2. Board of Governors Federal Reserve Bank Member Banks Federal Open Market Committee (FOMO) Advisory Councils

3. The Federal reserve system  Created in 1913 Board of Governors  Appointed by the President for one 14-yr term  Must be approved by the Senate  One members term expires every 2 years  Chairman  Ben Bernanke

4. The Federal reserve system  Do all banks have to belong to the Federal Reserve? NO  To join, banks must purchase STOCK in its Federal Reserve district bank  This stock cannot be bought or sold in the open market.

5. How does the Federal reserve system operate?  It’s main function is to control the money supply through monetary policy  The power of the Fed has grown to the point where its decisions have enormous impact on the economy.

7. The Reserve Requirement : The Fed’s most powerful tool  A fraction of the bank’s deposits that must be kept in reserve by the bank to control the amount the bank can lend  Usually vary between 3% & 14% of total deposits.  CONTROLLING THE MONEY SUPPLY: Increase supply = LOWERS RR Decrease supply = RAISES RR

8. The Discount Rate : The Fed acts as a lender to banks  Interest the Fed charges when it lends money to banks  When the prime rate or discount rate changes, all INTEREST rates will change.  CONTROLLING THE MONEY SUPPLY: Increase supply = LOWERS DR Decrease supply = RAISES DR

9. The Federal Open Market Operations : The Fed’s most important & most frequently used tool  to adjust the money supply  The Fed is the nation’s owner of SECURITIES (bonds, Treasury bills, Treasury notes)  CONTROLLING THE MONEY SUPPLY: Increase supply = BUYS securities Decrease supply = SELLS securities

10. The Federal reserve constantly monitors  the money supply  It will increase or decrease the money supply by increasing or decreasing interest rates.  The ECONOMY reacts to decisions by the FEDERAL RESERVE

11. Modern banking

12.  Banks also allow customers to borrow money through the practice of FRACTIONAL RESERVE BANKING.  The percent of deposits that banks must keep in reserve is set by the Fed.

13. Fractional reserve banking www.classzone.com

14. Common loans banks make Mortgage  Real estate  Lender & borrower  Monthly  Lender

15. Credit cards  Issued by banks to users  Pays; lends  Repaying

16. Banking deregulation Bank Mergers  Larger banks acquired smaller ones  Smaller ones joined forces to enter different geographic markets

17. BENEFITS  Increased competition which keeps interest rates low  Increase in the number of bank branches

18. CONS  Fewer banks to choose from  Big banks show less interest in smaller customers

19. Banking Services Financial Services Act of 1999  Allowed banks to sell stocks, bonds, and insurance

20. Technology & Banking  ATM’s – allow customers to bank without seeing a bank officer  Debit Cards – Can be used to withdraw cash to make a purchase  Stored – value cards – Represent money that the holder has a deposit with the issuer (gift cards)