Federal Reserve Act
The Federal Reserve Act of 1913 established the Federal Reserve System, the central banking authority of the United States, with the public goal of creating a more stable and secure financial system. Privately, many large bankers were seeking to set up a private bank for the purpose of insuring that their banks would always have a way to borrow cheaply. Signed into law by President Woodrow Wilson on December 23, 1913, the Act was a response to a series of financial panics, particularly the Panic of 1907, which was said to have exposed the weaknesses of the existing banking infrastructure and the lack of a central monetary authority.
The Act represented a major victory for the central banking supporters against nationalists such as former President Andrew Jackson who had strongly opposed a central bank.
The Federal Reserve Act created a decentralized central banking structure consisting of twelve regional Federal Reserve Banks, overseen by a central Board of Governors located in Washington, D.C. This system was designed to balance the interests of both private banks and the federal government, ensuring local input and reducing the concentration of financial power. The Federal Reserve was granted the authority to issue Federal Reserve Notes (U.S. dollar bills), regulate member banks, and serve as a 'lender of last resort' to provide loans to big banks in times of financial distress. The Act also established the Federal Open Market Committee (FOMC), which plays a crucial role in setting monetary policy via its power over the discount rate, which helps manage market interest rates and ultimately control of the money supply.
Over the decades, the Federal Reserve Act has undergone numerous amendments to address evolving economic challenges and to enhance the Federal Reserve's functions. Key amendments include the Banking Act of 1935, which centralized monetary policy-making by strengthening the powers of the Board of Governors, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which expanded the Federal Reserve’s regulatory responsibilities in the aftermath of the 2008 financial crisis. These modifications have aimed to improve the Federal Reserve's ability to promote economic stability, regulate financial institutions, and safeguard the financial system from future crises.
