The Federal Reserve System

1
The Federal Reserve System

• Chapter 20

2
The Federal Reserve or The Fed is the
nations central bank.

• It was created in 1913 in attempt to end
  periodic financial panics.

3
The Feds responsibilities

• Regulate the nations money supply
• Supervise Banks
• Clear Checks

4
Who are the customers of the Fed?

• Commercial Banks (like Bank of America, Regions
  Bank, and The Bank of Edwardsville)
• The Government (The Fed holds the accounts of the
  U.S. Government)
• We (as individuals) can not bank at the Fed.

5
Most nations have a central bank.

• U.S.A. - the Federal Reserve Bank
• England - The Bank of England
• Japan - Bank of Japan
• Canada - Bank of Canada

6
In addition to overseeing banking, The Federal
Reserve also implements monetary policy in effort
to stabilize economic activity.
7
Monetary Policy

• A banking policy that affects the supply of money
  in circulation which affects the amount of credit
  and business activity in the economy.

8
The goal of the Fed

• To ensure enough money and credit are available
  to allow expansion of the economy without
  allowing rapid inflation.
• The Fed. wants to strike a balance between tight
  and loose money policies.

9
Loose Money Policy

• A lot of money is available at low interest
  rates.
• Inexpensive and easily available credit.
• The economy expands.

10
Tight Money Policy

• Relatively little money to lend at high interest
  rates.
• Makes credit expensive and in short supply.

11
Would you have a tight or loose monetary
policies during a time of inflation?

• Tight - to decrease the money in the economy
• Look at figure 20-1 in your book (pg. 333)

12
Organization of the Fed.

• 12 districts - each has its own Federal Reserve
  Bank, A Board of Governors, and about 5000 member
  banks. (The Federal Reserve Bank of St. Louis is
  one of the 12.)
• There are also 25 Federal Reserve Branch Banks.
  These branches aid the district banks in carrying
  out their responsibilities.
• See page 334, figure 20-2

13
More info

• The President of the USA chooses the 7 member
  Board of the Federal Reserve.
• The term of a Board member is 14 years.
• The current chairperson of the Federal Reserve is
  Ben Bernanke. The past chairman you may be
  familiar with is Alan Greenspan.
• Each board member has one vote.

14
True or False?

• The Chairperson of the Board of Governors of the
  Federal Reserve is considered one of the most
  important and powerful positions in government?
• TRUE!!!

15
True or False?

• All banks are required to become members of the
  Federal Reserve System?
• No, just national banks - but state banks can
  also belong.
• You become a member by purchasing stock.

16
True or False?

• All institutions that accept deposits must
  deposit its reserves in its district Federal
  Reserve Bank?
• TRUE

17
Six Functions of the Fed.

• Act as the governments banker
• Act as a consumer protector
• Regulate the money supply
• Supervise Banks
• Clear Checks
• Supply paper currency