The Federal Reserve System Chap. 14

The Federal Reserve System (aka “The Fed”) Tries to control the nations money supply Tries to keep unemployment down Stimulates economic growth Promotes economic stability

Four parts of “The Fed” 1. Board of governors- they direct Fed 7 presidential appointees President names chairman & vice chairman Today’s chairman is: Ben Bernanke

Four parts of “The Fed” Confirmed by the Senate 14 year terms- cannot be reappointed. (terms overlap w/ 1 expiring every two years) Keeps the Fed independent of politics

District Banks

2. Federal Reserve Banks Nationwide network of 12 Fed. Rsrv. Banks U.S split into 12 districts w/ 1 bank in each District Banks

3. Federal Open Market Committee 7 Board of Governors +5 presidents of Fed. Reserve Banks Sets Fed. Reserve policy on the purchase of government securities (bonds)

Fed. Cont. 4. Member banks National and state banks can be members Get Fed support but must follow Fed guidelines Inspected and monitored by the Fed

Banks vs. Credit Unions Banks Open to anyone Usually many locations Not the best rates For-profit Credit Union Membership based Tend to be local Great rates Non-profit

Tools of Monetary Policy Reserve Requirements – Lower to stimulate the economy and raise to slow down the economy. Open-market operations – buying & selling govt. securities (bonds) affects “federal-funds rate” –Buying bonds increases money supply –Selling securities contracts money supply Discount rate – Interest Fed charges on loans to banks. Changing rates or “window” (term) affects banks borrowing.