Federal Reserve

Federal Reserve
Federal Reserve Act
Federal Reserve Banks
12 Federal Reserve Districts (Banks)
Location
Urban areas
Rural areas
Manufacturing interest
Agriculture interest
Business interest
Roles
Manage check clearing in payments system
Manage currency in circulation
Conduct discount lending
Perform supervisory/regulatory functions
Provide services to businesses & general public
Serve on FOMC
Duties related to Fed's roles in payments system, control of money supply, & financial regulations
Board of Directors
Class A = 3 Bankers
Class B = 3 Leaders in Industry, Commerce, & Ag.
Class C = Publict Interest Directors
Elected by member banks
Appointed by Board of Governors
Make discount loans to member banks in its region
Provide liquidity to banks
Fulfill role as lender of last resort
End bank panics
Private commercial member banks
Depository Institutions Deregulation and Monetary Control Act
All banks keep reserve deposits w/Fed on same terms
Board of Governors
Definition
7 members
14-yr non renew. terms
1 Chairman
4-yr terms
Serve on Financial Stability Oversight Council
Serve as Chairman of FOMC
Govern board of Fed Reserve System
President's choice
Formal Responsibilities
Administer monetary policy to influence money supply & int. rates
Sets discount rate to charge on loans to banks
Influence setting of guidelines for open mkt ops
Set margin requirements
Determine permissible activities for bank holding companies
Approve bank mergers
Exercise admin. control over indiv. Fed Reserve banks
Review budgets
Set salaries of presidents & officers
Informal Responsibilities
Influence nat'l & internat'l econ. policy decisions
FOMC
Composition
12 members
Chairman
6 members from Board of Gov'rs
Pres. of Fed. Reserve Bank NY
Pres. of 4 other Fed Reserve Banks
Direct open mkt ops
Meet 8x/yr @ Washington DC
Before
Greenbook
Nat'l econ forecast for next 2 yrs
Bluebook
Projections for monetary aggregates & other info help alt. monetary policies
Beige Book
Summaries of econ. cond's in each dist.
Prepared by reserve banks
Prepared by Board staff
During
All members of Board of Gov'rs & all Dist. Bank pres. speak
After
Chairman summary
FOMC vote - set target for federal funds rate
Summarize views in public stmt
Roles
Setting target for federal funds rate
Dodd-Frank Wall Street Reform and Consumer Protection Act
Reform regulations of financial systems
Provisions
Member of Financial Stability Oversight Council
1 member Board Gov'rs = V. Chairman for supervision
GAO perform audit of emergency lending programs
Class A directors will not elect bank pres.
Disclose names of financial institutions it makes loans & buys/sells securities
Consumer Financial Protection Bureau
Operations
Independence
For
Technical
Politicians - ST
Higher likelihood for political biz cycle fluctuations
Against
Elected officials make pub. policy
Integrate monetary policy w/gov't taxing & spending
Fed hasn't always used indep. well
Profitable org.
Interest on securities
Interest on discount loans
Fees for check-clearing/other services
Income > Expenses to Treasury
Pres. can control members of Board of Gov'rs
Creation of Congress
Amend Fed's charter
Motivation
Public-Interest View
Officials act in best interest of public
Price stability
High employment
Economic growth
Principal-Agent View
Officials max. personal well-being
Increase power
Increase influence
Increase prestige
Political Business Cycle
Policymakers urge Fed lower int. rates
Central Bank
Outside US
Bank of England
Monetary Policy Committee
Bank of England Gov'r
4 external econ. experts nominated by chancellor
2 members appointed by gov'r
2 deputy gov'rs
Bank of Japan Law
Policy Board
Governor
2 deputy gov'rs
6 outside members
Bank of Canada
European Central Bank (ECB)
16 countries in European Monetary Union
ECB Exec. Board
6 members work exclusively for bank
VP & 4 others appointed by heads of state & gov't
8-yr non-renew. terms
Gov'rs of Member Nat'l Banks = terms of at least 5 yrs
Federal Reserve System
National Banks (forced)
State Banks (option)
Buy stock
Fixed Dividend = 6%
Private-Gov't joint venture
20