The Federal Reserve System “the Fed”

12 Federal Reserve Districts Commercial banks’ banker Federal Reserve System is comprised of 12 districts, each with a president. very much like a “branch office” Commercial banks join the federal reserve system. are strengthened by it can network with other banks more effectively increase consumer confidence

Board of Governors

Board of Governors 7 members appointed by president approved by Senate 14 yr. term Chairman Janet Yellen (Feb. 2014) First woman Chair Formerly Ben Bernanke

6 Major Jobs of the Fed Supply the economy with paper money and coins. Hold bank reserves. Provide check-clearing services Supervise member banks Serve as lender of last resort. Control the money supply

1.Supply the economy with paper money and coins. “U.S. Mint” Bureau of Engraving and Printing

2. Hold bank reserves reserves at the Fed + vault cash =total reserves

3.Provide check-clearing services Facilitates check-cashing between commercial banks. for example, Wells-Fargo and Bank of America

Between banks, cities EXAMPLE: Pete pays Sue for a used car. He gives her a check for $2,000. Sue deposits the check in her bank and is credited with $2,000 in her account. Sue’s bank sends the check to FRB who increases the bank’s reserve account by $2,000. FRB decreases Pete’s bank’s reserve by $2,000 FRB notifies Pete’s bank to reduce Pete’s account by $2,000.

4. Supervise member banks 5. Serve as lender of last resort Fed may “audit” a bank check that the loans it made are good be sure it has followed banking rules verify the accuracy of its accounting. Fed can lend funds to struggling banks. Glass-Steagall Act (1933) establishes FDIC Fed of Minneapolis flies to the rescue. page 291 in text

6. Control the money supply. Tools for changing the money supply Control Inflation Adapt to unemployment Why is changing the money supply important? TO CONTROL INFLATION and/or UNEMPLOYMENT Monetary Policy Stop here and do money supply kinetic