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Federal Reserve Board Powerpoint

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Federal Reserve Board Powerpoint

  1. 1. ByTweed Financial Services
  2. 2. 1775-91 • Continental Congress printed fiat money, which soon became worthless due to high inflation 1791-1811 1816-36 • First and Second Bank of US charters not renewed 1836-63 • Decentralized banking : state banks began issuing their own currencies => subject to counterfeiting, inefficient1
  3. 3. CivilWar • National Currency Act allowed for chartering of national banks • Amendment required taxation on state bank notes, but not national bank notes 1907: Panic • Depositors withdrew funds, 2nd and 3rd largest banks closed • JP Morgan backed other banks to restore faith 1908 • Aldrich VreelandAct, Aldrich Plan • Helped to form ideas that became basis for Federal ReserveAct ¹
  4. 4. Conducting the nation's monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates • Supervising and regulating banks and other important financial institutions Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets. • Fight inflation Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions2 Federal Reserve Act signed byWoodrowWilson in 1913 Federal Reserve Board Established
  5. 5. TO EXECUTE MONETARY POLICY  Open Market Operations: the buying and selling of US Treasury Securities  Reserve Requirements: the required cash a financial institution must keep at the Fed ³  Discount Rate*: rate at which the Fed lends cash to banks => the prime rate banks charge customers for loans 4 *Rate is reviewed every 14 days by each reserve bank 5
  6. 6. Marketable securities can be bought, sold, or transferred after the original issue 264 auctions conducted in 2012 $7.9 trillion in securities issued in 2012 Competitive bidding (accepted at ascending order of rate and yield) Noncompetitive bidding (agrees to accept rate or yield determined at auction, limited to 5 MM/bid) Auctions onTreasuryDirect.gov (Bureau of Public Debt) - traded with broker/ dealer or financial institution6
  7. 7. Source: Mish’s Global EconomicTrendAnalysis
  8. 8. Federal Open Market Committee Board of Governors Supervises Reserve Banks, etc. 5 out of 12 Regional Reserve Bank Presidents Supervises Member Banks
  9. 9.  Composed of 7 board of governor members + 5 reserve bank presidents; - NY Reserve Bank president is always a member, others have 1 year terms  Implements national monetary policy  Determines holdings of foreign currencies 7
  10. 10. Functions: - Supervises and regulates regional reserve banks - Thorough analysis of financial and economic developments - Exercises broad responsibility in nation’s payment system - Carries out other components Federal reserve system ² Chairman: Ben Bernanke Vice Chair: JanetYellen Appointed by the President and confirmed by Senate - serve 4- year terms
  11. 11.  Each Regional Reserve Bank has a 9- member board • Implements monetary policy set by Fed • Responsible for member banks* and commercial banks in district ² *A member bank is a private institution that owns stock in its own regional reserve bank
  12. 12. USTreasury • Prints Currency • Takes money from Reserve Banks for tax rebates The Fed • Distributes currency to Reserve Banks • Acts as government’s banker by accepting payments, issuing payroll, etc. • Sells and redeemsTreasury Securities • After paying its expenses, it gives the rest of its earnings to theTreasury8
  13. 13.  Used to meet unexpected cash outflows, and to process check and electronic payments  Can be held as “cash on hand” or at regional banks’ reserves, or both  Fed can change the required reserve amount at banks - But Fed changes supply of reserves through selling or buying securities9
  14. 14. Tweed Financial Services kla-46-0613
  15. 15. 1 http://www.federalreserveeducation.org/about-the-fed/history/ 2 http://www.federalreserve.gov/pf/pdf/pf_1.pdf#page=4 3 http://www.federalreserve.gov/monetarypolicy/fomc.htm 4 http://www.foundationsforliving.org/articles/foundation/fedraiselower.html 5 http://www.investopedia.com/terms/f/federal_discount_rate.asp 6 http://www.treasurydirect.gov/instit/auctfund/work/work.htm 7http://www.federalreserve.gov/faqs/about_12844.htm 8 http://www.investopedia.com/articles/economics/08/treasury-fed-reserve.asp 9 http://www.howstuffworks.com/fed8.htm
  16. 16. Graph of Discount Rates http://www.alphaprofit.com/Money/Federal-Reserve-Discount-Rate- Investment-Decisions-1.html#.Ua4wm0CsiSo Treasury Securities Maturity/Yield Rate http://www.frbsf.org/education/activities/drecon/2002/0206.html http://globaleconomicanalysis.blogspot.com/2012/07/record-low-yields- once-again-on-us.html

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