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Role of the Federal Reserve

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Discuss why financial institutions are heavily regulated, with specific focus on their ability to increase or reduce the money supply. How does the Federal Reserve currently regulate financial institutions in the United States, and what effect has such regulation had on the U.S. financial services industry? What are the benefits and costs of financial regulation, and do the benefits exceed the costs?

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Solution Summary

The solution discusses the role of the Federal Reserve and how it controls the supply money through its monetary policy.

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The financial institutions are heavily regulated because they form an important part of the country's economy. The government wants to ensure that there is customer protection and market stability. An important reason for regulating the financial institutions is to ensure that there is low market manipulation. There is regulation to protect the customers of the financial institutions and investigate complaints made against financial institutions. A critical reason for regulating financial institutions is to maintain confidence in the financial system.

The Federal Reserve regulates the financial institutions by taking a number of measures. It has established the Federal Financial Institutions Examination Council. This council has set up uniform federal principles and standards for ...

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  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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