THE FEDERAL RESERVE:HISTORY AND FUNCTIONS

Goal:•Have a stable central bank

•Balance the private interests of banks and the central responsibility of the government

Federal Reserve Bank•Board of Governors •Regional Reserve Banks•Federal Open Market Committee (FOMC)

•Congress oversees the entire Federal Reserve System

•HOWEVER, the Federal Reserve banks are not part of the federal government

•=The Fed is private and public▫Board of Governors and independent

government agency▫Federal Reserve Banks like private

corporations

Board of Governors•Aka Federal Reserve Board• In Washington D.C•Has 7 members

▫Appointed by president of the US and confirmed by Senate

•Governor’s terms are 14 years (can be longer)

•Appointments are staggered▫1 Governor’s term expires every 2 years▫Ensures no “stacking the deck”

•Write the policies that ensure financially sound banks and a stable economy

•Broad supervisory control over some state-charted financial institutions/ member banks and bank holding companies

•Oversees activities of Reserve Banks•*Participates on the FOMC

The Chair•Chair and Vice Chair head the Board of

Governors•President of US appoints•4 year terms•Reports twice a year to Congress on Fed’s

monetary policy objectives•Testify before Congress•Meet periodically with the secretary of

the Treasury

Summary

•Guide the Federal Reserve’s policy actions

•Study trends in the economy•Participate in monetary policymaking on

FOMC•Regulates and oversees the 12 Reserve

Banks

Federal Reserve Banks

•Serves bankers, US Treasury and the public

•Under oversight of the Board of Governors

•“bankers’ banks”•Fiscal agents for the US government•Conduct research on regional, national,

and international economies•Prepare Reserve Bank presidents for

FOMC•Distribute information about the economy

•Each Reserve Bank has own board of directors

•Each board has 9 members▫6 elected by member commercial banks▫3 appointed by the Board of Governors

FOMC•Chief body for monetary policyVoting Membership:•7 members of the Board of Governors•president of the Federal Reserve Bank of

New York•4 other Reserve Banks presidents

•Chairman of the FOMC is also Chair of the Board of Governors

•Meets 8 times a year in Washington D.C

•Senior officials discuss developments in the markets and activities of the NY Fed’s Trading Desk

•Staff from the Board of Governors present their economic and financial forecasts

•Board’s Governors and all 12 Reserve Bank presidents offer their views

•Members vote on a policy▫Given to the New York Fed’s Trading Desk

•Policy directive informs the Desk of the Committee’s objective for “open market operations”

•The Desk buys or sells the US government securities on the open market

PRIOR TO 1907

• First and Second Banks of the United States of America

• Opposition to a centralized bank

• Financial Panics

PANIC OF 1907

• Failing banks

• JP Morgan saves the day again

• Growing need and want for a stable centralized bank

1913• Woodrow Wilson, Carter

Glass, H. Parker Willis

• Glass-Willis Proposal

• Federal Reserve Act of 1913

THE FED’S ROLE DURING WWI

• U.S. banks were able to continue working normally

• 1914-1917 = indirect aid

• 1917-the end = direct funding of our own war effort

1929:1933 MARKET CRASH AND GREAT DEPRESSION

• Stock market crash in October 1929

• Nearly 10,000 banks failed

• President Franklin Delano Roosevelt

• Some blame the fed

AFTERMATH OF THE GREAT DEPRESSION

• Banking Act of 1933

• FDIC formed

• End of gold and any other metallic standard

1935 AND ON

• The Banking Act of 1935• Introduction of the FOMC as a separate entity• Removal of Treasury Secretary and the Comptroller of the Currency from

the Fed’s governing board• 14 year term for members

WWII – KOREAN WAR

• Commitment to low interest rate bonds

• Conflict between the Fed and the Treasury

• Keep the value of the bonds or risk inflation?

1970’S – 1980’S

• Inflations skyrockets

• Paul Volcker steps in as Fed Chairmen

• Successful in reining in the double digit inflation rate

1980’S-1990’S

• The Monetary Control Act of 1980

• 10 year economic expansion

• Dot Com Stock Bubble and Internet Boom

September 11th, 2001

● Lowered interest rates ● Loaned more than $45 billion to financial institutions● Avert a liquidity crunch and financial crisis

2008 Financial Crisis

● Rapid reversal of U.S. house prices● Fed sought to restore stability to economy● Steady improvement

Works Cited

"History and Purpose of the Fed." Federal Reserve Bank of Saint Louis. N.p., n.d. Web. 12 Oct. 2015. <https://www.stlouisfed.org/in-plain-english/ history-and-purpose-of-the-fed>.

“History of the Federal Reserve." Federal Reserve Education. N.p., n.d. Web. 12 Oct. 2015. <https://www.federalreserveeducation.org/about-the-fed/ history>.