Anderson 1

Rita Anderson

Instructor: Mark Holland

Personal Finance

22 July, 2017

Federal Reserve

I. Why is the U.S. Banking System unique in the world?

The U. S. Banking System is unique because that banking institutions were chartered, supervised

and regulate at both state and federal level. Moreover, a key importance of the bank system also

was the very large number of very small banks. Another import feature are that U.S. Banks

system had more limited authority to provide securities. In fact, most of the money stock of the

country is bank money; the rest of the currency is legal lender issued by the government,

namely Federal Reserve Notes and coins.

II. Why are banks one of the most regulated and examined (audited) industries in the U.S.?

Bank industries need to show critical perspective and transparency focusing on the nuances and

boundaries. Banking audited regulation originates from microeconomic concerns over the ability

of bank creditors (depositors) to monitor the risk originating on the lending side and from micro

and macroeconomic concerns over the stability of banking system in the case of the a bank crisis.

In assertion to statutory and administrative regulatory provisions, the banking sector has been

subject to widespread informal regulation, i.e., the governments use of its discretion, outside

formalized legislation, to influence banking sector outcomes.

 Anderson 2

III. What is the Federal Reserve Bank and how and how is it organized?

The Federal Reserve Bank is the central Bank of the United States. It performs five general

functions to promote the effective operation of the U.S. economy and, more generally, the public

interest. The Federal Reserve.

Foreign banking organizations have had a long-standing presence in the United States. Their

operations encompass a wide variety of banking and nonbanking activities, through subsidiaries,

branches, agencies, and representative offices. These activities are located primarily in the major

U.S. cities where finance and international trade are most actively conducted. The Federal

Reserve regularly examines the U.S. operations of foreign banks and plays a key role in

assessing the condition of an organization's entire U.S. operations and the foreign banking

organization's ability to support its U.S. operations.

The Federal Reserve shares its foreign banking organizations regulatory responsibility with other

state and federal supervisory authorities. Branches of foreign banking organizations are licensed

by the state banking authorities or the Office of the Comptroller of the Currency (OCC),

although certain grandfathered branches may be insured by the Federal Deposit Insurance

Corporation (FDIC). Agencies are licensed by the state banking authorities.

Federal Reserve Bank organization:

When the organization committee shall have established Federal reserve districts as provided in

section two of this Act, a certificate shall be filed with the Comptroller of the Currency showing
 Anderson 3

the geographical limits of such districts and the Federal reserve city designated in each of such

districts. The Comptroller of the Currency shall thereupon cause to be forwarded to each national

bank located in each district, and to such other banks declared to be eligible by the organization

committee which may apply therefor, an application blank in form to be approved by the

organization committee, which blank shall contain a resolution to be adopted by the board of

directors of each bank executing such application, authorizing a subscription to the capital stock

of the Federal reserve bank organizing in that district in accordance with the provisions of this

Act.

IV. What are the purpose of the Federal Reserve Bank?

A. General Purposes
 Anderson 4

Promote the effective operation of the U.S. economy and, more generally and the public interest.

General Purposes

conducts the nation's monetary policy to promote maximum employment, stable

prices, and moderate long-term interest rates in the U.S. economy;

promotes the stability of the financial system and seeks to minimize and contain

systemic risks through active monitoring and engagement in the U.S. and abroad;

promotes the safety and soundness of individual financial institutions and monitors

their impact on the financial system as a whole;

fosters payment and settlement system safety and efficiency through services to the

banking industry and the U.S. government that facilitate U.S.-dollar transactions and

payments; and

promotes consumer protection and community development through consumer-

focused supervision and examination, research and analysis of emerging consumer issues

and trends, community economic development activities, and the administration of

consumer laws and regulations.

B. Specific Purposes

Services for Federal Government Service for Commercial Bank

1. supervising and examining state member banks (state-chartered banks that have

chosen to become members of the Federal Reserve System), bank and thrift holding
 Anderson 5

companies, and nonbank financial institutions that have been designated as systemically

important under authority delegated to them by the Board;

2. lending to depository institutions to ensure liquidity in the financial system;

3. providing key financial services that undergird the nation's payment system, including

distributing the nation's currency and coin to depository institutions, clearing checks,

operating the Fed Wire and automated clearinghouse (ACH) systems, and serving as a

bank for the U.S. Treasury; and

4. examining certain financial institutions to ensure and enforce compliance with federal

consumer protection and fair lending laws, while also promoting local community

development.

