Describe the circumstances in the domestic banking system in the early 20th century. How did Congress respond to these developments? What was the result?

Outline for Lecture 18

 

The Federal Reserve and the Banking System

 

Figure 34.2 illustrates the structure of the Federal Reserve System (Fed) and its relationship with public.

 

Historical Background

 

Describe the circumstances in the domestic banking system in the early 20^th century. How did Congress respond to these developments? What was the result?

 

The Fed has four main components.

 

Board of Governors

 

The Board of Governors includes ____ members, or governors, who are appointed by the ____ and serve terms of ____ years. These terms are staggered; a new governor joins the board every ____ years. What are the advantages of having long-term, staggered appointments?

 

The chairperson and vice chairperson of the board are selected by the ____ from among the governors for renewable terms of ____ years. The current chairman is ____, who was preceded by ____, the first female to hold this position.

 

The 12 Federal Reserve Banks

 

Figure 34.3 illustrates the twelve districts of the Fed, which are ____.

 

Each district has a Federal Reserve Bank and branches in other cities of the district. For instance, the Atlanta Fed (headquartered in Atlanta, GA) has a branch in Nashville, TN. The twelve banks collectively serve as the nation’s central bank.

 

The district banks are quasi-public institutions. Explain why.

 

The district banks perform two related functions: they act as bankers’ banks and they are lenders of last resort. Explain each function.

 

FOMC

 

The Federal Open Market Committee (FOMC) consists of ____ voting members, including ____ governors from the board, the president of ____, and ____ presidents from other district banks serving on a rotating basis.

 

FOMC meets regularly to make decisions regarding open market operations. How do we define open market operations? What is their purpose?

 

Fed Functions, Responsibilities, and Independence

 

The Fed performs seven primary functions that range from issuing currency to controlling the money supply. Describe each function.

 

We postpone a more detailed discussion of monetary policy until Chapter 36.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Materials for Lecture 18

 

Start with the textbook to get familiar with the content and progression of the lecture. Then, go to videos and supplemental articles, if provided, for further clarification and additional examples.

 

Textbook

 

Read carefully pages 674 through 677 from the textbook.

 

Video

 

Fed structure

http://www.youtube.com/watch?v=aMg3vrQ6keE&list=PLF2A3693D8481F442&index=31

 

More on Fed history and structure

http://www.youtube.com/watch?v=8Hq5zw4YaZQ

http://www.youtube.com/watch?v=M5drSk6EkHk

 

Article

 

Nominations to Board of Governors

http://latimesblogs.latimes.com/money_co/2011/06/peter-diamond-withdraw-federal-reserve-nomination-nobel-prize-economist.html