The Federal Reserve System is the central banking system of the United States. 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.
The monetary policy of the United States is the set of policies which the Federal Reserve follows to achieve its twin objectives of high employment and stable inflation.
Bloomberg L.P. is an American 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.
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. 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 and central to the conduct of monetary policy in the United States as it influences a wide range of market interest rates.
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, commonly known as "the Fed," has faced various criticisms since its establishment in 1913. Critics have questioned its effectiveness in managing inflation, regulating the banking system, and stabilizing the economy. Notable critics include Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz, who argued that the Fed's policies exacerbated the Great Depression. More recently, former Congressman Ron Paul has advocated for the abolition of the Fed and a return to a gold standard.
The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.
Bank rate, also known as discount rate in American English, and (familiarly) the base rate in British 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 Home Mortgage Disclosure Act is a United States federal law that requires certain financial institutions to provide mortgage data to the public. Congress enacted HMDA in 1975.
Vernon P. "Vern" McKinley, born in East Chicago, Indiana advises governments on financial sector policy and legal issues. He is the co-author with the Wall Street Journal's James Freeman of Borrowed Time: Two Centuries of Booms, Busts and Bailouts at Citi published by HarperCollins in 2018. He is also the author of Financing Failure: A Century of Bailouts, published by the Independent Institute in 2012. He was a primary election challenger to 28-year incumbent Congressman Frank Wolf in northern Virginia's 10th congressional district in the 2008 elections, the only one to ever challenge Wolf in a primary during his long tenure. McKinley lives with his family in Ashburn, Virginia and they have also lived in Kyiv and Yerevan.
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.
On March 17, 2008, in response to the subprime mortgage crisis and the collapse of Bear Stearns, the Federal Reserve announced the creation of a new lending facility, the Primary Dealer Credit Facility (PDCF). Eligible borrowers include all financial institutions listed as primary dealers, and the term of the loan is a repurchase agreement, or "repo" loan, whereby the broker dealer sells a security in exchange for funds through the Fed's discount window. The security in question acts as collateral, and the Federal Reserve charges an interest rate equivalent to the Fed's primary credit rate. The facility was intended to improve the ability of broker dealers to access liquidity in the overnight loan market that banks use to meet their reserve requirements.
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."
The government interventions during the subprime mortgage crisis were a response to the 2007–2009 subprime mortgage crisis and resulted in a variety of government bailouts that were implemented to stabilize the financial system during late 2007 and early 2008.
The Volcker Rule is section 619 of the Dodd–Frank Wall Street Reform and Consumer Protection Act. The rule was originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker in 2010 to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers. It was not implemented until July 2015. Volcker argued that such speculative activity played a key role in the 2007–2008 financial crisis. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank's own accounts, although a number of exceptions to this ban were included in the Dodd–Frank law.
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 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.
