The Federal Reserve The Bankers Bank U S

The Federal Reserve The Bankers’ Bank

U. S. Bank History First Bank of United States – Est. after birth of U. S. (1791) – Second Bank of U. S. (Est. 1816) – Charters of both not renewed by President Jackson (1836)

U. S. Bank History De-Centralized banking from 1836 -1863 – 1, 400 bank institutions, up to 1, 600 note types – Inefficient, subject to counterfeiting

Move Toward Centralization Civil War: National Currency Act (1863) – Reserves maintained / notes redeemed at principal locations (main cites) – Allowed for chartering of national banks

Move Toward Centralization Panic of 1907 – 2 nd and 3 rd largest banks in country closed – Depositors withdrew funds (run on banks) – JP Morgan et al. , backed remaining banks to restore depositor faith

Federal Reserve Established Created by Federal Reserve Act, 1913 Purposes: Centralize bank reserves Provide multi-regional check/currency clearing system, to reflect country’s regions and growth Provide banking facilities for the federal government

Federal Reserve Bank Districts

The FED

Organization of the “Fed” Main components of the Federal Reserve Board of Governors Federal Reserve Banks Federal Open Market Committee (FOMC)

Policies The Federal Reserve has three main tools to execute its monetary policy Open market operations – the purchase and sale of government securities (bonds) Reserve requirements – the required cash reserve a financial institution must keep at the Fed The discount rate – rate at which the Fed lends funds to banks