Chapter 15, Problem 18AA

To determine

To explain: The advantage banks had gained by becoming members of Federal Reserve and the way this membership is different from past.

Explanation of Solution

The Federal Reserve System now acts with its network of banks. Fed divides the country into 12 districts of Federal Reserve, each district has a Fed district bank. These district banks are arranged as a corporation whose owner are the member banks. These district banks have further 25 branch banks.

When the banks have become members of the Federal Reserve, they help the Federal Reserve in carrying their duties. The main advantage of membership is that the banks can act as stockholders in their district bank and can receive dividends on their stocks of district bank. These member banks can also vote for 6 of the 9 district bank’s board members.

There was a different situation in past, in past members were only required to maintain the reserve requirements and other guidelines of Fed such as maintain certain amount of deposits as reserves. They have not got any rights and benefits.

Economics Concept Introduction

Introduction:

Federal Reserve-The Federal Reserve was formed in the year 1913 by Congress to act as the central banking organization of nation. It is a system or network of banks. The Federal Reserve or Fed is the body responsible for forming the monetary policies in the United States.