Intro To The Federal Reserve System

Photo by Alex Bierwagen on Unsplash

Origins of the Federal Reserve: The Panic of 1907

Heinze’s Plan

Weakening Depositor Confidence and Bank Runs

Trust Companies

Liquidity Crisis

Photo by Wikimedia Commons on The Nation: The Panic of 1907 on October 22, 1907

Regional Banks

FOMC

  • Moderating all bank institutions to ensure customers are protected with their money
  • Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation’s payments systems
  • Managing monetary policy, meaning changing the federal funds rate, which influences monetary and credit conditions across the nation
  • Maintaining the stability of the financial system by containing problems that may arise in financial markets
Photo by Federal Reserve

Federal Funds Rate

A Guide to Interest Rate Hikes and Cuts

  • When the Fed cuts interest rates, banks loan money to each other at a lower, cheaper rate. That leads banks to issue cheaper loans, which leads to people taking out more loans. That results in those loans, of which there are more of, being used for a greater amount of spending. That spending leads to more business growth. That ultimately affects expectations of business growth and often leads to a more optimistic view that often contributes to rising stock and bond prices.
  • When the Fed hikes interest rates, banks loan money to each other at a higher, more expensive rate. That leads banks to issue more expensive loans, which leads to people taking out fewer loans. That results in those loans, of which there are fewer of, being used for a smaller amount of spending. That spending leads to less business growth. That ultimately affects expectations of business growth and often leads to a more pessimistic view that often contributes to declining stock and bond prices.

Key Takeaways

  • The Federal Reserve System is considered the national bank of the United States.
  • The FRS gives the nation a protected, adaptable, and stable monetary and financial system.
  • Referred to just as the Fed, it is involved 12 regional Federal Reserve Banks that are each liable for a particular geographic territory of the U.S.
  • The Fed's primary obligations incorporate directing monetary policy, administering and controlling banks, keeping up financial sustainability, and providing bank services.

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student w/ a passion for finance and other things

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