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what was the federal reserve system created out of?
fear of centralized power, and distrust of moneyed interests
what happened when there was no lender of last resort?
there were nation wife bank panics regularly. a central bank serves as security when a bank fails.
What did the federal reserve act of 1913 create?
it defused power between regional lines, private sector, government, bankers, business owners and the public
what did the federal reserve Act of 1913 result in?
The federal reserve banks, the board of governors and federal reserve system, the FOMC, the federal advisory council, and 2900 member commercial banks
what are the policy tools of the federal reserve
Reserve requirements, interest paid on excess reserves, open market operations, and the discount rate charged on discount loans
What are the federal reserve banks?
quasi public institution owned by commercial banks in districts that are members of the federal system
how many directors and districts are in the federal reserve?
9 directors and 12 districts total: 6 per district and 3 by board of governors.
What are the functions of the federal reserve banks?
clear checks
issue new currency
admin and make discount loans to banks
evaluate mergers and bank expansions
liason between businesses and federal reserve system
research about monetary policy and data on local business condition s
Why is the Federal Reserve Bank of NY have a special role?
Its essential to the stability of the US financial system, and has many of the large commercial banks in the US.
Who is a permanent meber of the FOMC as vice chair?
The President of the NY Federal reserve bank
How do federal reserve banks impact monetary policy?
The directors establish the discount rate that banks have for discount loans and 5/12 bank presidents vote in the FOMC
What does it mean to be a member bank of the Federal Reserve banks?
All national bank must be a member, and commercial banks chartered by banks are not required by can choose to be a member.
What is the role of the Chairman of Board of Governors?
advises the president on economic policy
testifies in congress
speaks about federal reserve system to media
represents US in negotiations with foreign governments on economic matters.
What is the role of the board of governors
votes on open market operations
sets reserve requirements
controls discount rate w/ review
approves bank mergers
supervises foreign banks in US
What are the conditions of the board of governors?
7 members in DC
appt. by pres confirmed/senate
4 yr term, nonrenewable
What does FOMC stand for?
Federal open market committee
What are the conditions of the FOMC?
8 yearly meetings
board of gov. chairman = FOMC chairman
What takes place during FOMC meetings
report on foreign currency and domestic open market operations
Presentation/board staff on national economic forecast
outline of diff. scenarios/monetary policy action
public announcement / meeting outcome
Who Runs the FOMC meetings
Chair of Board of Governors
What are the responsibilities of the Chair of the Board of Governors
Spokes person / Fed
negotiates w/congress + president
speaks and votes 1st about monetary policy
supervises professional economists and advisors
How independent is the Fed
instrument and goal independence
independent revenue
fed structure written by congress can change any time
What is the case for federal reserve independence?
subjecting it to more political pressure would impact inflationary bias to monetary policy
political business cycle
be used to facillitate treasury financing/large budget deficits
too important to leave to politicians.
What is the case against Federal Reserve independence.
undemocratic to have monetary policy controlled by an elite group
unaccountable
hard to coordinate fiscal and monetary policy
hasnt used independence successfully in preventing financial crises in recent history (2008 GFC)
