HW 5 Chapter 28 Monetary Policy and Banking Regulations

interest rates

inflation

monetary policy

central bank

the organization responsible for conducting monetary policy and ensuring that a nation’s financial system operates smoothly.
is also responsible for regulating all or part of the nation’s banking system to protect bank depositors and ensure the health of the bank’s balance sheet.

Federal Reserve's

is semi-decentralized, mixing government appointees with representation from private-sector banks. At the national level, it is run by a Board of Governors, consisting of seven members appointed by the President of the United States and confirmed by the Senate

Bank regulation

The purpose of bank regulation is to prevent bank runs, financial crisis, and the loss of depositors' money, as well as to protect the integrity of the financial system and to prevent excessively risky bank behavior.

reserves

Banks are required to hold a minimum percentage of their deposits on hand

Bank capital

the difference between a bank’s assets and its liabilities (net worth)

National Credit Union Administration (NCUA)

supervises credit unions, which are nonprofit banks that their members run and own

assets

are its loans, and the value of these assets depends on estimates about the risk that customers will not repay these loans

bank run

We call depositors racing to the bank to withdraw their deposits

deposit insurance

is an insurance system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt

Federal Deposit Insurance Corporation (FDIC)

is responsible for deposit insurance. Banks pay an insurance premium to the FDIC. The insurance premium is based on the bank’s level of deposits and then adjusted according to the riskiness of a bank’s financial situation

lender of last resort

The Fed stands ready to lend to banks and other financial institutions when they cannot obtain funds from anywhere else
(It is an institution that provides short-term emergency loans in conditions of financial crisis.)

Federal Open Market Committee (FOMC)

makes the decisions regarding these open market operations

open market operations

(The most common monetary policy tool in the U.S.) These take place when the central bank sells or buys U.S. Treasury bonds in order to influence the quantity of bank reserves and the level of interest rates

reserve requirement

A second method of conducting monetary policy is for the central bank to raise or lower.
which is the percentage of each bank’s deposits that it is legally required to hold either as cash in their vault or on deposit with the central bank.

discount rate

We call the interest rate banks pay for such loans