About the federal reserve

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It discusses the origins of the Federal Reserve and the central bank's position. Central banks are government-created entities tasked with maintaining the monetary and financial structures. They have two main goals. In every country, central banks are responsible for sustaining macroeconomic stability as well as financial stability. The central bank has a number of resources at its disposal to help it meet the two goals. Monetary strategies are used to preserve economic prosperity. It offers financial liquidity in order to prevent panics that could lead to a crisis. Central banks are in charge of financial oversight and supervision. The U.S. established the Federal Reserve in 1914. In addition, the lecture covers the challenges the Fed faced during the great depression and its failures.

Lecture 3

This lecture focuses on the financial crises and how the Fed responded. The central bank acts as the lender of the last result during a financial crisis. Several vulnerabilities in the private and the public sector cause a crisis. The main public sector vulnerability that led to the financial crisis was the congress created Fannie Mae and Freddie Mac, which packaged mortgages into mortgage-backed securities guaranteeing them against loss, without adequate capital. After the housing bubble burst, the value of homes declined sharply below the price of acquisition leading to default. Investors pulled out from firms they considered risky exerting pressure on financial institutions and the securities market. Having learnt from the great depression, the Fed supported key financial institutions and markets. Some of the actions it took include extending the discount window, reducing interest rates, and providing liquidity to financial institutions.

November 09, 2022
Category:

Government Life

Number of pages

1

Number of words

266

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45

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