Federal Reserve Act

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The Federal Reserve Act is a federal law that established the Federal Reserve System, the central banking system of the United States. The act also created the Federal Reserve Note as the national currency. The act was signed into law by President Woodrow Wilson (D) in 1913.[1][2]

The Federal Reserve Act was passed in response to various financial crises that the United States had experienced since its founding. It established a system of government banks to print money and control the money supply with the goal of maximizing employment and minimizing inflation.[2][3]

Background

In 1791, the United States Congress created The President, Directors and Company, of the Bank of the United States, also known as the First Bank. The First Bank was the first national bank, with the United States government as its majority shareholder, and was chartered for 20 years. However, the First Bank was not managed by the government. In 1811, the First Bank's charter expired, and Congress declined to renew it. In 1816, a second national bank, known as the Second Bank, was created. Similar to the First Bank, the Second Bank was chartered for 20 years. The bank's charter expired in 1836. Following the charter's expiration, the bank became private; it was liquidated in 1841.[2]

In 1895, private financier J.P. Morgan bailed out the federal government when its gold reserves were at risk of running out following a financial panic. By 1907, the United States faced another financial crisis, and by that time was the only world financial power without a central bank. Private financiers such as Morgan stabilized the banking system by providing investments and lines of credit.[4]

In 1908, the National Monetary Commission was established with the passage of the Aldrich-Vreeland Act. The law provided for the issuance of emergency currency and charged the commission with studying and recommending changes to the nation's monetary and financial system. The commission's 18 members, chaired by Senator Nelson Aldrich (R), held hearings in the United States and traveled to European capital cities to learn about their banking systems.[4]

After several years of development, a plan crafted by government officials and bankers was released in 1911 by Senator Aldrich, revised, and then presented to Congress in 1912. The plan did not pass because the Democratic Party, which put opposition to the plan as a plank in its party platform, won the presidency and a number of seats in Congress in the 1912 election.[4]

Legislative history

In 1913, Representative Carter Glass (D) and Senator Robert Latham Owen (D) proposed similar, separate bills in their chambers providing for the creation of a national banking system. The proposed bills passed in their respective chambers on September 18, 1913. A joint committee reported a reconciled bill on December 22, 1913. The United States House of Representatives approved to this bill in a vote of 298-60 on December 22, 1913. The United States Senate followed suit in a vote of 43-25 on December 23, 1913. President Woodrow Wilson (D) signed the bill into law on December 23, 1913.[2]

Provisions

The Federal Reserve Act established the Federal Reserve System as the central bank of the United States. The act established the structure, functions, and authorities of the bank. The act provided for at least eight and no more than 12 regional Federal Reserve banks, as well as a seven-member governing board. The act also established the Federal Reserve Note as the national currency.[1]

Each regional Federal Reserve bank is managed by a governor, appointed by the President of the United States and confirmed by the U.S. Senate. The 12 Federal Reserve banks are located in the following cities:[3]

See also

External links

Footnotes

  1. ↑ 1.0 1.1 Federal Reserve Board of Governors, "Federal Reserve Act," accessed March 30, 2017
  2. ↑ 2.0 2.1 2.2 2.3 Federal Reserve History, "Federal Reserve Act Signed by President Wilson," November 22, 2013
  3. ↑ 3.0 3.1 Investopedia, "1913 Federal Reserve Act," accessed February 7, 2018
  4. ↑ 4.0 4.1 4.2 Cite error: Invalid <ref> tag; no text was provided for refs named history
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