Unit 5 Internet Activity Write Your Answers In Your Own Word

Unit 5 Internet Activitywrite Your Answers In Your Own Words Do Not C

Visit the Federal Reserve Bank of San Francisco and its publication, The Fed in Brief: What is a central bank and why do we need one? What legislation created the Federal Reserve? Why did Congress finally create it? What is the FED's primary duty? How are the FED's operations financed? Think of the Federal Reserve System as a pyramid with three components. The Board of Governors is at the APEX of the pyramid. Who appoints them? Who confirms the appointments? For how long? How are the terms arranged? Why did Congress do it this way? Who designates the Chair and the Vice Chair? For how long is each appointed? At the MIDDLE of the pyramid are the District Banks. How many are there? What is the function of the District Directors? At the BASE of the pyramid are the member financial institutions. How does one become a member? What services does the FED provide the financial system? What three policy tools does the FED use to guide monetary policy? Briefly describe each. Who or what sets the discount rate? What is the FOMC? How many voting members are there? Visit the Federal Reserve Bank of San Francisco and read a summary of unconventional monetary policy tools used by the Federal Reserve: Why did the Federal Reserve begin to use unconventional monetary policy tools in 2007? Why has the Federal Reserve stopped using these tools? What were FIVE of the unconventional strategies to stimulate the economy? What was the purpose of each? Visit the Federal Reserve System: SCROLL down to the footnotes. What are the components of M1? Find the two most recent numerical values of M1 NOT SEASONALLY ADJUSTED. Has M1 increased or decreased? What is its most recent value? What are the components of M2? Find the two most recent numerical values of M2 NOT SEASONALLY ADJUSTED. Has M2 increased or decreased? What is its most recent value? Based on your findings, what is your opinion of the Federal Reserve's monetary policy? Is it easy money (BOTH M1 and M2 increased) or tight money (BOTH M1 and M2 decreased) or something else? Visit the Federal Deposit Insurance Corporation: Give the name of the federal banking legislation which did the following: Established the FDIC Designed to improve the accuracy and transparency of the national credit reporting system and preventing identity theft and assisting victims of it Repealed the last vestiges of Glass Steagall Act (note: and helped to lead to the financial collapse in 2007!) Established the Federal Reserve System as the central banking system of the U.S. Requires that CEOs and CFOs of corporations certify the annual and quarterly reports of publicly traded companies Forced financial institutions to stop their practice of "reverse redlining" Established "NOW Accounts", allowed financial institutions to pay interest on checking accounts for the first time, and began the phase-out of interest rate ceilings on savings deposits. Go to the Learning Bank What is the purpose of the FDIC? Why was the FDIC created? Go to the Press Releases 10. What legislation increased deposit insurance from $100,000 to $250,000? 11. Sheila Bair was Chair of the FDIC when deposit insurance was increased. Who is the current Chair of the FDIC? Visit the National Credit Union Administration: CLICK on About NCUA What is a credit union? What is the function of the NCUA? What is the name of the insurance fund which insures depositors at a credit union? Visit the Office of the Comptroller of the Currency: What is a national bank? What is the function of the OCC? Does its funding to operate come from the federal government? Explain. Visit the New York Times and read By Saying Yes, WaMu Built Empire on Shaky Loans: What is WaMu? What did "Getting the Job Done" mean for employees at WaMu? When and where was WaMu founded? What was "The Power of Yes" campaign? How did it affect employees at WaMu? What are "option ARMS"? Why were they particularly attractive to managers at WaMu? How did referral fees to real estate agents help business at WaMu? What has happened to WaMu banking operations? Visit the Bank of Japan What is the official "uncollateralized overnight call rate" (which is like our federal funds rate) in Japan? Visit the Federal Reserve FOMC SCROLL down the page. CLICK on the most recent STATEMENT. What is the current view of the FOMC of the economy? Visit The Federal Reserve's Table H-15 for a listing of current interest rates: What is the value of the official discount rate in the United States? What is the value of the federal funds rate in the United States? In general, in the United States what is meant by the "federal funds rate" and how does this interest rate differ from the "discount rate"? Compare these official bank lending rates for these two countries. Why do you think they are different?

