Federal Reserve Bank
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FEDERAL RESERVE BANK Presented by Enu Sambyal 3rd semester
The Federal Reserve System (the Fed) is the central bank of the United States.
ORIGIN OF FEDERAL RESERVE SYSTEM Resistance to establishment of a central bank
Fear of centralized power Distrust of moneyed interests
No lender of last resort
Nationwide bank panics on a regular basis Panic of 1907 so severe that the public was convinced a central bank was needed
Federal Reserve Act of 1913
Elaborate system of checks and balances Decentralized
The Federal Reserve System was created by Congress in 1913 through the Federal Reserve Act. Signed into law by President Woodrow Wilson on December 23, 1913, the Act was "to provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the U.S., and for other purposes". , the Federal Reserve Act created a decentralized central bank which balanced the competing interests of private bankers and public citizens.
Started in 1913, 12 regional Federal Reserve banks (the system consists of 12 districts)
FUNCTIONS OF FEDERAL RESERVE BANK Clearing interbank payments Regulating the banking system Assisting banks in a difficult financial position. Managing exchange rates and the nation’s foreign exchange reserves. Managing exchange rates and the nation’s foreign exchange reserves.
Lender of last resort: The Fed provides funds to troubled banks that cannot find any other sources of funds.
12 FEDERAL RESERVE BANKS
STRUCTURE OF FEDERAL RERSERVE SYSTEM
BOARD OF GOVERNORS BEN.S.BERNANKE
DANEIL K. TARULL
DONALD L KOHN Vice chairman
KEVIN M.WARSH
ELIZABETH A .DUKE
BOARD OF GOVERNORS The seven members of the Board of Governors are appointed by the President and confirmed by the Senate to serve 14-year terms of office. Members may serve only one full term, but a member who has been appointed to complete an unexpired term may be reap pointed to a full term. Only one member of the Board may be selected from any one of the twelve Federal Reserve Districts. In making appointments, the President is directed by law to select a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country.".
RESPONSIBLITIES OF BOARD OF GOVERNORS The primary responsibility of the Board members is the formulation of monetary policy. The seven Board members constitute a majority of the 12-member Federal Open Market Committee (FOMC). 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 Board also sets margin requirements, which limit the use of credit for purchasing or carrying securities.
FEDERAL OPEN 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 operations—purchases and sales of U.S. government and federal agency securities . which affect the provision of reserves to depository institutions and, in turn, the cost and availability of money and credit in the U.S. economy .
FEDERAL OPEN MARKET COMMITTEE
The FOMC is composed of the seven members of the Board of Governors and five Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves on a continuous basis. By law, the FOMC must meet at least four times each year in Washington, D.C. Since 1981, eight regularly scheduled meetings have been held each year at intervals of five to eight weeks . Before each regularly scheduled meeting of the FOMC, System staff prepare written reports on past and prospective economic and financial developments that are sent to Committee members and to nonmember Reserve Bank presidents.
After these reports, Policy is implemented with emphasis on supplying reserves in a manner consistent with objectives and with the nation's broader economic objectives. Open market operations as directed by the FOMC are the major tool used to influence the total amount of money and credit available in the economy. The Federal Reserve attempts to provide enough reserves to encourage expansion of money and credit in keeping with the goals of price stability and sustainable growth in economic .
CONTROLS MONEY SUPPLY Three tools are available to the Fed for changing the money supply: 1. 2. 3.
changing the required reserve ratio; changing the discount rate; engaging in open market operations.
REQUIRED RESERVE RATIO The required reserve ratio establishes a link between the reserves of the commercial banks and the deposits (money) that commercial banks are allowed to create.
If the Fed wants to increase the money supply, the Fed can decrease the required reserve ratio, which allows the bank to create more deposits by making loans.
DISCOUNT RATE If the Fed wants to increase the money supply, the Fed can decrease the required reserve ratio, which allows the bank to create more deposits by making loans.
Bank borrowing from the Fed leads to an increase in the money supply. The higher the discount rate, the higher the cost of borrowing, and the less borrowing banks will want to do.
OPEN MARKET OPERATIONS Open market operations is the purchase and sale by the Fed of government securities in the open market; a tool used to expand or contract the amount of reserves in the system and thus the money supply.
Open market operations is by far the most significant tool of the Fed for controlling the supply of money.
Open market operations is by far the most significant tool of the Fed for controlling the supply of money. An open market purchase of securities by the Fed results in an increase in reserves and an increase in the supply of money by an amount equal to the money multiplier times the change in reserves. An open market sale of securities by the Fed results in a decrease in reserves and a decrease in the supply of money by an amount equal to the money multiplier times the change in reserves.
Central Bank Independence and Macro Performance in 17 Countries
Gold bars in the Federal Reserve Bank of New York's Gold Vault
REFERENCES www.federalreserve.gov Gupta.Shashi.k , banking and insurance ,kalyani publishers (2003). www.wikipedia.com
The Federal Reserve System (the Fed) is the central bank of the United States.
