The Federal Reserve System

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					The Federal Reserve System

         Chapter 20
    The Federal Reserve
        or “The Fed”
is the nation’s central bank.
It was created in 1913 in attempt to
end periodic financial panics.
   The Fed’s responsibilities:
Regulate the nation’s money supply
Supervise Banks
Clear Checks
 Who are the customers of the
Commercial  Banks (like Bank of America,
 Regions Bank, and The Bank of
The Government (The Fed holds the
 accounts of the U.S. Government)

 We (as individuals) can not bank at the Fed.
  Most nations have a central
U.S.A.- the Federal Reserve Bank
England - The Bank of England
Japan - Bank of Japan
Canada - Bank of Canada
  In addition to overseeing
banking, The Federal Reserve
  also implements monetary
 policy in effort to stabilize
      economic activity.
      Monetary Policy
A banking policy that affects
the supply of money in
circulation which affects the
amount of credit and business
activity in the economy.
       The goal of the Fed:
To ensure enough money and credit are
 available to allow expansion of the economy
 without allowing rapid inflation.

The Fed. wants to strike a balance
 between tight and loose money policies.
        Loose Money Policy
A  lot of money is available at low
 interest rates.
Inexpensive and easily available
 The economy expands.
        Tight Money Policy
Relatively little money to lend at high
 interest rates.
Makes credit expensive and in short
  Would you have a “tight” or
   “loose” monetary policies
  during a time of inflation?
Tight - to decrease the money in the
Look at figure 20-1 in your book (pg.
      Organization of the Fed.
12 districts - each has its own Federal
 Reserve Bank, A Board of Governors, and
 about 5000 member banks. (The Federal
 Reserve Bank of St. Louis is one of the 12.)
There are also 25 Federal Reserve Branch
 Banks. These branches aid the district
 banks in carrying out their responsibilities.
See page 334, figure 20-2
              More info:
The  President of the USA chooses the 7
 member Board of the Federal Reserve.
The term of a Board member is 14 years.
The current chairperson of the Federal
 Reserve is Ben Bernanke. The past
 chairman you may be familiar with is Alan
Each board member has one vote.
           True or False?
The  Chairperson of the Board of
 Governors of the Federal Reserve is
 considered one of the most important
 and powerful positions in government?

            True or False?
All banks are required to become members
 of the Federal Reserve System?

No, just national banks - but state banks
 can also belong.

You   become a member by purchasing stock.
          True or False?
All institutions that accept deposits
 must deposit its reserves in its
 district Federal Reserve Bank?

   Six Functions of the Fed.
Act as the governments banker
Act as a consumer protector
Regulate the money supply
Supervise Banks
Clear Checks
Supply paper currency

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