This is the interest rate that banks lend their balances on at the Federal Reserve to other banks. It exercises this control by influencing the demand for and supply of these balances through the following means:
Open market operations -- the purchase or sale of securities, primarily U.S. Treasury securities, in the open market to influence the level of balances that depository institutions hold at the Federal Reserve anks (The oard's Publications Committee, 2005).
Reserve requirements -- requirements regarding the percentage of certain deposits that depository institutions must hold in reserve in the form of cash or in an account at a Federal Reserve ank.
Contractual clearing balances -- an amount that a depository institu-tion agrees to hold at its Federal Reserve ank in addition to any required reserve balance.
Discount window lending -- extensions of credit to depository in-stitutions made through the primary, secondary, or seasonal lending programs (The oard's Publications Committee,…...
mlaBibliography
Federal Reserve Bank of San Francisco. (n.d.). The federal reserve system is the central bank of the United States. Retrieved May 18, 2009, from Federal Reserve Bank of San Francisco: http://www.frbsf.org/publications/federalreserve/fedinbrief/central.html
Obringer, L.A. (2002, May 02). How the fed works . Retrieved May 18, 2009, from HowStuffWorks.com: http://money.howstuffworks.com/fed2.htm
The Board's Publications Committee. (2005). The federal reserve system purposes & functions. Washington, D.C.: Board of Governors of the Federal Reserve System.
The structure of the federal reserve system . (2003, July 8). Retrieved May 18, 2009, from federalreserve.gov:
" (Structure of the Federal eserve System)
The 12 Federal eserve Banks extend banking service to the depository institutions and also to the federal government. To the financial institutions it takes the responsibility of maintaining reserve and clearing out accounts and entails various payment services incorporating checks, electronically transferring funds and circulating and receiving coins and currency notes. As the banker of the Federal Government they function as fiscal agents. They maintain the Treasury Department's transaction account; they pay treasury checks; enable to process electronic payments and issue transfer and redeem U.S. government securities. (eserve Bank Services)
The functions of Federal eserve start with the formulation of the Monetary Policy in accordance with the needs of the national economy. The Federal eserve System provides three basic tools for conducting the monetary policy such as open market operations, discount rate and reserve requirements. The Open Market Operations is used as the most forcible…...
mlaReferences
Federal Reserve Bank of Minneapolis: Historical Overview. Retrieved at Accessed 11 November, 2005http://minneapolisfed.org/info/mpls/history/overview.cfm .
Ferguson, Robert. W. The Evolution of Central Banking in the United States. Retrieved at Accessed 11 November, 2005http://www.federalreserve.gov /boarddocs/speeches/2005/20050427/default.htm.
Frequently asked Questions: Federal Reserve System. Retrieved at Accessed 11 November, 2005http://www.richmondfed.org/faqs/index.cfm?faq=Federal%20Reserve%20System .
How the Fed works. Retrieved at Accessed 11 November, 2005http://www.clevelandfed.org/about/threefrs.htm .
Federal eserve System is.
The Federal eserve System
The Federal eserve serves as the central bank of the United States. It was founded by the Congress in 1913 to serve the function of provide the nation with a secure and committed monetary and financial system.
Today the Federal eserve holds the responsibilities in four areas: (1) conducting the nation's monetary policy; (2) supervising and regulating banking institutions and protecting the credit rights of consumers; (3) maintaining the stability of the financial system; and (4) providing certain financial services to the U.S. government, the public, financial institutions, and foreign official institutions.
The Federal eserve System is controlled by the Board of Governors of the Federal eserve System who formulate the initial margin requirements under egulations T, U, and X. Margin loan increases and decrease in aggregate value and relative to market capitalization, affect margin requirements instrumentally affecting the prices of common stocks. Proponents of…...
mlaReferences
Assess the Effectiveness of the Federal Statistical System in Providing Relevant, Reliable, and Timely Information that Meets Federal Program Needs, available at accessed on: October 28, 2003http://www.gao.gov/sp/html/strobj326.html ,
Board of Governors of the Federal Reserve System, available at accessed on: October 28, 2003http://www.federalreserve.gov ,
Federal Reserve Bank of Minneapolis -- the Region -- the Future of Rural America (June 1995), available at accessed on: October 28, 2003http://minneapolisfed.org/pubs/region/95-06/reg956b.cfm ,
Margin requirements, margin loans, and margin rates: practice and principles, available at accessed on: October 28, 2003http://netec.mcc.ac.uk/WoPEc/data/Articles/fipfedbney:2000:i:sep:p:19-44.html,
Their basis of criticism is that it had very expansionary monetary policy in the early days that gave room for misallocation of various capital resources. This lead to various undesirable economic scenarios such as the support of a massive stock price bubble. It has been argued that even though the Federal reserve did not cause the Great depression, it mitigated it through the unnecessary contraction of the money supply which was not necessary at that time since the markets by that time needed to be liquidated (Friedman, 1985).He argued that the Fed should be overhaulead and then replaced by a specialized computer system whose role would be to set rates that are derived from the standards econometrics. However, the Australian School economists have argued that the Fed's manipulation of the supply of money in order to put a halt on "gold flight" away from England lead to serious financial…...
mlaReferences
Friedman (1985), "The Case for Overhauling the Federal Reserve," Challenge magazine article
Taylor, John B. (2007). "Housing and Monetary Policy," NBER Working Paper Series 13682.
