1. Lecture 6.7 The Federal Reserve System

2. Federal Reserve • Central bank of the U.S. that controls the size of the money supply to • help regulate the economy and • create stability in the banking system • Created in 1913

3. Structure of the Fed • National Level • - Board of Governors • Directs and controls activities of the Fed • Chairman Ben Bernanke since 1/06 • - Federal Open Market Committee • Control money supply & interest rates through the buying and selling of govt. securities (bonds) • - Federal Advisory Council: • Provide the Fed with advice on the nation’s financial problems • 2. 12 District Banks perform functions for commercial banks • - make loans to banks • - Process bank checks • examine commercial banks for safety and soundness • 3. Local Level - commercial banks consumers bank at

5. Fed Services to Government • Federal govt. deposits money at the Fed • Fed buys & sells federal govt bonds • Issues currency

6. Fed Services to Banks • Check clearing • “Lender of last resort” for banks that need emergency cash • Create stability in the banking system by • Coordinates banking activity • Bank examinations • Supervising lending practices

7. The Fed’s Mission To control the money supply to maintain a stable economy by having • Full employment • Economic growth • Price stability

8. FDIC • Federal Deposit Insurance Corporation • Not a part of the Fed • Insures total deposits up to $250,000 per depositor per bank • Established in 1934 to restore confidence to the banking system • Also regulates banks (like the Fed)