1. Federal Reserve History Structure Functions –M–Monetary Policy –B–Banking Supervision –F–Financial Services Federal Reserve Banks

2. 7 Appointed by the President/ confirmed by the Senate. The Board represents the public sector BOARD OF GOVERNORS 12 Regional Reserve banks With boards representing the private sector MEMBER BANKS outline

3. GoalsGoals of Monetary policy promote maximum employment Maintain stable prices Sustain moderate long-term interest ratesinterest rates

4. Tools of Monetary Policy open market operations the discount ratediscount rate reserve requirements. reserve requirements FOMC = voting members of the FOMC consist of the seven members of the Board of Governors (BOG), the president of the Federal Reserve Bank of New York and presidents of four other Reserve Banks http://www.frbatlanta.org/pubs/frstructurefunctions/ Activity: Summarize each tool

5. Banking Supervision Safety and Soundness - Two major focuses of banking supervision and regulation are the safety and soundness of financial institutions and compliance with consumer protection laws. six components of a bank’s condition: capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. Banks are a business- Just like any other business, a bank earns money. The bank provides safe storage and pays interest on customers’ deposits. The bank is required to keep a percentage of deposits in reserve as cash in its vault or in an account at a Federal Reserve Bank. The bank can lend the rest to qualified borrowers.

6. Bank Reserves- Discount Rate- Federal Reserve System- Monetary Policy- Open Market Operations- Reserve Requirement- Inflation- Securities- Vocabulary Concepts

7. Summary 1.What are the goals of monetary policy? (Maximum sustainable economic growth, full employment, price stability.) 2. What are the tools of monetary policy? (Open market operations, reserve requirements, discount rate.) 3. What are the possible effects of tighter monetary policy? (Tighter monetary policy will likely cause short-term interest rates to rise. As a result, consumers and businesses may borrow less money and spend less. Inflationary pressures may ease and employment and economic growth may decrease in the short term.)

8. Summary 4. What are the possible effects of easier monetary policy? (Easier monetary policy will likely cause short-term interest rates to fall. As a result, consumers and businesses may borrow more money and spend more. Inflationary pressures may build and employment and economic growth may increase in the short term.) 5. If inflation is at 1 percent and economic growth is negative, what might be an appropriate monetary policy to match these economic conditions? (Ease monetary policy by lowering the target for the federal funds rate.)

9. Bank Reserves- A depository institution's vault cash (up to the level of its required reserves) plus balances in its reserve account (not including funds applied to its required clearing balance). Discount -Officially the primary credit rate, it is the interest rate at which an eligible depository institution may borrow funds, typically for a short period, directly from a Federal Reserve Bank. The law requires that the board of directors of each Reserve Bank establish the discount rate every fourteen days, subject to review and determination by the Board of Governors. Federal Reserve Bank- One of the 12 operating arms of the Federal Reserve System, located throughout the nation, that together with their 25 branches carry out various System functions, including operating a nationwide payments system, distributing the nation's currency and coin, supervising and regulating member banks and bank holding companies and serving as banker for the U.S. Treasury. Monetary Policy- “monetary policy" refers to what the Federal Reserve, the nation's central bank, does to influence the amount of money and credit in the U.S. economy Open Market Operations-Purchases and sales of government securities and certain other securities in the open market, through the Domestic Trading Desk at the Federal Reserve Bank of New York as directed by the Federal Open Market Committee (FOMC), to influence the volume of money and credit in the economy. Purchases inject reserves into the banking system and stimulate growth of money and credit; sales do the opposite. Reserve Requirement -Requirements set by the Federal Reserve Board of Governors for the amounts that certain financial institutions must set aside in the form of reserves. Reserve requirements act as a control on the expansion of money and credit and may be raised or lowered within limits specified by law (lowering reserve requirements allows more bank lending and money growth; raising requirements, less lending and money growth). Inflation- Inflation is a sustained increase in the general level of prices, which is equivalent to a decline in the value or purchasing power of money Securities- Paper certificates (definitive securities) or electronic records (book-entry securities) evidencing ownership of equity (stocks) or debt obligations (bonds). b