Federal reserve Bank Nishil Shah

The Federal Reserve of USA is the central banking system of the United States of America which was
created on in December 1913 with the enactment of the Federal Reserve Act after a series of
financial panics led to the desire for central control of the monetary system in order to ease financial
crises. Over the years, crises like Great Depression and the Great recession have led to the expansion
of the roles and responsibilities of the Federal Reserve system. This central banking "system" has
three important features: (1) a central governing board—the Federal Reserve Board of Governors;
(2) a decentralized operating structure of 12 Federal Reserve Banks; and (3) a blend of public and
private characteristics.

Who Owns the Federal Reserve Bank of the USA?

The Federal Reserve system is made up of Twelve regional federal reserve banks and the Board of
Governors in Washington, D.C which is an agency of the federal government and reports to and is
directly accountable to Congress. The Federal Reserve derives its authority from Congress which
created the system in the year of 1913 as mentioned above. Further, it is not funded by
congressional appropriations. Each of the twelve regional federal banks are made up of member
banks of the respective region as well as shareholders and owners. The Federal Reserve Act requires
that each member bank subscribe to the capital stock of the Reserve Bank in an amount equal to 6
percent of the capital and surplus of the member bank. These shares are nonvoting, with a par value
of $100, and may not be transferred or hypothecated. The so-called “shareholders” of the Fed do
not have voting control. And the “shares” of the Fed are not tradable. Ownership is part of the
requirement of being a chartered bank.

What are the Fed's main objectives? 

The objectives as mandated by the Congress in the Federal Reserve Act are promoting (1) maximum
employment, which means all Americans that want to work are gainfully employed, and (2) stable
prices for the goods and services we all purchase. In this way, the Fed’s monetary policy decisions
truly affect the financial lives of all Americans—not just the spending decisions we make as
consumers, but also the spending decisions of businesses—about what they produce, how many
workers they employ, and what investments they make in their operations.

How successful is the Fed in accomplishing its main objectives?

The monetary policy goals of the Federal Reserve are to foster economic conditions that achieve
both stable prices and maximum sustainable employment. The two goals of price stability and
maximum sustainable employment are known collectively as the "dual mandate." The Federal
Reserve's Federal Open Market Committee (FOMC), which sets U.S. monetary policy, has translated
these broad concepts into specific longer run goals and strategies namely Price stability and
Maximum Sustainable employment. The Federal reserve has devised the concept of a Bullseye
chart that gauges the progress made towards both above stated objectives of the Fed. The plot can
be divided into four quadrants. Dots that lie to the southeast of the bullseye have an unemployment
rate above its estimated goal and an inflation rate below the 2 percent objective. Dots that lie to the
northeast of the bullseye have both unemployment and inflation above desired levels. Dots that lie
to the southwest of the bullseye have both unemployment and inflation below the FOMC's stated
aims. Lastly, dots that lie to the northwest of the bullseye have unemployment below the estimated
rate consistent with full employment but inflation above the 2 percent objective. The current plot is
on the southwest quadrant of the Bullseye chart which signifies that both the unemployment and
inflation rates are below FOMC’s stated aim which is a good sign since the fed is able to achieve
better that its maximum sustainable employment targets with inflation rates being less than the
expected 2% target as benchmarked by the Federal Reserve.

How does the US Fed system differ from other central banks in the world?

One of the key differences between the US Federal Reserve and other central banks in the world is
that unlike the other central banks which are autonomous institutions wholly owned by the
government whereas the US Federal bank is not wholly owned by that US government that is many
private entities have shareholding in the US Federal Bank.

Central banks’ methods of managing their large balance sheets centers on the choice of
instruments that would allow the banks to adjust interest rates without regard to the quantity of
reserves. The Fed pays interest on excess reserves at the policy rate but is not allowed to
issue bills. The European Central Bank does not remunerate excess reserves kept in the
counterparties’ current account at the central bank, but it could immediately issue bills. The Bank of
England pays interest on reserves at the policy rate and has issued bills. And the Swiss National
Bank has issued bills but does not pay interest on reserves, although it has the authority to do so. So
the key difference between the various central banks is that though the Fed doesn’t control the
printing of currency in the US (done by the Treasury) unlike its counterparts in different countries,
the Fed has the control of the money supply in the economy through its power to create credit with
interest rates and reserve requirements.