Question

According to the lecture, what was a major problem faced by banks in the West before the Federal Reserve System was established? How did the system help solve this problem?
writeing qustion

Answer 1

Answer:

Before the establishment of the Federal Reserve System, the West was faced with financial crises. There were instances ok which there were a form of crises which led to fears and worries by bank customers. The people ran to their banks to withdraw their deposits. The failure of one bank often had a ripple effect in which customers of other banks rushed to withdraw funds from their own banks even if those banks were not involved in the crisis.

Banks needed a source of emergency reserves to prevent customer fears and banks being driven out of business.

This led to the set up of the Federal Reserve Act.

The Federal Reserve System was created to tackle these banking issues and also to make possible fostering a sound banking system and healthy economy.