Major Duties and Responsibilities of the Federal Reserve System

1
Major Duties and Responsibilities of the Federal
Reserve System

• Conducting monetary policy
• Supervising and regulating depository
  institutions
• Maintaining the stability of the financial system
• Providing payment and other financial services to
  the U.S. government, the public, FIs and foreign
  official institutions

2
Structure of the Federal Reserve System

• 12 FR Banks plus 10 branches located in major
  U.S. cities
• A 7-member Board of Governors in Washington, DC
• The Federal Open Market Committee (FOMC)

3
Functions Performed by the Federal Reserve Banks

• Assistance in the Conduct of Monetary Policy
• Supervision and Regulation
• Government Services
• New Currency Issue
• Check Clearing
• Wire Transfer Services
• Research Services

4
Locations of FR Banks and Branches

• Banks located in Atlanta, Boston, Chicago,
  Cleveland, Dallas, Kansas City, Minneapolis, New
  York, Philadelphia, Richmond, San Francisco and
  St. Louis
• Branches located in Baltimore, Birmingham,
  Buffalo, Charlotte, Cincinnati, Denver, Detroit,
  El Paso, Helena, Houston, Jacksonville, Little
  Rock, Los Angeles, Louisville, Memphis, Miami,
  Nashville, Oklahoma City, Omaha, Pittsburgh,
  Portland Salt Lake City, San Antonio, Seattle

5
Board of Governors

• Headquartered in Washington, DC
• Each of 7 members appointed by the President of
  the United States and confirmed by the Senate
• Board members serve nonrenewable 14-year terms
• President designates two members to chairman and
  vice-chairman for four year terms
• Primary responsibilities are the formulation and
  conduct of monetary policy and the supervision
  and regulation of banks
• Chairman advises President on economic policy and
  serves as spokesperson for the FR system

6
Federal Open Market Committee (FOMC)

• The major monetary policy-making body of the FR
  System
• Main responsibilities are to formulate policies
  to promote full employment, economic growth,
  price stability, and a sustainable pattern of
  international trade
• Open market operationsthe purchase and sale of
  U.S. government and federal agency securities
• Sets ranges for growth of monetary aggregates and
  directs the FR in foreign exchange markets

7
Objective of Monetary Policy

• To influence the amount of reserves in the
  banking system
• which affects interest rates and availability of
  credit and
• ultimately affects the levels of employment,
  output, prices and inflation

8
Monetary Policy Tools

• Open Market Operations
• primary determinate of changes in excess reserves
  in the banking system impacting the size of the
  money supply and/or interest rates
• The Discount Rate
• the rate of interest FR Banks charge on emergency
  loans to depository institutions
• Reserve Requirements
• determine the minimum amount of reserve assets
  that depository institutions must maintain by law
  to back transaction deposits held as liabilities

9
International Monetary Policiesand Strategies

• Foreign Exchange Intervention
• commitments between countries about the
  institutional aspects of their intervention in
  the foreign exchange markets
• similar to open market purchases and sales of
  Treasury securities