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THE FEDERAL RESERVE SYSTEM
THE FEDERAL RESERVE SYSTEM
THE ECCLES BUILDING
THE FEDERAL RESERVE
• ESTABLISHED IN 1913 BY CONGRESS
• REORGANIZED IN 1935
• CENTRAL BANK
• BASED IN WASHINGTON BOARD OF GOVERNORS
FEDERAL OPEN MARKET COMMITTEE
• REGIONAL INDEPENDENCE
STRUCTURE • THE BOARD OF GOVERNORS 7 members appointed by the President and confirmed by
the Senate for 14- year staggered terms
Chair serves 4 year-term (Janet L.Yellen)
• 12 Federal Reserve Regional Banks
• The Federal Open Market Committee The Board of Governors and the 12 Regional Bank
presidents, of whom 5 vote
The president of New York Federal Reserve is the Deputy Chairman and always votes.
FUNCTIONS • MONETARY POLICY OPEN MARKET OPERATIONS
DISCOUNT RATE
RESERVE REQUIREMENTS
• BANKING SUPERVISION POLICY MAKING
ENFORCEMENT
• BANKING SERVICES “BANKER’S BANK”
GOVERNMENT’S BANK
Federal Reserve District Banks and Branches
# Letter District Bank Branch 1 A BOSTON NONE
2 B NEW YORK NONE
3 C PHILADELPHIA NONE
4 D CLEVELAND CINCINNATI, PITTSBURGH
5 E RICHMOND BALTIMORE, CHARLOTTE
6 F ATLANTA MIAMI, JACKSONVILLE, BIRMINGHAM, NASHVILLE, NEW ORLEANS
7 G CHICAGO DETROIT
8 H ST LOUIS LITTLE ROCK, LOUISVILLE, MEMPHIS
9 I MINNEAPOLIS HELENA
10 J KANSAS CITY DENVER, OKLAHOMA CITY, OMAHA
11 K DALLAS HOUSTON, EL PASO, SAN ANTONIO
12 L SAN FRANCISCO LOS ANGELES, SEATTLE, PORTLAND, SALT LAKE CITY
BOARD OF GOVERNORS
7 MEMBERS APPOINTED FOR 14-YEAR STAGGERED TERMS/CONFIRMED
BY SENATE
CHAIR/VICE CHAIR APPOINTED FOR 4 YEAR TERM/CONFIRMED BY SENATE
APPROVES DISCOUNT RATE AND RARELY IF EVER ADJUSTS RESERVE
REQUIREMENTS
FEDERAL OPEN MARKET OPERATIONS COMMITTEE (FOMC)
BOARD MEMBERS AND BANK PRESIDENTS, FIVE OF WHOM VOTE
PRESIDENT OF NEW YORK FEDERAL RESERVE ALWAYS VOTES
MEETS EIGHT TIMES PER YEAR AND WHENEVER ELSE IT DEEMS
NECESSARY
SETS TARGET INTEREST RATES (FEDERAL FUNDS RATE)/ISSUES POLICY
DIRECTIVE
RESERVE REQUIREMENTS are the amount of funds that a depository institution must
hold in reserve against specified deposit liabilities. Within
limits specified by law, the Board of Governors has sole
authority over changes in reserve requirements.
Depository institutions must hold reserves in the form of
vault cash or deposits with Federal Reserve Banks.
Net transaction accounts % Effective
$0 to $13.3 million 0 1-23-14
> $13.3 million to $89 million 3 1-23-14
> $89 million 10 1-23-14
Current Discount Rates
District Primary Credit Rate Secondary Credit Rate Effective Date
Boston 0.75% 1.25% 02-19-2010
New York 0.75% 1.25% 02-19-2010
Philadelphia 0.75% 1.25% 02-19-2010
Cleveland 0.75% 1.25% 02-19-2010
Richmond 0.75% 1.25% 02-19-2010
Atlanta 0.75% 1.25% 02-19-2010
Chicago 0.75% 1.25% 02-19-2010
St. Louis 0.75% 1.25% 02-19-2010
Minneapolis 0.75% 1.25% 02-19-2010
Kansas City 0.75% 1.25% 02-19-2010
Dallas 0.75% 1.25% 02-19-2010
San Francisco 0.75% 1.25% 02-19-2010
DISCOUNT RATE is the interest rate charged to commercial banks
and other depository institutions on loans they
receive from their regional Federal Reserve Bank's
lending facility .
FED FUNDS RATES Current Interest Rates
Primary Credit .75%
Secondary Credit 1.25%
Seasonal Credit .10%
Fed Funds Target 0 - 0.25%
is the rate charged by banks to banks on the overnight borrowing of reserves. It adjusts to balance the supply of and demand for reserves.
MONETARY POLICY • TOOLS
OPEN MARKET OPERATIONS
DISCOUNT RATE
RESERVE REQUIREMENTS
• TIGHTEN MONEY SUPPLY-LESS AND
MORE EXPENSIVE CREDIT—Sell Bonds
• LOOSEN MONEY SUPPLY-MORE AND
LESS EXPENSIVE CREDIT—Buy Bonds
MONEY SUPPLY
• M1—CURRENCY, DEMAND DEPOSITS
• M2—M1 + SAVINGS LESS THAN 100K
• M3—M2 + SAVINGS GREATER THAN 100K
• DEPOSIT MULTIPLIER—EXPANDS MONEY
FORMULA: 1/RESERVE REQUIREMENT
EXAMPLE:$10000 DEPOSIT AT 10% RESERVE
$10000-$1000 (REQUIRED RESERVE) X 10
AVAILABLE TO LOAN: $9000
EXPANSION OF MONEY SUPPLY: $90,000
MONETARY SCENARIOS • INFLATION IS INCREASING-ECONOMY IS
OVERHEATING WITH OVERPRODUCTION
SHOULD FED SELL OR BUY BONDS?
SHOULD FED RAISE OR REDUCE RATES?
SELL/RAISE
• PRODUCTION LAGGING/INVESTMENT
DOWN/GROWTH STAGNANT
SHOULD FED SELL OR BUY BONDS?
SHOULD FED RAISE OR REDUCE RATES?
BUY/REDUCE
