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LectureNote10 - LECTURE TEN Structure and Function of...

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LECTURE TEN Structure and Function of Central Banks (with an emphasis on the FED) ECONOMICS 209 Professor Kevin Huang Vanderbilt University
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12-1 Structure of Central Banks and the Federal Reserve System A CB is in charge of monetary policy May also regulate financial institutions And serve as a lender of the last resort FED is the world’s most influential CB
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12-2 Origins of the FED Historical resistance to establishment of a central bank ± Fear of centralized power (DC) ± Distrust of moneyed interests (NY) First U.S. experiments with a central bank (the 1 st and 2 nd Bank of the U.S.) terminated in 1811 and in 1836 No lender of last resort ± Nationwide bank panics on a regular basis ± Panic of 1907 so severe that the public was convinced a central bank was needed Federal Reserve Act of 1913 ± Elaborate system of checks and balances ± Decentralized with 12 regional FRBs
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12-3 Federal Reserve Banks Quasi-public institution owned by private commercial banks in the district that are members of FED system Member banks elect 6 directors for each FRB with 3 more appointed by the BOG to form the FRB’s BOD ± 3 A directors are professional bankers ± 3 B directors are prominent leaders from industry, labor, agriculture, or consumer sector ± 3 C directors appointed by the BOG cannot be officers, employees, or stockholders of banks Each FRB’s BOD appoint the president of the FRB subject to approval by the BOG
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12-4
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12-5
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12-6 Functions of the FRBs Clear checks Issue new currency Withdraw damaged currency from circulation Administer and make discount loans to banks in their districts Evaluate proposed mergers and applications for banks to expand their activities
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This note was uploaded on 04/07/2008 for the course ECON 209 taught by Professor Professor during the Spring '08 term at Vanderbilt.

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LectureNote10 - LECTURE TEN Structure and Function of...

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