The Federal Reserve System

Lecture 6.7

Federal Reserve

Central bank of the U.S. that controls the size of the money supply to – help regulate the economy and– create stability in the banking system

Created in 1913

Structure of the Fed

1. National Level- Board of Governors Directs and controls activities of the FedChairman Ben Bernanke since 1/06

- Federal Open Market Committee Control money supply & interest rates through the buying and selling of govt. securities (bonds)

- Federal Advisory Council:Provide the Fed with advice on the nation’s financial problems

2. 12 District Banks perform functions for commercial banks

- make loans to banks - Process bank checks- examine commercial banks for safety and soundness

3. Local Level - commercial banks consumers bank at

Fed Services to Government

Federal govt. deposits money at the Fed

Fed buys & sells federal govt bonds

Issues currency

Fed Services to Banks

Check clearing

“Lender of last resort” for banks that need emergency cash

Create stability in the banking system by– Coordinates banking activity

– Bank examinations

– Supervising lending practices

The Fed’s Mission

To control the money supply to maintain a stable economy by having – Full employment

– Economic growth

– Price stability

FDIC

Federal Deposit Insurance CorporationNot a part of the FedInsures total deposits up to $250,000 per depositor per bankEstablished in 1934 to restore confidence to the banking systemAlso regulates banks (like the Fed)