Tài chính doanh nghiệp - Chapter 12: Roles and services of the federal reserve và other central banks around the world

Chapter 12Roles and Services of The Federal Reserve & Other Central Banks Around The World Learning Objectives To explore the many roles and functions of the central banks around the world.To see how and why the Federal Reserve System came to be established as the U.S. central bank.To examine how the Federal Reserve System is organized to carry out the many tasks it must perform. Learning Objectives To discover how important central bank independence from the dictates of governments is in carrying out effective money and credit policy.To understand the concept of legal reserves and how the Federal Reserve System influences the level and growth of legal reserves and, ultimately, deposits and loans.IntroductionA central bank is a government agency that monitors the operation of its financial system and controls the growth of the nation’s money supply.Central banks are “bankers’ banks.” They communicate with commercial banks and securities dealers in carrying out their essential public policy functions.The U.S. central bank is the Federal Reserve System.The World’s Leading Central BanksThe Roles of Central BanksControl of the money supply, which is closely linked to economic activity and price inflationStabilizing the money and capital markets, by fostering their development and ensuring a stable flow of funds through themLender of last resort for financial institutions squeezed by severe liquidity pressuresSupervisor of the banking systemThe Roles of Central BanksMaintaining and improving the payments mechanism - a smoothly functioning and efficient payments mechanism is vital for business and commerceThe Goals of Central BankingCentral banking in the U.S. and in most other nations is directed toward the goals of:Achieving maximum sustainable output and employment; andPromoting stable prices.The recent emphasis has been on long-run price stability and a growing list of nations have set inflation-rate targets or target ranges.The Goals of Central BankingThrough its influence over interest rates and the growth of the money supply, the central bank is able to influence the economy’s progress toward each of the goals.However, the goals often conflict and trade-offs have to be accepted.The Channels Through Which Central Banks WorkPolicy toolsof the central bankVolume & growthof borrowing & spendingby the public on domestic & foreign consumer & capital goods & servicesEconomic goals:A stable price level and low inflationSustainable economic growthMaximum employmentCost & availability of creditSize & growthof the money supplyMarket valueof the public’s security holdingsCurrency exchange ratesPublic expectations regarding security prices, interest rates, currency prices, money supply & credit availabilityMarket interest ratesLevel & growth of reserves in the banking systemHistory of the Federal Reserve SystemThe U.S. was one of the last major nations in the Western hemisphere to permanently charter a central bank.U.S. public officials were hesitant to do so for fear that a central bank with great financial power will restrict the availability of credit.However, a series of crises plagued the U.S. financial system in the late 19th and early 20th centuries.Problems in the Early U.S. Banking SystemPrior to the Civil War, the states controlled the banking system and many did a poor job.The high failure rate among poorly capitalized and ill-managed banks resulted in substantial losses for unlucky depositors.The 1863 National Banking Act created a dual banking system, but competition between federal and state bank regulatory agencies sometimes led to actions detrimental to public interest.Problems in the Early U.S. Banking SystemThe new national bank notes proved to be unresponsive to the nation’s growing need for a money or cash medium.The process of clearing and collecting checks was also too slow and expensive, and many banks charged a check redemption fee.There were recurring liquidity crises too, when the massive sell-offs of bank-held securities led to panic selling by other investors.Creation of the Federal Reserve SystemThe Federal Reserve Act was signed in 1913. Twelve Federal Reserve banks were chartered and they opened for business as World War I began in Europe.The Early Structure of the Federal ReserveThe first Federal Reserve System was quite different from the Fed of today.The chief policy tool was the discount rate charged on loans of reserves to eligible banks, and each Reserve bank had the authority to set its own discount rate.The Federal Reserve banks were also given authority to issue their own paper notes to serve as a circulating currency.The Early Structure of the Federal ReserveHence, although a supervisory board of seven members had been set up in Washington, D.C., the regional Reserve banks possessed the essential monetary tools and made the key policy decisions during the Fed’s early years.Then slowly, economic, financial, and political forces combined to amend the original Federal Reserve Act and remake the character and methods of the central bank. Goals and Policy Tools of the FedThe Great Depression brought about a concentration of power within the Fed.The seven-member Board of Governors in Washington, D.C., became the central administrative and policymaking group.In addition, the Federal Open Market Committee was created to oversee the conduct of open market operations, which rapidly became the Fed’s main policy tool.How the Fed is Organized TodayBoard of Governors(7 members appointed by the president)3,200 member banksof the systemSuperviseManager of the System Open Market AccountSupervise12 Federal Reserve banks & 25 branch banks(reserve bank presidents appointed by Board of Governors)SuperviseFederal Open Market Committee(12 voting members)ServeServeHow the Fed is Organized TodayIn principle, the Board of Governors is independent of both legislative and executive branches of the federal government.This independence is supported by terms of office much longer than the president’s (up to 14 years), and by the fact that the Fed is self-supporting.How the Fed is Organized TodayHow the Fed is Organized TodayWhen the Federal Open Market