Ngân hàng, tín dụng - Chapter 17: Who’s in charge here

1Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 17 Who’s in Charge Here? Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-2 Learning Objectives • Explain the intent of Congress when it established the structure and purpose of the Federal Reserve System • Describe how the structure of the Federal Reserve has evolved over time • Analyze the controversies and benefits regarding central bank independence Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-3 Introduction • Monetary policy is the responsibility of the Federal Reserve • Basic question—“to whom is the Federal Reserve responsible?” • Although the President appoints the seven members of the Board of Governors, the Fed is not responsible to executive branch 2Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-4 Introduction (Cont.) • Congress created Fed in 1913 and has sole authority to alter its mandate • Since a large number of commercial banks are members of Fed, it has been suggested the Fed is answerable to private banks that are members Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-5 Formal Structure of the Federal Reserve System • Organization of the Fed is an excellent example of decentralization and blending of public/private authority • Power is deliberately widely diffused so no person, group, or sector can exert leverage to dominate monetary policy Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-6 Formal Structure of the Federal Reserve System (Cont.) • Organization – Figure 17.1 shows the formal structure of the Federal Reserve system – Board of Governors • 7 members appointed by US President with Senate approval for 14 year terms • No two members from same Federal Reserve district • Chairman of Board—selected by President from Board with 4 year term that does not coincide with presidential term 3Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-7 FIGURE 17.1 The formal structure and policy organization of the Federal Reserve system. Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-8 Formal Structure of the Federal Reserve System (Cont.) • Organization (Cont.) – Board of Governors (Cont.) • Independent of congressional appropriations process • Partly exempt from audit by General Accounting Office since operating funds come from earnings of the 12 regional banks Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-9 Formal Structure of the Federal Reserve System (Cont.) • Organization (Cont.) – Regional Banks • Figure 17.2—12 regional Federal Reserve banks dispersed throughout the nation • Technically each regional bank is privately owned by member banks—the very banks the regional banks are charged with supervising and regulating • Member banks own stock in regional bank • Member banks elect 6 of 9 directors of their regional bank with the remaining 3 appointed by Board of the Federal Reserve 4Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-10 FIGURE 17.2 The Federal Reserve System. Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-11 Formal Structure of the Federal Reserve System (Cont.) • Organization (Cont.) – Regional Banks (Cont.) • Nine directors choose the president of their Federal Reserve bank, subject to the approval of the Board of Governors • Each regional bank selects a representative to serve on the Federal Advisory Council which makes recommendations regarding conduct of monetary policy Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-12 Formal Structure of the Federal Reserve System (Cont.) • Organization (Cont.) – Legal authority of Fed • Diffused with respect to the execution of monetary policy • Reserve Requirement – Board of Governors sets the reserve requirements on bank deposits – These rates are subject to limits imposed by Congress 5Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-13 Formal Structure of the Federal Reserve System (Cont.) • Organization (Cont.) – Legal authority of Fed(Cont.) • Federal Open Market Committee [FOMC] – Composed of the seven members of Board plus five of regional bank presidents – The president of the New York regional bank is a permanent member of the FOMC – Therefore, the four remaining seats are rotated annually among the remaining eleven regional banks – Responsible for directing open market operations (buy/sell U.S. government securities) which are executed by the Federal Reserve Bank of New York Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-14 Formal Structure of the Federal Reserve System (Cont.) • Organization (Cont.) – Legal authority of Fed (Cont.) • Discount rates – “Established” every 2 weeks by directors of the regional banks – Subject to “review and determination” of Board of Governors – Confusion as to where final authority and responsibility lie Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-15 The Realities of Power • Figure 17.3 details the realities of power within the Federal Reserve system • Chairman of the Board of Governors of Federal Reserve – Dominant figure in formation and execution of monetary policy – Most influential member of the FOMC – Recognized as the voice of the Fed – Chairman is embodiment of US central bank 6Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-16 FIGURE 17.3 The realities of the power within the Federal Reserve System. Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-17 The Realities of Power (Cont.) • Evolution of power of the Fed – Responsibility for monetary policy has become centralized and concentrated in Washington – The Federal Reserve was first established as a passive service agency • Supplying currency • Clearing checks • Providing discount facility • No idea of monetary policy as an active countercyclical force Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-18 The Realities of Power (Cont.) • Evolution of power of the Fed (Cont.) – Shifting role of central bank • Shifted from passive accommodation to active regulation • Rise in power of central bank and decline in role of regional banks • Consider central bank as headquartered in Washington with 12 field offices 7Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-19 The Realities of Power (Cont.) • Evolution of power of the Fed (Cont.) – Shifting role of central bank (Cont.) • Power of the Board’s professional staff of economic experts and advisers – Long tenure with the Fed – Familiarity with history of the Fed – Expertise in monetary analysis – Exert significant influence on ultimate decision-making process Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-20 The Realities of Power (Cont.) • Power of the FOMC – Statutory authority is confined to directing open market operations – However, all policy matters are reviewed at FOMC meetings • Role of member banks – They do “own” their regional bank—mostly symbolic – Major voice in electing directors of regional banks who have largely ceremonial responsibilities Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-21 The Problem of Federal Reserve Independence • Federal Reserve is a creature of the Congress – Constitution of US gives Congress power to “coin money and regulate the value thereof” – The Federal Reserve was created in 1913 to administer this responsibility of Congress 8Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-22 The Problem of Federal Reserve Independence (Cont.) • Federal Reserve is a creature of the Congress (Cont.) – Congress requires periodic accountability by Fed and can amend Federal Reserve Act at any time – Essentially, Congress has given the Fed a broad mandate to regulate monetary system – Let monetary authorities pursue this objective on their own and to the best of their abilities Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-23 The Problem of Federal Reserve Independence (Cont.) • Congressional concern over status of FED – Concern over freedom from congressional appropriations and exemption from government audit – Questioning of the Fed’s handling of monetary policy—political differences – Complain Fed has not done a good job and perhaps Congress should establish guidelines to limit discretion of Fed Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-24 The Problem of Federal Reserve Independence (Cont.) • Relationship between Federal Reserve and the President – Should Fed be responsible to the President? – Monetary policy is one component of administration’s total economic program and should be coordinated at highest executive level – Placing Fed under executive control might invite excessive money creation and inflation 9Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-25 The Problem of Federal Reserve Independence (Cont.) • Relationship between Federal Reserve and the President (Cont.) – Figure 17.A1 demonstrates the global relationship between central bank independence and inflation – The more independent the central bank—lower inflation – Might sacrifice monetary stability to government’s revenue needs—printing money – The sole purpose of an independent monetary authority is to forestall the natural propensity of governments to resort to inflation Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 17-26 Figure 17.A1 Central Bank Independence and Inflation