- •Preface
- •Contents
- •1. Overview of the Federal Reserve System
- •Background
- •Structure of the System
- •Board of Governors
- •Federal Reserve Banks
- •Federal Open Market Committee
- •Member Banks
- •Advisory Committees
- •2. Monetary Policy and the Economy
- •Goals of Monetary Policy
- •How Monetary Policy Affects the Economy
- •Limitations of Monetary Policy
- •Guides to Monetary Policy
- •Monetary Aggregates
- •Interest Rates
- •The Taylor Rule
- •Foreign Exchange Rates
- •Conclusion
- •3. The Implementation of Monetary Policy
- •The Market for Federal Reserve Balances
- •Demand for Federal Reserve Balances
- •Supply of Federal Reserve Balances
- •Controlling the Federal Funds Rate
- •Open Market Operations
- •Composition of the Federal Reserve’s Portfolio
- •The Conduct of Open Market Operations
- •A Typical Day in the Conduct of Open Market Operations
- •Securities Lending
- •Reserve Requirements
- •Recent History of Reserve Requirements
- •Contractual Clearing Balances
- •The Discount Window
- •Types of Credit
- •Eligibility to Borrow
- •Discount Window Collateral
- •4. The Federal Reserve in the International Sphere
- •International Linkages
- •Foreign Currency Operations
- •Sterilization
- •U.S. Foreign Currency Resources
- •International Banking
- •5. Supervision and Regulation
- •Responsibilities of the Federal Banking Agencies
- •Federal Financial Institutions Examination Council
- •Supervisory Process
- •Risk-Focused Supervision
- •Supervisory Rating System
- •Financial Regulatory Reports
- •Off-Site Monitoring
- •Accounting Policy and Disclosure
- •Anti-Money-Laundering Program
- •Business Continuity
- •Other Supervisory Activities
- •Enforcement
- •Supervision of U.S. Activities of Foreign Banking Organizations
- •Regulatory Functions
- •Acquisitions and Mergers
- •Other Changes in Bank Control
- •Formation and Activities of Financial Holding Companies
- •Capital Adequacy Standards
- •Financial Disclosures by State Member Banks
- •Securities Credit
- •6. Consumer and Community Affairs
- •Consumer Protection
- •Writing and Interpreting Regulations
- •Educating Consumers about Consumer Protection Laws
- •Enforcing Consumer Protection Laws
- •Consumer Complaint Program
- •Community Affairs
- •Consumer Protection Laws
- •7. The Federal Reserve in the U.S. Payments System
- •Financial Services
- •Retail Services
- •Wholesale Services
- •Fiscal Agency Services
- •International Services
- •Federal Reserve Intraday Credit Policy
- •Index
The Federal Reserve System: Purposes and Functions
ing organizations, the Basel Committee began work to revise the Basel Accord in 1999 and, in June 2004, endorsed a revised framework, which is referred to as Basel II. Basel II has three “pillars” that make up the framework for assessing capital adequacy. Pillar I, minimum regulatory capital requirements, more closely aligns banking organizations’ capital levels with their underlying risks. Pillar II, supervisory oversight, requires supervisors to evaluate banking organizations’ capital adequacy and to encourage better risk-management techniques. Pillar III, market discipline, calls for enhanced public disclosure of banking organizations’ risk exposures.
Financial Disclosures by State Member Banks
State member banks that issue securities registered under the Securities Exchange Act of 1934 must disclose certain information of interest to investors, including annual and quarterly financial reports and proxy statements. By statute, the Federal Reserve administers these requirements and has adopted financial disclosure regulations for state member banks that are substantially similar to the SEC’s regulations for other public companies.
Securities Credit
The Securities Exchange Act of 1934 requires the Federal Reserve to regulate the extension of credit used in connection with the purchase of securities. Through its regulations, the Board establishes the minimum amount the buyer must put up when purchasing a security. This minimum amount is known as the margin requirement. In fulfilling its responsibility under the act, the Federal Reserve limits the amount of credit that may be provided by securities brokers and dealers (Regulation T) and the amount of securities credit extended by banks and other lenders (Regulation U). These regulations generally apply to credit-financed purchases of securities traded on securities exchanges and certain securities traded over the counter when the credit is collateralized by such securities. In addition, Regulation X prohibits borrowers who are subject to U.S. laws from obtaining such credit overseas on terms more favorable than could be obtained from a domestic lender.
In general, compliance with the Federal Reserve’s margin regulations is enforced by several federal regulatory agencies. The federal agencies that regulate financial institutions check for Regulation U compliance during examinations. The Federal Reserve checks for Regulation U compliance on the part of securities credit lenders not otherwise regulated by federal agencies. Compliance with Regulation T is verified during examinations of broker-dealers by the securities industry’s self-regulatory organizations under the general oversight of the SEC.
74