1. Federal Reserve Bank System “The Fed”
"When you or I write a check there must be sufficient funds in out account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money."
-- Putting it simply, Boston Federal Reserve Bank

2. Federal Deposit Insurance Corporation (FDIC)
Depositor Protection
Deposit “Insurance”
Federal Deposit Insurance Corporation (FDIC)
insures first $100,000 of each deposit account
“private” insurance firm guaranteed by US govt.
Not part of The Federal Reserve System
Banks fail every year, but depositors OK.
History:
sister agency, FSLIC, required bail-out in
Created: Jan 2008 by Jim Luke.

3. Supervise Banking Clear Checks Issue Bank Notes “bankers’ bank”
Federal Reserve Banks
Supervise Banking
Clear Checks
Issue Bank Notes
“bankers’ bank”
Manage Money Supply
Created: Jan 2008 by Jim Luke.

4. Responsible monetary policy Consists of 7 members
Board of Governors
Responsible monetary policy
Consists of 7 members
14-year staggered non-renewable terms
Chair: renewable 4-year terms
Created: Jan 2008 by Jim Luke.

5. Federal Reserve District Banks
Created: Jan 2008 by Jim Luke.

6. Organization Chart for the FED
Created: Jan 2008 by Jim Luke.

7. Regulating the Money Supply
FED: major tools
Reserve requirements
Discount rate
Open market operations
International currency operations
Created: Jan 2008 by Jim Luke.

8. Reqd Reserve Ratio & Money Multiplier
Reqd Reserve Ratio sets theoretical limit on ultimate expansion of money (M1) following initial increase in M1
Money multiplier
Req’d reserve ratio = r
Simple money multiplier = 1 / r
Created: Jan 2008 by Jim Luke.

9. The Money Multiplier Effect of The Reserve Ratio
Created: Jan 2008 by Jim Luke.

10. Discount Rate vs. Fed Funds Rate
Discount rate: loans Fed makes to banks
Fed Funds rate: loans banks make to each other
The Fed BoG:
Directly sets Discount Rate
Sets “targets” for Fed Funds rate, then creates $ in system to drive rate to target
May not be able to achieve target
The Fed does NOT “SET” any other rates
Created: Jan 2008 by Jim Luke.

11. Open Market Operations
Buying/selling of U.S. gov’t. bonds in the open market
Fed buys bonds (open-market purchase) puts $ in circulation increases M1
Fed sells bonds (open-market sale) takes $ from public reduces M1
Open Market Operations Advantages
Easy & quick
No change in laws or regulations
Any amount
Discreet & quiet
Created: Jan 2008 by Jim Luke.

12. Fed International Role
Provides “Reserve Currency” for World
The Fed’s “vault cash”
US currency not in circulation
Gold
US bonds
Currency of other nations
Created: Jan 2008 by Jim Luke.