Is the role of the Federal Reserve still relevant

Is the role of the Federal Reserve still relevant

           According to the actual Federal Reserve website itself, the “Fed” as it is known was “created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system” (federalreserve.gov, 2017). The Fed is over a century old, which might lend some more info to the importance of its existence. However, it still begs the question, after all of this time, is the Federal Reserve still relevant or is there an alternative system that can be set up?

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The first thing to understand is a more in depth explanation of what the Fed is responsible for. Again, according to the actual .gov website itself, the Fed is responsible for a range of regulatory financial items, of which the arguably most important is “supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation’s banking and financial system to protect the credit rights of consumers” (federalreserve.gov, 2017). This sounds great from the standpoint of the consumer, but how does that ideology translate to a business owner, or even an investor? To further compound the question of the Fed’s relevance, it is important to note that while the Fed does host a wide range of regulations, are they the best at these tasks?

Lawrence H. White, professor of economics at George Mason University states “history shows us that private institutions have been more capable at carrying out many of the Fed’s activities” (White, 2012). White also answers the question related to the banks. According to him, the Fed was originally set up to settle regulatory issues with the commercial banking system. So for example, the Fed was responsible for making sure that banks had enough money to back their members on a day to day basis. Anybody who walks into a commercial bank will often see a sign that says the bank is federally insured for up to a certain dollar amount. White, however, goes on to explain that “the power to set banking standards and to supervise compliance is now concentrated in Washington D.C.” (White, 2012). The reason for the switch is partly from the fallout of the financial crisis that questioned the Fed’s ability to even own up to the tasks.

While White argues that a lot of what the Fed does could easily be controlled by private firms, Daniel Indiviglio argues differently. Indiviglio says that “if you get rid of the central bank (controlled by the Fed), you would need to push many of the functions to other regulators or private firms” (Indiviglio, 2011). So, one man argues that the Fed is a necessity, and the other claims that its jobs could, in fact, be run privately. What is the argument for the Fed? One of the major and critical roles of the Fed is its supervision of these financial entities. Earlier it was mentioned that the Fed is over 100 years old, which obviously can attribute for a wide range of experience. Indiviglio says that supervision goes multiple directions, the banks can watch the Fed while the Fed can watch the banks. He cites that one of the critical roles of the Fed’s supervision is to offer that supervision and the reason it becomes so important is “because it has a great deal of data on and experience with financial markets, global regulation, and macroeconomics” (Indiviglio, 2011).

Just from the beginning, and from an outside standpoint it would seem that the Fed is pretty necessary. I want to look at this objectively and think about things in terms of the future. The idea of privatizing some form of government regulation does not seem like a new concept. Jails have been privatized for a while now, but just because something maybe works in the justice system, does not mean that it will work in a financial realm. Furthermore, when a company is purely in business for the profit which can be gained, does it really care about the interests of the people involved? I think the real problem lies somewhere within that question. If a private company steps in to regulate the banks, how much will they really care about the people investing money? Maybe a multi-millionaire will have a much greater say in the changes made or perhaps a greater deal of attention will be made to his or her account complaint. But, what if an issue comes up with somebody that is a recent college graduate that is just trying to start his or her life? I believe that a level of sympathy and empathy needs to be taken into consideration with these types of situations, and I do not believe a private company has the best interest of everybody at the bottom. To offer an opinion from somebody at that level, I would say I want the Fed to be in control of these regulations. When it comes down to it I want somebody that is going to keep the top dogs in check, while still offering assistance to the little guy at the bottom.

To look at the opposite end of that coin, maybe the Fed is slightly out of date, but when something is aging I believe the better solution is to update. Is there a way to find a compromise between what everybody seems to think is best? Maybe privatizing certain aspects would be valuable to allow the Fed to focus on those key elements that it really has a solid firm grasp on. Face it, if the Fed has been around for over 100 years then obviously something is working. However, the United States is ever changing, especially in these upcoming Presidential years. It will be interesting to see what changes President Elect Trump make and how those will affect the Fed. Consider this, if big business had control over the entire system, would they simply set forth privatized regulation companies that they could lobby towards? The main issue has to be maintain the law and still keeping the best interest of the majority at heart.