Do Now: Why is a central bank needed?

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Presentation transcript:

Do Now: Why is a central bank needed? Aim: Why is the Federal Reserve System one of the most important government agencies? Do Now: Why is a central bank needed?

What are the duties of a central bank? I. Federal Reserve Bank-central bank of the U.S.—known as the FED—independent within the government. The central bank has monetary authority. What are the duties of a central bank?

A. Duties of a Central Bank Holding Reserves Forces bank to keep a percentage of money on reserve Helps control money supply. 2. Assures Stability-supervise banks to serve the interest of the depositors. 3. Lending money-serves private bank and the government, not individuals and businesses.

B. Structure 1. Board of Governors 2. FOMC-Federal Open Market Committee 3. 12 District Banks The Fed is known as, “the bankers’ bank” Why?

C. “Bankers’ Bank” 1. holds reserves for banks. 2. transfers funds between banks. 3. Lends money to banks.

What do you know about the clearing of checks? Why does the Fed. Lend money to a small bank in a agricultural region? Why has Fed. lost its image the past 16 months?

II. Fed serves the Banking System A. Check clearing- banks record the receipts and expenditures of clients. ex: 1. Businesses are involved on the process. 2. Check-clearing less important.

B. Lending Money Banks loan each other money on a short term basis. * local economy-seasonal 2. Fed. acts as lender of last resort.

C. Regulating and Supervising banks 1. Audits of bank’s financial practices EX: prevent fraudulent practices. 2. Monitor mergers to ensure competition. EX: Protect—mortgages and auto loans.