Federal Reserve Board (FRB)

The Federal Reserve Board (FRB) is the governing body of the Federal Reserve System, responsible for setting key policies, including reserve requirements, bank regulations, and discount rates.

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

  1. 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.

  2. 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.

  3. 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.

  • 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

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

### How are the members of the Federal Reserve Board chosen? - [x] Appointed by the President and confirmed by the Senate - [ ] Elected by popular vote - [ ] Selected by the Federal Reserve Banks - [ ] Chosen by financial institutions > **Explanation:** Members of the Federal Reserve Board are appointed by the President of the United States and must be confirmed by the Senate. ### What is the primary role of the Federal Reserve Board? - [ ] To provide insurance to banks - [x] To establish policies for the Federal Reserve System - [ ] To set fiscal policies - [ ] To manage federal debt > **Explanation:** The primary role of the Federal Reserve Board is to establish policies for the Federal Reserve System, including reserve requirements and the discount rate. ### Over how many years do members of the Federal Reserve Board serve? - [ ] 4 years - [ ] 8 years - [x] 14 years - [ ] 20 years > **Explanation:** Members of the Federal Reserve Board serve 14-year terms, which allows them to influence long-term economic policies. ### The discount rate is established by: - [x] The Federal Reserve Board - [ ] The Treasury Department - [ ] The World Bank - [ ] The International Monetary Fund > **Explanation:** The discount rate, which is the interest rate at which commercial banks can borrow from Federal Reserve Banks, is established by the Federal Reserve Board. ### Reserve requirements are set by the: - [x] Federal Reserve Board - [ ] Internal Revenue Service (IRS) - [ ] Federal Deposit Insurance Corporation (FDIC) - [ ] Securities and Exchange Commission (SEC) > **Explanation:** The Federal Reserve Board sets the reserve requirements for banks. ### What does the Federal Reserve Board regulate in the securities market? - [ ] Initial Public Offerings (IPOs) - [ ] Cryptocurrency trading - [x] Purchase of securities on margin - [ ] Insider trading > **Explanation:** The Federal Reserve Board regulates the purchase of securities on margin, defining how much of a purchase price can be borrowed. ### Which of the following is NOT a function of the Federal Reserve Board? - [ ] Setting the discount rate - [x] Collecting federal taxes - [ ] Regulating bank reserve requirements - [ ] Influencing the availability of credit > **Explanation:** The Federal Reserve Board does not collect federal taxes; this is the role of the Internal Revenue Service (IRS). ### How does the Federal Reserve Board influence the economy? - [ ] Through federal spending - [ ] By setting insurance premiums - [x] By tightening or loosening credit - [ ] By managing the national debt > **Explanation:** The Federal Reserve Board influences the economy by tightening or loosening credit using tools like the discount rate and reserve requirements. ### What term refers to the minimum reserves a bank must hold against deposits? - [ ] Discount rate - [ ] Interest rate - [ ] Risk capital - [x] Reserve requirements > **Explanation:** Reserve requirements refer to the minimum amount of reserves a bank must hold against customer deposits and notes. ### The Federal Reserve System includes how many regional Federal Reserve Banks? - [ ] 5 - [ ] 10 - [ ] 15 - [x] 12 > **Explanation:** The Federal Reserve System includes twelve regional Federal Reserve Banks, each serving a specific region of the United States.

Thank you for exploring the functions and significance of the Federal Reserve Board through our detailed definition and engaging quiz questions. Continue to enhance your financial literacy!


Wednesday, August 7, 2024

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