Evolution Of The Federal Reserve System

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Congress established the Federal Reserve System, also known as “The Fed”, almost a century ago to serve as the U.S. central bank. President Woodrow Wilson signed the Federal Reserve Act into law on December 23, 1913. Prior to the formation of the Fed, the U.S. economy was afflicted by numerous episodes of panic, bank failures, and credit scarcity. The history of the Federal Reserve is affiliated with the effort to build a more stable and secure financial system. This paper describes major important events leading to the creation of the Federal Reserve and the evolution of the Federal Reserve System in response to the needs of the ever-changing U.S. economy.
II. Body

A) The First Bank of the United States

Congress created the First Bank of
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Congress created the National Monetary Commission, which were comprised of Nelson W. Aldrich, and members of the House of Representatives (Mitchell, 2000). The Commission, as well as the Senate, was tasked with studying the current banking structure and finding out what changes needed to be made in order to create a well functioning system. The result was a plan that needed to create a National Reserve Association, which would be controlled by the banking system. It would make emergency loans to banks and stand in as a budgetary handler for the government. However, the plan did not last because it did not give enough power to the government and had too much control of money in the hands of financial …show more content…
This was the election of President Woodrow Wilson. Wilson heavily opposed any plan, association, or committee that would allow majority of control in the hands of the banks. He created a team of agents to create a proposal that led to the creation of the Federal Reserve Act. This proposal called for the creation of 12 or so privately controlled regional reserve banks (Keister, 1924). These banks would control an allocated amount of reserves, as well as perform other banking functions such as issuing currency. “The Act provided for a Reserve Bank Organization Committee that would designate no less than eight but no more than twelve cities to be Federal Reserve cities, and would then divide the nation into districts, each district to contain one Federal Reserve City.” (“The Founding of the Fed,” 2002) A supervisory board, headquartered in Washington, would control, operate and coordinate the activities of the various regional reserve banks. “Congress approved the proposal and President Wilson signed it into law on December 23, 1913. This proposal would become the Federal Reserve Act. This act was “provided for the establishment of the Federal Reserve Banks, to furnish elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.” (“The Founding of the Fed,”

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