Running Head: MANY FACES
The Many Faces of the Federal Reserve
Nikki Minor, Miguel Ramos, and Jaime Purl
The many faces of the Federal Reserve
You find yourself in line outside your bank, your heart racing and your palms sweating. Tension and anger radiate from the crowd. As you finally make it to the door of the bank, the door is closed and locked. Panic races through the crowd as people cry the bank has failed. You realize in absolute numbing despair that your life savings is gone. This is how many people felt during the bank failures of the early twentieth century. The government had to act and in doing so, the Federal Reserve System (the “Fed”) was created by Congress when they passed the Federal Reserve Act in 1913 in order to mitigate the risk of bank failures. The Federal Reserve System is made up of twelve regional Federal Reserve banks. Each Federal Reserve Bank acts as a central bank for the private banks in its region and is responsible for clearing checks between private banks, holding bank reserves, providing currency, and providing loans to the private banks. The Federal Reserve System is managed by the seven members of the Board of Governors who are responsible for guiding monetary policy. The Federal Open Market Committee (FOMC) is comprised of the members of the Board of Governors and five of the regional Reserve bank presidents. The purpose of the FOMC is to guide the Fed’s daily activities in the financial markets. The overall objectives of the Fed include “economic growth in line with the economy’s potential to expand; a high level of employment; stable prices (that is, stability in the purchasing power of the dollar); and moderate long-term interest rates” (Federal Reserve System, 2005). In order to achieve these goals, the Fed assumes many roles in the economy. These roles may lead many people to view the Fed as a warrior, the Fed as a mechanic, and the Fed as a fall guy.