Temin, P (1976).Did Monetary Forces Cause the Great Depression? New York: W.W. Norton,
The overall credit conditions have for example been severely affected by housing market and other economic trends. This has been exacerbated by energy and commodity price increases, which have affected household buying power negatively.
Concomitantly, the inflation rate has remained high at nearly 3.5% for the first five months of 2008. Chairman ernanke also noted that the trend in rising prices was likely to further increase inflation. Furthermore, oil production has risen only slightly, despite sharp price increases. This indicates tighter government control over oil reserves.
The declining value of the dollar in foreign markets also seems to be a matter of concern for congress that both result from and in turn affect the volatility of oil prices. There does not seem to be a particular emphasis on any single aspect of inflation or the recession. Instead, the general consensus appears to be that all the elements within the economic system…...
mlaBibliography
Bernanke, Ben S. Testimony: Semiannual Monetary Policy Report to the Congress. Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate. July 15, 2008. http://www.federalreserve.gov /newsevents/testimony/bernanke20080715a.htm
S. growth will proceed at a crawl in 2008, which will provide little comfort for the dollar" and most certainly call for intervention again by the Fed. "In some fashion the dollar will continue to decline," according to Adnan Akant, a specialist in currency at Fischer Francis Trees & atts, money managers in New York City. For investors, Slater continues, having a weaker dollar offers choices; to wit, if you believe the decline has further to go before it bottoms out, buy stocks in currencies that are hot right now. If the dollar weakens, the returns from those stocks will be more valuable when they are converted back into dollars, Slater assures.
orks Cited
Baker, Gerald. (2007, November 25). Beauty deals a beastly blow to the U.S. Dollar. The Times. Johannesburg South Africa. Retrieved Nov. 24, 2007, at http://www.thetimes.co.za.
Federal Reserve System. (2007). Purposes & Functions. Retrieved Nov. 24, 2007, at http://www.federalreserve.gov/pf/pdf/pf_1.pdf.
Slater, Joanna.…...
mlaWorks Cited
Baker, Gerald. (2007, November 25). Beauty deals a beastly blow to the U.S. Dollar. The Times. Johannesburg South Africa. Retrieved Nov. 24, 2007, at http://www.thetimes.co.za .
Federal Reserve System. (2007). Purposes & Functions. Retrieved Nov. 24, 2007, at http://www.federalreserve.gov /pf/pdf/pf_1.pdf.
Slater, Joanna. (2007, November 24.). Falling Dollar Takes Investors for a Ride. The Wall
Street Journal Sunday, p. D3.
Collateralized loans will have demonstrably greater security than uncollateralized loans.
While these measures seem sound and will hopefully ensure that no institution will be penalized for making the types of loans that are necessary for the international economy to remain functional, much still needs to be done in exercising oversight over the practices that lead to the failure of Lehman Brothers in the first place. A lack of transparency in financial dealings remains a concern, and there are still a variety of financial instruments that are poorly regulated -- moreover, the precipitous drop in interest rates orchestrated by the Fed to stimulate the economy could give rise to yet another crisis of over-borrowing and widespread consumer debt. Greater regulation and oversight is necessary as well as greater insurance of debt.
eference
Press release. (2008, December 18). The Federal eserve. etrieved November 18, 2009
http://www.federalreserve.gov/newsevents/press/other/20081219a.htm...
mlaReference
Press release. (2008, December 18). The Federal Reserve. Retrieved November 18, 2009
http://www.federalreserve.gov /newsevents/press/other/20081219a.htm
Federal eserve Operations in the United States
Functions of the Federal System in Control of Money Supply
The discount rate, according to the federal system, is the interest rate, which the Federal eserve imposes on the loans it gives to Federal Banks that are troubled and need financial support. Processing of lending to the banks is done through the 'discount window', which in most cases is controlled by the eserve Banks.
