The Federal Reserve System Flashcards
What does the Federal Reserve System regulate?
They examine member banks to determine if they’re financially strong and following bank regulations. Also approve mergers.
What is the function called where the Fed performs a service for member banks in operating the check-clearing function?
Clearing Interbank Payments
Why is one of the main functions of the Fed to be a “Lender of last resort” ?
It helps reduce the danger of panics by depositors, and thus prevents depositors from withdrawing all their money from banks at once. Feds are responsible to stand ready to loan reserves to banks experiencing difficulties.
When was the Federal Deposit Insurance established?
During the New Deal era (1933)
What is the responsibility of the Federal Deposit Insurance (FDI)
Provides govt guarantees for bank deposits should a bank fail.
What does the Open Market Operations refer to?
Fed’s buying\selling of US Govt bonds in open market.
What is the purpose of the Open Market Operations?
Influence amount of reserves in banking system, and ultimately extending credit and creating money.
What is the “discount rate”?
The interest rate the Fed charges on loans that are given as “last resort.”
What would the Fed do to the discount rate if they were trying to expand the economy?
Lower the discount rate
What would the Fed do to the discount rate if they were trying to contract the economy (influence banks to hold a high level of reserves)?
Rise the discount rate
What are “bank reserves”?
Currency deposits that are not lent to the bank’s clients
What would the Fed do with bonds if they were trying to expand the economy?
Buy more bonds
What are bonds?
Loans you lend to bank and they are expected to pay you back
