session5 - Session 5 Banks Outline Central Banks Commercial...

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Session 5 Banks
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2 Outline Central Banks Commercial Banks Banks & Money Balance Sheet Analysis
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3 Central Bank Functions Financial stability Monetary policy interest rates open market operations credit conditions
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4 Primary Targets Inflation? Yields? Exchange rates? Employment?
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5 Absorbing shocks Role of anchors Time inconsistency Political pressures Seigniorage
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6 Federal Reserve “The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.” Four main tasks 1. conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates 2. supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers 3. maintaining the stability of the financial system and containing systemic risk that may arise in financial markets 4. providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system
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7 Fed (FOMC) Policy Decisions Members FOMC consists of 12 members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis Chairman Ben Bernanke (currently in his second 4yr term that ends in January 2014) Meetings 8 scheduled meetings a year Minutes released three weeks after each meeting
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8 European Central Bank The ECB is the central bank for Europe's single currency, the euro and was formed in 1998. The ECB’s main task is to maintain the euro's purchasing power and thus price stability in the euro area. The euro area comprises the 16 European Union countries that have introduced the euro since 1999. Mission statement “The European Central Bank and the national central banks together constitute the Eurosystem, the central banking system of the euro area. The main objective of the Eurosystem is to maintain price stability: safeguarding the value of the euro. We at the European Central Bank are committed to performing all central bank tasks entrusted to us effectively. In so doing, we strive for the highest level of integrity, competence, efficiency and transparency. “
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ECB Policy Decisions Members Governing Council has 22 members, comprising 6 members of the Executive Board plus 16 governors of the national central banks that make up the euro area Chairman Jean-Claude Trichet, 8yr term ending in October 2011 Meetings Governing Council meets twice monthly; policy meeting usually first Thursday of each month
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