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![Concerns
about
expanding
Fed
regulatory
responsibili:es
• “The
more
power
the
Fed
is
given
in
such
ma0ers,
the
greater
the
poli6cal
pressures
will
be
from
the
outside
to
sa6sfy
certain
cons6tuencies,
and
the
less
the
Federal
Reserve
will”
[be
able
to
act
in
the
public
interest].
–
James
Hamilton,
UCSD](https://image.slidesharecdn.com/federal-reserve-system-130404111552-phpapp02/85/Federal-Reserve-System-11-320.jpg)
![Concerns
about
the
Fed’s
expanded
balance
sheet
“the
large
and
growing
balance
sheet
may
expose
the
Fed
to
a
certain
type
of
poli6cal
risk.
If
6ghtening
needs
to
happen
in
the
future,
the
Fed
will
have
to
raise
interest
rates
[on
reserves]
(IOR)
and/or
sell
off
its
assets.
[Higher]
IOR
may
be
made
to
look
like
Fed
Reserve
(instead
of
Treasury)
transfers
to
the
banking
sector,
at
taxpayer
expense.
Capital
losses
on
asset
sales
would
similarly
reduce
remi0ances
to
the
Treasury.
It's
not
going
to
look
very
pre0y.”
-‐-‐David
Andolfa0o,
FRB
St.
Louis
(personal
view)](https://image.slidesharecdn.com/federal-reserve-system-130404111552-phpapp02/85/Federal-Reserve-System-18-320.jpg)
Uploaded byMercatus Center
Federal Reserve System
The document provides an overview of the history and functions of the Federal Reserve System. It summarizes that the Federal Reserve was established in 1913 to address financial panics by providing an elastic currency and a lender of last resort. It took over clearinghouse roles from private banks. Today, the Federal Reserve has five key roles: acting as a bankers' bank, lender of last resort, financial supervisor and regulator, currency issuer, and conductor of monetary policy. It oversees various types of financial institutions and enforces numerous regulations.
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Federal Reserve System
- 1. Regulation University The Federal Reserve System Lawrence H. White Professor of Economics, GMU Senior Scholar, Mercatus Center
- 2. Sixty-third Congress ofthe United States of America; At the Second Session Begun and held at the City of Washington on Monday, the first day of December, one thousand nine hundred and thirteen AN ACT To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the short title of this Act shall be the "Federal Reserve Act.”
- 3. The original system: the 12 regional Federal Reserve Banks “na:onalized” 3 clearinghouse roles • bankers’ bank – check clearing and se0lement • lender of last resort – seasonal and emergency elas6city to currency, reserves • supervision of member banks – capital standards Federal Reserve Bank of Richmond, 1928
- 4. The original system: the Fed was not assigned the tasks of – conduc6ng an ac6ve monetary policy • gold standard expected to con6nue to prevail • But in WWI , Europe leF the gold standard, giving the Fed discre6on – Being sole issue of currency notes • Na6onal Banks con6nued to issue notes un6l the mid-‐1930s 1929 notes
- 5. What does the Federal Reserve today do? • Five key roles : 1. bankers’ bank (clearinghouse) 2. lender of last resort 3. financial supervision and regula6on 4. currency issuer 5. monetary policy
- 6. The Fed as a Supervisor and Regulator In some countries, financial services regulation is outside the central bank (e.g. UK’s Financial Services Authority) The Fed’s authority over banks overlaps with • FDIC • Comptroller of the Currency • State government banking authorities The Fed’s authority over other financial firms overlaps with • SEC • CFTC • FINCEN Dodd-Frank expanded the Fed’s role as a financial regulator
- 7. The Fed as Supervisor Supervision = solvency examina6ons (audits), on-‐ and off-‐site inspec6ons • with: pre-‐examina6on visits, review of documents, reports • conducted by the 12 Reserve Banks Who is supervised by the Fed? 1. Bank Holding Companies, incl. Financial Holding Cos. and Savings and Loan Holding Cos. (SLHCs new with Dodd-‐Frank) 2. State-‐chartered Member Banks 3. Foreign Branches of Member Banks 4. Designated “Systemically Important” Non-‐Bank Financial Companies (new with Dodd-‐Frank) 5. Designated “Systemically Important” Financial Market U6li6es (new with Dodd-‐Frank)
