Federal Reserve Act

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The Federal Reserve Act (ch. 6, 38 Stat. 251, enacted December 23, 1913, 12 U.S.C. ch.3) is the Act of Congress that created the Federal Reserve System, the central banking system of the United States of America, and granted it the legal authority to issue legal tender. The Act was signed into law by President Woodrow Wilson.

Contents

Background

For nearly eighty years the U.S. had been without a central bank since the charter for the Second Bank of the United States was allowed to expire. After various financial panics, particularly a severe one in 1907, some Americans became convinced that their country needed some sort of banking and currency reform that would,[1] when threatened by financial panics, provide a ready reserve of liquid assets, and furthermore allow for currency and credit to expand and contract seasonally within the U.S. economy. Some of this was chronicled in the reports of the National Monetary Commission (1909–1912), which was created by the Aldrich–Vreeland Act in 1908. Included in a report of the Commission, submitted to Congress on January 9, 1912, were recommendations and draft legislation with 59 sections, for proposed changes in U.S. banking and currency laws.[2] The proposed legislation was known as the Aldrich Plan, named after the chairman of the Commission, Republican Senator Nelson W. Aldrich of Rhode Island. The Plan called for the establishment of a National Reserve Association with 15 regional district branches and 46 geographically dispersed directors primarily from the banking profession. The Reserve Association would make emergency loans to member banks, create money, and act as the fiscal agent for the U.S. government. State and nationally chartered banks would have the option of subscribing to specified stock in their local association branch.[2] It is generally believed that the outline to the Plan had been formulated in a secret meeting on Jekyl Island in November 1910 in which Aldrich and other well connected financiers attended.[3]

Since the Aldrich Plan essentially gave full control of this system to private bankers, there was strong opposition to it from rural and western states because of fears that it would become a tool of certain rich and powerful financiers in New York City, referred to as the "Money Trust".[4] Indeed, from May 1912 through January 1913 the Pujo Committee, a subcommittee of the House Committee on Banking and Currency, held investigative hearings on the alleged Money Trust and its interlocking directorates. These hearings were chaired by Rep. Arsene Pujo, a Democractic representative from Louisiana.[5]

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