Chapter 7: Fed Res. System pp. 159179

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Chapter 7 Fed Res. System (pp. 159-179)

• The Development of Banking in the U.S.
• National Bank Acts 1863 1864
• Chartering Comptroller of the Currency
• Capital Requirements
• Assets (no real estate loans, loan size limits)
• Reserve Requirements
• Banknote limits
• Bank Supervision
• Rise of Checking Accounts
• Banking Problems after the Civil War
• No Lender of Last Resort
• No Central Check Clearing
• Economic Busts 1873, 1884, 1893, 1907.

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Chapter 7

• Creation of Federal Reserve System 1913
• 12 Regional Banks Privately Owned.
• Board of Governors 7 appointed members (14-yr.
  Terms). Chairman appointed every 4 years)
• Federal Open Market Committee 12 members (7
  members of the Board of Governors 5 regional
  presidents (on a rotating basis) except that the
  NY president is always on the committee.

3
Regional Fed. Banks
4
Fed. Board of Governors

• The Board sets reserve requirements and shares
  the responsibility with the Reserve Banks for
  discount rate policy. These two functions plus
  open market operations constitute the monetary
  policy tools of the Federal Reserve System.
• The Federal Reserve Board has regulatory and
  supervisory responsibilities over banks that are
  members of the System, bank holding companies,
  international banking facilities in the United
  States, Edge Act and agreement corporations,
  foreign activities of member banks, and the U.S.
  activities of foreign-owned banks. The Board also
  sets margin requirements, which limit the use of
  credit for purchasing or carrying securities.
• It supervises nation's payments system.- Fedwire.
• It implements major federal laws governing
  consumer credit such as the Truth in Lending Act,
  the Equal Credit Opportunity Act, the Home
  Mortgage Disclosure Act and the Truth in Savings
  Act.

5
Federal Open Market Committee

• Market Committee (FOMC) is the most important
  monetary policymaking body of the Federal Reserve
  System. It is responsible for formulation of a
  policy designed to promote economic growth, full
  employment, stable prices, and a sustainable
  pattern of international trade and payments. The
  FOMC makes key decisions regarding the conduct of
  open market operationspurchases and sales of
  U.S. government and federal agency
  securitieswhich affect the provision of reserves
  to depository institutions and, in turn, the cost
  and availability of money and credit in the U.S.
  economy. The FOMC also directs System operations
  in foreign currencies.

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12 Federal Reserve Banks

• - . Reserve Banks hold the cash reserves of
  depository institutions and make loans
  to them.
• - They move currency and coin into and out
  of circulation, and collect and process millions
  of checks each day.
• - They provide checking accounts for the
  Treasury, issue and redeem government securities,
  and act in other ways as fiscal agent for the
  U.S. government.
• - They supervise and examine member banks for
  safety and soundness.

7
Monetary Powers of the Fed.

• Set the Discount Rate
• Set Reserve Requirements
• Conduct Open Market Operations
• Set the Federal Funds Rate.
• If Fed buys T-bills, Money Supply Expands, rates
  fall.
• If Fed sells T-bills, Money Supply Contracts,
  rates rise.
• Moral Suasion When Greenspan Talks, everyone
  listens.

8
Federal Reserve Balance Sheet, 1999(in millions)

• Assets 1999
• Gold SDRs
  18,535 3.3
• Loans 418 0.1
• Securities 507,660 89.4
• Cash Items in Process of Collection 6,978
  1.2
• Buildings 1,337
  0.2
• Other (Including Foreign) 33,009
  5.8
• Total 567,937 100.0
• Liabilities Capital 1999
  
• Fed. Res. Notes 517,199 91.1
• Deposits 25,609 4.5
• Deferred Availability Cash Items
  6,643 1.2
• Other Liabilities
  5,012 0.9
• Capital Account
  13,474 2.4
• Total 567,937 100.0
• Source Federal Reserve Bulletin