Definition
The Federal Reserve Board (FRB) is the governing board of the Federal Reserve System (the central bank of the United States). The FRB consists of seven members who are appointed by the President of the United States and confirmed by the Senate. These members serve 14-year terms. The Board is responsible for establishing Federal Reserve System policies on critical matters such as reserve requirements and other banking regulations, setting the discount rate, influencing the availability of credit in the economy, and regulating the purchase of securities on margin.
Examples
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Reserve Requirements: The FRB sets the minimum amount of reserves that banks must hold against deposits. For example, if the reserve requirement is 10%, a bank with $1 billion in deposits must hold $100 million in reserves.
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Discount Rate: The FRB determines the interest rate at which commercial banks can borrow from the Federal Reserve Banks. For instance, during the 2008 financial crisis, the FRB lowered the discount rate to encourage banks to borrow funds and thus increase the liquidity in the economy.
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Margin Requirements: The FRB regulates the purchase of securities on margin, determining how much of an asset’s purchase price can be borrowed. For example, if the margin requirement for buying stocks is set at 50%, investors must pay 50% of the stock’s value upfront and the rest can be financed.
Frequently Asked Questions (FAQs)
Who appoints the members of the Federal Reserve Board?
The President of the United States appoints the members of the Federal Reserve Board, and these appointments are subject to Senate confirmation.
How long do members of the Federal Reserve Board serve?
Members of the Federal Reserve Board serve 14-year terms.
What is the role of the Federal Reserve Board concerning reserve requirements?
The Federal Reserve Board sets the reserve requirements, which are the minimum reserves each bank must hold to customer deposits and notes.
How does the Federal Reserve Board influence the availability of credit?
The Federal Reserve Board tightens or loosens the availability of credit through monetary policy tools such as adjusting the discount rate and reserve requirements.
What is the discount rate?
The discount rate is the interest rate at which commercial banks can borrow from the Federal Reserve Banks.
Related Terms
- Federal Reserve System (FRS): The central banking system of the United States, which comprises twelve regional Federal Reserve Banks.
- Reserve Requirements: Regulations set by the FRB dictating the minimum reserves each bank must hold against deposits.
- Discount Rate: The interest rate charged by Federal Reserve Banks to commercial banks for short-term loans.
- Monetary Policy: The process by which the central bank (Federal Reserve) manages the supply of money and interest rates to achieve macroeconomic objectives.
Online References
- Federal Reserve Board Official Website
- Federal Reserve System Overview (Investopedia)
- Federal Reserve on Wikipedia
Suggested Books for Further Studies
- The Federal Reserve and the Financial Crisis by Ben S. Bernanke
- The Creature from Jekyll Island: A Second Look at the Federal Reserve by G. Edward Griffin
- Essentials of Money and Banking by Aptakisic
Fundamentals of the Federal Reserve Board: Finance Basics Quiz
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