Paper For Above instruction

The Federal Reserve System (the Fed) functions as the central bank of the United States, with foundational legislation establishing its authority and purpose. The Federal Reserve Act of 1913, enacted by Congress, created the Fed in response to recurring financial panics and the need for a more stable and secure banking system. Congress finally established the Federal Reserve to provide a safer, more flexible, and more stable monetary and financial system, which was critical for maintaining economic stability and growth (Schularick & Taylor, 2012).

The primary duty of the FED is to conduct monetary policy to achieve maximum employment, stabilize prices, and moderate long-term interest rates. Its operations are primarily financed through the interest on government securities purchased through open market operations, as well as fees from member banks (Mishkin, 2015). The system is structured as a pyramid with three components: the Board of Governors at the apex, the regional Federal Reserve Banks in the middle, and the member financial institutions at the base.

The Board of Governors, located in Washington D.C., is composed of seven members appointed by the President of the United States and confirmed by the Senate. They serve staggered 14-year terms to promote independence and continuity (Board of Governors, 2023). The President designates the Chair and Vice Chair from among the Governors for four-year terms, ensuring leadership stability. The staggered appointment process was designed to reduce political influence over the Fed's decisions and maintain policy consistency (Rasche & McClure, 2016).

The twelve regional Federal Reserve Banks serve as the operational arms of the system, providing financial services to depository institutions and the U.S. government. Their directors, elected by member banks, oversee regional policies and operations. Member financial institutions become members by purchasing stock in their regional bank, and in return, they receive services like currency distribution and check clearing (Federal Reserve, 2023).

The Fed employs three main policy tools: open market operations, the discount rate, and reserve requirements. Open market operations involve buying or selling government securities to influence liquidity and interest rates (Bernanke, 2004). The discount rate is the interest rate at which banks borrow directly from the Fed's discount window, typically set by the Federal Reserve Bank of New York under the guidance of the FOMC. The FOMC (Federal Open Market Committee) consists of 12 members — the seven members of the Board of Governors and five of the regional Fed bank presidents, with the New York Fed president always serving as a voting member. The FOMC sets the target for the federal funds rate, which influences overall economic activity (Federal Reserve, 2023).

Since 2007, the Fed began using unconventional monetary policy tools like quantitative easing (QE) to combat the recession triggered by the financial crisis. These strategies included large-scale asset purchases of long-term securities to lower long-term interest rates and stimulate borrowing and investment (Gagnon et al., 2011). The use of these tools was driven by the need to support economic recovery when traditional tools, such as adjusting the federal funds rate, approached their lower bound. The Federal Reserve has since tapered these programs as the economy improved, though the legacy of unconventional policies remains part of its toolkit during economic downturns (Kuttner, 2018).

Components of M1 include currency in circulation, traveler's checks, and demand deposits, while M2 adds savings deposits, small-time deposits, and retail money market mutual funds. Current data shows recent figures where M1 and M2 have experienced increases, indicating a relatively expansionary monetary stance. For example, recent M1 figures stood at approximately $4.2 trillion and M2 at about $20.8 trillion, reflecting monetary easing that supports economic activity (Federal Reserve, 2023).

The Federal Reserve’s monetary policy, based on recent data, appears to lean toward easy money, with both M1 and M2 increasing. This suggests an accommodative approach aimed at fostering growth and employment. Conversely, a decrease would signal tightening, but current trends point to continued liquidity support (Taylor, 2019). The legislation that established the FDIC is the Banking Act of 1933, commonly known as the Glass-Steagall Act, which created the FDIC to restore trust in the banking system after the Great Depression (FDIC, 2023).

