Page 321 - Encyclopedia of Business and Finance

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Federal Trade Commission Act of 1914

4. Provision of an efficient payments system such as 10. Issuance and redemption of U.S. savings bonds.
check collections and electronic transactions. With Regardless of how the bonds are purchased—for
billions of checks in circulation each year, the Fed example, through an employer savings plan or a
plays a major role in assuring their efficient process- bank—it is the Fed that processes the applications
ing. By arrangements among the Reserve Banks, and sends the bonds.
member banks and nonmember banks, checks are
credited or debited (added to or subtracted from) to
SUMMARY
depositors’ accounts speedily and accurately. Elec- Since it holds substantial U.S. government securities, the
tronic methods are being used increasingly to trans-
Federal Reserve System earns sufficient interest to operate
fer funds (and securities, too). One such method,
involving very large sums, is called Fedwire. Another without government appropriations. Consequently, it is
both a financially self-sufficient and politically independ-
is the Automated Clearinghouse (ACH), which is
used by the government, businesses, and individuals ent agency that exerts great influence on the nation’s econ-
omy. It bolsters domestic consumer confidence and is a
for the receipt or payment of recurring items, such
major player in global economic activities.
as Social Security.
5. Enforcement of consumer credit protection laws. SEE ALSO Financial Institutions
These laws include the Community Reinvestment
Act, which promotes community credit needs; the BIBLIOGRAPHY
Equal Credit Opportunity Act, which prohibits dis- Board of Governors of the Federal Reserve System. (2002) The
crimination in credit transactions on the basis of Federal Reserve System: Purposes and Functions. Washington,
marital status, race, sex, and so forth; the Fair Credit DC: Books for Business.
Reporting Act, which allows consumers access to Federal Reserve System (2003). “The Structure of the Federal
their credit records for the purpose of correcting Reserve System”. Retrieved October 18, 2005, from
errors; and the Truth in Lending Act, which enables http://www.federalreserve.gov.
consumers to determine the true amount they are Feinman, Joshua N. (1993, June). “Reserve Requirements: His-
paying for credit. tory, Current Practice, and Potential Reform.” Federal Reserve
Bulletin, 569-589.
6. Establishment of banking rules and regulations.
7. Determination of margin requirements (the amount
Melvin Morgenstein
of credit granted investors for the purchase of securi-
ties, such as shares of stock). The borrowed funds
are usually secured from a bank or a brokerage firm
(a company that sells stocks and/or bonds). Margin FEDERAL TRADE
requirements that are too liberal can damage the
stock market and the economy. COMMISSION ACT OF
8. Approval or disapproval of applications for bank 1914
mergers (two or more banks joining together to The Federal Trade Commission Act of 1914 prohibits
form one new bank). The Fed also acts if the new unfair methods, acts, and practices of competition in
bank is to become a state member bank of the Fed- interstate commerce. It also created the Federal Trade
eral Reserve System. Commission, a bipartisan commission of five presidential
9. Approval and supervision of the Edge Act (named appointees, confirmed by the Senate, to police violations
for Senator Walter Edge of New Jersey) and agree- of the act. The Federal Trade Commission’s (FTC) func-
ment corporations. Both cases involve corporations tion is to counter deceptive acts and practices and anti-
that are chartered to engage in international bank- competitive behavior by businesses. The FTC enforces
ing. Edge Act corporations are chartered by the Fed, the Clayton and Federal Trade Commission Acts as well as
while agreement corporations secure their charters a number of other antitrust and consumer-protection
from the states. The latter are so named because laws. The FTC’s rulemaking authority enables it to issue
they must agree to conform to activities permitted rules interpreting the antitrust laws that govern either all
to Edge Act corporations. The Fed is also responsi- members of industry or apply to specific business prac-
ble for approving and regulating foreign branches of tices. When a rule is violated, the FTC can initiate civil
member banks and for developing policies regarding proceedings in a federal district court to obtain injunctive
foreign lending by member banks. relief and civil damages.

298 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION