Transcript Federal Reserve Act (1913) - The University of Texas at Dallas

Federal Reserve System
The Origins of U.S. Central
Banking, 1791–1836
Bank of England
 Bank of the British Empire
 The Bank of North America (1781)
 Robert Morris and the first
chartered (government licensed)
bank
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History of Central Banking in
the United States
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1791 1st Bank of the United States
1811 Charter not renewed.
1816-1836 2nd Bank of the United
States
The Free-Banking Period (18371861)
A period that lasted until the Civil War during
which each state had its own banking rules,
and many states permitted relatively open
competition among banks.
 U.S. Treasury operated without a central
banking institution.
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The Civil War, Greenbacks,
and National Banking
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1863 National Currency Act
Policy and Politics without a
Central Bank
Panic of 1873 and resumption of the gold
standard (1875)
 Populism, free silver, and bimetalism
 Prelude to the federal reserve
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Panics of 1893 and 1907
Federal Reserve Act of 1913
Central Bank
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Official institution with broad
responsibilities for a nation’s financial
system.
Functions of a Central Bank
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Lender of last resort.
Government’s banker and financial agent.
Controls the creation of money.
Shares the responsibility of regulating the
financial system with other government
agencies.
Other banks hold deposits at the central bank
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Reserves
Medium for check clearing
Federal Reserve Act (1913)
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Provided for the formation of the FRS and the
foundation for the current banking system.
Gave the Fed supervisory powers over
member banks.
Member banks subjected to reserve
requirements (RR).
Allowed the Fed to create a payment and
collection system through member banks.
Federal Reserve Bank
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Central bank of the United States.
Decentralized formal structure.
A single bank located in Washington
D.C. with 12 regional banks.
Federal Reserve – Technically
Independent
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Long and staggered terms of governors.
Earns more from operations than it needs to
cover operating expenses - does not have to
ask Congress for funds.
Not directly subject to control by the
executive and legislative branches of
government.
Federal Reserve banks are privately owned.
The Early Fed, 1913–1935
The Early Fed, 1913–1935
 The great depression and reform of the
Fed
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Restructuring the Fed
New lines of authority
The Evolution of the Modern Fed
Banking Act of 1935
 The Fed’s fight for independence
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Marriner Eccles
Working for the U.S. Treasury
Federal Reserve – Treasury Accord 1951
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Fed independent institution within the
government
Federal Reserve: Organization
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Board of Governors
Advisory Committees
Federal Open Market Committee
(FOMC)
Federal District Banks
Board of Governors
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Appointed by the president of the United States with
the advice and consent of the senate.
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Seven members
14-year, nonrenewable terms
Terms are staggered so that at least one new governor is
appointed every two years.
The president names the chairman and vice chairman
of the Board, subject to confirmation by the Senate.
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4-year terms and may be re-appointed so long as their terms
as governors have not expired.
A chairman who is not re-appointed customarily resigns from
the Board.
Board of Governors
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The Board is financed through an
assessment on the incomes of the
Federal Reserve Banks.
The Federal Open Market Committee
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Chief policy-making body of the Federal Reserve
System.
Primary task: Draft monetary policy.
Voting Members
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all seven governors
the president of the NY Fed
4 presidents of the other eleven regional Banks. The right
to vote rotates among the 11 presidents - each voting for a
period of one year. All presidents attend meetings.
Meets about 8 times a year to formulate
monetary policy.
Decisions in the form of policy directives are
passed on for execution to the NY Fed.
Federal Reserve Banks
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12 Federal Reserve Districts
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Each district has one FRB.
Many have additional branches in major cities.
Banks are privately owned by the
commercial banks that are members.
The Board of Governors has broad
authority over the operations of the
regional Banks.
Federal Reserve: Roles
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Bank supervision
Monetary policy
Banking services
Fiscal Agent
Federal Reserve: Monetary Policy
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Open Market Operations
Discount Window Rate
Reserve Requirements
Open Market Operations
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Purchase or sale of assets by the Fed in
the open market.
Executed by the System Account
Manager at the Federal Reserve Bank of
New York.
Acts under the direction of the FOMC.
The Manager invites primary dealers to
tender offers of price and quantity.
Discount Policy
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Announcement effect.
Reserve Requirements
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The Fed has the authority to set reserve
requirements within a range established by
the Monetary Control Act of 1980.
Apply to all depository institutions.
Reserve requirements are an important
determinant of the money multiplier.
An increase in the reserve requirement means
a decrease in the total quantity of money.
Federal Reserve: Banking Services
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Check clearing
Wire Transfer through Fedwire
Automated Clearing House System
(ACH)
Federal Reserve: Fiscal Agent
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Banker for the federal government.
Accepts payment for the federal taxes
on behalf of the IRS.
Fiscal agent for the Treasury when
issuing, redeeming, and transferring
ownership of government securities.