The Federal Reserve System

3 duties that are associated with supervising banks.

- Fostering safe sound and competitive practices in the nations banking system. - Protecting consumer's financial transactions. - regulating the bank.

Monetary Policy Options to Fight Recession

- lower interests rate - lower reserve requirements - buy securities

Monetary Policy Options to Fight Inflation

- raise interest rates - raise reserve requirements - sell securities

3 key goals the Federal Reserve tries to achieve

- sustainable growth - full employment - low to moderate inflation

Three tools that Fed has to carry out its monetary policy goals.

1. Discount rate 2. Reserve requirements 3. Open Markets Operations ** most frequently used; affects the federal funds rate

What are the 3 audiences of the Reserve Banks?

1. Providing financial services 2. Contributing to monetary policy 3. Supervising commercial banks

What are the Fed's three main responsibilities?

1. Providing financial services 2. Contributing to monetary policy 3. Supervising commercial banks

How long do the Board of Governors serve?

14 years.

List Three parts of the Federal Reserve System

A. The Board of Governors B. The Reserve Banks C. The Federal Open Market Committee

Circulating money

Buying bonds>>> to banks>>> loan out money>>> back to consumers

When was the Federal Reserve system created?

Congress wrote the act in 1913.

Open Market Operations: increase/ decrease money supply

Increase: buy securities Decrease: sell securities

Reserve Requirement: increase/ decrease

Increase: reduced the volume of deposits that can be supported by a given level of resources Decrease: leaves depositories with excess reserves which can induce the expansion of bank credit.

Discount rate: increase/ decrease

Increase: will make it more expensive for banks to borrow and decrease the money supply Decrease: will make it cheaper for commercial banks to borrow money and increase money supply.

What does it mean to "conduct monetary policy"?

It means to control the money supply within the circulation.

What is the primary purpose of the Federal Open Market Committee ( FOMC ) ?

Monetary policy.

What's the difference between regulation and supervision of banks?

Regulation is the written rules that define acceptable behavior and conduct for financial institutions. Supervision refers to the enforcement of these rules.

Reserve Requirement

Sets the minimum fraction of customers deposits and notes that each commercial bank most hold as reserves.

How many people are on the Board of Governors?

Seven members.

What kind of financial services does the Federal Reserve System provide for banks?

Some of the services include collecting checks, electronically transferring funds, and distributing and receiving cash and coin.

What is the federal funds rate?

The interest rates at which depository institutions ( ex: banks) lend reserve balances to other banks.

What does the federal funds rate affect again?

The interest rates!

Discount Rate

The minimum interest rate set by the Federal Reserve for lending to other banks.

Open Market Operations

The process of which the Federal Open Markets Committee buys and sells securities to set the money supply.

Who is on the FOMC?

The seven governors from the Board and 5/12 presidents of the Reserve Banks.

How do they Board of Governors get their jobs?

They are appointed by the president and confirmed by the U.S. Senate.

Why was the Federal Reserve system created?

To create stability in the economy and to improve to the efficiency of the national payments system.

What is the purpose of the Federal Reserve Banks?

To provide the nation with a safer, more flexible, and stable monetary financial system.

What is the role of the Board of Governors?

To write regulations that make commercial banks financially in check and strengthen the nation's economy.

How many districts are in the federal reserve system?

Twelve.

How many reserve banks are there?

Twelve.

How many Branch banks are there?

Twenty- four.

NOTES

When stimulating the economy..... - buying government securities ( FOMO) lovers the federal funds rate - decreasing the reserve requirements gives banks more money to loan out - decreasing the discount rate makes it cheaper to borrow money for banks * when slowing down the economy to make sure everything is sustainable we do the opposite**