[발췌] Federal Reserve System: background, analyses and bibliography

자료: Federal Reserve System: background, analyses and bibliography

편저자: George B. Grey, (발행인 Nova Publishers, 2002)


※ 발췌(excerpts):

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Chapter 2. Monetary Policy And the Economy

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Monetary Policy And the Reserve Market

The initial link between monetary policy and the economy occurs in the marekt for reserves. The Federal Reserve's policies influences the demand for or supply of reserves at banks and other depository institutions, and through this market, the effects of monetary policy are transmitted to the rest of the economy. Therefore, to understand how monetary policy is related to the economy, one must first understand what the reserves market is and how it works.

Demand for Reserves

The demand for reserves has two components: required reserves and excess reserves. All depository institutionsㅡcommercial banks, saving banks, savings and loan associations, ad credit-unionsㅡmust retain a percentage of certain types of deposits to be held as reserves. The reserve requirements are set by the Federal Reserve under the Depository Institutions Deregulation and Monetary Control Act of 1980. At the end of 1993, 4,148 member banks, 6,042 nonmember banks, 495 branches and agencies of foreign banks, 61 Edge Act and agreement corporations, and 3,238 thrift institutions were subject to reserve requirements.

Since the early 1990's, reserves requirements have been applied only to transaction deposits(basically, interest-bearing and non-interest bearing checking accounts). 

• Required reserves are a fraction of such deposits; the fractionㅡthe required reserve ratioㅡis set by the Board of Governors within limits prescribed by law. Thus, total required reserves expand or contract with the level of transaction deposits and with the required reserve ratio set by the Board; in practive, however, the required reserve ratio has been adjusted only infrequently. 
• Depository institutions hold in one of two forms: vault cash (cash on hand at the bank) or, more important for monetary policy, required reserve balances in accounts with the Reserve Bank for their Federal Reserve District.

Depositories use their accounts at Federal Reserve Banks [:]

1. not only to satisfy their reserve requirements 
2. but also to clear many financial transactions. 

Given the volume and unpredictability of transactions that clear through their account every day, depositories need to maintain a cushion of funds to protect themselves against debits that could leave their accounts overdrawn at the end of the day and subject to penalty.

• Depositories that find their required reserve balances insufficient to provide such protection may open supplemental accounts for required clearing balances. These additional balances earn interest in the form of credits that can be used to defray the cost of services, such as check-clearing and wire transfers of funds and securities, that the Federal Reserve provides.

Some depository institutions choose to hold reserves even beyond those needed to meet their reserves and clearing requirements. These additional balances, which provide extra protection against overdrafts and deficiencies in required reserves, are called excess reserves; they are the second component of the demand for reserves (a third component if required clearing balances are included). In general, depositories hold few excess reserves because these balances do not earn interest; nonetheless, the demand for these reserves can fluctuate greatly over short periods, complicating the Federal Reserve's task of implementing policy.

Supply of Reserves

The Federal Reserve supplies reserves to the banking system in two ways:

1. Lending through the Federal Reserve discount window
2. Buying government securities(open market operations).

Reserve obtained through the first channel are called borrowed reserves. The Federal Reserve supplies these directly to depository institutions that are eligible to borrow through the discount window. Access to such credit by banks and thrift institutions is established by rules set by the Board of Governors, and loans are made at a rate of interestㅡthe discount rateㅡset by the Reserve Banks and approved by the Board. The supply of borrowed reserves depends on the initiative of depository institutions to borrow, though it is influenced by the level of the discount rate and by the terms and conditions for access to discount window credit.

In general, banks are expected to come to the discount window to meet liquidity needs only after drawing on all other reasonably available sources of funds, which limits considerably the use of this source of funds. Moreover, (... ...) As a consequence, the amount of reserves supplied through the discount window is generally a small portion of the total supply of reserves.

