The Us Central Bank Summary

The US Central Bank Summary

Before the FED was created there were two failed attempts at creating a central bank due to the fear of Americans of having one large powerful bank. This eventually changed in 1907 when there was a severe financial crisis which created a growing consensus among Americans that a central bank authority was needed to ensure a healthy banking system. By 1913 the FED was created with the signing of the Federal Reserve Act and stood as an example of a decentralized central bank that balanced the competing interest of both private banks and populist investment.

There were a number of financial crises since then, but the most noticeable are the great depression around 1930s and the recent crash of the stock market around 2006 – 2008. Many people blamed the FED for failure to stern speculative lending that led to the crash and some argued that they also had inadequate understanding of monetary economics which kept the FED from lessoning the depth of the depression. As a result they created several Acts that helped resolve the crisis. More recently was the crash of the Wall Street stock market which came about from risky loans, house price slumps intensifying and the mortgage meltdown. Investment banks took advantage of the loan lending situation and banks like Leham Brothers collapsed which created financial panic while others like Bear Stearns had help from the FED. Several regulations such as relief programs were created after to assist banks and the Dodd-Frank Act were intended to better the position of the system by addressing risks. Also, for consumer financial protection the Consumer Financial Protection Bureau was created.

After the crisis banks limited their lending and the public was still forced to keep up repayments on debts they already have. In the public’s view large banks and financial institutions, large corporations and wealthy people gained the most from new policies implemented.

The US Securities Exchange Commission (SEC) Summary

Before SEC was created there was little federal regulation for securities. SEC was created to restore investor confidence after a stock exchange crisis in 1934 due to insider trading. Most recently was the crash of the Wall Street stock market as mentioned in the case of the central bank which caused SEC to enforce new regulations.

Critics blamed SEC for being a major influence of the crash due to the reform of limiting short selling. In short selling, investors try to profit by borrowing shares and selling them. If the shares fall, the investors can buy them back at a lower price and pocket the difference. When financial stocks were diving during 2008, critics said speculators were abusing the tactic to artificially drive down the price of certain stocks. Therefore, a new rule was included which applies to stocks that decline at least 10% in a single day. For these stocks, SEC will allow short selling "only if the price of the sale is above the highest bid price nationally."