What You Need to Know about The United States Federal Reserve

Every country has a central bank and that of the United States is the Federal Reserve, known to be the financial strength of the American economy overseeing the financial system of the United States and has been the bank that most countries in the world look up to before taking actions except from the World Bank.

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The need for a Central Bank was pressing in the United States during the 19th century as the economy of the country was facing devastating times with crashes. The Economy of the United State was down due to the civil war and the fat that the country didn’t have an Apex bank to shoulder its responsibilities when it was needed. The United States had tried creating a Central Bank before this time. The first central bank was between the year 1791 and 1811 by Alexander Hamilton and the second was between 1816 and 1836.

Before the Central bank in the United States, a simple rumor of a bank going bankrupt will actually lead the bank to bankrupt as people will panic and withdraw their funds as they knew there were no guarantee of getting their money back if the bank closes and this particular action often led to an economic recession. The lack of an Apex bank led to a lot of panic like the one in the year 1857, 1873, 1884, the baring crisis, 1893, 1896 and 1907.

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The 1907 economic crash was what led to the creation of the United States Federal Reserve. The crisis was curtailed thanks to J.P Morgan and after this, the congress passed a bill to create a central bank but it took about 5 years to execute the bill as there were concerns about having power, political will and manipulation but in December 23, 1913, the United States Central Bank was born.

Unlike the Central banks in the world, the Federal Reserve is different as it was an object of compromise. The Federal Reserve is a network of 12 regional banks of in a location with 7 people who will serve as governing body selected by the president after which will be screened by the senate and each regional bank is a private corporation. The regional banks are supposed to keep 6% capital of the nationally chartered bank in the region. The regional banks then issue stocks worth the amount of the 6% at a fixed price of $100 per shares which cannot be sold at the same time, it cannot serves as voting right in the Federal Reserve. At the end of the year, the banks get dividend on the 6% of their investment while the Federal Reserve sends the remaining profit to the treasury.