HISTORY AND DEVELOPMENT OF THE US FEDERAL RESERVE

1. Cielo Casteel Jeff Inman HISTORY AND DEVELOPMENT OF THE US FEDERAL RESERVE

2. Intro

3. Governs U.S. monetary and banking systems Use monetary policy to bring stability in the money supply and banking system US Federal reserve Monetary policy Borrowing & lending • Financial Sector Goods and services Taxes and transfer payments Goods and services Taxes & subsidies Goods and services Labor and wages

4. Board of Governors (7) President per district (12) Chairman of the Federal Reserve Federal Open Market Committee Governance structure

5. Federal Reserve Districts

6. Maintain U.S. stability of the currency and money supply • Seek to accomplish • Stability in price levels • High employment • Economic growth • Stability in foreign currency exchanges Purpose

7. Bank Reserves • Rates affect money supply • Open Market Operations • Most effective • Open Market Repurchase Agreements • Temporary change in reserve level • Discount Rates • Least effective Instruments

8. Open market operations

9. 1791–1811 First Bank of the United States • 1811–1816 No central bank • 1816–1836 Second Bank of the United States • 1837–1862 Free Bank Era • 1863–1913 National Banks • (National Banking Act) (Legal Tender Act of 1862) • Panics under national banking system • 1873, 1893 and 1907 • Demonstrated need for national banking system • 1908 National Monetary Commission • Recommendations became Federal Reserve Act • 1913 Federal Reserve founded Federal Reserve Timeline

10. 1929 Great Depression • Fed Allowed contraction of money supply initially • Ties to gold limited Feds ability to stimulate economy • 40% notes issued required to be coverable by gold • New Deal • Credited with enabling economic recovery • Stabilized banks by insuring deposits • Removed gold standard from dollar • 1973 Oil Crisis • Cut interest rates to encourage growth • Inflation risk accepted • High inflation and low economic growth resulted Federal Reserve Evolution

11. Late 2000’s Financial Crisis • Collapse of US housing bubble • Over leveraging • Predatory lending • Responses • Bailouts • Purchase of $2.5 trillion in government debt and troubled private assets from banks Federal Reserve Recent Activity

12. Maximum wage is an idea which has been enacted in early 2009 in the United States, where they capped executive pay at $500,000 per year for companies receiving extraordinary financial assistance from the US Taxpayer • Simon Johnson: Break-up institutions that are "too big to fail" to limit systemic risk • Warren Buffett: Require minimum down payments for home mortgages of at least 10% and income verification • Alan Greenspan: Banks should have a stronger capital cushion, with graduated regulatory capital requirements (i.e., capital ratios that increase with bank size), to "discourage them from becoming too big and to offset their competitive advantage • Joseph Stiglitz: Restrict the leverage that financial institutions can assume. Require executive compensation to be more related to long-term performance. Future Policy Changes

13. Wikipedia Federal Reserve Website Thomson Leaning CNNMoney.com Sources