| Term | Definition |
|---|
| Federal Reserve System | An independent agency in the federal executive branch. Established by the Federal Reserve Act of 1913, the Federal Reserve System (FED) is the central bank of the United States. One of the most powerful agencies in the government, it makes and administers policy for national credit and monetary policies. The Fed supervises and regulates bank functions across the country, thus maintaining a sound and stable banking industry, able to deal with a wide range of domestic and international financial demands |
| Federal Reserve Act of 1913 | On December 23, 1913, the Federal Reserve System, which serves as the nation's central bank, was created by an act of Congress. |
| Primary Purpose of the FED | To ensure full employment, stable prices, and economic growth by conducting monetary policy. |
| State Chartered Bank | A commercial bank which receives its charter or license to operate from an individual state. The bank must operate under said state laws. May join the FED, but is not required by law to do so. |
| Nationally Chartered Bank | A commercial bank which receives its charter or license to operate from the comptroller of the currency and is subject to federal law, as well as the laws of the state in which it operates. Required by law to join the FED. |
| Board of Governors | The seven member group, appointed by the President and approved by the Senate, which, sets general policies for the FED and member banks to follow, regulates certain operations of state-chartered member banks, and conducts some aspects of monetary policy. |
| FOMC | The Federal Open Market Committee is the most powerful committee of the FED, because it makes the decisions that affect the economy as a whole by manipulating the money supply. |
| District Banks | Twelve banks which make up the second tier of the FED's structure. South Carolina belongs to the 5th Federal Reserve District, which is located in Richmond, Va. |
| Brank Banks | Twenty five banks operating under the guidance of the 12 district banks. Charlotte, NC is home to a Federal Reserve branch bank. |
| Ben Bernanke | Current chairman of the Federal Reserve System. Replaced Alan Greenspan in 2006. |
| Monetary Policy | Actions taken by the Board of Governors of the Federal Reserve System to influence the interest rates and the supply of money available in the economy. |
| Tools of Monetary Policy | Discount Rate, Legal Reserve Requirement, Open Market Operations |
| Discount Rate | The rate of interest set by the Federal Reserve that member banks are charged when they borrow money through the Federal Reserve System. |
| Open Market Operations | The method by which the Open Market Committee of the Federal Reserve System buys and sells government securities, to help finance government operations and to loosen or tighten the total amount of money circulating in the economy (these actions will add or subract from the reserves of the nation's commercial banking system.) |
| Federal Funds Market | A loanable funds market in which banks seeking additional reserves borrow short-term funds (generally for seven days or less) from banks with excess reserves. The interest rate in this market is called the federal funds rate. |
| Federal Funds Rate | The interest rate at which a bank lends immediately available funds to another bank overnight in order to meet the borrowing bank's reserve requirements |
| Tight Monetary Policy | Monetary policy that makes credit expensive in an effort to slow the economy. (Takes money out of circulation.) Achieved by increasing the discount rate, raising the legal reserve requirement, and/or selling government securities. Applicable during times of inflation. |
| Easy Monetary Policy | Monetary policy that makes access to credit easier in an effort to stimulate the economy. (Puts money into circulation.) Achieved by lowering the discount rate, lowering the legal reserve requirement, and/or buying government securities. Applicable during times of unemployment. |
| Countercyclical Monetary Policy | Policy directions given by the FED to moderate swings in the business cycle. |
| Margin Requirement | The percentage of the price an investor must pay in cash to purchase a stock, convertible bond, or other security. Maximum percentage of the cost of a stock that can be borrowed using the stock itself as collateral. |
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