14.4 The Federal Reserve and the Banking System
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29 Terms
Who are the “monetary authorities” in the U.S.?
The 7 members of the Board of Governors of the Federal Reserve System.
What is the Fed’s main goal?
To control the money supply and ensure the stability of the banking system.
Why does the Fed care about checkable deposits?
Because they’re a large part of the money supply and affect how much money is circulating.
How many members are on the Board of Governors?
7 members.
Who appoints the board of governors and for how long?
The President appoints them (with Senate confirmation) for 14-year staggered terms.
How long do the Chair and Vice Chair serve?
4-year terms, renewable.
Why are the terms so long?
To ensure independence from political pressure and promote stable policy.
What do the 12 Federal Reserve Banks do?
They implement policy, serve as bankers’ banks, and issue currency.
Why are there 12 banks instead of one?
To serve the geographic and economic diversity of the U.S.
What does “quasi-public” mean?
Each Federal Reserve Bank is owned by the private commercial banks in its district. (Federally chartered banks are required to purchase shares of stock in the Federal Reserve Bank in their district.) But the Board of Governors, a government body, sets the basic policies that the Federal Reserve Banks pursue.
Do Fed Banks compete with commercial banks?
No — they support the system and don’t serve the public directly.
Why are Fed Banks called “bankers’ banks”?
Because they accept deposits from and make loans to commercial banks and thrifts.
What are reserve balances?
The funds that banks keep on deposit at the Fed.
What happens in a financial crisis?
The Fed acts as a lender of last resort, giving emergency loans to banks.
How much did the Fed lend during early COVID-19?
$129 billion in just three weeks.
What is the FOMC?
A 12-member committee that helps conduct monetary policy.
Who’s in the FOMC?
7 Board of Governors + NY Fed President + 4 rotating regional Fed Presidents.
What does the FOMC do?
Directs open market operations — buying/selling government securities to control the money supply and interest rates.
Which Fed Bank carries out most open market operations?
The New York Fed, near Wall Street.
Are commercial banks government-owned?
No — they are private corporations.
What’s the difference between state and national banks?
State banks are chartered by states; national banks are chartered by the federal government.
What percent of commercial banks are state-chartered?
About 75%.
What are thrift institutions?
Credit unions, savings and loan associations, and mutual savings banks.
Who regulates credit unions?
The National Credit Union Administration (NCUA).
Are thrifts affected by Fed monetary policy?
Yes — just like commercial banks.
The purpose of open-market operations is to control the nation's money supply and influence ______
Interest rates
The FOMC meets regularly to direct the purchase and sale in the open market of government securities such as
notes
bonds
bills
What type of operations serve to control the nation's money supply and influence interest rates?
Open-market
Removing the incentive to withdraw one's deposit before anyone else can is the purpose of _______
Deposit insurance
Note 
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