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