1. The Federal Reserve System “the Fed”

2. 12 Federal Reserve Districts
Commercial banks’ banker
Federal Reserve System is comprised of 12 districts, each with a president.
very much like a “branch office”
Commercial banks join the federal reserve system.
are strengthened by it
can network with other banks more effectively
increase consumer confidence

3. Board of Governors

5. Board of Governors 7 members appointed by president approved by Senate
14 yr. term
chairman
Ben Bernanke
formerly
Alan Greenspan

6. 6 Major Jobs of the Fed Supply the economy with paper money and coins.
Hold bank reserves.
Provide check-clearing services
Supervise member banks
Serve as lender of last resort.
Control the money supply

7. 1.Supply the economy with paper money and coins.
“U.S. Mint”
Bureau of Engraving and Printing

9. 2. Hold bank reserves
reserves at the Fed + vault cash =total reserves

10. 3.Provide check-clearing services
Facilitates check-cashing between commercial banks.
for example, Wells-Fargo and Bank of America

11. Between banks, cities EXAMPLE:
Pete pays Sue for a used car. He gives her a check for $2,000.
Sue deposits the check in her bank and is credited with $2,000 in her account.
Sue’s bank sends the check to FRB who increases the bank’s reserve account by $2,000.
FRB decreases Pete’s bank’s reserve by $2,000
FRB notifies Pete’s bank to reduce Pete’s account by $2,000.

12. 4. Supervise member banks 5. Serve as lender of last resort
Fed may “audit” a bank
check that the loans it made are good
be sure it has followed banking rules
verify the accuracy of its accounting.
Fed can lend funds to struggling banks.
Glass-Steagall Act (1933) establishes FDIC
Fed of Minneapolis flies to the rescue. page 291 in text

13. 6. Control the money supply. I kept the most important for last!
Tools for changing the money supply
Reserve Requirement
Discount Rate
Open Market Operations
Why is changing the money supply important?
TO CONTROL INFLATION and/or UNEMPLOYMENT
Monetary Policy
Stop here and do money supply kinetic