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. Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System.
Monetary policy of The United States concerns those policies related to the minting & printing of money, policies governing the legal exchange of currency, demand deposits, the money supply, etc. In the United States, the central bank, The Federal Reserve System, colloquially known as "The Fed" is the monetary authority.
A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve Act of 1913. The banks are jointly responsible for implementing the monetary policy set forth by the Federal Open Market Committee, and are divided as follows:
Bloomberg L.P. is a privately held financial, software, data, and media company headquartered in Midtown Manhattan, New York City. It was co-founded by Michael Bloomberg in 1981, with Thomas Secunda, Duncan MacMillan, Charles Zegar, and a 12% ownership investment by Bank of America through their brokerage subsidiary Merrill Lynch.
The Federal Open Market Committee (FOMC), a committee within the Federal Reserve System, is charged under United States law with overseeing the nation's open market operations. This Federal Reserve committee makes key decisions about interest rates and the growth of the United States money supply. Under the terms of the original Federal Reserve Act, each of the Federal Reserve banks was authorized to buy and sell in the open market bonds and short term obligations of the United States Government, bank acceptances, cable transfers, and bills of exchange. Hence, the reserve banks were at times bidding against each other in the open market. In 1922, an informal committee was established to execute purchases and sales. The Banking Act of 1933 formed an official FOMC.
In the United States, the federal funds rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis. Reserve balances are amounts held at the Federal Reserve to maintain depository institutions' reserve requirements. Institutions with surplus balances in their accounts lend those balances to institutions in need of larger balances. The federal funds rate is an important benchmark in financial markets.
The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.
The Federal Reserve System has faced various criticisms since it was authorized in 1913. Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz criticized the Fed's response to the Wall Street Crash of 1929 arguing that it greatly exacerbated the Great Depression. More recent prominent critics include former Congressman Ron Paul.
The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.
Bank rate, also known as discount rate in American English, is the rate of interest which a central bank charges on its loans and advances to a commercial bank. The bank rate is known by a number of different terms depending on the country, and has changed over time in some countries as the mechanisms used to manage the rate have changed.
The Term Auction Facility (TAF) was a temporary program managed by the United States Federal Reserve designed to "address elevated pressures in short-term funding markets." Under the program the Fed auctions collateralized loans with terms of 28 and 84 days to depository institutions that are "in generally sound financial condition" and "are expected to remain so over the terms of TAF loans." Eligible collateral is the same as that accepted for discount window loans and includes a wide range of financial assets. The program was instituted in December 2007 in response to problems associated with the subprime mortgage crisis and was motivated by a desire to address a widening spread between interest rates on overnight and term interbank lending, indicating a retreat from risk-taking by banks. The action was in coordination with simultaneous and similar initiatives undertaken by the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank.
The shadow banking system is a term for the collection of non-bank financial intermediaries (NBFIs) that provide services similar to traditional commercial banks but outside normal banking regulations. Examples of NBFIs include hedge funds, insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations. The phrase "shadow banking" is regarded by some as pejorative, and the term "market-based finance" has been proposed as an alternative.
Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Apart from the bank regulatory agencies the U.S. maintains separate securities, commodities, and insurance regulatory agencies at the federal and state level, unlike Japan and the United Kingdom. Bank examiners are generally employed to supervise banks and to ensure compliance with regulations.
The U.S. central banking system, the Federal Reserve, in partnership with central banks around the world, took several steps to address the subprime mortgage crisis. Federal Reserve Chairman Ben Bernanke stated in early 2008: "Broadly, the Federal Reserve’s response has followed two tracks: efforts to support market liquidity and functioning and the pursuit of our macroeconomic objectives through monetary policy." A 2011 study by the Government Accountability Office found that "on numerous occasions in 2008 and 2009, the Federal Reserve Board invoked emergency authority under the Federal Reserve Act of 1913 to authorize new broad-based programs and financial assistance to individual institutions to stabilize financial markets. Loans outstanding for the emergency programs peaked at more than $1 trillion in late 2008."
James Mark Pittman was a financial journalist covering corporate finance and derivative markets. He was awarded several prestigious journalism awards, the Gerald Loeb Award, the George Polk Award, a New York Press Club award, the Hillman Prize and several New York Associated Press awards.
Craig Torres is an American financial journalist, and reporter for Bloomberg News in Washington, D.C.
The Clearing House is a banking association and payments company owned by the largest commercial banks in the United States. The Clearing House is the parent organization of The Clearing House Payments Company L.L.C., which owns and operates core payments system infrastructure in the United States, including ACH, wire payments, check image clearing, and real-time payments through the RTP network, a modern real-time payment system for the U.S.
The financial crisis of 2007–2008, or Global Financial Crisis (GFC), was a severe worldwide economic crisis that occurred in the early 21st century. It was the most serious financial crisis since the Great Depression (1929). Predatory lending targeting low-income homebuyers, excessive risk-taking by global financial institutions, and the bursting of the United States housing bubble culminated in a "perfect storm." Mortgage-backed securities (MBS) tied to American real estate, as well as a vast web of derivatives linked to those MBS, collapsed in value. Financial institutions worldwide suffered severe damage, reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008, and a subsequent international banking crisis.
The Durbin amendment, implemented by Regulation II, is a provision of United States federal law, 15 U.S.C. § 1693o-2, that requires the Federal Reserve to limit fees charged to retailers for debit card processing. It was passed as part of the Dodd–Frank financial reform legislation in 2010, as a last-minute addition by Dick Durbin, a senator from Illinois, after whom the amendment is named.
The Dodd–Frank Wall Street Reform and Consumer Protection Act was created as a response to the financial crisis in 2007. Passed in 2010, the act contains a great number of provisions, taking over 848 pages. It targets the sectors of the financial system that were believed to be responsible for the financial crisis, including banks, mortgage lenders, and credit rating agencies. Ostensibly aimed at reducing the instability that led to the crash, the act has the power to force these institutions to reduce their risk and increase their reserve capital.
