Established 1913 Four duties Influencing monetary and credit conditions Supervising and regulating...
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Transcript of Established 1913 Four duties Influencing monetary and credit conditions Supervising and regulating...
![Page 1: Established 1913 Four duties Influencing monetary and credit conditions Supervising and regulating banking institutions Maintaining stability Providing.](https://reader035.fdocuments.in/reader035/viewer/2022072010/56649dce5503460f94ac2dce/html5/thumbnails/1.jpg)
US Federal Reserve
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Established 1913
Four duties
• Influencing monetary and credit conditions
• Supervising and regulating banking institutions
• Maintaining stability
• Providing oversight to depository institutions
Central bank and 12 regional banks
Federal Open Market Committee
• Board of governors
• President of the Federal Reserve Bank Of New York
• Residents of four other Federal Reserve banks (rotating basis)
Key components
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Monetary policy via setting Federal interest rate
• Maximum employment
• Stable prices
• Long-term interest rate
“Taylor Rule”
• Setting of the federal funds rate in order to reach the objectives of monetary policy
• EX. Federal funds rate equal to the achievement of full employment, price stability plus current inflation and inflation based on actual output from full employment.
Key components
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Ensures that all depository institutions have adequate reserve balances
Conducts foreign currency operations in order to counter upward pressure on the foreign exchange value.
• Example: Federal Reserve desires to counter downward pressure on the dollar in relation to the Japanese yen. The Fed sells yen the nominated securities for yen on the open market and then trades yen for dollars thus reducing the supply of dollar balances.
Interacts with other international banks
• European Central Bank, Hong Kong monetary Authority, International Monetary Fund, European Systems of Central Banks, Central Bank of the Russian Federation
Key components
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Shares responsibilities and supervisory regulations with Office of the Comptroller of Currency OCC, FDIC, Office of Thrift Supervision OTS.
• Financial regulatory reports
• Accounting and policy disclosure
• Anti-money laundering
• Supervision of international operations of US banking
• Regulates• Acquisition and mergers
• Financial disclosures
• Securities credit
Key components
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panic of 1907
• Nationwide check clearing system
• Presentment fees
Currency and coin
• The Federal Reserve issues notes through depository institutions
Key components
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Value of currency and coin in circulation, selected years, 1955–2003
Millions of dollars Year Currency* Coin Total
Key components
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2001 2002 2003
0
100000
200000
300000
400000
500000
600000
700000
800000
CoinCurrencyTotal
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How the Federal Reserve Works
Video summation
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• Managing national debt• Quantitative easing
• Oversight• 2008 housing crisis
• Measuring M1,M2,M3
• Quantifying depository institutions quote ‘soundness’• Stress testing
• Juggling inflation• Via setting interest rates
• Quantitative easing
Economic challenges
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• Gold standard
• Allow for greater oversight through Congress and other government institutions
• Pass an amendment requiring balanced budgets on any new bill passed
• Separate private financial organizations from government• E.g. Fannie Mae, Freddie Mac
• Financial reform regarding credit approval, oversight of lending institutions via law and an increase in members of the Federal Reserve
• End the Fed
Proposed solutions
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Board of Governors of the Federal Reserve System. (2011, December 8). FRB: the Federal Reserve System Purposes and Functions. Retrieved from The Federal Reserve Board: http://www.federalreserve.gov/pf/pf.htm
Crutsinger, M. (2011, November 10). Fed chief Bernanke reassures vets about economic outlook. USA Today, pp. http://www.usatoday.com/money/economy/fed/story/2011-11-10/Fed-chief-Bernanke-speaks/51153478/1.
Dash, E. (2011, November 22). Fed Plans for Biggest Banks to Undergo New Stress Test to Evaluate Soundness. The New York Times, pp. http://www.nytimes.com/2011/11/23/business/number-of-at-risk-banks-declines.html?_r=1&ref=federalreservesystem.
Evans, K. (2011, December 8). Should the Fed Refocus on Money Supply? the Wall Street Journal, pp. http://blogs.wsj.com/economics/2011/12/08/should-fed-refocus-on-money-supply/?KEYWORDS=the+Fed.
References