Factors influencing Federal eserve to adjust discount rates
Discount rates provided by the Federal eserve to the borrowing banks is in most cases used as tools in controlling the amount of money supply in the country's economy (Wiedemer & Baker, 2012). Currently, the Federal eserve (Fed), uses the discount rate strategy widely and frequently, because of the nature of the tool, which is simple to implement and convenient for the public. In most cases, two factors will lead to the adjustment of the…...
mlaReferences
Delaney, P.R. & Whittington, O.R. (2012) Wiley CPA Exam Review 2012, Business Environments and Concepts. Hoboken, NJ: John Wiley and Sons.
Mankiw, N.G. (2011) Principles of Macroeconomics. Mason, OH: Cengage Learning.
Mastrianna, F.V. (2009) Basic Economics. Mason, OH: Cengage Learning.
Reilly, F.K. & Brown, K.C. (2011) Investment Analysis and Portfolio Management (With Thomson One-Business School Edition and Stock-Trak Coupon). Mason, OH: Cengage learning.
Federal eserve
The current state of the United States economy is not encouraging. Even though there has been false hope about it, the chances are that it will hardly last for long. The long-term trends that are negatively impacting the economy and financial system are showing no signs of reducing. As each day passes, the economic foundations of the country continue to crumble. The debt of the country has increased and the population is consuming more wealth than what is produced. In addition, unemployment and inflation levels are high coupled with slow economic growth, which remain the main features of the U.S. economy. The Federal eserve is the key to solving the current economic situation that is experienced in the U.S. This is because it is the central bank of the United States and the operations of every bank are monitored by the Federal eserve (Hafer, 2005). In 1913, the Congress…...
mlaReferences
Axilrod, S. (2009). Inside the Fed: Monetary Policy and its Management, Martin through Greenspan to Bernanke, New York: MIT Press.
Hafer, R. (2005). The Federal Reserve System: An Encyclopedia, Westport: Greenwood Publishing Group.
Mankiw, G. (2011). Principles of Economics, New York: Cengage Learning
Meltzer, A. (2010). A history of the Federal Reserve, Volume 2, New York: University of Chicago Press.
The Federal reserve realized the big negative impact of MBS and announced a 600 billion program in November 2008 to purchase these securities and this helped to bring back some liquidity into the market. In March 2009, it added another $750 billion to bring the total to $1.25 trillion.
The Fed has the power to create or print more money to increase money supply in the market and this is exactly what it did. Though the downside of this measure is inflation and an increased balance sheet for the Fed, Ben Bernanke, the chairman of the Federal eserve felt it was imperative to boost the economy. Through this tool, the Fed generated money and provided it to large corporations that depend on loans to ensure that their growth was not drastically affected. The Fed executed this policy through the lending institutions to increase economic activity and the dependent employment numbers.
It announced…...
mlaReferences
Spriggs, William; (June 2006). Getting to Know the Nation's Central Bank. Crisis. Vol 113(4). pp17-19.
Board of Governors of the Federal Reserve System. (2012). Retrieved from: federalreserve.org
Bureau of Labor Statistics. (2012). Retrieved from: http://www.bls.gov
No author. (June 8, 2009). Ben Bernanke's Greatest Challenge. CBS News. Retrieved from: http://www.cbsnews.com/stories/2009/03/12/60minutes/main4862191.shtml
Federal eserve Bank
Financial services as an industry has progressed to become one of the widely transforming sectors of the global economy, having significant changes in information transference and processing, innovation in terms of commodities and processes, and rapid competition among the financial institutions -- among themselves and also among their several customers. The industry and its part in the transformations in the economy show that the supervising and regulatory structure also needs to be reevaluated periodically. The aim of bank regulation is mostly the same -- to attain maximum static and dynamic efficiency levels in the midst of a politically and economically permissible framework which is stable and equal. However the profits are always associated with a cost by means of stability and equity. A more stable and equal financial system usually need sacrifices with regard to efficiency. (Saunders, p. 3)
A properly functioning, effective banking system is necessary for the…...
mlaReferences
Federal Reserve System. Encyclopedia Article. Accessed on 7 May, 2005http://encarta.msn.com/encyclopedia_761574452/Federal_Reserve_System.html
FR 2644- Weekly Report of Selected Assets. Accessed on 7 May, 2005http://www.chicagofed.org/banking_information/financial_institute_reports_fr2644_instructions_and_worksheets.cfm
FR 2900 Commercial Banks -- the Federal Reserve Board. WhichCategory=4 Accessed on 7 May, 2005http://www.federalreserve.gov /boarddocs/reportforms/ReportDetail.cfm?WhichFormId=FR_2900cb&
Garbade, Kenneth D. Recent Innovations in Treasury Cash Management. Federal Reserve Bank of New York. Current Issues in Economics and Finance. Vol: 10; No; 11; pp: 2-11.
Federal Reserve oard [...] history of the oard, and what its purpose is in the United States. The Federal Reserve oard is an integral part of the Federal Reserve System of the United States, and it creates and maintains much of the monitorial policy of the nation. The board members are responsible for the monetary health and security of the country, and so shoulder a huge responsibility to the country and to the people.
