Chapter 17 Flashcards
** Reserve requirements
the ratio of bank reserves to deposits that a bank must hold according to law. (the board of governors has the power to set reserve requirements, but can’t set them outside the bounds of the speific limits imposed by Congress)
** What are the 3 tools (instruments) of monetary policy?
- Reserve requirements
- Discount rates
- Open market operations
** Discount rate
The interest rate financial institutions pay to the Federal Reserve to borrow reserves. (Discount rates are “established” every two weeks by the directors of each regional Federal Reserve bank, but they are subject to “review and determination” by the board of governors)
** Open Market Operations
The purchase and sale of government securities by the Federal Reserve in order to control levels of bank reserves. (directed by the Federal Open Market Committee (FOMC) composed of the seven-member board of governors plus five of the Reserve bank presidents)
** The Federal Reserve System (“the Fed”)
The central banking system and monetary authority of the US, made up of regional Federal Reserve banks and the Federal Reserve Board of Governors, which supervises and examines state-chartered member banks, regulates bank holding companies, and is responsible for the conduct of monetary policy.
The Federal Open Market Committee is made up of?
FOMC:
7 Board of Governors plus 5 Federal Reserve Bank Presidents. Total of 12 members
The Board of Governors is made up of?
7 members appointed by the president and confirmed by the senate.
Who sets and/or establishes:
Reserve Requirements
Discount Rate
Open Market Operations
Reserve Requirements: Board of Governors within limits of congress
Discount Rate: Established by 12 Federal Reserve banks, reviewed and determined by the Board of Governors
Open Market Operations: Directed by the FOMC
Review the formal and informal structure of the Federal Reserve System
Pages, 331 & 333
