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The Fed: Governance and Structure

The Fed: Governance and Structure. Pengtao Teng December 18, 2005 Monetary Theory. Basic Concepts. Strives to achieve independence Congress can make laws for governance but cannot interfere with day-to-day operations Fed finances itself with its own operations.

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The Fed: Governance and Structure

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  1. The Fed: Governance and Structure Pengtao Teng December 18, 2005 Monetary Theory

  2. Basic Concepts • Strives to achieve independence • Congress can make laws for governance but cannot interfere with day-to-day operations • Fed finances itself with its own operations http://bogard.isu.ru/donations/treemoney.gif

  3. Overall Structure www.richmondfed.org/publications/educator_resources/federal_reserve_today/pdf/frtoday.pdf

  4. Board of Governors • Max: 7 members • Alan Greenspan, Chairman • Roger W. Ferguson, Jr., Vice Chairman • Susan Schmidt Bies • Mark W. Olson • Donald L. Kohn • 14-year terms • Length of term to counteract temporary political pressures • Prez  Senate Office http://federalreserve.gov/bios/ http://www.princeton.edu/pr/pictures/a-f/bernanke/bernanke-03-low.jpg  Ben Bernanke

  5. www.richmondfed.org/publications/educator_resources/federal_reserve_today/pdf/frtoday.pdfwww.richmondfed.org/publications/educator_resources/federal_reserve_today/pdf/frtoday.pdf

  6. District Directors • 9 Per Bank, 3 yr Terms • 3 classes: • A – Commercial Member Banks • B & C – Public Interest/Non-banking • Oversee Operations • Subject to BOG supervision • A&B elected by members, C by BOG • Elects President and 1st VP of Bank • BOG approval

  7. Branches of Reserve Banks • Governed by 5 or 7 Directors • 5 Directors = 2 yr terms • 7 Directors = 3 yr terms • Majority appointed by respective Regional Directors • Rest appointed by BOG • Serves as additional centers for Fed Services

  8. Member Banks • Over 3000 Members • Mandatory for Nationally Chartered Banks • State banks must meet BOG requirements to join • Hold stocks of Regional Banks • Cannot sell, trade, or use as collateral • 6% annual yield • Contribute capital

  9. Flowchart of Influence www.richmondfed.org/publications/educator_resources/federal_reserve_today/pdf/frtoday.pdf

  10. Benefits of System • Board of Directors – gives private sector perspective to Fed • President – presents research done at regional banks to FOMC • Diverse Interest • Many sides of economy • Business experience • Community involvement • Leadership

  11. Example: Greenspan in 1990s • Rapid Growth in late 1990s led to fear of inflation • Inflation did not occur • Most BOG did not understand http://www.dallasfed.org/research/swe/2005/images/swe0502b_c2.gif • Greenspan saw rise of productivity • Discussions with business people and bank presidents

  12. Trivia Stuff • Salaries – good? • Chairman  $180,100 • Other Governors  $162,100 • Directors’ terms always end on 12/31 • Regional cities were chosen like picking Olympic hosts • ~1700 people work at the Board • Governors must cut all affiliation with previous banking/forecasting groups • Can only buy/sell stocks during certain time periods

  13. Sources • http://www.frbsf.org/publications/federalreserve/fedinbrief/organize.html • http://www.federalreserve.gov/generalinfo/faq/faqbog.htm • http://www.federalreserve.gov/generalinfo/fract/sect10.htm • http://www.federalreserveeducation.org/fre_director/print.cfm?theURL=/fed101_html/structure/tour/tour.htm • http://www.richmondfed.org/publications/educator_resources/the_federal_reserve_system_in_action/index.cfm

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