Ch 9 Notes.docx - Chapter 9 Central Banks and the Federal...

This preview shows page 1 - 3 out of 5 pages.

Chapter 9: Central Banks and the Federal Reserve SystemCentral Banks are the government authorities in charge of monetary policy. Ex. In the US, the central bank is the Federal Reserve System. Although we typically hear about central banks in connection with interest rates, their actions also affect credit, the money supply, and inflation.Origins of the Federal Reserve SystemFear of centralized power and distrust of moneyed interests guided central bank activities in the 19thcentury People wanted govt. to stay out of banking activitiesWith no central bank, banking panics became regular events, culminating in the panicof 1907.Widespread bank failures and depositor losses convinced the U.S. that a central bank was needed. Not necessarily 100% government-run, but some type of central bankFederal Reserve Act of 1913There was a general fear of a “central banking authority” people worried that powerful Wall Street interests would manipulate the system Didn’t want govt to be overly manipulative of the system eitherQuestions 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. Including a private component & a govt component.Structure of the Federal Reserve SystemDesign was intended to distribute power along the following dimensions:Regions of the U.S.Government and private sector interestsNeeds of bankers, businesses, and the publicThe system as it exists now includes: More details for each section belowTwelve Federal Reserve BanksBoard of Governors (BOG) of the Federal Reserve SystemFederal Open Market Committee (FOMC)Member Banks (around 2,800)Three policy tools of the Fed: which affect money supply and interest ratesOpen market operationsBuying & selling securities (primarily US Treasury Bonds) to impact the money supply.Discount rateRate at which Fed lends to banks. Interest rate charged on discount loans. Reserve requirements
Banks required deposits at the Fed. Percentage of deposits that each bank is required to keep within their vault or on deposit with the Fed. (Those funds will not be available to lend to potential borrowers)Twelve Federal Reserve BanksEach of the twelve districts has a main Federal Reserve Bank and at least one branch office. Federal Reserve Bank - “bank for banks”The banks are “quasi-public”

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture