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US Federal Reserve

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  1. US Federal Reserve

  2. Key components • Established 1913 • Four duties • Influencing monetary and credit conditions • Supervising and regulating banking institutions • Maintaining stability • Providing oversight to depository institutions • Central bank and 12 regional banks • Federal Open Market Committee • Board of governors • President of the Federal Reserve Bank Of New York • Residents of four other Federal Reserve banks (rotating basis)

  3. Key components • Monetary policy via setting Federal interest rate • Maximum employment • Stable prices • Long-term interest rate • “Taylor Rule” • Setting of the federal funds rate in order to reach the objectives of monetary policy • EX. Federal funds rate equal to the achievement of full employment, price stability plus current inflation and inflation based on actual output from full employment.

  4. Key components • Ensures that all depository institutions have adequate reserve balances • Conducts foreign currency operations in order to counter upward pressure on the foreign exchange value. • Example: Federal Reserve desires to counter downward pressure on the dollar in relation to the Japanese yen. The Fed sells yen the nominated securities for yen on the open market and then trades yen for dollars thus reducing the supply of dollar balances. • Interacts with other international banks • European Central Bank, Hong Kong monetary Authority, International Monetary Fund, European Systems of Central Banks, Central Bank of the Russian Federation

  5. Key components • Shares responsibilities and supervisory regulations with Office of the Comptroller of Currency OCC, FDIC, Office of Thrift Supervision OTS. • Financial regulatory reports • Accounting and policy disclosure • Anti-money laundering • Supervision of international operations of US banking • Regulates • Acquisition and mergers • Financial disclosures • Securities credit

  6. Key components • panic of 1907 • Nationwide check clearing system • Presentment fees • Currency and coin • The Federal Reserve issues notes through depository institutions

  7. Key components • Value of currency and coin in circulation, selected years, 1955–2003 • Millions of dollars Year Currency* Coin Total

  8. Video summation • How the Federal Reserve Works

  9. Economic challenges • Managing national debt • Quantitative easing • Oversight • 2008 housing crisis • Measuring M1,M2,M3 • Quantifying depository institutions quote ‘soundness’ • Stress testing • Juggling inflation • Via setting interest rates • Quantitative easing

  10. References • Board of Governors of the Federal Reserve System. (2011, December 8). FRB: the Federal Reserve System Purposes and Functions. Retrieved from The Federal Reserve Board: http://www.federalreserve.gov/pf/pf.htm • Crutsinger, M. (2011, November 10). Fed chief Bernanke reassures vets about economic outlook. USA Today, pp. http://www.usatoday.com/money/economy/fed/story/2011-11-10/Fed-chief-Bernanke-speaks/51153478/1. • Dash, E. (2011, November 22). Fed Plans for Biggest Banks to Undergo New Stress Test to Evaluate Soundness. The New York Times, pp. http://www.nytimes.com/2011/11/23/business/number-of-at-risk-banks-declines.html?_r=1&ref=federalreservesystem. • Evans, K. (2011, December 8). Should the Fed Refocus on Money Supply? the Wall Street Journal, pp. http://blogs.wsj.com/economics/2011/12/08/should-fed-refocus-on-money-supply/?KEYWORDS=the+Fed.