ECN 220

In the 1800’s, monetary policy was nothing like it is today. Banks and local governments printed their own forms of money giving rise to over 30,000 different varieties of currencies. Often, banks had insufficient funds and couldn’t handle the withdrawals of their customers which would force them to close resulting in the loss of peoples’ entire life savings bringing economic devastation to their families and to the region. In order to put an end to this monetary madness, President Woodrow Wilson signed the Federal Reserve Act in 1913 creating a central bank for the United States known as the Federal Reserve. The Federal Reserve was put in place in order to establish and maintain the publics’ confidence in our nation’s monetary and banking system as well as maintaining a stable, healthy, growing economy. The Federal Reserve consists of two parts, the Board of governors, which guides most of our monetary policies and twelve regional Federal Reserve Banks and their branches. The primary role of these twelve regional banks is to act as a sort of “operating arm” for the banks in their regions. They work together with the board of governors to create and implement monetary policies, supervise the actions of banks and bank holding companies, as well as providing financial services like clearing checks between private banks, providing currency and loans, and holding bank reserves to provide greater security and so the Fed can monitor the actual level of each bank’s reserve. But all of this is done in order to fulfill their main goal: “A stable economy characterized by higher employment and production, steady growth, and overall stable prices.” As supervisors, the twelve Federal Reserve Banks review bank’s financial statements, assess the risk level of their investments, and confirms they are following the law. This is done in order to ensure a safer, more