THE FEDERAL RESERVE BANK SYSTEM

The Federal Reserve System, or the Central Bank of the United States, consists of 7 members of the Board of Governors, 12 Federal Reserve banks, of the Federal Reserve System, and 12 members of the Federal Open Market Committee. Within the Federal Reserve System there is also the Federal Reserve Council and approximately 5,000 member commercial banks. This number of commercial banks represents approximately 40 percent of all commercial banks in the United States. While it is not an obligation for a commercial bank to be a member of the Federal Reserve System, all commercial banks are subject to the policy and convention handed down by the Fed.

As discussed previous, the Federal Reserve's goal is to normalize the enlargement of the economy. Purposely, it regulates the amount of money in the economy, called financial aggregates. Enough money is obliged to be available for borrowing to ensure enough credit expansion to foster economic growth. There must not, however, be so much increase as to cause price rises or to disrupt the orderliness of the monetary markets. The Fed controls U.S. monetary policy primarily through the use of three policy-making instruments. These tools comprise (1) devious open market operations, (2) setting attention rates, and (3) dictate preserve necessities. As a more in- depth discussion of interest rates will follow; we will address the issue of set aside requirements first. The term reserve requirements refer to the amount of resources that a member bank must have on hand as some percentage of the total deposit of that bank. The Fed also controls the centralized funds rate, or the interest rate that American banks that have funds in excess of the necessities dictate by the Federal Reserve can use to make overnight loans to banks whose funds do not meet the level dictate by the Fed.

The last accountability of the Fed is to position the prime lend rate. While commercial banks and other lending agencies can present lending rates higher than that existing by the Fed, these rates are normally expressed as prime plus rates. To be pleased about  the consequence of interest charge and the authority they have on the economy, one must comprehend how concentration rates affect the overall money provide and economy.