J.A.SACCO

Module 26-The Structure of the Federal Reserve

Module Outline2

The U.S. Banking StructureThe Federal Reserve System

The U.S. Banking Structure3

Central Bank- “The Fed” A banker’s bank- not for individual creditors An official institution that also serves as the bank to a

country’s treasury Normally regulates commercial banks

The Federal Reserve System4

To avoid the problems of the pyramidal banking system, the U.S Federal Reserve System (the Fed) was created

It created a fractional banking systemNot a single central bank-but many district

banks that carry out policy on a national levelFed not owned by the U.S. government-owned

by member banks- independent from political control

Membership of commercial banks is not mandatory.Only national banks must be a member. State banks voluntary

The Federal Reserve System5

Figure shows the institutions of the monetary system.

The Federal Reserve regulates and influences the activities of the commercial banks, thrift institutions, and money market funds, whose deposits make up the nation’s money.

Organization of theFederal Reserve System

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The Federal Reserve System7

The Structure of the Federal Reserve SystemThe key elements in the structure of the Federal Reserve are: The Board of Governors The Regional Federal Reserve Banks The Federal Open Market Committee

The Federal Reserve System8

The Board of Governors Seven members. Appointed by the President of the United States and

confirmed by the Senate. Each for a 14-year term. The President appoints one of the board members

as Chairman for a term of four years, which is renewable.

The Federal Reserve System9

The Regional Federal Reserve Banks There are 12 Federal Reserve banks. One for each of 12 Federal Reserve districts. Each Federal Reserve Bank has nine directors, three

of whom are appointed by the Board of Governors and six of whom are elected by the commercial banks in the Federal Reserve district.

The Federal Reserve Bank of New York implements some of the Fed’s most important policy decisions.

The Federal Reserve System10

The Federal Reserve Districts.

The nation is divided into 12 FederalReserve districts, each with aFederal Reserve Bank.

The Board of Governors of the Federal Reserve System islocated in Washington, D.C.

The Federal Reserve System11

The Federal Open Market CommitteeThe Federal Open Market Committee (FOMC) is the Fed’s main policy-making committee.The FOMC consists of The chairman and other six members of the Board of

Governors. The president of the Federal Reserve Bank of New

York. Four presidents of the other regional Federal Reserve

banks (on a yearly rotating basis).The FOMC meets approximately every six weeks.

The Federal Reserve System12

The Fed’s Power CenterThe chairman of the Board of Governors has the largest influence on the Fed’s monetary policy.The current chairman is Janet Yellen.Barack Obama appointed her in February 2014.

The Federal Reserve System13

The chairman’s power and influence stem from three sources:

Controls the agenda and dominates the FOMC meeting.

Has day-to-day contact with staff of economists.

Is the spokesperson for the Fed.