United States Federal Reserve System.
Your boss has chosen you to give a presentation to a number of foreign officials regarding the United States Federal Reserve System. These officials are very interested in doing business in the United States, but they would like to learn more about the Federal Reserve and how it operates. What are the factors that would influence the Federal Reserve in adjusting the discount rate? How does the discount rate affect the decisions of banks in setting their specific interest rates? How does monetary policy aim to avoid inflation? How does monetary policy control the money supply? How does a monetary stimulus program (through the money multiplier) affect the money supply? Currently, what indictors are evident that there is too much or too little money within the economy? How is monetary policy aiming to adjust this?
The Federal Reserve System is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the monetary system in order to alleviate financial crises.
A network of 12 Federal Reserve Banks and 24 branches make up the Federal Reserve System under the general oversight of the Board of Governors. Reserve Banks are the operating arms of the central bank.
Each of the 12 Reserve Banks serves its region of the country, and all but three have other offices within their Districts to help provide services to depository institutions and the public. The Banks are named after the locations of their headquarters – Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
The Reserve Banks serve banks, the U.S. Treasury, and, indirectly, the public. A Reserve Bank is often called a “banker’s bank,” storing currency and coin, and processing checks and electronic payments. Reserve Banks also supervise commercial banks in their regions. As the bank for the U.S. government, Reserve Banks handle the Treasury’s payments, sell government securities and assist with the Treasury’s cash management and investment activities. Reserve Banks conduct research on regional, national and international economic issues. Research plays a critical role in bringing broad economic perspectives to the national policymaking arena and supports Reserve Bank presidents who all attend meetings of the Federal Open Market Committee (FOMC).
Each Reserve Bank’s board of directors oversees the management and activities of the District bank. Reflecting the diverse interests of each District, these directors contribute local business experience, community involvement and leadership. The board imparts a private-sector perspective to the Reserve Bank. Each board appoints the president and first vice president of the Reserve Bank, subject to the approval of the Board of Governors.
All member banks hold stock in Reserve Banks and receive dividends. Unlike stockholders in a public company, banks cannot sell or trade their Fed stock. Reserve Banks interact directly with banks in their Districts through examinations and financial services and bring important regional perspectives that help the entire Federal Reserve System do its job more effectively.