Committee (FOMC) has reached a consensus on the appropriate future course for monetary policy, a directive is given to the manager of the System Open Market Account (SOMA)The SOMA manager is a vice president of the Federal Reserve Bank of New York.How the Fed is Organized TodayThere is a Federal Reserve bank in each of the twelve districts.Source: Board of Governors of the Federal Reserve SystemHow the Fed is Organized TodayEach Reserve bank houses a research division that studies regional economic and financial developments, and reports its findings to the Board of Governors and to the FOMC.The Reserve banks also provide the securities needed for open market sales, and take their pro rata share of security purchases made by the Federal Reserve System.How the Fed is Organized TodaySource: Board of Governors of the Federal Reserve SystemHow the Fed is Organized TodayThe member banks of the Federal Reserve System consist of national banks, which are required to join the system, and state-chartered banks that agree to conform to the Fed’s rules.At year-end 2000, there are 2,230 national banks and just under 1,000 state-chartered banks registered as members of the Federal Reserve System, compared to more than 5,000 nonmember banks.Roles of the Federal Reserve System TodayCollecting and clearing checks and other means of payment (through an electronic network known as the FEDWIRE)Issuing currency and coinMaintaining a sound banking and financial system, by serving as a lender of last resort (through the discount window of each Reserve bank) and by supervising member banksRoles of the Federal Reserve System TodayServing as the Federal government’s fiscal agent, by holding the Treasury’s checking account and by maintaining reasonable stability in the government securities marketProviding information to the public, through statistical releases and research reportsCarrying out monetary policy, through the use of various toolsThe Key Focus ofCentral Bank Monetary PolicyIn regulating money and credit conditions to strengthen the economy, most central banks target market interest rates.To impact market rates, central banks usually make use of their control over the volume of reserves available to the banking system.These reserves are the raw material out of which depository institutions create credit and cause the money supply to grow.The Key Focus ofCentral Bank Monetary PolicyThe total supply of reserves can be changedthrough open market operations,by making loans to depository institutions through the central bank’s discount window, andby changing the legal reserve requirements applicable to deposits held by depository institutions.Reserve CompositionLegal reserves in the U.S. consist of the amount of deposits each institution keeps with the Federal Reserve bank in its district plus the amount of currency and coin held in its vault. Total legal reserves = Required reserves + Excess reservesThe Deposit MultiplierAs a whole, the banking system can create more deposit money by using its excess reserves to make loans and purchase securities.The deposit multiplier indicates how many dollars of deposits can result from an injection of new excess reserves into the system.Transaction deposit multiplier = 1 . Reserve requirement on transaction depositsThe Deposit MultiplierMaximum volume of new deposits and loans = Deposit multiplier  Excess reservesIn the real world however, leakages of funds from the banking system greatly reduce the size of the deposit multiplier.The Deposit MultiplierRRD = the required legal reserve ratio for transaction (demand) accountsLA = the amount of additional currency and other liquid assets the public wishes to hold for each dollar of new transaction deposits they receiveEXR = the quantity of excess reserves depository institutions desire to hold for precautionary purposes out of each dollar of new transaction deposits.The Money MultiplierCentral bankers are usually more interested in a related concept known as the money multiplier, which defines the relationship between a measure of the money supply and the size of the total reserve base available to depository institutions.The Money MultiplierRecognizing the important link between currency and bank reserves, economists have developed the concept of the monetary base, which is simply the sum of legal reserves plus the amount of currency and coin held by the public.Markets on the NetBank of England at www.bankofengland.govBank of Japan at www.boj.ur.jpBoard of Governors of the Federal Reserve System at www.federalreserve.govCenter for the Study of Central Banks at www.law.nyu.edu/centralbankscenterEuropean Central Bank www.ecb.intFederal Open Market Committee at www.federalreserve.gov/fomcMarkets on the NetFederal Reserve Services at www.frbservices.orgFederal Reserve Bank of New York at www.ny.frb.orgFederal Reserve Releases at www.federalreserve.gov/releasesReserve Bank of New Zealand at www.rbnz.govt.nzChapter ReviewIntroduction to Central BankingThe Roles of Central Banks in the Economy and Financial SystemControl of the Money Supply to Avoid Damaging InflationStabilizing the Money and Capital MarketsLender of Last ResortSupervisor of the Banking System Maintaining and Improving the Payments MechanismChapter ReviewThe Goals and Channels of Central BankingCentral Banks’ GoalsChallenges in Achieving Central Bank GoalsThe Channels through which Central Banks WorkHistory of the Federal Reserve SystemProblems in the Early U.S. Banking SystemCreation of the Federal Reserve SystemThe Early Structure of the FedGoals and Policy Tools of the FedChapter ReviewHow the Fed is Organized TodayThe Board of GovernorsThe Federal Open Market CommitteeThe Federal Reserve BanksThe Member Banks of the Federal Reserve SystemChapter ReviewRoles of the Federal Reserve System TodayThe Clearing and Collection of Checks and Other Payments MediaIssuing Currency & Coin and Related ServicesMaintaining a Sound Banking and Financial SystemServing as the Federal Government’s Fiscal AgentProviding Information to the PublicCarrying Out Monetary PolicyChapter ReviewThe Key Focus of Central Bank Monetary Policy: Interest Rates, Reserves and MoneyReserve Composition and the Deposit & Money MultipliersThe Deposit MultiplierThe Money Multiplier