The Fed

Creation of The Fed 2 Reasons Businesses and Consumers needed greater access to funds to encourage business expansion Banks needed a source of emergency cash to prevent depositor panics that often led to bank runs

Federal Reserve Act of 1913 Created 12 Regional Banks 1935 Reforms Didn’t work – each bank’s actions canceled out the actions of the other banks 1935 Reforms More centralized power The Federal Reserve System as we know it

Structure of The Fed Board of Governors Central Banks Member Banks 7 Governors – 14 year appointments 1 is appointed Chairman of the Fed – 4 year appointment Central Banks 12 – each reserve bank has 9 directors (3/3 – commercial, member, public) Member Banks

Political Independence The BANKS “own” the Fed – the government does not own the Fed. Independence from the gov’t  political independence

Functions of The Fed Serves Government Serves Banks Banker and Agent Issues Currency Serves Banks Clearinghouse Supervises Lending Practices Lender of Last Resort Regulates Banking System RR Audits Regulates Money Supply Monitors Demand