The other source of reserve suppy is nonborrowed reserves. Although the supply of nonborrowed reserves depends on a variety of factors, many of them outside the day-to-day control of the Federal Reserve, the system can exercise control over this supply through open market operationsㅡthe purchase or sale of securities by the Domestic Trading Desk at the Federal Reserve Bank of New York. When the Federal Reserve buys securities in the open market, it creates reserves to pay for them, and the supply of nonborrowed reserves increases. Conversely, (...) , and the purchases are effectively paid for by additions to or subtractions from a depository institution's reserve balance at the Federal Reserve.

Trading of Reserves

Depository instituions actively trade reserves held at the Federal Reserve among themselves usually overnight. Those with surplus balances in their accounts transfer reserves to those in need of boosting their balances. The benchmark rate of interest charged for the short-term use of these funds is called the federal funds rate. Changes in the federal funds rate reflect the basic supply and demand conditions in the market for reserves.

Equilibrium exists in the reserves market when the demand for required and excess reserves equals the supply of borrowed plus nonborrowed reserves. Should the demand for reserves riseㅡsay, because of a rise in checking account depositsㅡa disequilibrium will occur, and upward pressure on the federal funds rate will emerge. Equilibrium may be restored by open market operations to supply the added reserves, in which case the federal funds rate will be unchanged. It may also be restored as the supply of reserves increases through greater borrowing from the discount window; in this case, interest rates would tend to rise, and over time the demand for reserves would contract as reserve market pressures are translated, through the actions of banks and their depositors, into lower deposit levels and smaller required reserves. Conversely, should the supply of reserves expandㅡsay because the Federal Reserve purchases securities in the open marketㅡthe resulting excess supply will put downward pressure on the federal funds rate. A lower federal funds rate will set in motion equilibrating forces through the creation of more deposits and larger required reserves and lessend borrowing from the discount window.

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Chapter 3. The Implementation of Monetary Policy

The Federal Reserve uses the tools of monetary policyㅡopen market operations, the discount window, and reserve requirementsㅡto adjust the supply of reserves in relation to the demand for reserves. In so doing, it can influence the amount of pressure on bank reserve positions and, hance, the federal funds rate.

In general, The Federal Reserve can take one of the two basic approached to affect reserves:

• It can target a certain ^quantity^ of reserves, allowing changes in the demand for reserves to influence the federal funds rate. 
• It can target the ^price^ of reserves (the federal funds rate) by adjusting the supply of reserves to meet any change in the demand for reserves.

The Federal Reserve has used variations of these basic approaches over the years.

Operational Approaches: (... ...)


Open Market Operations

Open market operations involves the buying and selling of securities by the Federal Reserve. A Federal Reserve securities transaction changes the volume of reserves in the depository system; A purchase adds to nonborrowed reserves, and a sale reduces them. In contrast, the same transactions betwen financial institutions, business firms, or individuals simply redistributes reserves within the depository system without changing the aggregate level of reserves.

When the Federal Reserve buys securities from any seller, it pays, in effect, by issuing a check on itself. When the seller deposits the check in its bank account, the bank presents the check to the Federal Reserve for payment. The Federal Reserve, in turn, honors the check by increasing the reserve account of the seller's bank at the Federal Reserve Bank. The reserves of the seller's bank rise with no offsetting decline in reserves elsewhere; consequently, the total volume of reserves increases. Just the opposit occurs when the Federal Reserve sels securities: The payment reduces the reserve account of the buyer's bank at the Federal Reserve Bank with no offsetting increase in the reserve account of any other bank, and the total reserves of the banking system decline. This characteristicㅡdollar-for-dollar change in the reserves of the depository system with a purchase of sale of securities by the Federal Reserveㅡmakes open market operatins the most powerful, flexible, and precise tool of monetary policy.

