The Federal Reserve (1913)

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The Federal Reserve (1913)

• The Governments Bank and the Bank for the Banks

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Structure of the Federal
Reserve

• The Federal Reserve (President / BOG)
• (FOMC / FAC)
• 12 Federal Reserve District Banks
• Branch (District) Banks Omaha
• Individual Banks Your Bank

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Board of Governors (BOG)

• 7 members
• appointed by the President, with the consent of
  the Senate
• serve 14 year, non-renewable terms, staggered
• sets policy instruments other than open market
  operations
• decides permissible activities of banks and
  holding companies

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The Fed Chairman Chief or President

• Important Chairs of the BOG (Federal Reserve) (4
  Year Terms)
• Paul Volcker -- 1979-87
• Alan Greenspan -- 1987-2006
• Ben Bernanke 2006-2014
• Janet Yellen 2014-

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The Federal Open Market Committee (FOMC)

• 12 voting members -- 7 Board of Governors 5
  District Bank Presidents (19 members in all)
• meet 8 times per year (more, if needed)
• design monetary policy, by specifying Federal
  Funds rate
• (FAC) Federal Advisory Committee

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Federal Reserve District Banks

• each bank exists within 12 districts within the
  US
• holds deposits of Federal Government
• collects economic data and does economic research
• Insure the banks (FDIC)
• performs check clearing services

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Federal Reserve District Banks
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District Banks -- Administer Monetary Policy

• conduct Discount Loans with banks within district
• enforce reserve requirements for banks within
  district
• hold reserves of banks within district
• New York bank most important, open market
  operations done there

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Federal Reserve Branch Banks and Member Banks

• Branch (District) Banks -- serve as decentralized
  regulators, primarily for larger Fed districts in
  geographic size More to the West Omaha is the
  closest for us.
• Private Banks your bank!

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How Independent is The Federal Reserve?

• Structure implies considerable independence.
• Federal Reserve is financially independent of the
  Federal Governments budget.

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• The President and the
  Federal Reserve
• -- President appoints members of
• the BOG
• -- BOG typically serve less than 14
• year terms
• -- part of the legislative process,
• can introduce legislation

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The Biggest Argument For Continued Independence

• Current Federal Reserve can make the tough policy
  decisions.
• The track record of the US Federal Reserve
  the Volcker and Greenspan years.

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Expansionary and Contractionary Policy

• Expand - Recession /
  Unemployment
• Contract - Inflation / Growth

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The Feds Tools

• Open Market Operations
• The Discount Rate
• Reserve Requirement
• Interest Rate Bias