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chapte12 - Chapter 12 Monetary Policy I I Structure of the...

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Chapter 12: Monetary Policy I. I. Structure of the Banking System A. National Banks Commercial banks chartered by the Federal Government are required to be members of the Federal Reserve System, follow the Fed’s regulations, and must buy stock in its regional Federal Reserve Bank. B. State Banks Commercial banks chartered by State Governments have the option of becoming Federal Reserve Members. C. The Monetary Control Reform Act of 1980 1. Permitted all depository institutions to offer checkable deposits 2. Imposed uniform RRR on bank and non-bank institutions i. This makes the distinction between Federal Reserve Members and non- members less significant. ii. The Deregulatory Act of 1980 had the purpose of increasing competition in the financial industry. Fed control over i.r. on savings and checking deposits to be phased out over 5 years. This effectively repealed Regulation Q. D. Fed Structure 1. Board of Governors: 1 Chairman and 6 Governors, all appointed by the President to 14-year terms. Ordinarily new members are appointed once every two years. i. The Fed is effectively kept independent from the legislative or executive branches. 2. The Board of Governors, plus 5 of the 12 Presidents of Federal District Banks make up the Federal Open Market Committee, which controls all monetary policy actions. 3. The Federal Advisory Council is comprised of 12 prominent bankers one from each of the 12 Federal District Banks’ Boards of Directors. 4. Internal Structure of District Banks i. Each has a 9-member Board of Directors. 3 are appointed by the Board of Governors in Washington to represent national interests. 3 are elected by member commercial banks; one Director selected by large banks, one by medium-sized, and one by small banks. These 6 appoint the remaining 3, meant to represent mainstream economists. ii. The Fed is referred to as a quasi-public institution in that it serves the interests of commercial banks (private) and the national economic health (public). The Fed is not for profit.
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II. Powers of the Fed A. General Powers i. Open-Market Operations
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