The structure of the federal reserve

1. The structure of the federal reserve

2. 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 INTERESTrates 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 ECONOMYreacts to decisions by the FEDERAL RESERVE

11. Modern banking

12. Modern banking • 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)