Federal Reserve Case Study

To understand the support each tool is going to provide to Federal Reserve, we need to know what item is being monitored in order to implement right tool for fixing the problem.Robert E. Wright & Quadrini,2009, pp 141, talks about CAMELS formulation in which central banks usually keep and eye on six parameters of banks operating in domestic market.These parameters are adequate capital available, good quality assets which is assets are easy to liquidate and yield appropriately, stability in management that demonstrate less frequent change of management at administration level also low volatilities in critical decisions being made affecting the bank’s strategy in long run.How much profit one bank makes and whether they have enough current asset

I refer you to Federal Reserve’s website and study in details about other potential tools might be used, most common tools among the major ones are interfere in Fedfund rate market(Fed doesn’t set fed fund rates but it has great influence by making adjustment in supply and demand) also discount rate.These two will adjust flow of liquidity to the Fed’s target

Running Head:FED’S MONETARY TOOLS 3

For example the very recent major Fed’s intervention in market was purchasing TARP assets which was unusual of a central bank owning private debt’s liabilities which for restoring confidence to the markets Fed has to do this and in this attempt they bought trillions of dollars worth of highly leverage liabilities belong to those whom bought properties with little or no