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Banking System

ShashiPriya Siddabathula

Fall - 2018

Belhaven University - Houston

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Banking System

One of the oldest businesses is banks. The first bank was opened in the year 1397; the

oldest bank which is still surviving in this competitive world is Banca Monte dei Paschi di Siena

which is almost 550 years old. The first American national bank of United States was established

in 1791. The American banking system is pretty confusing and very complicated and difficult to

understand but to know about the banking system it is very important. To know what is going on

with your money understanding the banking system is very important. There are different types

of banks and different types of accounts.

Most of the Americans use bank on daily bases. There are different kinds of banks that

help them. Different banks offer different services according to the convenience of the customer.

There are retail banks, commercial banks, credit unions, savings banks, savings and loans, online

banks, mutual banks, and central banks. These banks offer services to the customer to fulfill their

dreams and achieve much more in life. Over the years banking has changed and now they offer a

wide range of services which are faster and more effective. They lend people money for homes,

to expand the business, for education and many other purposes.

1. Retail Banks: These are the banks that you use on daily basis. They give a service to

deposit or to borrow money into or from current or savings account. They are many

locations for your flexibilities and they even offer credit cards that are used in

everyday life.

2. Commercial Banks: As from the name you can figure out commercial banks are

mostly for business and not for the general public. They usually offer services like

depositing money; they even offer some investment services and offer bank loans for
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organizations in order to expand their business. They also provide other services that

organizations need.

3. Credit Union: This is usually started by the people who share a great bond with each

other. Mostly by people who work together, or are good friends to provide emergency

loans for the people in need and cannot get loans from the money lenders.

4. Savings and Loans: this bank was introduced for the lover income people to make

them self stable and buy houses. They can do savings and get approved for the loans

even though they have low income.

To provide all the services they are different types of accounts in bank. The mostly used

accounts are checking account and savings account.

1. Checking Account: this account is used for daily transactions. They allow you to

deposit and withdraw money according to your convince. They even provide other

services like checkbooks and bank card for the easy flow of transactions. They are

different services fees which vary from bank to bank according to your account.

2. Savings Account: Saving accounts are more for long term benefits. They provide you

benefits on the money deposited by the customer and the fees are charged

accordingly. Same as checking account fees vary from bank to bank.

All the budgetary exchanges and the cash supply require some sort of the board. In the

year 1913 U.S Congress thought of the framework that was sheltered, adaptable, and monetarily

steady. 28th leader of United States Woodrow Wilson marked the Federal Reserve Act on

December 23rd 1913. There are 12 government banks in significant urban communities

everywhere throughout the States with the focal organization in Washington. Before the money

related frenzy that occurred in 1907 and after that the legislature thought of the possibility of a
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FRS America was just super influence without a national bank. They ordinarily control the banks

that are individuals from Federal Reserve and keep up their monetary dependability. They are

even given the privilege of printing cash. Aside from printing the cash there are 5 general

capacities that Federal Reserve has.

1. Forming Monetary Policies to guarantee Minimum work, stable costs and moderate

long haul financing costs in the U.S. economy;

2. Settle the U.S. budgetary framework by limiting fundamental hazard through dynamic

Observing and commitment in the U.S. what's more, abroad.

3. Guarantee the wellbeing and security of individual monetary foundations and screen

their effect on the budgetary framework all in all;

4. Cultivate the soundness of the installment and settlement framework through

administrations to the managing an account industry and the U.S. government that

encourage U.S.- dollar exchanges and installments; and

5. Advances buyer insurance and network improvement through shopper centered

supervision and examination, research and investigation of developing

Bolstered additionally has an installment framework that exchanges trillions of dollars

consistently between various banks the nation over which is known as Fedwire. They have even

compelled money related organization on the substantial panic to enhance their constant

exchanges on day's end premise. As a matter of fact Federal Services is a bank to banks they give

all similar administrations to banks, credit associations and other budgetary establishment that

they give to their clients. As they are offered rights to print the cash they even pulverize some

cash as they are in charge of the best possible dissemination of the cash. They annihilate the cash

that is wore out and they separate the cash that the vibe which are phony. Thought they have
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rights to print cash the cash is planned and printed by an alternate division which is Bureau of

Engraving and printing. They even give money related administrations to the national

government and keep up their treasury by moving and reclaiming the securities and security.

They even control and regulate numerous money related foundations. They are as a team with

other state and government specialists to keep up the best possible activity and give great

administrations to their clients. The other principle perspective that government framework cares

for is financial approach. Fiscal approach principle center is for most extreme business; to sable

the costs and increment long haul loan fees. Market tasks, markdown rates and hold necessities

are three fundamental apparatuses for money related arrangement. Financial strategy and there is

another approach that is generally perceived that is monetary arrangement. These two strategies

impact the exercises of the country. Financial arrangement is generally used to check the

development where as monetary strategy is utilized to check the spending. In the event that we

consider budgetary economy money related approach is increasingly valuable where as though

we take genuine economy monetary strategy comes helpful.

There are total of 12 federal banks and it has 24 branches that operate as the central bank.

They are three major components in federal system which is Board of Governors who looks after

monetary policy. They seven members are responsible for the discount rate and reserve

requirements for their members. Staff of economist provides all the analysis. Federal Reserve

supervises commercial banks and implements the policies. Federal Reserve manages inflation,

they supervise the banking system, maintain stability of financial system, provide banking

services.

1. Managing Inflation: The reason Fed prints money is they manage inflation through

managing credit which is highly considered for money supply. They manage long
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term interest by monitoring the market. If there is no risk of inflation they lower the

interest rates which help in increasing business and liquidity which results in

unemployment.

2. Supervise the Banking System: Approximately 5000 banks are looked after by the

Fed they even supervise 850 state banks and the foreign banks that are operating in

States. The 12 banks are located in Boston, New York, Philadelphia, Cleveland,

Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San

Francisco.

3. Maintain Stability of Financial System: Fed works with Treasury department to avoid

financial collapse. They come up with new tools whenever necessary. During the

great depression in the year 1929 Fed worsened the situation by tightening the money

supply. Two decades ago they even interfered in long term management crisis.

4. Providing Banking Services: Fed buys the treasury from the government to avoid

debts. The money which is printed by Fed is used to purchase the treasury and later

the same money is added to money supply. Fed is called “Banker’s Bank” that’s the

reason each reserve bank has a reserve already for their members whenever they need

it.

To conclude, Federal Reserve System is a very important tool that manages money supply and

stabilizes the economy. It is also an operating arm of the central banks. They provide the banks

with all the services they need during crises. Fed is not to avoid problems but to be prepaid

whenever necessary. During the crises Fed has all the solution and comes up with a proper idea

or a tool to face them.

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References

Understanding the US banking system (n.d) International students loan. Retrieved from

https://www.internationalstudentloan.com/resources/understanding-us-banking-

system.php

Mittal. R. Understanding the US Banking System: How do US banks work? Stilt. Retrieved from

https://www.stilt.com/blog/2018/03/us-banking-system-us-banks-work/

Amadeo. K. (2018) The Federal Reserve and What It Does. The Balance. Retrieved from

https://www.thebalance.com/the-federal-reserve-system-and-its-function-3306001

The Structure and Functions of the Federal Reserve System(n.d) Federal reserve education .org.

Retrived from https://www.federalreserveeducation.org/about-the-fed/structure-and-

functions

Federal Reserve Banks (n.d) Federal Reserve bank of Richmond. Retrieved from

https://www.richmondfed.org/faqs/frb
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