1. The Federal Reserve System
I. Origins & structure of the Fed.
ECO 473 – Money & Banking – Dr. D. Foster

2. Central Banking - The 1st and 2nd BUS
The “Free Banking” Era:
Evolution to Central Banking:
1865–1912
The National Banking System
The Federal Reserve System

3. 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.

4. The Federal Reserve Banking System

5. 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%.

6. 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.

7. The Fed’s Balance Sheet – 12/2007
In millions of dollars.

8. The Fed – Q2 2017
Treasury Securities ……… $2.56 trillion
Holdings of MBS ……… $1.8 trillion
Total Assets ….… $4.47 trillion

9. FRS – Total Assets;
Sept. 2017:
$4.46 t.
$2.46 t.
$1.77 t.

10. The Fed – Q2 2017
FR Notes outstanding ….. $1.49 trillion
Bank deposits …. $2.15 trillion
Total Liabilities ……… $4.47 trillion

11. FRS – Total Liabilities; 2007-2017
Sept. 2017:
$4.46 t.
$2.31 t.
$1.58 t.
$0.41 t.

12. The Federal Reserve System
I. Origins & structure of the Fed.
ECO 473 – Money & Banking – Dr. D. Foster