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Money, Banking, and the Federal Reserve

Money, Banking, and the Federal Reserve. Money . Anything society accepts in exchange for goods and services Fiat Money; commodity money Functions of money Characteristics of money Money supply, M1, currency, . Money Definitions. January 2010. Source: Federal Reserve System. 31- 3. LO1.

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Money, Banking, and the Federal Reserve

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  1. Money, Banking, and the Federal Reserve

  2. Money • Anything society accepts in exchange for goods and services • Fiat Money; commodity money • Functions of money • Characteristics of money • Money supply, M1, currency,

  3. Money Definitions January 2010 Source: Federal Reserve System 31-3 LO1

  4. What “Backs” the Money Supply? • Guaranteed by government’s ability to keep value stable • Money as debt • Why is money valuable? • Acceptability • Legal tender • Relative scarcity 31-4 LO2

  5. Modern Banking • Fractional Reserve Banking • Banks “create” money by lending out portion of total deposits they hold. • Account holders are technically lending money to the banks and receive interest for keeping their money

  6. Types of banking institutions • Thrift institutions • Commercial Banks

  7. Bank products • Checking accounts • Savings accounts • Time deposit accounts • Travelers checks • Money order/bank checks • Financial services • Credit cards • Loans • Personal • Auto • Savings • Mortgages • Traditional • Home Equity • Insurances

  8. Who supervises the Banks and their activities? Federal Reserve

  9. Federal Reserve - Banking System • Historical background • Board of Governors • 12 Federal Reserve Banks • Serve as the central bank • Quasi-public banks • Banker’s bank 31-9 LO3

  10. Federal Reserve – Banking System Board of Governors Federal Open Market Committee 12 Federal Reserve Banks Commercial Banks Thrift Institutions (Savings and Loan Associations, Mutual Savings Banks, Credit Unions) The Public (Households and Businesses) 31-10 LO3

  11. Federal Reserve – Banking System The 12 Federal Reserve Banks 31-11 LO3

  12. Federal Reserve – Banking System • Federal Open Market Committee • Aids Board of Governors in setting monetary policy • Conducts open market operations • Commercial banks and thrifts • 6,800 commercial banks • 8,700 thrifts 31-12 LO3

  13. Federal Reserve Functions Issue currency Set reserve requirements Lend money to banks Collect checks Act as a fiscal agent for U.S. government Supervise banks Control the money supply 31-13 LO4

  14. Federal Reserve Independence Established by Congress as an independent agency Protects the Fed from political pressures Enables the Fed to take actions to increase interest rates in order to stem inflation as needed 31-14 LO4

  15. Financial Institutions World’s 12 Largest Financial Institutions, 2009 Assets (Trillions of U.S. Dollars) 0 1.5 2.5 3.5 Royal Bank of Scotland (UK) Barclays (UK) Deutsche Bank (Germany) BNP Paribas (France) HSBC Holdings (UK) JPMorgan Chase (US) Credit Agricole (France) Citigroup (US) Mitsubishi UFJ (Japan) UBS (Switzerland) ING Group (Netherlands) Bank of America (US) Source: Forbes Global 2000, http://www.forbes.com 31-15 LO4

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