THE ROLE OF FEDERAL RESERVE BANK IN THE US PAYMENT SYSTEM Currency and Coin • • • • Responsible for distributing currency and coin to depository institutions, and ensuring that enough currency and coin are in circulation to meet public demand. New currency and coin are shipped to Reserve Banks and branches across the country. When people need additional cash, a depository institution may order more currency and coin from its Reserve Bank or branch. Institutions pay for these orders by drawing down their Federal Reserve account balances. Checks • • Reserve Banks also provide check collection services to depository institutions.
Alan Greenspan was first appointed by President Ronald Reagan in 1987 and retired under President Bush in 2006. The chairman of the Federal Reserve is appointed every four years by the president, and then the Senate. The Federal Reserve is in charge of the financial system in the United States, and is independent part of the government that is not influenced by politics. The duties of the Federal Reserve are to preserve a sound banking system, preserve the power of dollar, print money if needed, and to regulate interest rate policies. Alan Greenspan had massive influence on the economy when he was the chairman of the reserve he set the tone of the economy when the Federal Reserve met, and that was mostly done by regulating interest rates.
In helping to formulate the President’s spending plans, the RMOs assess the effectiveness of agency programs, policies, and procedures, weigh competing funding demands within and among agencies, and help work with agencies to set funding priorities. Once the Budget is enacted, RMOs are responsible for the execution of Federal budgetary policies and provide ongoing policy and management guidance to Federal agencies. As part of these and other responsibilities, the RMOs provide analysis and evaluation, oversee implementation of policy options, and support government-wide management initiatives. (The White House, n.d., para.
GOLDMAN SACHS Goldman Sachs Group, Inc. is a premiere global bank holding company with strong interests in investment banking, securities trading, and investment management. The headquarters of this bank holding company are in Lower Manhattan, New York and Jersey City, New Jersey. The group maintains offices in major financial districts around the world, which serve corporations, governments, and wealthy families as well as financial advisors and money managers. Clients gain a host of services, which include merger and acquisition advice, underwriting services, asset management, and engagement in proprietary trading and private equity deals. The U.S. treasury securities market recognizes Goldman as a primary dealer, a special role granted to seventeen bank holding companies in 2008.
(Cleveland and Huertas, vii) Citibank is one of those financial institutions that fulfills the financial needs and wants of the entire nation; it has been doing this since its foundation. Adapting to the challenges of society, this bank is one of the few private institutions that exists and successfully survives since 1812. According to Alfred Chandler, “The history of Citibank is a landmark in the writings of business history” (Cleveland and Huertas, v). Citibank was founded as a mercantile bank in 1812; in 1836 it was the tenth largest commercial bank in New York. Later on, it became the largest bank in the nation by 1890, and by 1920 it was one of the most influential commercial and investment banks that would later diversify into a wide variety of financial services and activities.
Assignment 1.1 – Business type and ownership The two contrasting businesses I have chosen: * NatWest - Building society bank [National Company with slight international affairs] NatWest NatWest also known as National Westminster Bank is the largest retail and commercial bank in the UK. It is a business which supplies monies to the public in terms of borrowing, it also allows clients to store their own money in a safe bank account. Additionally NatWest also allows business accounts to be created for any big or small businesses. In 2008 NatWest suffered a £20 billion bail-out by the public which made taxpayers have an 84% shareholding in the bank. Type of Business NatWest is classified as a Plc (Public limited Company) because: * It is a bank building society which specialises in property mortgages and public loans * The shares of the bank is freely sold to the public hence why it is on the stock exchange * The business uses taxpayers money to be bailed out hence why it is a publicly owned bank Although it is a public bank, it is also a profit making business.
When examining the balance sheet of a typical company you would see categories such as inventory, accounts payable, or accounts receivable, in a commercial bank balance sheet under assets you would find areas like loans and investments, and under liabilities you would find categories such as deposits and borrowings. This is a large factor in which separates the final statements of commercial banks and the final statements of your everyday company. Commercial banks accept various types of deposits from their clients; they then provide those funds to borrowers such as homeowners and small businesses, in which they can receive interest on these loans. They gain profit from the difference between the rate they pay for funds and the rate that they receive from the borrowers. The goal of the bank is to create a flow of funds so from the many deposits, the bank can lend out to a wide variety of borrowers and this creates the flow of funds, which is crucial in the banking system.
banking organizations. It supervises State-chartered banks that are members of the System, all bank holding companies, and Edge Act and agreement corporations (corporations chartered to engage in international banking). The Board has jurisdiction over the admission of State banks and trust companies to membership in the Federal Reserve System, the termination of membership of such banks, the establishment of branches by such banks, and the approval of bank mergers and consolidations where the resulting institution will be a State member bank. It receives copies of condition reports submitted to the Federal Reserve Banks. It has power to examine all member banks and the affiliates of member banks and to require condition reports from them.
It achieves this through a process known as the transmission mechanism, which occurs in a number of distinct stages: - Purchasing and sale of government bonds in the STMM to influence the cash rate - Changes in the cash rate influence other interest rates, particularly short term securities, such as bank bills. In this way, changes in monetary policy are usually translated into the rates that banks charge for lending. - These lending rates then influence the decisions of businesses and household to borrow and spend, as seen in Figure 1, providing a key channel for transmitting monetary policy to the real economy. 3. Explain the possible impacts of loose monetary policy on the value of the exchange rate and on economic growth in Australia The effect of an expansionary monetary policy is to lower the exchange rate, weaken the financial
1.The rationale of the treasury in pressuring all eight large banks to accept capital injection is to take control of these banks. In addition, the treasury can appease the public by providing liquidity to the banks. 2. Lewis should accept the preferred stock from the U.S. Treasury under the CPP program. On January 16, 2009, Treasury made an additional investment in Bank of America by acquiring $20 billion in newly issued senior preferred stock under the TIP.