What is it? & What does it do? 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 Functions Serve the Government Serve Banks Regulate Banking System 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