The Fed
The Federal Reserve System, or simply the Fed, is the nation’s central monetary authority or central bank.
The Fed Board of Governors are responsible for formulating and carrying out monetary policy.
Most Americans are not even aware of the important role the Fed plays in our country.
The interest rates Americans pay on home loans, car loans, or whether they can even get a loan at all is strongly effected by the decisions and actions of the Fed.
In fact, the Fed Chairman is often called the 2nd most powerful person in America.
Let’s look at the organization of the Federal Reserve.
The Fed has 3 levels-
At the top is the Board of Governors, the Federal Open Market Committee, and the Federal Advisory Counsil.
The 2nd level consists of 12 Federal Reserve Banks located in throughout the US.
The 3rd level consists of thousands of member banks.
Board of Governors
The Board of Governors consists of seven members who are appointed by the President.
Each member serves a 14 year term and is not eligable for re-appointment.
The president appoints one of these 7 members as the chairman of the board for a period of 4 years.
The board of governors is the central policy making body of the Federal Reserve system.
They are responsible for formulating and carrying out monetary policy.
Because the decisions made by the board have such a big impact on the economoy, it is important that the board is not influenced by partisan politics.
Because of this, the decisions made by the board do not have to be approved by either congress or the President.
In fact, the board remains relatively independant of politics, and can do what they feel is best for the economy without worrying how voters will react.
Federal Open Market Committee
The Federal Open Market Committee or FOMC is responsible for directing the buying and selling of government securities (Bills, Bonds, and Notes) in the open market to change interest rates and effect the availability of credit.
The committee consists of the 7 Board of Governors, plus 5 presidents of Federal Reserve Banks for a total of 12 members.
The FOMC will be discussed more in a future video on interest rates and FOMC decisions.
Federal Advisory Counsil
The members of the Federal Advisory Counsil consists of 12 commercial bankers, with one member being selected by each of the 12 Federal Reserve Banks.
The Federal Advisory Counsil’s serves as a link between bankers and the Board of Governors.
It meets with the Board of Governors to report on general business conditions throughout the nation and to give advice about future banking policies.
Federal Reserve Banks
The 1913 Federal Reserve Act, which created the Federal Reserve system, divided the country into 12 districts and established a separate Federal Reserve Bank for each district.
This is much different than most countries. Most countries only have a single central bank.
The Federal Reserve Banks are banker’s banks that deal only with banks and other financial institutions.
They do not deal with the the public.
Each Federal Reserve Bank is owned by the member commercial banks in its district, who are required to by stock in the Federal Reserve Bank when they become members of the Fed.
Although the Federal Reserve Banks are privately owned, the primary objective is to carry out monetray policy established by the Board of Governors.
Most of the earnings of the Federal Reserve Banks are returned to the Treasury each year.
Member Banks
Commercial banks fall into 2 categories- national banks and state bankd.
National banks are chartered by the Federal Government and are required to become members of the Fed.
State banks are chartered by the individual states and have the choice as to whether they join the Fed or not.
However, even if they do not join, state banks must abide by the rules of the Fed.
The Fed Board of Governors are responsible for formulating and carrying out monetary policy.
Most Americans are not even aware of the important role the Fed plays in our country.
The interest rates Americans pay on home loans, car loans, or whether they can even get a loan at all is strongly effected by the decisions and actions of the Fed.
In fact, the Fed Chairman is often called the 2nd most powerful person in America.
Let’s look at the organization of the Federal Reserve.
The Fed has 3 levels-
At the top is the Board of Governors, the Federal Open Market Committee, and the Federal Advisory Counsil.
The 2nd level consists of 12 Federal Reserve Banks located in throughout the US.
The 3rd level consists of thousands of member banks.
Board of Governors
The Board of Governors consists of seven members who are appointed by the President.
Each member serves a 14 year term and is not eligable for re-appointment.
The president appoints one of these 7 members as the chairman of the board for a period of 4 years.
The board of governors is the central policy making body of the Federal Reserve system.
They are responsible for formulating and carrying out monetary policy.
Because the decisions made by the board have such a big impact on the economoy, it is important that the board is not influenced by partisan politics.
Because of this, the decisions made by the board do not have to be approved by either congress or the President.
In fact, the board remains relatively independant of politics, and can do what they feel is best for the economy without worrying how voters will react.
Federal Open Market Committee
The Federal Open Market Committee or FOMC is responsible for directing the buying and selling of government securities (Bills, Bonds, and Notes) in the open market to change interest rates and effect the availability of credit.
The committee consists of the 7 Board of Governors, plus 5 presidents of Federal Reserve Banks for a total of 12 members.
The FOMC will be discussed more in a future video on interest rates and FOMC decisions.
Federal Advisory Counsil
The members of the Federal Advisory Counsil consists of 12 commercial bankers, with one member being selected by each of the 12 Federal Reserve Banks.
The Federal Advisory Counsil’s serves as a link between bankers and the Board of Governors.
It meets with the Board of Governors to report on general business conditions throughout the nation and to give advice about future banking policies.
Federal Reserve Banks
The 1913 Federal Reserve Act, which created the Federal Reserve system, divided the country into 12 districts and established a separate Federal Reserve Bank for each district.
This is much different than most countries. Most countries only have a single central bank.
The Federal Reserve Banks are banker’s banks that deal only with banks and other financial institutions.
They do not deal with the the public.
Each Federal Reserve Bank is owned by the member commercial banks in its district, who are required to by stock in the Federal Reserve Bank when they become members of the Fed.
Although the Federal Reserve Banks are privately owned, the primary objective is to carry out monetray policy established by the Board of Governors.
Most of the earnings of the Federal Reserve Banks are returned to the Treasury each year.
Member Banks
Commercial banks fall into 2 categories- national banks and state bankd.
National banks are chartered by the Federal Government and are required to become members of the Fed.
State banks are chartered by the individual states and have the choice as to whether they join the Fed or not.
However, even if they do not join, state banks must abide by the rules of the Fed.
Functions of the Federal Reserve System
Let’s look at some of the functions the Fed performs.
One function the Fed performs is making sure that the member banks are in compliance with banking laws and regulations.
The Fed provides paper currency (money).
Another function is check clearing.
Another function it performs is it serves as fiscal agent for the Federal government, including holding tax money.
The Fed also holds the required reserves that banks and other financial institutions are required to keep by law, and it sets the reserve limits..
However, the most importand function of the Fed is regulating the amount of money in circulation, which is part of Monetary policy.
More on banking and monetary policy in the next video.
Let’s look at some of the functions the Fed performs.
One function the Fed performs is making sure that the member banks are in compliance with banking laws and regulations.
The Fed provides paper currency (money).
Another function is check clearing.
Another function it performs is it serves as fiscal agent for the Federal government, including holding tax money.
The Fed also holds the required reserves that banks and other financial institutions are required to keep by law, and it sets the reserve limits..
However, the most importand function of the Fed is regulating the amount of money in circulation, which is part of Monetary policy.
More on banking and monetary policy in the next video.
Music:
Danse Macabre – Low Strings Finale (Theme)
Impact Andante
Monoko
Dreamy Flashback
by Kevin MacLeod
incompetech.com
