fin 4030 chapter 4

Term
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central bank of the US
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Terms in this set (54)
central bank of the US
the fed
what does the fed conduct
national monetary policy in an attempt to achieve full employment and price stability (low/zero inflation) in the US
what does the fed's monetary policy have a strong influence on, because it affects interest rates
the cost of borrowing by households
what does the monetary also affect
the cost of borrowing for business, thereby influencing how much money businesses are willing to borrow to support/expand their oeprations
when was the fed created
1913
what were the sources of resistance to the establishments of the central bank
fear of centralized power and distrust of moneyed interest
what ended to bank panic
no lender of last resort
5 major components of the fed
1. district banks
2. member banks
3. board of governors
4. federal open market committee (FOMC)
5. advisory committees
how many district banks are there
12
which is the most important district bank
new york
what do commercial banks do to become memberssell their stock in their fed reserve district bankwhat is the max dividend the fed reserve district bank stock pay6%how many directors does each district bank have9what do district banks dofacilitate operations within the banking system by clearing checks, replacing old currency, and providing loans (through the discount window) to depository institutions in need of fundscommercial banks can elect to become member banks if....they meet specific requirements of the board of governorswhat is required from all national banksbecoming members of the fedhow many members make up the board of governors7who appoints each member of the boardthe president of the UShow long are the board of governors termsnonrenewable 14-yr termfederal reserve chairmanelected out of the 7 board members to serve a 4-yr renewable termvice chairman for supervisionone of the 7 board members designated by the president according to the financial reform act of 2010made up of the 7 board of governors + the presidents of 5 district banks (NY + 4 others, determined on a rotating basisfederal open market committee (FOMC)3 advisory committeesfederal advisory council community depository institution advisory council community advisory councilconsists of one member from each district who represents the banking industry. meets with the board of governors in DC at least 4 times a year and makes recommendations about economic/banking issuesfederal advisory councilconsists of 12 members who represent savings banks, S&L's, and credit unions. meets with the board of governors twice a yearcommunity depository institution advisory council (CDIAC)consists of 15 members who offer diverse views on economic circumstances and the financial services needs of consumers and committees, with particular emphasis on low- and moderate-income populations. meets with board of governors twice a yearcommunity advisory councilwhy was the consumer financial protection bureau establishedas a result of the financial reform act of 2010responsible for regulating financial products and services, including online banking, CDs, and mortgagesconsumer financial protection bureauthe FOMC meets 8 times a year, sets targets for the money supply growth level & interest rate level, and implements monetary policyopen market operationswhat is included in open market decisions- pre-meeting economic report - economic presentations - FOMC decisions - FOMC statement - minutes of FOMC meetinga consolidated report of regional economic conditions in each districtpre-meeting report (beige book)what is included in economic presentationspresentations included: - data and trends for wages, consumer prices - unemployment - GDP, business inventories - foreign exchange rates - interest rates - financial market conditionseach member can offer recommendations regarding the federal funds rate targetFOMC decisionsa statement that summarizes their conclusionFOMC statementprovided to the public and are also accessible on federal reserve websitesminutes of FOMC meetingroles of the fed's trading desk- fed purchase of securities - fed sale of securities - fed trading of repurchase agreementswhen is the FOMC decision forwarded to the trading desk at the NY fed through policy directiveif a change in monetary policy is appropriateto lower the federal funds rate,traders purchase treasury securities from security dealerswhat does the increase in dealers' bank accounts causean increase in the supply of fundsto increase the federal funds rate,traders sell government securities to government security dealerswhat happens as the dealers pay for the securities as their bank balances decreaseleads to a decrease in the supply of fundswhat happens when the fed trades repurchase agreementspurchases treasury securities from government securities dealers with an agreement to sell back the securities at a specified date in the futurehow can the fed have a strong influence on interest ratesby controlling the supply of loanable fundswhat could happen after the fed buys treasury securities1. the federal funds rate may decline because of supply of excess funds 2. banks with excess funds may offer new loans at a lower interest rates 3. banks will lower the interest rates on deposits because of sufficient funds 4. how about other debt securitiesthe portion of bank deposit accounts that must be hold as required reserves or funds held in reservereserve requirementsreserve requirement has historically ben set between8-12%by reducing the reserve requirement, what does the board doincreases the proportion of a bank's deposits that can be lent outthe lower the reserve requirement ...the greater the lending capacity of a depository institutehow did the fed set its loan rate before 2003at low levels when it wanted to encourage banks to borrow, since this activity increased the amount of funds injected into the financial systemwhat has the fed's rate on short-term loans to depository institutions been since 2003primary-credit lending rate, set slightly above the federal funds ratean unconventional monetary tool used by central banks to stimulate the economyquantitative easinga central bank purchases gov't securities (or other securities from the market) in order tolower interest rates and increase the money supplywhen is quantitative easing consideredwhen short-term interest rates are at or approaching 0, and does not involve the printing of new banknotesfed purchases what in quantitative easing- mortgaged-backed securities - bonds backed by loans - commercial paper - long-term treasury securities