1. The Federal Reserve (1913) The Governments Bank and the Bank for the Banks…

2. Structure of the Federal Reserve The Federal Reserve – (President / BOG) 12 Federal Reserve District Banks Branch (District) Banks – Omaha Individual Banks – Your Bank…

3. Board of Governors (BOG) z7 members zappointed by the President, with the consent of the Senate zserve 14 year, non-renewable terms, staggered zsets policy instruments other than open market operations zdecides permissible activities of banks and holding companies

4. The Fed Chairman “Chief or President” zImportant Chairs of the BOG (Federal Reserve) (4 Year Terms) Paul Volcker -- 1979-87 Alan Greenspan -- 1987-2006 Ben Bernanke – 2006-2014 Janet Yellen – 2014-

5. The Federal Open Market Committee (FOMC) z12 voting members -- 7 Board of Governors + 5 District Bank Presidents (19 members in all) zmeet 8 times per year (more, if needed) zdesign monetary policy, by specifying Federal Funds rate z(FAC) Federal Advisory Committee

6. Federal Reserve District Banks zeach bank exists within 12 districts within the US zholds deposits of Federal Government zcollects economic data and does economic research zInsure the banks (FDIC) zperforms check clearing services

7. Federal Reserve District Banks

8. District Banks -- Administer Monetary Policy zconduct Discount Loans with banks within district zenforce reserve requirements for banks within district zhold reserves of banks within district zNew York bank most important, open market operations done there

9. Federal Reserve Branch Banks and Member Banks zBranch (District) Banks -- serve as decentralized regulators, primarily for larger Fed districts in geographic size – More to the West – Omaha is the closest for us. zPrivate Banks – your bank!

10. How Independent is The Federal Reserve? zStructure implies considerable independence. zFederal Reserve is financially independent of the Federal Government’s budget.

11. zThe President and the Federal Reserve -- President appoints members of the BOG -- BOG typically serve less than 14 year terms -- part of the legislative process, can introduce legislation

12. The Biggest Argument For Continued Independence zCurrent Federal Reserve can make the tough policy decisions. zThe track record of the US Federal Reserve: the Volcker and Greenspan years.

13. Expansionary and Contractionary Policy zExpand $ - Recession / Unemployment zContract $ - Inflation / Growth

14. The Fed’s Tools zOpen Market Operations zThe Discount Rate zReserve Requirement zInterest Rate Bias KNOW THESE VERY WELL!

15. Open Market Operations zBuying and Selling Bonds zMost used of the tools! zExpansion – Fed Buys Bonds zContraction – Fed Sells Bonds

16. The Discount Rate zThe tool that’s in the news… zHow much banks pay for $. zDR changes the interest rate. zExpansion – Lower the DR. zContraction – Raise the DR.

17. Legal Reserve Requirement zThe tool of last resort… zHow much banks can lend out. zBanks can “create” money. zDeposit Multiplier 1/RR x Deposit zExpansion – Lower the RR. zContraction – Raise the RR.