The Federal Reserve System I. Origins & structure of the Fed. ECO 473 – Money & Banking – Dr. D. Foster
Central Banking - The 1st and 2nd BUS The “Free Banking” Era: 1836-1863 Evolution to Central Banking: 1865–1912 The National Banking System The Federal Reserve System
The Federal Reserve Banking System Purpose: Develop, supervise & control the nation’s money. Serve as a national check-clearing system. Serve as depository for federal gov’t. funds. Board of Governors of the FRS 7 members, equal standing . . . but, includes Secretary of the Treasury and Comptroller of the Currency. Problems: Only using discount window, Each District Bank sets its own policy.
The Federal Reserve Banking System
The Early Fed, 1913–1935 Accommodates the Treasury Dept. during WWI. Buys Treasury bonds to finance G spending (aka “monetizing the debt”). From 1916 to 1918, this increases MS by 70%. Huge risk of inflation. The Great Depression - Failure of the Fed Initially increased liquidity, but pulled back. By 1933, 33% of banks fail, MS fallen 33%.
The Fed - version 2.0, 1935 Serves as a “lender of last resort.” Board of Governors reconstituted: All 7 member selected by President/Senate confirms. Can’t include Treasury Sec. nor Comptroller of Currency. Members serve 14 yr. terms on staggered basis. Geographic diversity. Office of Chairman and Vice Chairman created. Has authority over district banks. Federal Open Market Committee (FOMC) 12 members; primary policy-making body.
The Fed’s Balance Sheet – 12/2007 In millions of dollars.
The Fed – Q2 2017 Treasury Securities ……… $2.56 trillion Holdings of MBS ……… $1.8 trillion Total Assets ….… $4.47 trillion
FRS – Total Assets; 2007-2017 Sept. 2017: $4.46 t. $2.46 t. $1.77 t.
The Fed – Q2 2017 FR Notes outstanding ….. $1.49 trillion Bank deposits …. $2.15 trillion Total Liabilities ……… $4.47 trillion
FRS – Total Liabilities; 2007-2017 Sept. 2017: $4.46 t. $2.31 t. $1.58 t. $0.41 t.
The Federal Reserve System I. Origins & structure of the Fed. ECO 473 – Money & Banking – Dr. D. Foster