- 8. The Fed as Regulator The Fed promulgates and enforces Regs. A – YY, specifying requirements and restrictions on, e.g., B. Demographic credit decision repor6ng* C. Home mortgage data disclosures (HMDA)* D. Reserve ra6os E. EFT disclosures, fees, record-‐keeping* G. Geographic credit decision repor6ng (CRA)* H. Investment and loan ac6vi6es, capital ra6os, real estate lending, appraisal standards, suspicious-‐ac6vity reports; mortgage licensing* M. Leasing terms disclosures* P. Customer privacy* Q. Capital adequacy S. Wire transfer record-‐keeping T. Credit by securi6es brokers and dealers (margin requirements) V. Credit informa6on-‐sharing* Y. Bank holding company acquisi6ons *now enforced by CFPB
- 9. BoG Division of Banking Supervision and Regula:on • Michael S. Gibson, Director • 2 Deputy Directors • 7 Senior Associate Directors • 4 Associate Directors • 4 Deputy Associate Directors • 11 Assistant Directors • 3 Senior Advisers • 2 Advisers • 2 Program Directors • 9 Economists • 3,109 professional supervisory staff (per 2011 Annual Report)
- 10. The Consumer Financial Protec:on Bureau Created by Dodd-‐Frank, sets own budget, funded by the Fed 1,359 FTE est. for FY 2013
- 11. Concerns about expanding Fed regulatory responsibili:es • “The more power the Fed is given in such ma0ers, the greater the poli6cal pressures will be from the outside to sa6sfy certain cons6tuencies, and the less the Federal Reserve will” [be able to act in the public interest]. – James Hamilton, UCSD
- 12. The Fed’s monetary policy structure • Once decentralized – With reserve banks seong own policies • Now centrally controlled – Board of Governors sets FRB budgets, policies • Monetary policy is made by the Federal Open Market CommiPee
- 13. 2013 Members of the FOMC Vo:ng FRB Presidents Board of Governors William C. Dudley, New York Ben Bernanke, Chairman James Bullard, St. Louis Elizabeth A. Duke Charles L. Evans, Chicago Jerome H. Powell Esther George, Kansas City Sarah Bloom Raskin Eric S. Rosengren, Boston Jeremy C. Stein Daniel K. Tarullo Janet L. Yellin Non-‐vo:ng Jeffrey M. Lacker, Richmond Dennis P. Lockhart, Atlanta Sandra Pianalto, Cleveland FOMC = 7 BOG + FRBNY Pres. + 4 other Richard Fisher, Dallas FRB Presidents (one-‐year terms, rota6ng; Narayana Kocherlakota, Minneapolis one each from Boston-‐Philadelphia-‐ Charles I. Plosser, Philadelphia Richmond; Cleveland-‐Chicago; Atlanta-‐St. John C. Williams, San Francisco Louis-‐Dallas; Minneapolis-‐Kansas City-‐ San Francisco
- 14. The Fed and Monetary Policy Why care about monetary policy? Fear the boom and bust • When policy becomes too loose, asset price bubbles and unsustainable booms • When monetary remains too loose, inflation • When policy tightens, recessions
- 15. The Tools of Monetary Policy 1. The Reserve Ratio (rare) 2. Open Market Operations (asset purchases and sales) Usual intermediate target: the Fed Funds rate 3. Interest rate on bank reserves (new since 2008)
- 16. Greenspan Bernanke
- 17. The Fed’s balance-‐sheet hyperexpansion since 2008
- 18. Concerns about the Fed’s expanded balance sheet “the large and growing balance sheet may expose the Fed to a certain type of poli6cal risk. If 6ghtening needs to happen in the future, the Fed will have to raise interest rates [on reserves] (IOR) and/or sell off its assets. [Higher] IOR may be made to look like Fed Reserve (instead of Treasury) transfers to the banking sector, at taxpayer expense. Capital losses on asset sales would similarly reduce remi0ances to the Treasury. It's not going to look very pre0y.” -‐-‐David Andolfa0o, FRB St. Louis (personal view)
- 19. Foreign exchange value of the US dollar