Federal Reserve System US Central Bank

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Federal Reserve SystemUS Central Bank

• Organization of FED
• 3 Levels
• National
• District
• Local

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Federal Reserve System
Advisory committee-12 members
Open Market committee- 12 members-8 times year
Board of Governors- 7 Members-Ben S.Bernanke
12 District Banks 25 Branch Banks
Local banks 3000 banks, 50,000 branches
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FED-Board of Governors

• 7 members
• Appointed by President and confirmed by Senate
• 14 year term, staggered, one appointed every 2
  years
• Sets general policies, primarily regulatory and
  supervising agency.
• Reports each year to Congress

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FED-Advisory Councils

• 3 advisory councils
• Federal advisory council-12 representatives of
  FED district branches-gives advice on health of
  economy.
• Consumer Advisory Council-30 members meet 3 times
  a year-consumer credit laws.
• Thrift Institutions Advisory Council-meets 3
  times a year-representatives from Thrift
  institutions.

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FED-Open Market Committee

• Makes decisions about the growth of money supply
  and level of interest rates
• 12 voting members-7 from Board of Governors,
  President of NY FED and 4 District FED Presidents
  on a rotating basis.
• Meets 8 times a year to review the economy
• FEDs primary monetary policy making body.

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Functions of FED

• Clearing checks-60 billion per year-debit and
  credit accounts
• Government Fiscal agent-keeps track of deposits,
  account for US treasury-social security, tax
  refunds, etc
• Supervise member banks-set limits for loans,
  approve mergers, examine banks

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Functions of FED

• 4) Hold and set reserve requirement- of deposits
  held in reserve-changes amount of money in
  circulation
• 5) Supply paper money-printed in Wash DC, replace
  old bills
• 6) Regulate money supply-determine and change
  amount of money in circulation.

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Functions of FED

• 7) Make loans to member banks-1 day to several
  weeks, cover large withdrawals and shortages
• Seasonal-Christmas
• Natural disasters
• Financial emergencies

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FED-Clearing A Check

• 1) Mr. Guy has checking account-100 balance.
• 2) Receives a check from Mom Guy-5.00-deposits
  into his account.
• The bank credits Mr. Guys account for 5.00-
• Bank X account is deducted-debited.
• Bank sends check to FED-San Francisco
• Bank X account is credited
• FED San Francisco is debited

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FED-Clearing a Check

• FED San Francisco sends check to Richmond FED
• FED San Francisco account is credited
• FED Richmond account is debited.
• FED Richmond sends check to Bank Y-Mom Guys
  bank.
• FED Richmond credits account
• Bank Y account is debited.
• Bank Y receives check
• Debits or deducts Mom Guys account for 5
• Credits Bank account with Richmond FED for 5.00

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FED-Clearing a Check

• FED-SF 5.00
• FED-Richmond -5.00

1. Mr. Guy 100.00 5.00 105.00-Balance

• FED-Richmond 5.00
• Bank Y -5.00

• Deposit in bank
• Mr. Guy 5
• Bank Y -5

• Bank Y - 5.00
• Mom Guy -5.00

3. Bank Y 5.00 FED SF-5.00

• Mom Guy 100.00
• - 5.00
• 95.00

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Comparison of Fed to other Countries

• Common Elements
• Lends money to banks and government
• Hold cash reserves
• Non-profit institutions

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Comparison of Fed to other Countries

• Unique Features
• Member banks own stock in FED
• District banks design policies to fit own
  district-flexible
• 12 banks not 1 central bank
• Membership not required-40 of banks are members

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Components of Money Supply