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Macroeconomics Unit III - The Financial Sector
Discussion: The Fed is the Banker's Bank - what about a banker's banker's bank?
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 yunqimok |
The Fed is the Banker's Bank - what about a banker's banker's bank?
Mar 7 2008, 10:45 PM EST Commercial banks deposit their reserves in the federal reserve bank, and can also loan money from it to provide loans to its customers. The Federal Reserve bank is thus the banker's bank, as it acts the way a commercial bank acts to ordinary people, except to another bank. As such, it has the power to manipulate monetary policy, as it can control the amount of actual reserves and therefore control the amount of loans that banks can make. However, where does the Federa Reserve get all of its money? Shouldn't there be a banker's banker's bank, and so on and so forth, because all banks have to borrow from someone? How does it work? Do you find this valuable? |
 tsaojames1991 |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 9 2008, 7:34 AM EDT Think about the Federal Reserve as a branch of the government, and it would become clear that it wouldn't be necessary for Federal Reserve to loan from somewhere else. The fact that the Federal Reserves are a government entity allows them the authority to actually print/produce the country's currency, hence controlling/managing the country's money supply. So, where does the Federal Reserve get all of its money? Well, it literally produces them (not like how banks create money through loans). Of course they would not issue too much money because it would cause inflation, and this is where economists have to do the math and calculate how much money Federal Reserves should actually issue. Do you find this valuable? |
 ConradLiu |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 13 2008, 10:23 AM EDT I agree with James. Because the Federal Reserve actually determines the circulation of money by buying/selling government bonds, they don't actually need to appeal to a "bank" in order to obtain money. They are, in a sense, a bank unto themselves; if the Federal Reserve believes that there is too much money circulating within the economy, they remove it by selling out bonds. Likewise, in times of recession, for instance, the Federal Reserve will buy the said bonds back, all to inject more money into circulation. Do you find this valuable? |
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HelenChu HelenChu |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 14 2008, 1:36 PM EDT I have to disagree with James - the Fed is NOT a government entity. Although it has some characteristics of the public sector, it still predominantly belongs in the private sector. To answer Yun Qi's question, I don't think there is a banker's banker's bank, because the Fed has almost a trillion (I'm not exactly sure on this estimation - it's a really big number) dollars to back it up. Besides, it doesn't make much sense to have one, because if we have a banker's banker's bank, why doesn't this banker's banker's bank make loans directly to commercial banks, outright eliminating the frivolous banker's bank in the middle? Do you find this valuable? |
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richardtu richardtu |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 15 2008, 4:10 AM EDT I agree with James that the Federal Reserve helps to manage the moeny supply or circulation. For instance, if a recession occurs the fed buy bonds and inject moeny into the public or the commerical bank's hands and thus increasing the money supply. With this, consumers have more spendalbe disposable income and therefore they consume more, on the other hand, with an increase in the excess reserve of the commerical bank, they tend to loan out more. In a sense, the federal reserve bank helps to solve economic issues. Also, as James mentioned an important point, although the federal reserve bank can produce money, they cannot overproduce it, because it will just decrease the money value and enhance inflation. Therefore, i don't think there's a banker's banker's bank. Do you find this valuable? |
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Chanmin Chanmin |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank?
Mar 15 2008, 7:59 AM EDT I agree with Helen that the Federal Reserve is more of a private sector, independent from the government. The congress has made it to be self-financed. The Fed makes most of its money from "interest on U.S. government securities that it has acquired through open market operations." From open market operations, the Fed buys bonds from the public and banks and when it matures, the government pays for the bonds therefore resulting in profit for the Fed. I dont think there is a bankers bank because Fed although it is called the bankers bank, it acts a little different as it is also called the "lender of last resort." Commercial banks loan money and try to get rid of all the excess reserves. However when they do not meet the requirements, they try to look for other commercial banks that have excess reserves at the end of the day. Thus the Fed rather than acting more like a bank and loaning, it looks over the economy and makes sure that it is doing well. Do you find this valuable? |
 ElaineLung |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 15 2008, 12:07 PM EDT "I have to disagree with James - the Fed is NOT a government entity. Although it has some characteristics of the public sector, it still predominantly belongs in the private sector." I have to disagree with Helen and Chanmin on this. The private sector, as commonly defined, runs for profit and is not controlled by the state. The Fed may be owned by private commercial banks in a sense, but their policies are still determined by the Board of Governors -- definitely a government entity -- and aim to help the economy as a whole. The Fed doesn't work for profit. It is not independent from the government; rather, it's just independent from the whims of political leaders and political pressures. As for the original question -- the Fed can have more money printed, or I suppose they can sell bonds in order to hold more money. Do you find this valuable? |
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kevinchiu kevinchiu |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank?
