The Federal Reserve
What is it? &
What does it do?
The Federal Reserve
National Bank The Banker’s Bank The Government’s
Bank The Fed
The Federal Reserve There were several prior attempts to create
a “National Bank” but none of them really succeeded
The “Panic of 1907” was a series of banking problems that convinced the government we needed a federal bank.
The finished product was the Federal Reserve. Finally created six years later in 1913.
Reformed several times. 1935 was the last.
Structure of the Federal Reserve Board of
Governors (7) Federal Reserve
Banks (12) Member Banks
(4,000) Other Depository
Institutions (25,000)
Structure of the Federal Reserve Board of Governors
7 members Serve 14 year terms Cannot serve consecutive
terms All from different regions President nominates
membership and Senate approves
President appoints the chair of the Board and Senate confirms
Structure of the Federal Reserve
Federal Reserve Banks:
- Twelve District Banks
- More than one state in each district
Functions of the Federal Reserve Four Primary
Functions1. Serve the
Government2. Serve Banks3. Regulate Banking
System4. Regulate the Money
Supply
Serving the Government Acts as the bank for the U.S. government. Acts as agent for the U.S. Treasury
Buys, Sells and Auctions: bonds, bills and securities
Issues Currency Exchanges new bills for old ones
Serving Banks Clears Checks Supervising Lending Practices
Ensures full disclosure Lender of Last Resort
Lends to banks when they need it
Discount Rate: the interest rate they charge
It’s a high rate
Regulates the Banking System Monitors the
Reserves each bank holds
Periodically Examines Banks Can classify a bank as
a “problem bank” and give it more frequent examinations
Regulates the Money Supply Reduces money supply when necessary to
keep inflation down. Increases money supply to match growth
in demand