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Lecture Financial markets and institutions - Chapter 4: Functions of the Fed

This chapter presents the following content: Organization of the Fed, monetary policy tools, impact of technical factors on funds, Fed control of the money supply, monetary control act of 1980, global monetary policy. | Chapter 4 Functions of the Fed Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Organization of the Fed Monetary policy tools Impact of technical factors on funds Fed control of the money supply Monetary Control Act of 1980 Global monetary policy Organization of the Fed The Fed has five major components: Federal Reserve district banks Member banks Board of Governors Federal Open Market Committee (FOMC) Advisory committees Organization of the Fed (cont’d) Federal Reserve district banks There are 12 Federal Reserve district banks The NY bank is the most important Commercial banks that become members of the Fed must purchase stock in their district banks Pays a maximum dividend of 6% annually Each district bank has nine directors Six elected by member banks; three appointed by the Board of Governors The nine directors appoint the president of the district bank District banks clear checks, replace old currency, provide loans to depository institutions, and conduct research Organization of the Fed (cont’d) Member banks All national banks are required to be members of the Fed State-chartered banks are not required to be members About 35% of all banks are members Organization of the Fed (cont’d) Board of Governors The Board of Governors consists of seven members Each member is appointed by the President of the U.S. and confirmed by the Senate Members serve 14-year terms Reduces political pressure Terms are staggered so that one term expires in every even-numbered year Main roles: Regulate commercial banks Control monetary policy Organization of the Fed (cont’d) Federal Open Market Committee (FOMC) The FOMC consists of the seven members of the Board of Governors plus the presidents of five Fed district banks NY plus four others on a rotating basis Goals: promote high employment, economic growth, and price stability Achieved through control of the . | Chapter 4 Functions of the Fed Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Organization of the Fed Monetary policy tools Impact of technical factors on funds Fed control of the money supply Monetary Control Act of 1980 Global monetary policy Organization of the Fed The Fed has five major components: Federal Reserve district banks Member banks Board of Governors Federal Open Market Committee (FOMC) Advisory committees Organization of the Fed (cont’d) Federal Reserve district banks There are 12 Federal Reserve district banks The NY bank is the most important Commercial banks that become members of the Fed must purchase stock in their district banks Pays a maximum dividend of 6% annually Each district bank has nine directors Six elected by member banks; three appointed by the Board of Governors The nine directors appoint the president of the district bank District banks