To begin with, The Fed should possess certain independence as it will result in proper decision making, which is very much essential for the execution of monetary policy. But it also should be constantly regulated by the government. Transparency is vital in ensuring accountability to the public. And for the ideal structure, there are some amendments required in the election procedures. The power of electing individuals to these higher ranks shouldn’t be all concentrated at one end only. The term of the Chairman should be conterminous with that of the President’s tenure. There should be another district in the western region, to operate a branch of the Federal Reserve Bank like the one in San Francisco is governing the entire western region, even including the states of Alaska and Hawaii. Further, the Fed should develop some conditions to check how big companies and financial institutions adapt and are vulnerable to sudden funding shocks and liquidity shocks. They should further overlook all the assets and capital owned by the U.S branches of the foreign banks. The Fed is way too friendly with the big banks, and that should be seriously regulated. It might be because of the importance of these institutions towards the whole economy. These banks are literally classified as “too big to fail”.
The Fed should try to act as ethically as possible, and it should also increase the reserve requirement ratio so that during the crisis, it can easily bail out the commercial banks in trouble.
Figure 3: The Federal Reserve System
