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Lecture 6.7. The Federal Reserve System. Federal Reserve. Central bank of the U.S. that controls the size of the money supply to help regulate the economy and create stability in the banking system Created in 1913. Structure of the Fed. National Level - Board of Governors

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The Federal Reserve System

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Lecture 6.7

The Federal Reserve System


Federal Reserve

  • Central bank of the U.S. that controls the size of the money supply to

    • help regulate the economy and

    • create stability in the banking system

  • Created in 1913


Structure of the Fed

  • National Level

  • - Board of Governors

    • Directs and controls activities of the Fed

    • Chairman Ben Bernanke since 1/06

  • - Federal Open Market Committee

    • Control money supply & interest rates through the buying and selling of govt. securities (bonds)

  • - Federal Advisory Council:

    • Provide the Fed with advice on the nation’s financial problems

  • 2. 12 District Banks perform functions for commercial banks

    • - make loans to banks

    • - Process bank checks

    • examine commercial banks for safety and soundness

  • 3. Local Level - commercial banks consumers bank at


Fed Services to Government

  • Federal govt. deposits money at the Fed

  • Fed buys & sells federal govt bonds

  • Issues currency


Fed Services to Banks

  • Check clearing

  • “Lender of last resort” for banks that need emergency cash

  • Create stability in the banking system by

    • Coordinates banking activity

    • Bank examinations

    • Supervising lending practices


The Fed’s Mission

To control the money supply to maintain a stable economy by having

  • Full employment

  • Economic growth

  • Price stability


FDIC

  • Federal Deposit Insurance Corporation

  • Not a part of the Fed

  • Insures total deposits up to $250,000 per depositor per bank

  • Established in 1934 to restore confidence to the banking system

  • Also regulates banks (like the Fed)


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