In the 1960 s and 1970 s, the Federal Reserve System lost...

Name: Problem 18, Chapter 13: The Economics of Money, Banking, and Financial Markets
Uploaded: 2021-03-28T16:52:32-08:00
Duration: 2 min 56 s
Channel: Pragya Ahuja
Description: In the 1960 s and 1970 s, the Federal Reserve System lost member banks at a rapid rate. How can the theory of bureaucratic behavior explain the Fed's campaign for legislation to require all commercial banks to become members? Was the Fed successful in this campaign?

In the 1960 s and 1970 s, the Federal Reserve System lost member banks at a rapid rate. How can the theory of bureaucratic behavior explain the Fed's campaign for legislation to require all commercial banks to become members? Was the Fed successful in this campaign?

Key Concepts

Bureaucratic Behavior Theory

This theory asserts that bureaucracies act primarily out of self-interest—seeking to preserve and expand their own power, budgets, and scope rather than solely focusing on efficiency or the public good. Bureaucratic behavior tends to favor actions and policies that consolidate the organization’s position, even if those actions may have broader or unintended consequences.

Organizational Self-Preservation

Closely linked to bureaucratic behavior, organizational self-preservation is the concept that institutions often take measures to safeguard their existence and growth. In the context of bureaucracies, this means promoting policies or, in some cases, seeking legislative actions that ensure a steady or increasing volume of business, thereby reinforcing the organization’s relevance and resource base.

Legislative Influence and Bureaucratic Agenda Setting

Bureaucracies sometimes engage in active efforts to shape legislative outcomes in ways that serve their interests. This involves lobbying for laws that either expand their operational mandate or limit competition. The campaign to require all commercial banks to join a central banking system can be explained by this tendency, as such measures would secure a broader base of regulated entities and, by extension, a larger influence over the financial environment. The success or failure of such campaigns often depends on the political and regulatory climate as well as the balance of power between bureaucracies and elected officials.

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