The Dual State-Federal System

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The Father of the U.S. Constitution James Madison identified the federal government’s fundamental purpose, to safeguard the constitutional rights of the Americans (Salvato, 2010). The US Constitution set up three separate branches of federal government. Each branch has its own authority and fields of influence. Moreover, the Constitution set up a system of checks and balances that assured no one branch would rule supreme. These three systems would provide the checks and balances for many years to come. The Legislative Branch, the Executive Branch, and the Judicial Branch maintain checks and balances for the individual rights of the United States citizens as described in the United States Constitution. The Supreme Court is at the top of the…show more content…
One is the state federal relation--should states continue to charter and supervise banks or would an all-inclusive national banking system be preferable? While monetary economists and central-banking experts are virtually unanimous in their support of a unified national banking system, the political issue is a bitter one of long standing and there is probably no chance of abolition of the existing dual state-federal system short of another major crisis. Under the circumstances, action to abolish the dual state-federal system is not considered here, though this may be a practical requisite of the other changes considered. There would, however, be obvious, important monetary policy advantages in compulsory Federal Reserve membership for all banks, or at least in application of standard Federal Reserve requirements against deposits at all banks. Actually, Federal Reserve membership would be of secondary importance if common reserve requirements were made applicable, and this step could be accomplished for practical purposes within the limits of existing federal powers and without infringing on other aspects of state supervisory jurisdiction. The second problem is the relation of the three federal supervisory agencies. There is no question as to the federal government's right to supervise all banks accepting federal deposit insurance, and the exercise of this supervision need not necessarily…show more content…
The present system, while admittedly overlapping and cumbersome, works pretty well and seldom produces violent open clashes, so why upset things by a move toward consolidation. 2. The issue is a political hot potato. While states' rights are not actually involved in a mere reorganization of federal supervision, any change will be viewed with suspicion by the ardent states' rights advocates, who will suspect an impending encroachment on state chartering and state supervision. Most bankers like the present system. Its divided authority inhibits the exercise of vigorous supervisory restraint by any one agency since the bank is free to move to another agency's jurisdiction. Moreover, each agency views itself to an important extent as the advocate and protector of its group of banks on legislative and administrative matters. Bank supervisors are, in effect, in many respects similar to trade-association officers in other industries enforcing association rules and mores. 3. We need numerous checks and balances in the federal government's bank-supervisory structure to prevent too much concentration of power in any one

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