The Federal Reserve System established
A) a system for federal chartering of banks.
B) a system for controlling bank note issuance.
C) a source of liquidity for the banking system.
D) the beginning of demand deposit accounts.
E) None of the above.

Question

Quizplus · Accepted Answer

The Federal Reserve System was established to create a central banking system that would provide a source of liquidity for the banking system. This was achieved through the ability of the Fed to control the money supply and provide reserves to banks when needed. While the Fed also had the power to regulate and supervise banks, it did not establish a system for federal chartering of banks (which was already in place at the state level) or the beginning of demand deposit accounts (which came about through market innovation). The Fed did have the ability to control bank note issuance, but this was not the primary reason for its establishment.

The Federal Reserve System Established