reserve requirement

Examples of reserve requirement in the following topics:

• The Reserve Requirement

  • The Federal Reserve is in charge of setting reserve requirements for all depository institutions in the country.
  • Reserve requirements have long been a part of the United States banking history.
  • The Federal Reserve can adjust reserve requirements by changing required reserve ratios, the liabilities to which the ratios apply, or both.
  • Changes in reserve requirements can have profound effects on the money stock and on the cost to banks of extending credit and are also costly to administer; therefore, reserve requirements are not adjusted frequently.
  • Discuss what happens when the Fed increases or decreases the reserve requirement

• Control of the Money Supply

  • Commercial banks, as required by the central bank, must keep a fraction of all accepted deposits on reserve either in bank vaults or in central bank deposits.
  • The central bank retains tight control over its nation's money supply through the use of open market operations, the discount rate, and reserve requirements.
  • Central banks may alter the total money supply by changing the required percentage of total deposits to be held by commercial banks.
  • An increase in reserve requirements would decrease the monetary base; a decrease in the requirements would increase the monetary base.
  • Clockwise from top-left: Federal Reserve, Bank of England, European Central Bank, Bank of Canada.

• Growth Through Monetary Policy

  • Monetary policy is exercised by the Federal Reserve System ("the Fed"), which is empowered to take various actions that decrease or increase the money supply and raise or lower short-term interest rates, making it harder or easier to borrow money.

• Trends in Credit After 2008

  • Other reasons why banks might suddenly stop or slow lending activity: An anticipated decline in the value of the collateral used by the banks to secure the loans; an exogenous change in monetary conditions (for example, where the central bank suddenly and unexpectedly raises reserve requirements or imposes new regulatory constraints on lending); the central government imposing direct credit controls on the banking system; or even an increased perception of risk regarding the solvency of other banks within the banking system.
  • This is a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from banks.
  • Other causes can include an anticipated decline in the value of the collateral used by the banks to secure the loans; an exogenous change in monetary conditions (for example, where the central bank suddenly and unexpectedly raises reserve requirements or imposes new regulatory constraints on lending); the central government imposing direct credit controls on the banking system; or even an increased perception of risk regarding the solvency of other banks within the banking system.

• Introduction to the Federal Reserve

  • The Federal Reserve System is the central banking system of the United States, which conducts the nation's monetary policy.
  • The Federal Reserve System (also known as the Federal Reserve, or the "Fed") is the central banking system of the United States.
  • Over time, the roles and responsibilities of the Federal Reserve System have expanded, and its structure has evolved.
  • Monthly changes in the currency component of the U.S. money supply as reported by the Federal Reserve
  • Describe the primary function and objectives of the Federal Reserve System

• Open Market Operations

  • In theory, the Federal Reserve could conduct open market operations by purchasing or selling any type of asset.
  • For open market operations to work effectively, the Federal Reserve must be able to buy and sell quickly, at its own convenience, in whatever volume may be needed to keep the federal funds rate at the target level.
  • These conditions require that the instrument it buys or sells be traded in a broad, highly active market that can accommodate the transactions without distortions or disruptions to the market itself.
  • The overall size of the Federal Reserve's holdings of Treasury securities depends principally on the growth of Federal Reserve notes; however, the amounts and maturities of the individual securities held depends on the FOMC's preferences for liquidity.
  • This structure provides the Federal Reserve with the ability to alter the composition of its assets quickly when developments warrant.

• The Lender of Last Resort

  • Federal Reserve as the "lender of last resort" extends credit to financial institutions unable to obtain credit elsewhere.
  • According to the Federal Reserve Bank of Minneapolis, "the Federal Reserve has the authority and financial resources to act as 'lender of last resort' by extending credit to depository institutions or to other entities in unusual circumstances involving a national or regional emergency, where failure to obtain credit would have a severe adverse impact on the economy. " Through its discount and credit operations, Reserve Banks provide liquidity to banks to meet short-term needs stemming from seasonal fluctuations in deposits or unexpected withdrawals.
  • By making these loans, the Fed serves as a buffer against unexpected day-to-day fluctuations in reserve demand and supply.
  • This contributes to the effective functioning of the banking system, alleviates pressure in the reserves market and reduces the extent of unexpected movements in the interest rates.
  • Explain why the Federal Reserve serves as the "lender of last resort"

• Franchise Agreements

  • Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule .The Franchise Rule requires that a franchisee be supplied a Uniform Franchise Offering Circular (UFOC ) or Franchise Disclosure Document (FDD ) prior to signing a franchise agreement, a minimum of ten days before signing a franchise agreement.
  • Licensed Rights, such as: Territory, Rights Reserved, Term and Renewal, Minimum Performance Standard

• Banking Crises and Centralized Reserve Enforcements

  • Generally, the Federal Reserve takes formal enforcement actions against the above entities for violations of laws, rules, or regulations, unsafe or unsound practices, breaches of fiduciary duty, and violations of final orders.
  • If the Federal Reserve determines that a state member bank or bank holding company has problems that affect the institution's safety and soundness or is not in compliance with laws and regulations, it may take a supervisory action to ensure that the institution undertakes corrective measures.
  • In some situations, however, the Federal Reserve may need to take an informal supervisory action, requesting that an institution adopt a board resolution or agree to the provisions of a memorandum of understanding to address the problem.
  • If necessary, the Federal Reserve may take formal enforcement actions to compel the management and directors of a troubled banking organization, or persons associated with it, to address the organization's problems.
  • The Federal Reserve may also assess a fine, remove an officer or director from office and permanently bar him or her from the banking industry, or both.

• The Savings Association Insurance Fund (SAIF)

  • Alan Greenspan, Chairman of the Federal Reserve, was a critic of the system, saying, "We are, in effect, attempting to use government to enforce two different prices for the same item – namely, government-mandated deposit insurance.
  • Bush signed into law the Federal Deposit Insurance Reform Act of 2005 (FDIRA),which contained changes to implement deposit insurance reform, as well as a number of study and survey requirements.