Federal Reserve System (Central Banking in USA) Duties of Federal Reserve System. Objectives of Monetary Policy Board Of Governors. Function of Federal Reserve System

1. Unit II
Bahadur kumar
BBA 2nd sem
9997734171
1702696

2. Federal Reserve System
 The Federal Reserve System is also known as
the Federal Reserve, and informally as the Fed.
 It is the central banking system of the United States.
 It was created on December 23, 1913, with the enactment of
the Federal Reserve Act , largely in response to a series
of financial panics.
 The Federal Reserve System has both private and public
components, and was designed to serve the interests of
both the general public and private bankers.

3. Duties of Federal Reserve System
According to official Federal Reserve documentation,
their duties include:
 Conducting the nation's monetary policy,
 Supervising and regulating banking institutions,
 Maintaining the stability of the financial system and
providing financial services to depository institutions,
the U.S. government, and foreign official institutions.
 Conducts research into the economy and releases
numerous publications ( Beige Book).

4. Key Objectives of Monetary Policy
The U.S. Congress established three key objectives for
monetary policy in the Federal Reserve Act:
 Maximum employment,
 Stable prices, and
 Moderate long-term interest rates.
 The first two objectives are sometimes referred to as
the Federal Reserve's dual mandate.[

5. Structure
 The Federal Reserve System has a "unique structure that is
both public and private" and is described as "independent
within the government" rather than "independent of
government".
 The System does not require public funding, and derives
its authority and purpose from the Federal Reserve Act,
which was passed by Congress in 1913 and is subject to
Congressional modification or repeal.
 The four main components of the Federal Reserve System
are (1) the Board of Governors, (2) the Federal Open
Market Committee, (3) the twelve regional Federal Reserve
Banks, and (4) the member banks throughout the country.

6. Structure
Thus the Federal Reserve System's structure is composed
:
 Presidentially appointed Board of Governors (or
Federal Reserve Board),
 The Federal Open Market Committee(FOMC),
 Twelve regional Federal Reserve Banks located in
major cities throughout the nation,
 Numerous privately owned U.S. member banks and
various advisory councils.

7. Board of Governors
 The seven-member Board of Governors is a federal agency.
 It is charged with the overseeing of the 12 District Reserve Banks
and setting national monetary policy. It also supervises and
regulates the U.S. banking system in general.
 Governors are appointed by the President of the United States
and confirmed by the Senate for staggered 14-year terms.
 One term begins every two years, on February 1 of even-
numbered years, and members serving a full term cannot be re
nominated for a second term. “ Upon the expiration of their
terms of office, members of the Board shall continue to serve
until their successors are appointed and have qualified."

8. Contd….
 The law provides for the removal of a member of the Board
by the President "for cause".
 The Board is required to make an annual report of
operations to the Speaker of the U.S. House of
Representatives.
 The Chairman and Vice Chairman of the Board of
Governors are appointed by the President from among the
sitting Governors. They both serve a four-year term and
they can be re nominated as many times as the President
chooses, until their terms on the Board of Governors
expire.

9. The Federal Open Market Committee
 The FOMC is the committee responsible for setting
monetary policy.
 Consists of all seven members of the Board of
Governors and the twelve regional bank presidents,
though only five bank presidents vote at any given time
(the president of the New York Fed and four others
who rotate through one-year terms).

10. Contd….
 Their structure is considered unique among central banks.
It is also unusual in that an entity outside of the central
bank, namely the United States Department of the
Treasury, creates the currency used.
 According to the Board of Governors, the Federal Reserve
System "is considered an independent central bank
because its monetary policy decisions do not have to be
approved by the President or anyone else in the executive
or legislative branches of government, it does not receive
funding appropriated by the Congress, and the terms of the
members of the Board of Governors span multiple
presidential and congressional terms."

11. Contd….
 The authority of the Federal Reserve System is derived from statutes
enacted by the U.S. Congress and the System is subject to congressional
oversight.
 The members of the Board of Governors, including its chairman and
vice-chairman, are chosen by the President and confirmed by the
Senate.
 The federal government sets the salaries of the Board's seven governors.
Nationally chartered commercial banks are required to hold stock in
the Federal Reserve Bank of their region; this entitles them to elect
some of the members of the board of the regional Federal Reserve
Bank.
 Thus the Federal Reserve system has both public and private aspects.
 The U.S. Government receives all of the system's annual profits, after a
statutory dividend of 6% on member banks' capital investment is paid,
and an account surplus is maintained.
 In 2010, the Federal Reserve made a profit of $82 billion and
transferred $79 billion to the U.S. Treasury.
 This was followed at the end of 2011 with a transfer of $77 billion in
profits to the U.S. Treasury Department.

12. List of members of the Board of Governors
 The current members of the Board of Governors are as
follows:

13. Functions
Current functions of the Federal Reserve System include:
 To address the problem of banking panics
 To serve as the central bank for the United States
 To strike a balance between private interests of banks and
the centralized responsibility of government
 To supervise and regulate banking institutions
 To protect the credit rights of consumers
 To manage the nation's money supply through monetary
policy to achieve the sometimes-conflicting goals of
 To maximum employment
 To stable prices, including prevention of either inflation
or deflation.
 To moderate long-term interest rates

14. Contd…..
 To maintain the stability of the financial system and
contain systemic risk in financial markets.
 To provide financial services to depository institutions,
the U.S. government, and foreign official institutions,
including playing a major role in operating the
nation's payments system
 To facilitate the exchange of payments among regions
 To respond to local liquidity needs.
 To strengthen U.S. standing in the world economy

15. Federal Reserve Banks