Ch. 16.1 The FED

The FED Main Ideas The Fed is privately owned by its member banks, not by the government. The Fed is said to be publicly controlled because it is directed by a seven-member board of governors who are appointed by the president to govern the Fed in the public interest. The twelve Federal Reserve district banks and their branches provide many of the same functions for banks that banks provide for individuals. The Federal Open Market Committee has the power to raise or lower interest rates. The most important advisory committee to the board of governors is the Federal Advisory Council, which meets four times a year and advises the Federal Reserve Board on matters concerning the overall health of the economy.

Member Bank Board Of Governors A bank that belongs to the Federal Reserve System Functions: Contribute funds to the 12 district banks Receive stocks Board Of Governors Seven Member Supervises and regulates the Fed

Federal Reserve District Banks: There are 12 Functions: Accepts deposit forms and makes loans to privately owned banks and thrift institutions.

Federal Open Market Committee and Advisory Committees Power to raise or lower interest rates. Evaluates factors to determine to raise or lower Construction Wages Prices Employment Production Stock market Spending

What is the purpose of the Federal Open Market Committee? It evaluates economic factors to determine if interest rates should be raised or lowered.

Look At Fig 16.1 How do you think having private ownership of the Fed by member banks affects its ability to oversee the economy?  Private ownership keeps the Fed from being so influenced by political maneuvers and interests. How does having 12 district banks affect the Fed’s performance and decisions? It puts the district banks close to the member banks it serves so it can be more responsive to their needs while recognizing and responding to changing economic conditions within their specific districts, which may differ from those of other districts. Why is the Federal Advisory Council considered the most important committee in the Fed? It advises the Fed Board of Governors on the health of the economy. Why is the Federal Open Market Committee important to the functioning of the Fed? The Open Market Committee sets interest rates, enabling the Fed to influence national economic conditions.

Responsibilities of the FED Main Ideas Federal Reserve responsibilities include maintaining the money supply and the payments system, regulating and supervising banks, preparing consumer legislation, and serving as the federal government’s bank. Federal Reserve notes are printed by the U.S. Bureau of Engraving and Printing, and coins are produced by the Bureau of the Mint. The payments system includes the money supply, electronic transfer of funds, clearinghouses for checks, and online banking. Some of the Fed’s consumer protection activities have been transferred to the Consumer Financial Protection Bureau, but the Fed still supplies much financial information. The most important responsibility of the Fed is conducting monetary policy.

Who prints Federal Reserve notes? Currency Paper component of the money supply, today consisting of Federal Reserve notes. Coins Metallic forms of money such as pennies, nickels, dimes, and quarters. Who prints Federal Reserve notes? U.S. Bureau of Engraving and Printing

What kind of banks does the Fed regulate? The Fed regulates all federally chartered banks, many state banks, bank holding companies, foreign branches of its member banks, and U.S. branches of foreign-owned banks.

Bank Holding Companies Firms that own and control one or more banks. The Fed has jurisdiction over the activities of Bank Holding Companies. Making sure they are complying with existing bank laws.

Ending How does the Fed’s role in financial literacy and consumer protection contribute to economic growth? Educated consumers who are provided with reasonable financial protection will buy and sell goods with greater confidence, thereby contributing to economic growth