1. Federal Reserve System
   1. National Banks (forced)
   2. State Banks (option)
   3. Buy stock
      1. Fixed Dividend = 6%
      2. Private-Gov't joint venture
2. Federal Reserve Act
   1. Federal Reserve Banks
      1. 12 Federal Reserve Districts (Banks)
         1. Location
            1. Urban areas
            2. Rural areas
            3. Manufacturing interest
            4. Agriculture interest
            5. Business interest
         2. Roles
            1. Manage check clearing in payments system
            2. Manage currency in circulation
            3. Conduct discount lending
            4. Perform supervisory/regulatory functions
            5. Provide services to businesses & general public
            6. Serve on FOMC
            7. Duties related to Fed's roles in payments system, control of money supply, & financial regulations
         3. Board of Directors
            1. Class A = 3 Bankers
            2. Class B = 3 Leaders in Industry, Commerce, & Ag.
            3. Class C = Publict Interest Directors
            4. Elected by member banks
            5. Appointed by Board of Governors
      2. Make discount loans to member banks in its region
         1. Provide liquidity to banks
         2. Fulfill role as lender of last resort
         3. End bank panics
   2. Private commercial member banks
      1. Depository Institutions Deregulation and Monetary Control Act
         1. All banks keep reserve deposits w/Fed on same terms
   3. Board of Governors
      1. Definition
         1. 7 members
            1. 14-yr non renew. terms
         2. 1 Chairman
            1. 4-yr terms
            2. Serve on Financial Stability Oversight Council
            3. Serve as Chairman of FOMC
         3. Govern board of Fed Reserve System
         4. President's choice
      2. Formal Responsibilities
         1. Administer monetary policy to influence money supply & int. rates
         2. Sets discount rate to charge on loans to banks
         3. Influence setting of guidelines for open mkt ops
         4. Set margin requirements
         5. Determine permissible activities for bank holding companies
         6. Approve bank mergers
         7. Exercise admin. control over indiv. Fed Reserve banks
            1. Review budgets
            2. Set salaries of presidents & officers
      3. Informal Responsibilities
         1. Influence nat'l & internat'l econ. policy decisions
   4. FOMC
      1. Composition
         1. 12 members
            1. Chairman
            2. 6 members from Board of Gov'rs
            3. Pres. of Fed. Reserve Bank NY
            4. Pres. of 4 other Fed Reserve Banks
         2. Direct open mkt ops
         3. Meet 8x/yr @ Washington DC
            1. Before
            2. Greenbook
            3. Nat'l econ forecast for next 2 yrs
            4. Bluebook
            5. Projections for monetary aggregates & other info help alt. monetary policies
            6. Beige Book
            7. Summaries of econ. cond's in each dist.
            8. Prepared by reserve banks
            9. Prepared by Board staff
            10. During
            11. All members of Board of Gov'rs & all Dist. Bank pres. speak
            12. After
            13. Chairman summary
            14. FOMC vote - set target for federal funds rate
            15. Summarize views in public stmt
      2. Roles
         1. Setting target for federal funds rate
3. Dodd-Frank Wall Street Reform and Consumer Protection Act
   1. Reform regulations of financial systems
   2. Provisions
      1. Member of Financial Stability Oversight Council
      2. 1 member Board Gov'rs = V. Chairman for supervision
      3. GAO perform audit of emergency lending programs
      4. Class A directors will not elect bank pres.
      5. Disclose names of financial institutions it makes loans & buys/sells securities
      6. Consumer Financial Protection Bureau
4. Operations
   1. Independence
      1. For
         1. Technical
         2. Politicians - ST
         3. Higher likelihood for political biz cycle fluctuations
      2. Against
         1. Elected officials make pub. policy
         2. Integrate monetary policy w/gov't taxing & spending
         3. Fed hasn't always used indep. well
   2. Profitable org.
      1. Interest on securities
      2. Interest on discount loans
      3. Fees for check-clearing/other services
      4. Income > Expenses to Treasury
   3. Pres. can control members of Board of Gov'rs
   4. Creation of Congress
      1. Amend Fed's charter
5. Motivation
   1. Public-Interest View
      1. Officials act in best interest of public
         1. Price stability
         2. High employment
         3. Economic growth
   2. Principal-Agent View
      1. Officials max. personal well-being
         1. Increase power
         2. Increase influence
         3. Increase prestige
      2. Political Business Cycle
         1. Policymakers urge Fed lower int. rates
6. Central Bank
   1. Outside US
      1. Bank of England
         1. Monetary Policy Committee
            1. Bank of England Gov'r
            2. 4 external econ. experts nominated by chancellor
            3. 2 members appointed by gov'r
            4. 2 deputy gov'rs
      2. Bank of Japan Law
         1. Policy Board
            1. Governor
            2. 2 deputy gov'rs
            3. 6 outside members
      3. Bank of Canada
      4. European Central Bank (ECB)
         1. 16 countries in European Monetary Union
         2. ECB Exec. Board
            1. 6 members work exclusively for bank
            2. VP & 4 others appointed by heads of state & gov't
            3. 8-yr non-renew. terms
         3. Gov'rs of Member Nat'l Banks = terms of at least 5 yrs