In theory, the Federal Reserve could provide or absorb bank reserves through market transactions in any type of asset. In practive, however, most types of assets cannot be traded readily enough to accommodate open market operations. 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 supply of reserves in line with prevaiing policy objectives. 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 market for U.S. government securities satisfies these conditions, and the Federal Reserve carries out by far the greatest part of its open market operations in that market. The U.S. government securites market, in which overall trading averages more than $100 billion a day, is the broadest an most active of U.S. financial markets. (... ...) The Federal Reserve's holding of government securities are tilted somewhat toward Treasury bills, which have maturities of one year or less(table 3.1). The average maturity of the Federal Reserve's portfolio of Treasury issues is only a little more than 3 years, somewhat below the average maturity of roughly 5.5 years for all outstanding marketable Treasury securities. (...)

Other Factrs Influencing Nonborrowed Reserves: (... ...)


Techniques of Open Market Operatins : (...)

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Chapter 8. Money And the Federal Reserve System: Myth and Reality (G. Thomas Woodward )

For a long time, few people were aware of the Federal Reserve (Fed). This is no longer true. Over the last two decades, awareness of the institution has increased considerably. Most people know that it has something to do with interest rates. A fair number can identify it with monetary policy.

But a great deal of mystery still surrounds the organization. In part, this is due to its unique structure. The blending of private and public institutional arrangements, and the independence it has in making policy, make it an anormalous structure in government. The mystery is compounded by secrecy.  The deliberations of the organization's policy-making body are revealed only after a time lag. And independent audits of the organization are somewhat circumsribed.

These characteristicsㅡand the enormous influence that the Fed has over economic conditionsㅡhave given rise to a great deal of conjecture concerning its nature and operations. The theories and suspicions about the system underlie monetary reform proposals frequently advanced by citizens, as well as various complaints and petitions sent to the Members of Congress.

Many of these claims asserted about the Fed are untrue. Others are only partially true. This report addresses various claims about the Federal Reserve Systemㅡspecifically those that are a matter of fact and can be either verified or refuted.

Structure, Authority, And Powers

Creation of the Fed

The Federal Reserve System was created by the Federal Reserve Act of 1913. Some literature on the Fed implies that the Act was passed surreptitiously, hastily or even illegally.

Although the Act was passed in the final days of the legislative session, it had been debated for some time in earlier versions. A bil to create the Federal Reserve System was introduced in the House of Representatives in late summer, 1913. The house passed, 299 to 68, its versions in December 22, 1913. ^The Act was passed by the House of Representatives by a vote of 298 to 60, and the Senate in a vote of 43 to 25.^ It was signed into law by President Woodrow Wilson on December 23, 1913.

It is often claimed that the Federal Reserve Act originated in a secret meeting of bankers on Jekyll Island, Georgia in 1910, who then mananged a conspiracy to guide their plan to enactment. Reliable evidence exists that such a secret conference took place. The conference appears to have played an important part in shaping what became known as the "Aldrich Plan."[n1] The secrecy was most likey an effort to publicly distance the plan from the "Wall Street bankers" that had a role in developing it.

^The Aldrich plan however, did not become law.^ By the time Republican legislators introduced the proposal for a "National Reserve Association"(NRA), the midterm elections of 1910 changed control of the Congress from the Republicans to the Democrats. Thus, despite (or because of) President Taft's interest in the legislation, it did not even come before the house for a vote. By the time the Federal Reserve Act was introduced Senator Aldrich had left the Senate, and the Democratic party controlled both the Congress and the White House.

The proposal for an NRA was different from the Federal Reserve System in a couple of important ways. First, it was like a central bank in that it was private. Although its 46 directors included (...), the Association clearly would have been in control of people elected by the banks. Second, even though it had 15 administrative districts, the NRA was centralized into a single entity.

In contrast, the Federal Reserve System was created as a hybrid-public operation in which the Federal Reserve Board was a federal agency appointed by the President. Moreover, in the system as it was created in 1913, the 12 regional Federal Reserve Banks were regarded as relatively autonomous, such that total monopolization of reserves was believed to be avoided.[n2]

The proposed NRA and the Federal Reserve were both viewed as systems for stabilizing credit flows and servicing the payments system, and not as agencies for making explicit monetary policy.

