THE FEDERAL RESERVE SYSTEM

The American banking system consists of the Federal Reserve System as its Central bank and four types of commercial banks and organizations: commercial banks, savings and loan associations, Credit Unions, and mutual savings banks.

The Federal Reserve System of the United States performs many of the functions of the Central bank of other countries. It was designed to control the banking system and the money supply in the country. The territory of the United States is divided into twelve Federal Reserve Districts, each one of which has a Federal Reserve Bank in a major city. Policies of these twelve banks are uniform, however, because they are set by the Board of Governors of the Federal Reserve System.

The FRS carries out operations similar to those that are the responsibility of central banks in other countries: conducting certain open market operations that can affect the money supply in the county, extending credit to member banks through advances or rediscounts (the rediscounting rate is set by each of the individual member banks), issuing national currency, advising the government on making the country's financial policy, regulating money supply, and supervising commercial banks and other financial institutions in the country. The Board can buy or sell US Government securities, thus increasing or decreasing the amount of money in circulation. Besides, other open-market interventions of the FRS include the purchase and sale of investments such as bankers' acceptances and bills of exchange.

The Federal Reserve Board can influence the volume of activity on the Stock Exchanges by setting margin requirements for the purchase of securities. In other words, the FR Board can set the percentage of the market price of securities that a buyer must pay when buying stocks or bonds with a loan. Margin requirements thus limit the amount of credit that buyers of securities may be given to finance their investment activity. By raising or lowering margin requirements, the FR Board may limit or expand the volume of stock purchases.

The FRS supervises American commercial banks. A number of restrictions have been placed on banks for the fear they might monopolize the kinds of investments made. No bank may have branches outside the state it operates in. Stocks are to be bought or sold at separate brokerage houses subordinated to the FRS. Banks chartered by the FRS are less likely to be a risk for the depositor as the FRS insures most deposits against bankruptcy.

Vocabulary:

to design – розробляти

to be divided into – бути поділеним на

similar to – схожий на

to affect – впливати

advance – аванс

amount – сума, кількість

acceptance – акцепт (прийнята до сплати платіжна вимога)

bill of exchange – переказний вексель, тратта

Stock Exchange – фондова біржа

margin requirement – гранична вимога

market price – ринкова ціна

to limit – обмежувати, лімітувати

restriction – обмеження

bankruptcy – банкрутство

Questions:

1. What does the American banking system consist of?

2. What functions does the FRS perform? What are they similar to?

3. How is the territory of the USA divided (in terms of banking system)?

4. Who governs the FRS?

5. What is the Federal Reserve Board?

6. How can the Federal Reserve Board influence the volume of activity on the Stock Exchanges?

7. What restrictions have been placed on commercial banks by the FRS?

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