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Unformatted text preview: Econ test 3 Chapter 12 Structure of Central Banks and the Federal Reserve System Central banks o Actions affect interest rates, the amount of credit, and the money supply, all of which have direct impacts not only on financial markets, but also on aggregate output and inflation. o Federal reserve The most important central bank Structure Writers of the federal Reserve act wanted to diffuse power along regional lines, between private sector and the government, and among bankers, business people, and the public., which led to the evolution of the reserve system to include : Federal Reserve banks, Board of Governors of the Federal Reserve System, the Federal Open Market Committee Federal Reserve Banks o Each Federal Reserve bank is a quasi-public (part private, part public) institution owned by the private commercial banks in the district that are members of the Federal Reserve System. o The member banks elect six directors for each district bank; three more ae appointed by the Board of Governors, together these nine directors appoint the president of the bank o The directors of a bank are classified into three categories : A,B,C A: elected by member banks are professional bankers B: elected by the member banks are prominent leaders from industry, labor, agriculture, or the consumer sector. C: appointed by the board of governors to represent the public interest, are not allowed to be officers, employees, or stockholders of Banks o The 12 federal reserve banks perform the following functions Clear checks Issue new currency Withdraw damaged currency form circulation Administer and make discount loans to banks in their districts Evaluate proposed mergers and applications for banks to expand their activities Act as liaisons between the business community and the Federal Reserve System Examine bank holding companies and state- chartered member banks Collect data on local business conditions Use their staffs of professional economists to research topics related to the conduct of monetary policy The twelve Federal Reserve banks are involved in monetary policy in several ways o Their directors establish the discount rate o They decide which banks, members and nonmembers alike can obtain discount loans from the federal Reserve bank o Their directors select one commercial banker from each bank district to serve on the Federal Advisory Council, which consults with the board of Governors and provides information that helps in the conduct of Monetary policy o Five of the twelve bank presidents each have a vote in the federal open market committee, which affects both interest rates and the amount of reserves in the banking system Member Banks All national banks are required to be members of the Federal Reserve System o Commercial banks are not required to be members, but can choose to join Board of Governors of the Federal Reserve System Each governor is appointed by the president of the United...
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