bith are organised by some bodies.

The ESCB will be a powerful institution. Of that there is no doubt. It will be independent of political influence in pursuing the goal of achieving and maintaining price stability, as delegated to it under the Maastricht Treaty.

Where as Although an instrument of the US Government, the Federal Reserve System considers itself "an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government.