V. What is Monetary Policy?

Monetary policy is the Federal Reserve's actions, as a central bank, to achieve three goals

specified by Congress: maximum employment, stable prices, and moderate long-term interest

rates in the United States.

The Federal Reserve conducts the nation's monetary policy by managing the level of short-term

interest rates and influencing the availability and cost of credit in the economy. Monetary policy

directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange

rates. Through these channels, monetary policy influences spending, investment, production,

employment, and inflation in the United States.

 Anderson 6

VI. What are the tools of Monetary Policy?

The tools of Monetary policy is the Federal Reserve's actions, as a central bank, to achieve three

goals specified by Congress: maximum employment, stable prices, and moderate long-term

interest rates in the United States.

The Federal Reserve conducts the nation's monetary policy by managing the level of short-term

interest rates and influencing the availability and cost of credit in the economy. Monetary policy

directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange

rates. Through these channels, monetary policy influences spending, investment, production,

employment, and inflation in the United States.

The Federal Reserve has a variety of policy tools that it uses in order to implement monetary

policy.

Open Market Operations

Discount Rate

Reserve Requirements

Interest on Required Reserve Balances and Excess Balances

Overnight Reverse Repurchase Agreement Facility

Term Deposit Facility

Expired Policy Tools

 Anderson 7

VII. What are the effects of using each of these tools?

The Federal Reserve System Purposes & Functions details the structure, responsibilities, and

aims of the U.S. central banking system. The Federal Reserve System performs five functions to

promote the effective operation of the U.S. economy and, more generally, to serve the public

interest. It includes three key entities: the Board of Governors, 12 Federal Reserve Banks, and

the Federal Open Market Committee.

1. Overview of the Federal Reserve System

The Federal Reserve performs five key functions in the public interest to promote the health of

the U.S. economy and the stability of the U.S. financial system.

2. The Three Key System Entities

The Board of Governors, the Federal Reserve Banks, and the Federal Open Market Committee

work together to promote the health of the U.S. economy and the stability of the U.S. financial

system.
 Anderson 8

3. Conducting Monetary Policy

The Federal Open Market Committee sets U.S. monetary policy in accordance with its mandate

from Congress: to promote maximum employment, stable prices, and moderate long-term

interest rates in the U.S. economy.

4. Promoting Financial System Stability

The Federal Reserve monitors financial system risks and engages at home and abroad to help

ensure the system supports a healthy economy for U.S. households, communities, and

businesses.

5. Supervising and Regulating Financial Institutions and Activities

The Federal Reserve promotes the safety and soundness of individual financial institutions and

monitors their impact on the financial system as a whole.

 Anderson 9

6. Fostering Payment and Settlement System Safety and Efficiency

The Federal Reserve works to promote a safe, efficient, and accessible system for U.S. dollar

transactions.

7. Promoting Consumer Protection and Community Development

The Federal Reserve advances supervision, community reinvestment, and research to increase

understanding of the impacts of financial services policies and practices on consumers and

communities.

VIII. Who is the chairman of the Federal Reserve Bank?

Janet L. Yellen, Chair

Janet L. Yellen took office as Chair of the Board of Governors of the Federal Reserve System on
February 3, 2014, for a four-year term ending February 3, 2018. Dr. Yellen also serves as
Chairman of the Federal Open Market Committee, the System's principal monetary
policymaking body. Prior to her appointment as Chair, Dr. Yellen served as Vice Chair of the
Board of Governors, taking office in October 2010, when she simultaneously began a 14-year
term as a member of the Board that will expire January 31, 2024.
 Anderson 10

Stanley Fischer, Vice Chairman

Stanley Fischer took office as a member of the Board of Governors of the Federal Reserve
System on May 28, 2014, to fill an unexpired term ending January 31, 2020. He was sworn in as
Vice Chairman of the Board of Governors on June 16, 2014. His term as Vice Chairman expires
on June 12, 2018.

Class C directors shall be appointed by the Board of Governors of the Federal Reserve System.