Public or Private

The public/private nature of the institution has given rise to the claim that the Fed is a "private corporation." This claim is not correct. Part of the system consists of private corporations. Part is a federal agency.

^The Board of Governors of the Federal Reserve Systems{System in singular??} is a government agency.^ Its employees are employees of the federal government, paid in accordance with federal government pay acres, and part of the federal employment retirement system. The premises are federal government property. The seven Board members are appointed by the President with advice and consent of the Senate in the same fashion as other government appointees.

Under the supervision of the Board of Governors are 12 regional Federal Reserve Banks. These are private institutions with certain privileges granted to them, restricted to conducting business specified by the Federal Reserve Act. As private institutions, they are "owned" by the "stockholders," they make their own pay and hiring policies, and they pay local property taxes.

For some purposes, however, they are treated as instumentalities of the federal government. They examine, regulate, and supervise some operations of their member banks: a public functions. Hence, they are exempt from state and loval ^income^ taxes. They also are treated as government agencies with respect to certain statutes. But for most other purposes, the 12 regional banks are legally regarded as private.[n3]

[n3] For a more detailed description of the public/private nature of the banks, see Federal Reserve Banks: Federal or Private Entities? By Maureen Murphy. CRS Report 89-508 A, August 1989. 15.p.

The system as a whole is subject to congressional oversight. As required by law, twice a year the Chairman of the Board of Governors must consult with the House and Senate Banking Committees concerning the conduct of monetary policy. Other Federal Reserves actions and policies are also subject to the scrutity of the Congress.

Control of the FED

Each regional Federal Reserve Bank has 9 directors. 6 of these directors are selected by the member banks that own it("class A" and "class B" directors). The other 3("class C") are appointed by the Board of Governors. The Chairman and Deputy Chairman of each regional Federal Reserve Bank are appointed by the Board of Governors from among the class C directors. The directors oversee operations of their Bank, select the President and first vice President of their Bank (and determine their salaries) ^all subject to overall supervision and approval by the Board of Governors.^

Because the regional Federal Reserve Banks are privately owned, and most of their directors are chosen by their stockholders, it is common to hear assertions that control of the Fed is in the hands of an elite. In particular, it has been rumored that control is in the hands of a very few people holding "class A stock" in the Fed.

As explained, there is no stock in the ^system^, only in each regional Bank. More important, ^individuals do not own stock^ in Federal Reserve Banks. The stock is held only by banks who are members of the system. Each bank holds stock proportionate to its capital. Ownership and membership are synoymous. Moreover, ^there is no such thing as "class A" stock.^ All stock is the same.

This stock, furthermore, does not carry with it the normal rights and privileges of ownership. Most significantly, member banks, in voting for the directors of the Federal Reserve Banks of which they are a member, do not get voting rights in proportion to the stock they hod. Instead, each member bank regardless of size gets one vote. ^Concentration of ownership of Federal Reserve Bank stock, therefore, is irrelevant to the issue of control of the system.^

Banks and Control of Monetary Policy

While the Board of Governors exercises overall supervision, and exclusively, controls some aspects of the system, such as discount rates and banking regulation, monetary policy is mostly determined by the Federal Open Market Committee(FOMC). This committee conists of the 7 members of the Board of Governors, the president of the NYFRB, and 4 of the remaining 11 regional Federal Reserve Bank presidents (the latter on a rotating basis). Majority controls, thus, still rests with the presidentially appointed Board members.

