THE FEDERAL RESERVE SYSTEM 1913

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THE FEDERAL RESERVE SYSTEM1913
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Two Ways the Economy is Influenced
Fiscal Policy Governments ability to tax and
spend Fed. Gov't regulating taxes
expenditures
Tax more and spend less economy slowed
Tax less and spend more economy stimulated
Monetary Policy The Federal Reserve Bank (the
FED) affecting the economy through controlling
the money supply. Private control since Fed, not
Govt, controls the amount of in circulation
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STRUCTURE OF THE FED
Owned by its member banks -all national
banks -some state banks
Twelve Districts with Directors/ Presidents -but
supervised by Fed in DC
Janet Yellen - Chairperson
Board of Governors 7 members -appointed by P
approved by Senate -14 year terms, staggered,
cant be reappointed
Federal Open Market Committee -money supply
interest rates -12 voting members meet 8 x year
Federal Advisory Council -gives advice on
overall economic health
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The Federal Reserve System
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The Federal Reserve System
Monetary policy-
Its all about
Manipulating Interest rates
Setting Reserve requirements
Manipulating the Money supply Increase it by
buying bonds and decrease by selling bonds
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Responsibilities of the Fed
State member bank supervision
Fed
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Responsibilities of the Fed
State member bank supervision
Bank holding companies
Fed
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Responsibilities of the Fed
State member bank supervision
Bank holding companies
Fed
International bank supervision
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Responsibilities of the Fed
State member bank supervision
Bank holding companies
Fed
International bank supervision
Mergers
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Responsibilities of the Fed
State member bank supervision
Bank holding companies
Fed
International bank supervision
Mergers
Check clearing
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Responsibilities of the Fed
State member bank supervision
Bank holding companies
Fed
International bank supervision
Truth-in- lending laws
Mergers
Check clearing
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Responsibilities of the Fed
State member bank supervision
Bank holding companies
Fed
Issuing Currency Storing Cash
International bank supervision
Truth-in- lending laws
Mergers
Check clearing
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Responsibilities of the Fed
Margin 50
State member bank supervision
Bank holding companies
Margin reserve requirements
Reserve 3-10
Fed
International bank supervision
Issuing Currency Storing Cash
Truth-in- lending laws
Mergers
Check clearing
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• Gold reserves in the Federal Reserve Bank of New
  York

• Federal Reserve vaults in Dallas

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Federal Open Market Committee Money Supply
Government sells bonds - Money flows to the
treasury - reduces the money supply
Government redeems (buys back) bonds - Money
flows out of the treasury - increases the money

supply
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Fractional Reserve System Money Supply
Allows the Fed to control the growth of the money
supply.
A percentage of each deposit into a bank account
must be kept in the bank. The remainder can be
loaned out.
The Fed determines the percentage called the
reserve requirement

• A lower reserve fraction results in more monetary
  expansion

• A higher reserve fraction results in less
  monetary expansion

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HOW BANKS INCREASE THE SUPPLY OF MONEY
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Formula Divide D by RR and multiply x 100
increased money supply
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How Fractional Reserves Work
Money supply (MS) growth Ddeposit RR reserve
requirement Rexcess reserve
MS D (1RR2R3 R4 R5. Rn) D/RR
If D 1000 RR.1 MS1000/.110,000
If D 1000 RR.4 MS1000/.42,500