How do Federal Reserve Banks generate income? Do they require supplemental funding from Congress? Were supplemental...

How do Federal Reserve Banks generate income? Do they require supplemental funding from Congress? Were supplemental funds provided to member banks during the first waves of pandemic relief passed by Congress in the spring of 2020? Please Explain.

Interest rates have been going down recently. How does this affect bank’s profitability?

Solutions

Expert Solution

The Federal reserve's income is derived mainly from the interest on US government securities that it acquires through the open market operations or by creating bank reserves issued to commercial banks.

The Federal reserve does not get funding through congress budget..The Federal reserve's income is derived mainly from the interest on US government securities that it acquires through the open market operations. The rest of the income, after meeting the expenses, goes to the US treasury.

A supplementary finance plan was made by the Fed in the first wave of the pandemic which provided funds to banks so that they can lend to businesses through pay check protection program.There is no limit to the amount of fund provided under this program.

Changes in interest rate affect the profitability of banks as it increases the cost of funding,reduces return from assets ,as well as lowers the value of equity in a bank.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Do you believe that the Federal Reserve should be controlled by Congress?

The Federal Reserve is not responsible to the Public, the Congress or the President. They are...

The Federal Reserve is not responsible to the Public, the Congress or the President. They are not directly elected. How is that a legitimate control in a Democratic Republic, such as the USA?

Why does the Federal Reserve require commercial banks to have reserves? Explain why reserves are an...

Why does the Federal Reserve require commercial banks to have reserves? Explain why reserves are an asset to commercial banks. What are excess reserves? How do you calculate the amount of excess reserves held by a bank? What is the significance of excess reserves?

How do commercial banks generate profit?

1a. While the first cases of COVID-19 were identified in January, Congress and the Federal Reserve...

1a. While the first cases of COVID-19 were identified in January, Congress and the Federal Reserve did not act until mid March. During the time in between, the public was already reacting to crisis as it unfolded while waiting to see what the government reaction would be. How would the public’s reaction be expressed using what you know from the quantity theory of money? a. the rate of velocity would rise. b. the real output growth rate would rise. c....

1. Suppose commercial banks borrow from Federal Reserve Banks at the discount rate. What is the...

1. Suppose commercial banks borrow from Federal Reserve Banks at the discount rate. What is the impact of this transaction on commercial bank reserves? a. Commercial bank reserves will increase. b. Commercial bank reserves will decrease. c. Commercial banks reserves will be unchanged. 2. Suppose the Fed reduces the reserve ratio. What impact will this transaction have on commercial bank reserves? a. Commercial bank reserves will increase. b. Commercial bank reserves will decrease. c. Commercial bank reserves will be unchanged....

Consider the past debate underway in Congress with respect to funding the federal government and the...

Consider the past debate underway in Congress with respect to funding the federal government and the political considerations involved in passing social policies through the budgeting process. Should a social or political decision such as repeal of Obamacare or defunding of Planned Parenthood be a legitimate consideration in establishing fiscal policy in the United States? Does such a decision justify any potential impact on the US GDP and the overall economy?

Describe the functions performed by Federal Reserve Banks?

The Federal Reserve System consists of 12 regional Federal Reserve Banks. Each bank is sponsored and...

The Federal Reserve System consists of 12 regional Federal Reserve Banks. Each bank is sponsored and wholly owned by private commercial banks, who own all of the Bank's stock and receive stock dividends. Nonetheless, Mishkin describes the Federal Reserve Banks as "quasi-public" institutions. (a) Explain what aspects of the Federal Reserve System allow Mishkin to consider the Federal Reserve Banks semi-public entities.

The Federal Reserve was established in 1913 and is, therefore, a “creature of Congress.” The President...

The Federal Reserve was established in 1913 and is, therefore, a “creature of Congress.” The President of the United States nominates members of the Board of Governors of the Federal Reserve, subject to confirmation by the Senate. However, the Federal Reserve is basically free to pursue monetary policy independent of Congress or the President. Should the Federal Reserve remain independent of the President and Congress or should the President and Congress control monetary policy? Why? (200 word minimum).

Subjects