Central Bank - Fed Reserve System - The Federal Reserve System Central Banking Topic 3a Preview Central banks are the government authorities in change

Central Bank - Fed Reserve System - The Federal Reserve...

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The Federal Reserve System Central Banking Topic 3a
Preview Central banks are the government authorities in change of monetary policy. For example, in the U.S., the central bank is the Federal Reserve System. Central banks affect interest rates, credit, money supply, inflation… 2
Outline Origins of the Federal Reserve System Structure of the Federal Reserve System How Independent is the Fed? Structure and Independence of the European Central Banks Structure and Independence of other Foreign Central Banks Explaining Central Bank Behavior Should the Fed Be Independent? 3
Origins of the Federal Reserve System Fear of centralized power and distrust of moneyed interests guided central bank activities in the 19 th century The First Bank of the U.S. was disbanded in 1811 The Second Bank of the U.S. was disbanded in 1836 when President Andrew Jackson vetoed its renewal. As a result, banking panics became regular events, absent a lender of last resort, culminating in the panic of 1907. Widespread bank failures and depositor losses convinced the U.S. that a central bank was needed. 4
Federal Reserve Act of 1913 Fear of a “central authority” was rampant— people worried that powerful Wall Street interests would manipulate the system. Questions arose as to whether such a monetary authority would be private or a government institution. The Federal Reserve Act of 1913 was a compromise that created the Federal Reserve System, including elaborate checks and balances. 5
Structure of the Federal Reserve System Design was intended to diffuse power along the following dimensions: Regions of the U.S. Government and private sector interests Needs of bankers, businesses, and the public The system as it exists now includes: Twelve Federal Reserve Banks Board of Governors (BOG) of the Federal Reserve System Federal Open Market Committee (FOMC) Federal Advisory Council Member Banks (around 2,800) 6
Structure of the Federal Reserve System The next slide outlines the relationships of these entities to one another and to the three policy tools of the Fed: Open market operations Discount rate Reserve requirements 7
Structure of the Federal Reserve System 8
Twelve Federal Reserve Banks Each of the twelve districts has a main Federal Reserve Bank and at least one branch office The banks are “quasi-public” Owned by member commercial banks in the district Member banks elect six directors, while three directors are appointed by the Board of Governors Directors represent professional bankers, prominent business leaders, and public interests (three from each group) 9
Federal Reserve Banks 10
Federal Reserve Bank Functions: General Clear checks Issue new currency and remove damaged currency Evaluate bank mergers and expansions Lender to member banks Liaison between local community and the Federal Reserve System Perform bank examinations Collect and examine data on local business conditions 11

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