1913 Federal Reserve Act

What Is the 1913 Federal Reserve Act?

The 1913 Federal Reserve Act is legislation in the United States that created the Federal Reserve System. Congress passed the Federal Reserve Act to establish economic stability in the U.S. by introducing a central bank to oversee monetary policy.

Key Takeaways

  • The 1913 Federal Reserve Act created the Federal Reserve System, known simply as "The Fed."
  • It was implemented to establish economic stability in the U.S. by introducing a central bank to oversee monetary policy.
  • The Federal Reserve Act is one of the most influential laws shaping the U.S. financial system.
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1913 Federal Reserve Act

Understanding the 1913 Federal Reserve Act

The law sets out the purpose, structure, and function of the Federal Reserve System. Congress can amend the Federal Reserve Act and has done so several times.

Before 1913, financial panics were common occurrences because investors were unsure of the safety of their bank deposits. Private financiers such as J.P. Morgan, who bailed out the government in 1895, often provided lines of credit to provide stability in the financial sector. The 1913 Federal Reserve Act, signed into law by President Woodrow Wilson, gave the Fed the ability to print money and policy tools to ensure economic stability.

The Federal Reserve System created the dual mandate to maximize employment and keep prices stable.

The Federal Reserve Act is perhaps one of the most influential laws concerning the U.S. financial system.

The Fed System

The 12 Federal Reserve banks, each in charge of a regional district, are in Boston, New York, Philadelphia, Cleveland, Richmond, St. Louis, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco.

The seven members of the Board of Governors are nominated by the president and approved by the U.S. Senate. Each governor serves a maximum of 14 years, and each governor's appointment is staggered by two years to limit the power of the president. In addition, the law dictates that appointments be representative of all broad sectors of the U.S. economy.

Here is the current list of Federal Reserve Board members as of Jan. 14, 2022.

Current Federal Reserve Board
Jerome H. Powell (Chair)
Seat Currently Empty (Vice Chair)—as of Jan. 14, 2022
Seat Currently Empty (Vice Chair for Supervision)—as of Dec. 31, 2021
Michelle W. Bowman
Lael Brainard
Christopher J. Waller
Seat Currently Empty

Here is the current list of Federal Reserve Bank Presidents:

Current Federal Reserve Bank Presidents
Name of President Bank Location-District
Kenneth C. Montgomery Boston-1
John C. Williams New York-2
Patrick T. Harker Philadelphia-3
Loretta J. Mester Cleveland-4
Thomas I. Barkin Richmond-5
Raphael W. Bostic Atlanta-6
Charles L. Evans Chicago-7
James Bullard St. Louis-8
Neel Kashkari Minneapolis-9
Esther L. George Kansas City-10
Meredith Black Dallas-11
Mary C. Daly San Francisco-12

Fed Powers

In addition to printing money, the Fed received the power to adjust the discount rate and the Fed funds rate and to buy and sell U.S. Treasuries. The Federal Funds Rate—the interest rate at which depository institutions lend funds maintained at the Federal Reserve to one another overnight—has a major influence on the available credit and the interest rates in the United States and is a measure to ensure that the largest banking institutions do not find themselves short on liquidity.

Through the monetary tools at its disposal, the Federal Reserve attempts to smooth the booms and busts of the economic cycle and maintain adequate bases of money and credit for current production levels.

Central banks across the globe use a tool known as quantitative easing to expand private credit, lower interest rates, and increase investment and commercial activity. Quantitative easing is mainly used to stimulate economies during recessions when credit is scarce, such as during and following the 2008 financial crisis

Article Sources
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  1. Board of Governors of the Federal Reserve System. "Federal Reserve Act." Accessed Jan. 12, 2022.

  2. Board of Governors of the Federal Reserve System. "Federal Reserve Act: Section 16. Note Issues." Accessed Jan. 12, 2022.

  3. Federal Reserve Bank of St. Louis. "Federal Reserve Act Signed into Law." Accessed Jan. 12, 2022.

  4. Board of Governors of the Federal Reserve System. "What Economic Goals Does the Federal Reserve Seek to Achieve Through its Monetary Policy?" Accessed Jan. 12, 2022.

  5. Board of Governors of the Federal Reserve System. "The Twelve Federal Reserve Districts." Accessed Jan. 12, 2022.

  6. Board of Governors of the Federal Reserve System. "Federal Reserve Act: Section 10. Board of Governors of the Federal Reserve System." Accessed Jan. 12, 2022.

  7. Board of Governors of the Federal Reserve System. “Randal K. Quarles Submits Resignation as a Member of the Federal Reserve Board, Effective at the End of December.” Accessed Jan. 12, 2022. 

  8. Board of Governors of the Federal Reserve System. “Richard H. Clarida Announces His Intention to Resign From the Board of Governors of the Federal Reserve System on January 14, 2022.” Accessed Jan. 12, 2022. 

  9. Board of Governors of the Federal Reserve System. "Board Members." Accessed Jan. 12, 2022.

  10. Board of Governors of the Federal Reserve System. "Federal Open Market Committee." Accessed Jan. 12, 2022.

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