Transcript Practice Powerpoint - Black Hawk College

The United States
Federal Reserve
By Dr. Paul Lockard
Professor
Black Hawk College
The United States
Federal Reserve
• The structure of the Federal Reserve
• The policy tools of the Federal Reserve
• The functions, both formal and informal,
of the Federal Reserve
The Structure of the
Federal Reserve
The Structure of the
Federal Reserve
• Seven member Board of Governors runs the
Federal Reserve
• 12 Federal Reserve regions
• The Federal Open Market Committee,
which determines the nation’s monetary
policy.
• Thousands of member banks
The Structure of the Federal
Reserve
• The terms of the members of the Board of
Governors are staggered, to prevent any
single President or Congress from picking
all of them at once.
• The twelve Federal Reserve Districts each
have their own bank.
• We are in District #7, headquarters in
Chicago.
The Structure of the Federal
Reserve
• The Federal Reserve Banks are owned by the
member banks of that district.
• THIS MEANS THAT THE
FEDERAL RESERVE IS
ULTIMATELY RESPONSIBLE TO
BANK OWNERS, NOT TO THE
AMERICAN PEOPLE.
The Policy Tools of the
Federal Reserve
The Policy Tools of the
Federal Reserve
• The Fed has a large number of regulatory
tools, which apply to commercial banks.
• The Fed can change the reserve ratio of
banks.
• The Fed can change the discount rate it
charges banks.
• The Fed has the ability to buy and sell
Treasury bonds to shape money supply.
Functions of the
Federal Reserve
Functions of the Federal Reserve
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Clear checks
Issue new currency
Withdraw damaged currency
Collect data and analyze the economy
Acts as fiscal agent to the US government
Functions of the Federal Reserve
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Monitor and examine member banks
Hold reserves of member banks
Establish required reserve ratios
Establish the discount rate and determine
which banks are eligible for them
Functions of the Federal Reserve
• Through open market operations, attempt to
control the rate of inflation
• Through open market operations, influence
the labor market
Clear Checks
• Most checks drawn on banks are sent
through the Federal Reserve.
• Most electronic checking is also routed
through the Federal Reserve.
Currency
• The Federal Reserve is responsible for the
even distribution of cash of all types
throughout the country.
• Ships coins and paper bills all over the
country.
• Is responsible for removing damaged paper
bills.
Analysis and Data Collection
• The Federal Reserve collects, analyzes, and
publishes a very large amount of economic
data.
Acts as a Fiscal Agent
• The Federal Reserve holds the US
governments stockpile of Treasury notes.
• The Federal Reserve physically handles
many of the checks that go to or from the
US government.
Examines Member Banks
• The Federal Reserve watches over member
banks to detect which banks are in trouble.
• If the Federal Reserve believes a bank is
having problems, it can closely examine
that bank.
• They can call in other government agencies
as well.
Reduces the Level of Inflation
• The Federal Reserve has also become the
country’s foremost inflation fighter, even
though this is not in the original charter
Keeps Loose Labor Markets
• The Federal Reserve has also taken up the
task of keeping labor markets loose, or a
less than full employment economy.
The Current Credit Crisis
By Dr. Paul Lockard
Professor
Black Hawk College
Background:
Old Style Mortgages
• Traditionally, from the 1930’s to the 1980’s,
banks lent money for mortgages in a simple
fashion.
• Home mortgage loans were for a fixed time
and a fixed rate: 15 to 30 years.