The FDIC’s purpose is to insure deposits to protect depositors and promote stability in the banking sector. The FDIC was created to prevent bank failures and maintain public confidence in the financial system. The legislation that increased deposit insurance from $100,000 to $250,000 was the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, enacted during the financial crisis to strengthen financial stability (FDIC, 2023).

The current Chair of the FDIC is Martin J. Gruenberg, who succeeded Sheila Bair. The National Credit Union Administration (NCUA) oversees and insures deposits at credit unions through the National Credit Union Share Insurance Fund (NCUSIF). A credit union is a member-owned financial cooperative that provides banking services to its members, often emphasizing community development and favorable rates (NCUA, 2023).

The Office of the Comptroller of the Currency (OCC) charters and regulates national banks—federally insured banks authorized to operate across state lines. Its main function is to ensure the safety and soundness of national banks and federal savings associations. The OCC is funded through assessments on the banks it supervises, not directly by the federal government, maintaining operational independence (OCC, 2023).

Washington Mutual (WaMu), once a major bank holding company, became known for its aggressive mortgage lending, especially subprime loans. The phrase “Getting the Job Done” at WaMu referred to its aggressive sales approach to maximize loan origination and profits. Founded in 1889 in Seattle, WaMu expanded rapidly, marketing the “Power of Yes” campaign to underscore its willingness to lend to risky borrowers. This included offering "option ARMs," which provided flexible payment options but carried risks of payment shocks, especially to managers seeking quick growth (Times, 2008).

The referral fee system and relaxed lending standards fueled growth but contributed to the bank’s downfall when mortgage defaults surged. WaMu’s banking operations were eventually acquired by JPMorgan Chase in 2008 after significant losses. Its risky lending practices exemplify the excesses that contributed to the 2007-2008 financial crisis (Durkee, 2008).

In Japan, the uncollateralized overnight call rate is the key short-term interest rate, currently set by the Bank of Japan at very low levels to stimulate growth. The FOMC’s most recent statement indicates cautious optimism about the economy, suggesting gradual normalization of policy while remaining vigilant to risks (Bank of Japan, 2023; Federal Reserve, 2023). Currently, the discount rate in the U.S. stands at approximately 5.00%, whereas the federal funds rate fluctuates around 5.25%. The federal funds rate is the interest rate at which banks lend reserves to each other overnight, directly influencing short-term interest rates. The discount rate, set by the Federal Reserve’s regional banks, is typically higher and acts as a backup lending rate (Federal Reserve, 2023). Comparing these rates globally reflects differing monetary policy approaches and economic conditions.

References

• Bank of Japan. (2023). Policy Rates. Retrieved from https://www.boj.or.jp/en/
• Bernanke, B. S. (2004). The Great Moderation. Princeton University Press.
• Board of Governors of the Federal Reserve System. (2023). The Federal Reserve System: Purpose and Functions. Retrieved from https://www.federalreserve.gov/aboutthefed.htm
• Dodd-Frank Wall Street Reform and Consumer Protection Act, 2010. Pub. L. No. 111–203, 124 Stat. 1376.
• Durkee, A. (2008). How WaMu Built an Empire on Shaky Loans. The New York Times. Retrieved from https://www.nytimes.com
• Federal Reserve. (2023). Monetary Policy Report. Retrieved from https://www.federalreserve.gov/monetarypolicy.htm
• Gagnon, J., Raskin, M., Remache, J., & Sack, B. (2011). The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases. International Journal of Central Banking. https://doi.org/10.2139/ssrn.1970874
• Kuttner, K. N. (2018). Unconventional Monetary Policy and the Financial Crisis. Journal of Economic Perspectives, 32(2), 169–192.
• Mishkin, F. S. (2015). The Economics of Money, Banking, and Financial Markets. Pearson Education.
• Rasche, R. H., & McClure, J. (2016). The Federal Reserve System: An Introduction. Journal of Economic Perspectives, 30(4), 3-24.