Federal Reserve System
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Answer the following question. Why did some Americans lose faith in the banking system before the Federal Reserve System was in place? Include the following in your response.
a) Explain the three primary roles of the 12 Federal Reserve Banks.
b) Why is the Federal Reserve referred to as the banker's bank?
c) Describe the role of the Federal Open Market Committee in conducting monetary policy.
d) Based on this video, why might the Federal Reserve want to decrease the money supply?
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Solution Summary
The role of the Federal Reserve System
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The three primary roles of the twelve Federal Reserve banks are to regulate banks, provide financial services to banks, and to implement monetary policy. Its first function is the one that allows people to have confidence in the banking system. It sets the amount of reserves each bank must keep on hand, and guarantees their depositors in the event of bank failure. Prior to the establishment of the Federal Reserve, if a bank failed then the money was lost. Those who first withdrew their money would get it bank, but those who came later might not. people, fearing that if they left their money in the bank during a crisis that they would be among those who lost their funds, would make a "run" on the banks. The banks would not be able to provide cash for everyone at the same time, making bank failure a self-fulfilling prophesy. Today the Fed makes sure that the banking system is sound by monitoring bank holdings and looking at bank investments. It then rates each bank based on how well it is performing. A stable and healthy banking system supports economic growth.
The Fed is considered the "banker's bank" because it provides financial services to banks. These ...
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