They shall have been for at least two years residents of the district for which they are appointed,

one of whom shall be designated by said board as chairman of the board of directors of the

Federal reserve bank and as "Federal reserve agent." He shall be a person of tested banking

experience, and in addition to his duties as chairman of the board of directors of the Federal

reserve bank he shall be required to maintain, under regulations to be established by the Board of

Governors of the Federal Reserve System, a local office of said board on the premises of the

Federal reserve bank. He shall make regular reports to the Board of Governors of the Federal

Reserve System and shall act as its official representative for the performance of the functions

conferred upon it by this Act. He shall receive an annual compensation to be fixed by the Board

of Governors of the Federal Reserve System and paid monthly by the Federal reserve bank to

which he is designated. One of the directors of class C shall be appointed by the Board of

Governors of the Federal Reserve System as deputy chairman to exercise the powers of the
 Anderson 11

chairman of the board when necessary. In case of the absence of the chairman and deputy

chairman, the third class C director shall preside at meetings of the board.

IX. What is fiscal policy?

Fiscal Policy the federal government efforts to keep the economy stable by increasing or

decreasing taxes or government spending. One of the factors that helps determine the country's

economic direction is fiscal policy. The government uses fiscal policy to influence the economy

by adjusting revenue and spending levels. In the United States, both the executive and legislative

branches of the government determine fiscal policy.

Fiscal policy is based on the theories of British economist John Maynard Keynes, which state

that increasing or decreasing revenue (taxes) and expenditures (spending) levels influences

inflation, employment and the flow of money through the economic system. Fiscal policy is

often used in combination with monetary policy, which in the United States is set by the Federal

Reserve, to influence the direction of the economy and meet economic goals.

X. What are the tools of Fiscal Policy?

The two main tools of fiscal policy are taxes and spending. Taxes influence the economy by

determining how much money the government has to spend in certain areas and how much

money individuals have to spend. For example, if the government is trying to spur spending

among consumers, it can decrease taxes. A cut in taxes provides families with extra money,
 Anderson 12

which the government hopes they will turn around and spend on other goods and services, thus

spurring the economy as a whole.

Spending is used as a tool for fiscal policy to drive government money to certain sectors that

need an economic boost. Whoever receives those dollars will have extra money to spend and,

as with taxes, the government hopes that money will be spent on other goods and services. The

key is finding the right balance and making sure the economy doesn't lean too far either way.

Prior to the Great Depression in the 1920s, the U.S. government took a very hands-off approach

when it came to setting economic policy. Afterward, the U.S. government decided it needed to

play a larger role in determining the direction of the economy.

Fiscal Policy is the use of government revenue and spending to influence the economy.
 Anderson 13

XI. What are the effects of using each of these tools?

Today's U.S. fiscal policies are tied into each year's federal budget. The federal budget spells out

the governments spending plans for the fiscal year and how it plans to pay for that spending,

such as through new or existing taxes. The budget is developed through a collaborative effort

between the president and Congress.

The president will first submit a budget to Congress that sets the tone for the coming year's fiscal

policy by outlining how much money the government should spend on public needs, such as

defense and health care; how much the government should take in in tax revenues; and how

much of a deficit, or surplus, is projected. Congress then reviews the president's budget request

and develops its own budget resolutions, which set broad levels for spending and taxation. Once

those are approved, legislators start the appropriations process, which spells out where each

dollar will be spent. The president must sign those appropriations bills before they can be

enacted.

XII. What are the main driving forces of the U.S. economy?

We have to shift away from the past economic drivers of the economy (consumer spending and

residential construction) to corporate investment and exports. We doubt that corporate

investment and exports will be able to substitute for the consumer and housing.

Consumer,

Government
 Anderson 14

Spending

cooperative or capital

investment

Net export chipping out more than coming out

 Anderson 15

XIII. How much is the current National Debt in the U.S.?

Current National Debt US: 19,846,342,893,093

At the end of FY 2017 the gross US federal government debt is estimated to be $20.4 trillion,

according to the FY18 Federal Budget.

 Anderson 16

Works Cited

https://www.federalreserve.gov/supervisionreg.htm

http://www.businessnewsdaily.com/3484-fiscal-policy.html

http://www.fiscal.treasury.gov/fsreports/rpt/mthTreasStmt/mthTreasStmt_home.htm

http://www.usgovernmentdebt.us/

http://www.comstockfunds.com/default.aspx?act=Newsletter.aspx&category=MarketCommentar
y&newsletterid=1611&menugroup=Home

https://www.federalreserve.gov/econres/feds/files/2017061pap.pdf

http://www.internationalcompetitionnetwork.org/uploads/library/doc382.pdf

https://en.wikipedia.org/wiki/Bank_regulation

https://www.federalreserve.gov/