2. Established 1913 Four duties Influencing monetary and credit conditions Supervising and regulating banking institutions Maintaining stability Providing oversight to depository institutions Central bank and 12 regional banks Federal Open Market Committee Board of governors President of the Federal Reserve Bank Of New York Residents of four other Federal Reserve banks (rotating basis) Key components

3. Monetary policy via setting Federal interest rate Maximum employment Stable prices Long-term interest rate “Taylor Rule” Setting of the federal funds rate in order to reach the objectives of monetary policy EX. Federal funds rate equal to the achievement of full employment, price stability plus current inflation and inflation based on actual output from full employment. Key components

4. Ensures that all depository institutions have adequate reserve balances Conducts foreign currency operations in order to counter upward pressure on the foreign exchange value. Example: Federal Reserve desires to counter downward pressure on the dollar in relation to the Japanese yen. The Fed sells yen the nominated securities for yen on the open market and then trades yen for dollars thus reducing the supply of dollar balances. Interacts with other international banks European Central Bank, Hong Kong monetary Authority, International Monetary Fund, European Systems of Central Banks, Central Bank of the Russian Federation Key components

5. Shares responsibilities and supervisory regulations with Office of the Comptroller of Currency OCC, FDIC, Office of Thrift Supervision OTS. Financial regulatory reports Accounting and policy disclosure Anti-money laundering Supervision of international operations of US banking Regulates Acquisition and mergers Financial disclosures Securities credit Key components

6. panic of 1907 Nationwide check clearing system Presentment fees Currency and coin The Federal Reserve issues notes through depository institutions Key components

7. Value of currency and coin in circulation, selected years, 1955–2003 Millions of dollars Year Currency* Coin Total Key components

8. How the Federal Reserve Works Video summation

9. Managing national debt Quantitative easing Oversight 2008 housing crisis Measuring M1,M2,M3 Quantifying depository institutions quote ‘soundness’ Stress testing Juggling inflation Via setting interest rates Quantitative easing Economic challenges

10. Gold standard Allow for greater oversight through Congress and other government institutions Pass an amendment requiring balanced budgets on any new bill passed Separate private financial organizations from government E.g. Fannie Mae, Freddie Mac Financial reform regarding credit approval, oversight of lending institutions via law and an increase in members of the Federal Reserve End the Fed Proposed solutions

11. Gold standard Stability of the “gold standard” does not allow for exchange rates to respond in changing circumstances Allow for greater oversight through Congress and other government institutions Big Brother: how much control do we give the government? Pass an amendment requiring balanced budgets on any new bill passed The economy may be too fragile at this point in time Getting back in balance may be too difficult Hard to write a set of rules with the flexibility to address everything as it happens Must pass Congress Barriers Associated with Solutions

12. Separate private financial organizations from government E.g. Fannie Mae, Freddie Mac These institutions will have a harder time receiving emergency aid, this could cause institutions to collapse Deregulation Who will support these institutions financially? Financial reform regarding credit approval, oversight of lending institutions via law and an increase in members of the Federal Reserve How much will it cost to hire more people and who will pay for it? Who will oversee lending institutions and how much would it cost? How do we decide new credit approval guidelines What do we do about all of the people who currently have credit that shouldn’t Barriers Continued

13. End the Fed Who will be responsible for carrying out all of the duties the Federal Reserve is responsible for? How do we decide who will be responsible? Hard to envision life without the Fed. Its been around since 1913 Drawbacks in the gold standard Barriers Continued

14. Board of Governors of the Federal Reserve System. (2011, December 8). FRB: the Federal Reserve System Purposes and Functions. Retrieved from The Federal Reserve Board: http://www.federalreserve.gov/pf/pf.htm Crutsinger, M. (2011, November 10). Fed chief Bernanke reassures vets about economic outlook. USA Today, pp. http://www.usatoday.com/money/economy/fed/story/2011-11- 10/Fed-chief-Bernanke-speaks/51153478/1. Dash, E. (2011, November 22). Fed Plans for Biggest Banks to Undergo New Stress Test to Evaluate Soundness. The New York Times, pp. http://www.nytimes.com/2011/11/23/business/number-of-at-risk-banks- declines.html?_r=1&ref=federalreservesystem. Evans, K. (2011, December 8). Should the Fed Refocus on Money Supply? the Wall Street Journal, pp. Kurtzleben, Danielle (2011, December 1) What Happens if We End the Fed?. U.S. News. Retrieved from http://www.usnews.com/news/articles/2011/12/01/what-happens-if-we- end-the-fed Steinhauer, Jennifer (2011, November 10) Appetite for Budget Bill, but Success is in Doubt. The New York Times. Retrieved from http://www.nytimes.com/2011/11/11/us/politics/competing-balanced-budget-proposals- headed-for-votes.html https://blackboard.lancastergeneral.org/webapps/portal/frameset.jsp?tab_id=_2_1&url=% 2fwebapps%2fblackboard%2fexecute%2flauncher%3ftype%3dCourse%26id%3d_1879_1% 26url%3d References