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Federal Reserve
What is the Federal Reserve
$ Central Bank of the United States
$ Created by Congress with the passage of the
Federal Reserve Act in 1913
$ Consists of:
$ Board of Governors--central, governmental
agency
$ Located in Washington, DC
$ Twelve regional Federal Reserve Banks
$ Located in major US cities
$ Chartered to provide the nation with a safer, more
flexible, and more stable monetary and financial
system
Board of Governors
$ The seven members of the Board of Governors of
the Federal Reserve System are nominated by the
President of the United States and confirmed by
the U.S. Senate.
– One term begins every two years on February 1 of
even-numbered years
$ The Chairman and the Vice Chairman of the Board
are chosen by the President from among the sitting
Governors and are confirmed by the Senate.
– They serve a term of four years and may be reappointed
Current Board Members
$ Ben S Bernanke, Chairman
$ Janet Yellen, Vice Chair
$ Kevin Warsh
$ Elizabeth Duke
$ Daniel Tarullo
$ Sarah Bloom
$ ? (Only show 6 on Website)
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Quic kT i me™ and a
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Twelve Regional Banks
Connecticut, Maine, Massachusette,
New Hamshire, Rhode Island, Vermont
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Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
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Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Locations determined by the geographic
distribution of the US population in 1913
Four General Duties
$ Conducting the nation’s monetary
policy by influencing the money and
credit conditions in the economy in
pursuit of full employment and stable
prices
$ Raise and lower interest rates to promote
consumer spending, investing, and
spending
Four General Duties
$ Supervising and regulating banking
institutions to ensure the safety and
soundness of the nation’s banking and
financial system and to protect the
credit rights of consumers
Four General Duties
$ Maintain the stability of the
financial system and containing
systemic risk that may arise in
financial markets
Four General Duties
$ Providing certain financial services
to the US Govt., to the public, to
financial institutions, and to
foreign official institutions,
including playing a major role in
operating the nation’s payment
system
Set Monetary Policy
$ The Federal Reserve conducts monetary policy
using three major tools:
– (1) Open market operations - the buying and selling of U.S.
Treasury and federal agency securities in the open market
– (2) Discount rate - the interest rate charged depository
institutions on loans from their Federal Reserve Bank's
lending facility (the discount window)
– (3) Reserve requirements - requirements regarding the
amount of funds that depository institutions must hold in
reserve against deposits made by their customers.
Monetary Policy Tools
$ Using these tools, the Federal Reserve:
$ Influences the demand for and supply of balances
that depository institutions hold on deposit at
Federal Reserve Banks (the key component of
reserves)
$ Influences the federal funds rate--the rate at which
depository institutions trade balances at the Federal
Reserve.
$ Changes in the federal funds rate trigger a chain of events that
affect other short-term interest rates, foreign exchange rates,
long-term interest rates, the amount of money and credit, and,
ultimately, a range of economic variables, including employment,
output, and prices of goods and services.
Boston Web Page
Http://www.federalreserve.gov