The presence of the regional Federal Reserve Bank presidents on the Committee causes some concern about the influence of bankers in the making of monetary policy. They are chosen by direcrtors who are largely chosen by the member banks themselves. (However, they are chosen only with the approval of the Board of Governors.)[n4] Further concern arises from the "Federal Advisory Council," dating from the system's creation, which provides bankers confidential and direct input into the consideration of the Federal Reserve policies.[n5]

Consequently, monetary policy is partly under the influence of persons not appointed by the President or approved by the Senate. The arrangement raises the possibility that some conflict of interest exists, since these members of the FOMC might be inclined to pursue monetary policies that increases bank profits instead of promoting the general economic well-being of the country.[n6]

How The Federal Reserve System Works

Creating Money

The economy principally employs two methods of engaging in transactions. One is cash. The other consists of debiting accounts. Banks are central to both methods.

In the case of cash, banks stand as a source of cash for customers. The Federal Reserve, in turn, is the source of cash for banks. Paper currency is printed in the Treasury department's Bureau of Printing and Engraving. It is then "sold" to the Federal Reserve Banks at the printing cost, roughly 3 to 4 cents per note, regardless of denomination. Banks keep accounts with the Fed and when they require cash for their customers, they buy it at face value, having their accounts debited. In the process, the Federal Reserve profits by the difference between the printing cost and the face value (less the costs of the operation).

But most transactions are not conducted with cash. In most cases, members of the public maintain accounts at depository institutions and pay by authorizing a transfer from their account to the account whomever they are paying. Many of these authorizations occur by means of check. Many others are effected by means of various electronic transfers. In every case, one account is debited, and another credited, completing the transaction.

Since many institutions are involved a clearing mechanism must exist to make these transfers across the different banks. In additionㅡbecause for any bank on any day, debit and credits do not equal each otherㅡit is necessary to maintain balances to handle the net difference. The Federal Reserve acts as the clearinghouse for most of these transfers.[n7] It, therefore, is the banker's bank, and holds balance of its members. These clearing balance are supplemented by requited balances("required reserves") mandated by law. Banks do not earn interest on the balances at the Fed, so that the Fed makes a profit from them in the same way it makes a profit from issuing currency.

The balance available to serve as reserves place a limit on the amount of money that can be generated by banks. To ensure sufficient reserves on hand for clearing debit and to serve the daily cash needs of their customers, banks must be careful not to lend out all of the funds deposited with them, and to always keep some on hand (see below).

More balance can be created by the Fed as it chooses. It does this by entering the open market and buying securities (i.e., interest-earning debt of the government). To purchase securities, it essentially writes a check on itself. The bank that ultimately receives this payment as a deposit gets its accounts with the Fed credited by the amount, allowing it to make additional loans. The Fed can achieve the opposit by selling a security that it brought sometimes in the past. In selling the security, it receives a payment on an account at a bank, which gets its account debited (and which will find it must cut back on its planned lending activity).

As a result, the buying and selling of securities on the open markets is the principal means by which the Fed influences the money supply. Buying securities, it injects money into the system. Selling them, it removes money from the system. Between augmenting these accounts (creating reserves) and selling currency, the Fed acquires a large portfolio of interest-earning securities that provide a profit.

One method of creating money does not earn profits for the Fed: coins. The system of metal coins is somewhat different. Coins, too, cost only a fraction of their face value to create (being mostly "clad" coins made of nickel, zinc, and copper). But in the case of coins, the FEd pays face value to the mint, with the profits being place in a revolving coinage fund. The effect on the economy is the same, and it has the same implications for real government outlays and income. Only the accounting differs.

Commercial Banks and Fractional Reserves

At the base of the system, of course, are banks (and credit unions and savings and loans). These institutions are intimately involved in the money-creation process. This involvement is criticized by some commentators who regard the creation of money as a strict government privilege that they feel should not be permitted of private firms. However, bank involvment in money creation is almost impossible to avoid. Moreover, the benefits of banks' role in money creation go largely to the public, not to the banks themselves.

Banks lend out other people's money. Bank customers who borrow the money pay interest for the privilege. The interest pays for the banks' expenses of carrying on business, interest to those who have placed their funds with the banks, and profits to the owners of the banks. Hence the bank intermediates between people who have spare resources and those who want to use those resources.

