ECON 204 1st Edition Lecture 16Outline of Last Lecture XXI. BankingA. Bank regulationsOutline of Current LectureXXII. The FedA. Functions of Federal Reserve banksB. Open-Market OperationsC. Review of bankingCurrent LectureXXII. The FedThe Federal Reserve Act of 1913 created a complex system of checks and balances, the writers strived to distribute power between the private sector and the government.Federal Reserve bank: a quasi-public institution owned by private commercial banks within the district that are members of the Fed. A. Functions of Federal Reserve banks:1. Provide financial services2. Supervise and regulate banking institutions3. Maintain the stability of the financial system4. Conduct monetary policyExamples of these functions include:-Issue new currency-Clear Checks-Remove damaged currency from circulation-Administer and make discount loans to banks in their districtsand moreThere are currently 12 Federal Reserve banks and there is one in Denver, Colorado.B. Open-Market OperationsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.The principal tool of monetary policy is open-market operations.The fed can increase or reduce the monetary base by buying government debt from banks orselling government debt to banks. Government debt is the Federal Reserve’s asset (treasury bills) and the monetary base (currency in circulation and bank reserves) is a liability Federal Reserve’s.C. Review of bankingReserve requirements: rules set by the Federal Reserve that determine the minimum reserveratio (see notes on banking) for a bank.Discount window: an arrangement in which the Federal Reserve stands ready to lend money to banks in troubleDiscount rate: rate of interest the Fed charges on loans to
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