Professional Documents
Culture Documents
Richard Slevinsky
4/7/03
Outline
History
Organization & Functions
Policies & Concerns
Panic of 1907
2nd and 3rd largest banks in country closed
Depositors withdrew funds (run on banks)
JP Morgan et al., backed remaining banks
to restore depositor faith
Reform
Bankers realized reform needed.
Washington not easily convinced
Aldrich-Vreeland Act
Est. commission to study banking systems
and adapt changes if applicable.
Aldrich Plan
Contained several ideas of Federal Reserve
Lack of central authority
Uniform discount rate
Board of Governors
Seven member Federal Reserve Board
14-year terms
One new term begins every two years
(on 2/1, even-numbered years)
Member who serves a full-term cannot be appointed again
A member finishing out anothers term may be
reappointed.
Todays Members
Chairman: Alan Greenspan
Vice-Chairman: Robert W. Ferguson, Jr.
Other members:
Edward M. Gramlich
Susan Schmidt Bies
Mark W. Olson
Ben S. Bernacke
Donald L. Kohn
Responsibilities
Distribution of currency (paper and coin)
Supervise Banks
Dept. of Treasury functions
FOMC
Composed of the 7-member Board of
Governors and 5 Reserve Bank presidents
Reserve Bank of NY is always a member
Other FRB presidents serve one-year
terms
Implements national monetary policy
Determines the Feds open-market
transactions
Determines holdings of foreign currencies
Policies
The Federal Reserve has three main
tools to execute its monetary policy
Open market operations the purchase
and sale of government securities
Reserve requirements the required
cash reserve a financial institution
must keep at the Fed
The discount rate rate at which the
Fed lends funds to banks
Reserve requirements
Seldom used by Fed to control bank
reserves
Small change in requirements
translates to massive changes in
the dollar reserve requirement
Banks are obligated to deposit in
the Fed a specified percentage of its
liabilities
Discount Rate
Interest rate charged to banks on loans
they receive from Federal Reserve Bank
Lending facility called discount window
3 types of loans
Primary: loaned to stable institutions
Secondary: liquidity needs, financial difficulties
Seasonal: Repeating intra-year fluctuations,
loaned to agricultural banks, seasonal resort
lenders.
P e rc e n t
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
1/1/70
10/17/74
8/2/79
5/17/84
3/2/89
Date
12/16/93
10/1/98
7/17/03
Debt
Check Congressional spending/income
Trade deficits
Strength of dollar
Fed is more flexible than Congress
If rising above 5%
Strengthen reserve constraints
Raise interest rates
Monitor inflation
Ideal: around 3%
Fed policies remain the same
Swap Network
Reciprocal short-term credit
management between Fed and
other foreign central banks
Fed can borrow currencies from
foreign country for intervention
operations
Works both ways