Banks (and credit unions and savings and loans) are "depository" institutions. In contrast to other financial intermediaries such as brokerage firms (which invest their customers' money such that the customer accepts the risk of loss), a depository institution accepts funds "on deposit," i.e., on the condition that the bank will return the principal to the depositors regardless of how well or badly the institution invests the funds. Hence, a depository institution absorbs much of the risk of loss in lending out its depositors' money.

Because banks are intermediaries, only a fraction of the money that people deposit with them is kept on hand. Most is lent out. ^The fact that banks keep on hand only a fraction of the funds deposited with them is no secret,^ and it is apparent to anyone who thinks about it: The lending out of money on deposit is how a bank is able to pay interest to its depositors for their funds. Otherwise, depositors would have to pay fees to the bank for safekeeping their money.

The practice of keeping only a fraction of deposits on hand has a cumulative effect for the banking system as a whole. Effectively, it permits the banking system to "create" money. If a given sum of cash is deposited in bank A, and half of it is lent out, whoever borrows it spends it, and the money becomes the deposit in bank B for someone else. Half of that sum is them lent out, spent and deposited. The process continues until the total amount of deposits is a multiple of the initial amoun t of cash. In this example, the cumulative total is ultimately twice the initial amount. In practice, the multiple depends on what fraction is kept on hand as reserves by the bank and what fraction is kept as "poket cash" outside the banking system.

Thus, "^fractional reserve banking" effectively permits the creation of money^ by the banking system to a multiple of the "base" money (typically created by the government). ^But while the system as a whole creates money, individual banks generally do not.^ Even though each bank may have in checking accounts a sum that is equal to the money that was deposited with it, as a group, total deposits in all banks are a multiple of the initial account.

This means, of course, that for a given supply of money in the economy, the existence of money generated by banks through fractiona reserve banking reduces the amount of money that the government creates. When governments create money, they profit by difference between the cost of printing it and its face value. Hence, fractional reserve banking reduces the potential income to the government from money creation(called "seignorage").

^Fractional reserve banking is a natural, common, and indeed unavoidable process.^ It is not an artifical construct of law or of central bank policy. Whenever and wherever bankers, goldsmiths and traders have accepted funds deposited with them, fractional reserve banking has emerged. It quickly becomes obvious to any businessman who accepts deposits that while some customers come to withdraw money, others come to deposit it. Only a fraction of the total deposits at a bank needs to be kept on hand for normal day-to-day banking. Even an unexpected shortfall one day at a bank can be remedied by briefly borrowing from another bank. The consequence is that a portion (usually the majority) of a country's money supply is generated by the banking system.

This process of lending out deposits can come in a number of forms. Banks in years past issued currency(bank notes). Now they mostly use checking accounts. Receipts for deposits have served the same role. Despite any laws that might be enacted to prevent fractional reserve banking, ^there is a strong incentive for the "banking" system to come up with something of its own that will serve as money because it is in virtually everyone's interest to do so.^ Depositors come out ahead because their deposits earn, rather than cost, money. Borrowers have access to funds at an interest rate they might not have otherwise obtained. Bankers make profits. Society is better able to channel idle resources into economically productive activity.

Fractional reserve banking in some form or other is virtually impossible to prevent. But this difficulty in preventing the creation of fraction reserves also helps ensure that institutions do not profit excessively from it. Although, in essence, fractional reserve banking confers money creation powers on the private banking sector, ^the loss to the government primary{primarily} goes to the benefit of the public^, not the banks. The potential profits from money creation through account expansion gives banks an incentive to expand their activities. This expansion can come only from attracting more deposits. The primary means of attracting deposits is by offering higher interest rates or more services. As a consquence, the banks tend to bid away the excess profits, and the benefits go to customers. Fractional reserve banking is therefore a means of reducing the public's sacrifice of interest earnings to the government. ^The public, not the banking system, is the ultimate beneficiary of fractional reserve banking.^

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