Introduction to Finance

76
CHAPTER 
4
Federal Reserve System
L E A R N I N G O B J E C T I V E S
After studying this chapter, you should be able to do the following:
LO 4.1
Discuss how the Federal Reserve System (Fed) responded to the recent fi nancial 
crisis and Great Recession.
LO 4.2
Identify three weaknesses of the national banking system that existed before the 
Federal Reserve System was created.
LO 4.3
Describe the Federal Reserve System and identify the fi ve major components into 
which it is organized.
LO 4.4
Identify and describe the policy instruments used by the Fed to carry out monetary 
policy.
LO 4.5
Discuss the Fed’s supervisory and regulatory functions.
LO 4.6
Identify important Fed service functions. 
LO 4.7
Identify specifi c examples of foreign countries that use central banking systems to 
regulate money supply and implement monetary policy. 
W H E R E W E H A V E B E E N . . .
In Chapter 3 we discussed the types and roles of fi nancial institutions that have evolved in 
the United States to meet the needs of individuals and businesses and help the fi nancial sys-
tem operate effi
ciently. We also described the traditional diff erences between commercial 
banking and investment banking, followed by coverage of the functions of banks (all depos-
itory institutions) and the banking system. By now you also should have an understanding of 
the structure and chartering of commercial banks, the availability of branch banking, and the 
use of bank holding companies. You also should now have a basic understanding of the bank 
balance sheet and how the bank management process is carried out in terms of liquidity and 
capital management. Selected information also was provided on international banking and 
several foreign banking systems.