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29th
January 2009By
Michelle Sheridan,Lorraine Farrell,
Claire Duffy,Sheila Clifford.
BOARD OF GOVERNORS FEDERAL OPEN MARKET COMMITTEE
7 members14 year termsStaggered appointmentsChair – B. Bernanke => Spokesperson and RepresentativeVice – D. Kohn
Monetary Policy Making body12 voting members
5 from the BOG7 from the Federal Reserve Banks
Rotating on a yearly basis
Chair ~ B. BernankeVice ~ President of Federal Reserve Bank of New York
Federal Reserve BanksOperating arms of the nation’s central
banking system12 banks
9 directors on each boards
Classed A, B & CA represent
commercial banksB & C represent
economic interests
Member BanksChartered national banks
automatic members38% meet Fed requirements
and are called member banks
Must hold 6% of capital and surplus as stock
Other Depository Institutions
Includes: Non-member commercial banks, credit
unions, savings banks and savings and loans
associations
The federal reserves duties fall into four general areas:
Administrating the nations monetary policySupervising and regulating banking
institutionsMaintaining the stability of the financial system
Providing financial services
Board of GovernorsPrimary responsibility – formulation of monetary
policySit on the FOMC (majority)
Sets reserve requirements and shares responsibility with Reserve Bank for discount rate policy
Regulatory and supervisory responsibilitiesBroad responsibilities in the nation’s payments system – implementation of major federal laws
Federal Reserve Banks
Generate their own income; not operated for profit; return all earnings less FED expenses to U.S
TreasuryPrimary responsibility - influence the flow of
money and credit Operate a nationwide payments system
distributing currency and serving as banker for the Treasury
Each Reserve Bank responsible acts as a depositary in their district
Supervisory and regulatory responsibilities
Board of Directors
The Board of Directors of each Federal Reserve Bank District have regulatory and supervisory
responsibilitiesEach director is responsible for the running of his/her own bank and also reports back to the
board of governors. Provide the Federal Reserve System with economic
information; information used by FOMC and Board of Governors
They initiate changes in the discount rate
Monetary Policy. 3 instruments – Open market operations, the discount rate and reserve
requirementsForeign currency operations
Monetary PolicyWhat are open market operations?
Buys and sells government securities
What is the discount rate?Discount Rate Impact on Economic activity Policy
Raised Slows Economic Activity Check InflationLowered Stimulates Economic Activity Economic Growth
January ’03, discount rate set 50 basis points above the funds rate target
What are reserve requirements?Reserve Requirement Impact on Bank Lending
Raised Reduce lendingLowered Increase Lending
Reserve ratio used as a tool of monetary policy
Foreign Currency OperationsPurchases and sales
Target unsystematic developmentsNot A tool of monetary Policy
•Why do the Fed change interest rates?
•What are the effects of this change?
Open market operations are the most important policy toolThere are two types:
Dynamic open market operationsDefensive open market operation
How does the Fed conduct open market operations?The FOMC are the decision making authority
Advantages of Open Market Operations
Occur at the initiative of the Fed Are flexible and precise
Are easily reversedCan be implemented quickly
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