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Chapter 11: Q.1 (page 315)

Why was the Federal Reserve System set up with 12 regional Federal Reserve Banks, rather than one central bank as in other countries?

Short Answer

Expert verified

The writers of the Federal Reserve Act wanted to confirm the Fed's authority was not centralized in a single location

Step by step solution

01

Step 1. Introduction

A central bank is an apex monetary authority in an economic that controls money supply, formulates monetary policy, and is responsible for issuing currency. Unlike other countries US does not have one central bank but 12 regional federal banks.

02

Step 2. Explanation

Federal reserve banks were created through the Federal reserve act. The writers of the act made it clear that these banks were not supposed to be in one single location but rather be spread in multiple locations. This may be because Americans are vary of centralized authroity. Establishing 12 central banks instead of one distributes the power regionally isntead of concentrating it inone institution.

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Most popular questions from this chapter

Why does the United States operate under a dual banking system?

. Go to http://www2.fdic.gov/hsob/index.asp. Select “Commercial Banks,” and then select “Number of Institutions, Branches, and Total Offices.” If you look at the trend in the number of bank branches, does the public currently appear to have more or less access to banking facilities? How many banks were there in 1934, and how many are there now? Does this data indicate that the trend toward consolidation is continuing?

Go to the St. Louis Federal Reserve FRED database, and find data on the level of money market mutual fund assets (MMMFFAQ027S). Download the data into a spreadsheet.

a. When did assets start entering money market mutual funds? What was the total worth of assets in money market mutual funds at the end of 1970?

b. For each decade period, calculate the total percentage change in assets from the beginning of the decade to the end of the decade: 1980:Q1–1990:Q1; 1990:Q1–2000:Q1; 2000:Q1–2010:Q1. For each decade period, divide the total percentage change by 10 to get the average yearly percentage increase. Which decade had the largest average yearly growth in money market mutual funds?

c. Calculate the growth rate from the most recent quarter of data available to the same quarter a year prior. How does this growth rate compare to the highest average yearly growth rate for the decades from part b?

Unlike commercial banks, savings and loans, and mutual savings banks, credit unions did not have restrictions on setting up branches in other states. Why, then, are credit unions typically smaller than the other depository institutions?

How did competitive forces lead to the repeal of the Glass-Steagall Act’s separation of the banking and securities industries?
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