Mar 15 2008, 11:56 PM EDT I don't believe the Fed is more of a private sector than a public sector because its actions do not seem to be used to maximize profits; instead, its main purpose to to control the supply of money in the economy. To answer the original questoin, the Fed >>probably<< just produces paper money/gets paper money from the government because its acting as a tool to control the country's economy and is not part of the money supply; there doesn't seem to be a reason for it to borrow money from other banks because it doesn't have to follow the reserved ratio. Unless of course you mean.. borrowing money from other nations.. "the federal reserve bank can produce money, they cannot overproduce it, because it will just decrease the money value and enhance inflation" And I have to disagree with Richard's statement because, if i'm correct, the money in the Fed is not part of the money supply, therefore the money it has will not cause inflation if the money the Fed produces stays in the Fed. Richard, I think you misread James' point about issuing money-- he's talking about the Fed issuing the public money, which can cause inflation. He's not talking about printing money to put in the Federal Reserve. Thus, they can "overproduce" money if they wanted, there just wouldn't be a point to doing it. Do you find this valuable? |
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JackLo JackLo |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 16 2008, 7:50 AM EDT There's no need for a banker's banker's bank. The Fed will never need to borrow from anyone. Well, in theory, at least. Although the Fed is technically a private corporation and isn't a branch of the government, they still have the backing of the government. They can just print more money if they needed to lend out more. However, that situation will be very rare since the Federal Reserve Bank is usually the 'lender of last resort'. Commercial banks will always borrow from each other first before going to the Fed. Since the US is an open market economy, hundreds of private commercial banks are all over the place. I'm pretty sure they can find someone to borrow from. Do you find this valuable? |
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jeewono jeewono |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 16 2008, 9:01 AM EDT I don't think the Fed belongs to the private sector; its monetary policies are enacted for the good of the nation's economy, not for their own profit. Because it functions for the economy, a banker's banker's bank is unnecessary. Commercial banks loan out its excess reserves and benefit from interests, yet the Fed controls the money supply through monetary policies; their purposes are completely different. Of course, the Fed charges interest on loans they grant to commercial banks, but money is lent to meet the commercial banks' reserve ratio, which is set by the Fed to regulate the money supply. Therefore, the Fed does not need another bank to grant loans or control the money, since the Fed is the "lender of last resort." Do you find this valuable? |
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KristieChung KristieChung |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 17 2008, 5:49 AM EDT I don't think there's a banker's banker's bank because it is unnecessary to have one. The Federal Reserve controls the money supply; they probably have the ability to print more money as they see fit for the good of the nation's economy. Do you find this valuable? |
 timothysun |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 17 2008, 5:52 AM EDT I find that its inclusion in the private sector would make the Fed an illegal monopoly (to an extent), so it might not be a wise decision to consider it as part of it. But at the same time, it's not totally a part of the government. Therefore, I think it belongs in its own sector of the nation. "Shouldn't there be a banker's banker's bank, and so on and so forth, because all banks have to borrow from someone? How does it work?" If the Fed needs to borrow money, but I think it's got plenty of that. Do you find this valuable? |
 anqxl |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 17 2008, 6:00 AM EDT The Federal Reserve is both the property of the public and the Federal Government. First of all the Federal Reserves' first checkable deposit is the Federal Government's tax revenues. From that deposit, the Fed makes loans, thus generate more and more money. Since it is backed by the government, banks trust the Fed and logically are willing to borrow from the Fed. So there is no need for a banker's banker's bank because why divide up the money supply and have two bodies controlling the money supply? Do you find this valuable? |
 JessicaNg |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank?
Mar 17 2008, 6:20 AM EDT I think that one of the places where Federal Reserve gets all of its money is from the commercial banks' required reserves. This enables it to buy bonds and such. And when money does run out, it has the power for the printing of more paper money. Though that might create inflation, it's certainly better than having a collapsed bankrupt economy. Do you find this valuable? |
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MichaelChow MichaelChow |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank?
Mar 17 2008, 7:30 AM EDT As we learnt in class these past few weeks yes, the Federal Reserve Bank is indeed the bank of the bankers or when commerical banks are requiring a loan, "The lender of last resort". The Federal Reserve has the ability and power to lend money to commercial banks since it is part of the government branch and has certain unique powers. One of its abilities that sets it aside from any other branch is as stated in the above replies, the ability to print therefore increasing or even decreasing the money supply. I agree with Angel's post on how it is unnecessary for there to be a bank for the Federal Reserve since the hierarchy is already at its limit, one sector with enough power would be more than enough to control the nations money supply. Do you find this valuable? |
 taco511 |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 17 2008, 7:31 AM EDT Its interesting to see people say that its either a government entity or a private sector which in fact it is both of those including public control. It is quasi-public in the sense that it is owned by private commercial banks in the region and they are not in competition with those banks therefore there is no profit motive. They are established to contribute to the well-being of the economy and usually deal with government, commerical banks, and thrifts. Their role in government is simply to control the supply of money which the FED deems suitable for the current sittuation of the economy. So for people who said that its an government institution, private-sector, or a public sector, you are not entirely wrong. Going back to the question at hand, I agree with most of those who stated that there is no need for a banker's bank for it seems redundant. The FED has almost trillion of dollars stored in their reserves and will possibly never run out, thus they have immense power to loan out large amounts of money (of course they're still smart about how much to lend out). Also those commerical banks who are desperate for money can borrow money from hundreds of other banks in their district thus eliminating the need for an actual banker's bank. Do you find this valuable? |
 KatherineYang |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 17 2008, 7:52 AM EDT If there was a need for a banker's banker's bank, then that would really be redundant. The Federal Reserve has more than enough money to back itself. Besides, I highly doubt the Fed will let itself get close to running out of money, there's just too much of the economy dependant on it. Do you find this valuable? |
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claire425 claire425 |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 17 2008, 7:58 AM EDT Well, I do agree with James and Helen that the government can be a private sector or a public sector, however, if the government has trillion dollars of money as Helen said, why would the government get loans from other countries' banks when they are in short of money to support the fiscal policy? why not get from the FED? I'm just getting curious about this..!! Do you find this valuable? |
 andyxu |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 17 2008, 8:11 AM EDT The Fed does not necessarily need a bank because they produce their own money. Of course, in a way, the Fed's bank goes back down to commercial banks and households as the Fed lend and borrow money from these groups. Do you find this valuable? |
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agoldman agoldman |
RE: The Fed is the Banker's Bank - what about a banker's banker's bank
Mar 17 2008, 8:28 AM EDT The Fed does receive funding to some extent from the U.S. Treasury, however much of the reserves money comes from the purchase and sale of securities in the private market. Do you find this valuable? |