CH 4 326 - Chapter 4 The Federal Reserve System Monetary Policy and Interest Rates Federal Reserve Founded by Congress under the Federal Reserve Act in

CH 4 326 - Chapter 4 The Federal Reserve System Monetary...

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Chapter 4- The Federal Reserve System, Monetary Policy, andInterest RatesFederal ReserveFounded by Congress under the Federal Reserve Act in 1913Subject to oversight by Congress under its authority to create moneyAn independent central bank–its decisions do not have to be ratified by the President or CongressCongressional oversight Functions of Federal ReserveConduct monetary policySupervise and regulate depository institutionsMaintain financial system stabilityThe Wall Street Reform and Consumer Protection Act of July 2010 requires the Fed to supervise complex financial institutions that could generate systemic risk to the economyThe Fed (and others) has now been given broader powers to seize or break up institutions whose actions could harm the economyMaintain financial system stabilityImplementing federal laws designed to protect consumers in credit and other financial transactions Implementing regulations to ensure compliance, investigating complaints, and ensuring availability of services to low and moderate income groups and certain geographic regionsProvide payment and other financial services to the U.S. government, the public, FIs, and foreign official institutionsPayments are increasingly electronic in natureStructure of the Federal ReserveDivided into 12 Federal Reserve districts, each with a main Federal Reserve Bank
Federal Reserve Banks operate under the general supervision of the Board of Governors of the Federal ReserveThe Office of the Comptroller of the Currency (OCC) charters national banks, which are members of the Federal Reserve System (FRS)FRS member banks “own” the 12 Federal Reserve BanksBoard of Governors of the FRSSeven member board headquartered in Washington, DCPresident appoints and Senate confirms members to nonrenewable 14-year termsPresident appoints and Senate confirms Chairman and vice-chairman to renewable 4-year termsFormulates and conducts monetary policy and supervises and regulates banksFederal Open Market Committee (FOMC)FOMC consists of 12 membersseven members of the Board of Governorsthe president of the Federal Reserve Bank of NYthe presidents of four other Federal Reserve Banks (on a rotating basis)The monetary policy-making body of the FRSPolicies seek to promote full employment, economic growth, price stability, and a sustainable pattern of international tradeAre there tradeoffs between these goals?

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