ORIGIN OF FEDERAL RESERVE SYSTEM Resistance to establishment of a central bank
Fear of centralized power Distrust of moneyed interests
No lender of last resort
Nationwide bank panics on a regular basis Panic of 1907 so severe that the public was convinced a central bank was needed
Federal Reserve Act of 1913
Elaborate system of checks and balances Decentralized
The Federal Reserve System was created by Congress in 1913 through the Federal Reserve Act. Signed into law by President Woodrow Wilson on December 23, 1913, the Act was "to provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the U.S., and for other purposes". , the Federal Reserve Act created a decentralized central bank which balanced the competing interests of private bankers and public citizens.
Started in 1913, 12 regional Federal Reserve banks (the system consists of 12 districts)
FUNCTIONS OF FEDERAL RESERVE BANK Clearing interbank payments Regulating the banking system Assisting banks in a difficult financial position. Managing exchange rates and the nation’s foreign exchange reserves. Managing exchange rates and the nation’s foreign exchange reserves.
Lender of last resort: The Fed provides funds to troubled banks that cannot find any other sources of funds.
12 FEDERAL RESERVE BANKS
STRUCTURE OF FEDERAL RERSERVE SYSTEM
BOARD OF GOVERNORS BEN.S.BERNANKE
DANEIL K. TARULL
DONALD L KOHN Vice chairman
KEVIN M.WARSH
ELIZABETH A .DUKE
BOARD OF GOVERNORS The seven members of the Board of Governors are appointed by the President and confirmed by the Senate to serve 14-year terms of office. Members may serve only one full term, but a member who has been appointed to complete an unexpired term may be reap pointed to a full term. Only one member of the Board may be selected from any one of the twelve Federal Reserve Districts. In making appointments, the President is directed by law to select a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country.".
RESPONSIBLITIES OF BOARD OF GOVERNORS The primary responsibility of the Board members is the formulation of monetary policy. The seven Board members constitute a majority of the 12-member Federal Open Market Committee (FOMC). 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 Board also sets margin requirements, which limit the use of credit for purchasing or carrying securities.
FEDERAL OPEN 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 operations—purchases and sales of U.S. government and federal agency securities . which affect the provision of reserves to depository institutions and, in turn, the cost and availability of money and credit in the U.S. economy .
FEDERAL OPEN MARKET COMMITTEE
The FOMC is composed of the seven members of the Board of Governors and five Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves on a continuous basis. By law, the FOMC must meet at least four times each year in Washington, D.C. Since 1981, eight regularly scheduled meetings have been held each year at intervals of five to eight weeks . Before each regularly scheduled meeting of the FOMC, System staff prepare written reports on past and prospective economic and financial developments that are sent to Committee members and to nonmember Reserve Bank presidents.
After these reports, Policy is implemented with emphasis on supplying reserves in a manner consistent with objectives and with the nation's broader economic objectives. Open market operations as directed by the FOMC are the major tool used to influence the total amount of money and credit available in the economy. The Federal Reserve attempts to provide enough reserves to encourage expansion of money and credit in keeping with the goals of price stability and sustainable growth in economic .
CONTROLS MONEY SUPPLY Three tools are available to the Fed for changing the money supply: 1. 2. 3.
changing the required reserve ratio; changing the discount rate; engaging in open market operations.
REQUIRED RESERVE RATIO The required reserve ratio establishes a link between the reserves of the commercial banks and the deposits (money) that commercial banks are allowed to create.
If the Fed wants to increase the money supply, the Fed can decrease the required reserve ratio, which allows the bank to create more deposits by making loans.
DISCOUNT RATE If the Fed wants to increase the money supply, the Fed can decrease the required reserve ratio, which allows the bank to create more deposits by making loans.
Bank borrowing from the Fed leads to an increase in the money supply. The higher the discount rate, the higher the cost of borrowing, and the less borrowing banks will want to do.
OPEN MARKET OPERATIONS Open market operations is the purchase and sale by the Fed of government securities in the open market; a tool used to expand or contract the amount of reserves in the system and thus the money supply.
Open market operations is by far the most significant tool of the Fed for controlling the supply of money.
Open market operations is by far the most significant tool of the Fed for controlling the supply of money. An open market purchase of securities by the Fed results in an increase in reserves and an increase in the supply of money by an amount equal to the money multiplier times the change in reserves. An open market sale of securities by the Fed results in a decrease in reserves and a decrease in the supply of money by an amount equal to the money multiplier times the change in reserves.
Central Bank Independence and Macro Performance in 17 Countries
Gold bars in the Federal Reserve Bank of New York's Gold Vault
REFERENCES www.federalreserve.gov Gupta.Shashi.k , banking and insurance ,kalyani publishers (2003). www.wikipedia.com
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