THE EARLY FED
The Federal Reserve oard is the governing element of the Federal Reserve System, which an act of Congress established on December 23, 1913. The board contains seven members, and is referred to as the "oard of Governors." The seven board members are:
Appointed by the President and confirmed by the Senate to serve 14-year terms of office. Members may serve only one full term, but a member who has been appointed to complete an unexpired…...
mlaBibliography
Author not Available. "The Structure of the Federal Reserve System." FederalReserve.gov. 8 July 2003. 25 Aug. 2003.
Banking System
The United States banking system has been around for quite a while. Indeed, the Bank of New York was founded in 1784, a scant eight years after the United States was created. The banking system has two major functions. First, they operate an overall payments system. Second, they facilitate and allow for financial intermediation. There was no formal financial system in the colonial states prior to the formation of the United States. The modern form of the banking system has only really been around since the early 1900's. The nascent form of the banks as they exist today was created by Alexander Hamilton. As of the inauguration of George Washington in 1789, only three banks existed in all of the colonies. Generally speaking, banks are typically financial institutions that are chartered and regulated mostly by the state in which the bank or banks operate. The banking system of the…...
mlaReferences
Sylla, R. (2016). The U.S. Banking System: Origin, Development, and Regulation -- The Gilder
Lehrman Institute of American History. Gilderlehrman.org. Retrieved 19 April 2016,
Utt, R. (2008). The Subprime Mortgage Market Collapse: A Primer on the Causes and Possible
ather than propping up "bad blood" and allowing the "illusion" of wealth to continue to be fostered, the Federal eserve should allow the market to flush out the "bad blood" and operate the way it is intended.
Conclusion
In conclusion, the good that the Federal eserve does is to monitor economic policy, encourage maximum employment and long-term stability. The way it does so, however, especially in times of crisis such as the world is currently experiencing is highly criticized by economists who do not support managerial decisions made by Bernanke and others. As on Paul states, the Federal eserve could better itself by putting an end to fractional reserve banking and allowing institutions, which are filled with bad debt, to collapse rather than continuing to prop them up at taxpayers' expense. Doing so only helps bring down the value of the dollar, which it is supposed to protect.
eference List
Halloran, M. (2009).…...
mlaReference List
Halloran, M. (2009). Systemic Risks and the Bear Stearns Crisis. The Road Ahead for the Fed. CA: Hoover Institution Press.
Kohn, D. (2009). Monetary Policy in the Financial Crisis. The Road Ahead for the Fed.
CA: Hoover Institution Press.
Mission. (2009). Federal Reserve. Retrieved from http://www.federalreserve.gov /aboutthefed/mission.htm
Federal Reserve Policies 2000-
The first decade of the 21st century saw the U.S. economy on a peripatetic through tumultuous events, euphoric highs, and abysmal lows. The ten-year window highlighted three periods: 2000-2004, 2004-2007, and 2007-2010 in which the Federal Reserve actively utilized their policy levers to achieve their dual policy mandate of full employment and low inflation. The Fed's policy bag includes: the Fed funds rate, open market operations, discount rate, reserve requirements, and margin rates all of which were utilized during these three periods to achieve the ostensible goals of Fed policy. t is worth noting that in each of the three periods the Fed responded to economic conditions which they perceived to be harbingers of either inflationary pressures or anemic GDP and employment growth.
2000-2004
On March 10, 2000 the NASDAQ composite, a stock index representative of high flying dot-com companies, peaked at 5048 (Zarroli, J. March 10, 2010). From…...
mlaIt is far too easy to be a Monday morning quarterback in regards to Fed policy and its role in igniting the financial crisis of 2008-2010, yet economists and pundits nevertheless look to the Fed as an easy target for the deleterious recession. One of the expected effects of monetary easing through open market operations of bond purchases, low Fed funds rates, and low discount rates is that credit in the banking system has a mellifluous flow which allows for greater lending to business and consumers. It is not surprising then that mortgage lending boomed in the years 2000-2004 with Fed funds rate declining throughout the period and mortgage rates at multi-decade lows. What is surprising however is the extent to which housing values skyrocketed from 2000-2007?
"From 2000 through 2006, national home prices rose by 88.7%, far more than the 17.5% gain in the consumer price index or the paltry 1% rise in median household income" (Siegel, J. October 27, 2009).
While low rates certainly did contribute to the boom in housing, the greater cause of the home price bubble growth and implosion which the country is still feeling the effects of, was Freddie, Fannie, low underwriting standards, NINJA products, and no down payments. The housing bubble burst in 2007 some three years after the Fed started raising the Fed funds rate; as such the logic of economists such as John Taylor is confusing at
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