Question

Which of the following is not a way in which the Federal Reserve (“the Fed”) and its policies affect banks?
a.
The Fed sets a maximum on the interest rates banks can charge for loans or credit.
b.
The Fed’s required reserve policy limits how much money banks can lend out.
c.
The Fed determines at what price banks must lend money to one another.
d.
The Fed serves as “the bank’s bank,” lending other banks money when necessary.

Answer 1

a.

The Fed does not set maximum interest rates that banks can charge borrowers. It influences interest rates (via the federal funds rate, discount rate, and open-market operations) but does not impose a general cap on bank loan rates. The other choices describe real Fed powers: reserve requirements (b), setting/influencing the interbank (federal funds) rate (c), and acting as lender of last resort (d).