Federal Reserve Banks in the United States

Introduction to Federal Reserve Banks

History: Federal Reserve Act (1913)

What eventually emerged was the Federal Reserve Act, also known at the time as the Currency Bill, or the Owen-Glass Act. The bill called for a system of eight to twelve mostly autonomous regional Reserve Banks that would be owned by commerical banks and whose actions would be coordinated by a committee appointed by the President. The Federal Reserve System would then become a privately owned banking system that was operated in the public interest. Bankers would run the twelve Banks, but those Banks would be supervised and by the Federal Reserve Board whose members included the Secretary of the Treasury, the Comptroller of the Currency, and other officials appointed by the President to represent public interests.

The House of Representatives passed the Federal Reserve Act by a vote of 298 to 60. The Senate also passed the measure 43 to 25. In both chambers of Congress, it was the anti-banker Democrats that overwhelmingly supported the Act, while for the most part the pro-banker Republicans opposed it. President Wilson signed the bill on December 23, 1913 and the Federal Reserve System was born. Bankers largely opposed the Act because of the presence of the Federal Reserve Board in the legislation and because only one of its seven members could represent the banking community.

The Federal Reserve system as it exists today is not quite the same creature that was produced in 1913. The system has undergone rare, but susbstantial overhauls over the years. The two most important changes occurred in response to the Great Depression and to the mini-crisis of the late 1970’s. [1]

Aldrich Plan (1910)

Following the near catastrophic financial disaster of 1907, the movement for banking reform picked up steam among Wall Street bankers, Republicans, and a few eastern Democrats. However, much of the country was still distrustful of bankers and of banking in general, especially after 1907. See more about the Aldrich Plan here.

National Banking Acts of 1863 and 1864

Despite these private or state-sponsored efforts at reform, the state banking system still exhibited the undesirable properties enumerated earlier. The National Banking Acts of 1863 and 1864 were attempts to assert some degree of federal control over the banking system without the formation of another central bank.

The First Bank of the United States (1791-1811)

The First Bank of the United States is considered a success by economic historians. (read more on the entry).

Second Bank of the United States (1816-1836)

The Second Bank of the U.S. was chartered in 1816 with the same responsibilities and powers as the First Bank. However, the Second Bank would not even enjoy the limited success of the First Bank. Although foreign ownership was not a problem (foreigners owned about 20% of the Bank’s stock), the Second Bank was plagued with poor management and outright fraud (Galbraith).

Federal Reserve Banks

In Legislation

Federal Reserve Banks in the U.S. Code: Title 12, Chapter 4, Subchapter I

The current, permanent, in-force federal laws regulating federal reserve banks are compiled in the United States Code under Title 12, Chapter 4, Subchapter I. It constitutes “prima facie” evidence of statutes relating to Banking Law (including federal reserve banks) of the United States. The reader can further narrow his/her legal research of the general topic (in this case, Taxation and Banks of the US Code, including federal reserve banks) by chapter and subchapter.

Resources

Notes

1. Edward Flaherty, A Brief History of Central Banking in the United States.

Further Reading

• Monetary Decisions of the Supreme Court, New Brunswick, New Jersey: Rutgers University Press, 1960.
• Galbraith, John K., A Short History of Financial Euphoria, New York: Penguin Books, 1990.
• Galbraith, John K., Money: Whence it Came, Where it Went, Boston: Houghton Mifflin, 1995.
• Information about Federal Reserve Banks in the Gale Encyclopedia of American Law
• Greider, William, Secrets of the Temple, New York: Simon & Schuster, 1987.
• Hammond, Bray, Banks and Politics in America, Princeton University Press, 1957.
• Hixson, William F., Triumph of the Bankers: Money and Banking in the Eighteenth
  and Nineteenth Centuries, London: Praeger, 1993.
• Kidwell, David S. and Richard Peterson, Financial Institutions, Markets, and Money,
  5th edition, 1993.
• Knox, John J., A History of Banking in the United States, New York: Bradford Rhodes, 1903.
• Phalle, Thibaut de Saint, The Federal Reserve: An Intentional Mystery, New York: Praeger, 1985.
• Selgin, George A., The Theory of Free Banking: Money Supply Under Competitive
  Note Issue, Totowa, New Jersey: Rowman and Littlefield, 1988.
• Symons, Edward L., Jr. and James J. White, Banking Law, 2nd edition, 1984.

Further Reading