History of the Federal Reserve System

This article is about the history of the United States Federal Reserve System from its creation to the present.

United States Federal Reserve Board, 1917
Federal Reserve Board, 1917

Central banking prior to the Federal Reserve

The Federal Reserve System is the third central banking system in United States history. The First Bank of the United States (1791–1811) and the Second Bank of the United States (1817–1836) each had a 20-year charter. Both banks issued currency, made commercial loans, accepted deposits, purchased securities, maintained multiple branches and acted as fiscal agents for the U.S. Treasury.[1] The U.S. Federal Government was required to purchase 20% of the bank capital stock shares and to appoint 20% of the board members (directors) of each of those first two banks "of the United States." Therefore, each bank's majority control was placed squarely in the hands of wealthy investors who purchased the remaining 80% of the stock. These banks were opposed by state-chartered banks, who saw them as very large competitors, and by many who insisted that they were in reality banking cartels compelling the common man to maintain and support them. President Andrew Jackson vetoed legislation to renew the Second Bank of the United States, starting a period of free banking. Jackson staked the legislative success of his second presidential term on the issue of central banking. "Every monopoly and all exclusive privileges are granted at the expense of the public, which ought to receive a fair equivalent. The many millions which this act proposes to bestow on the stockholders of the existing bank must come directly or indirectly out of the earnings of the American people," Jackson said in 1832.[2] Jackson's second term in office ended in March 1837 without the Second Bank of the United States's charter being renewed.

In 1863, as a means to help finance the Civil War, a system of national banks was instituted by the National Currency Act. The banks each had the power to issue standardized national bank notes based on United States bonds held by the bank. The Act was totally revised in 1864 and later named as the National-Bank Act, or National Banking Act, as it is popularly known. The administration of the new national banking system was vested in the newly created Office of the Comptroller of the Currency and its chief administrator, the Comptroller of the Currency. The Office, which still exists today, examines and supervises all banks chartered nationally and is a part of the U.S. Treasury Department.

The Federal Reserve Act, 1913

National bank currency was considered inelastic because it was based on the fluctuating value of U.S. Treasury bonds. If Treasury bond prices declined, a national bank had to reduce the amount of currency it had in circulation by either refusing to make new loans or by calling in loans it had made already. The related liquidity problem was largely caused by an immobile, pyramidal reserve system, in which nationally chartered rural/agriculture-based banks were required to set aside their reserves in federal reserve city banks, which in turn were required to have reserves in central city banks. During the planting seasons, rural banks would exploit their reserves to finance full plantings, and during the harvest seasons they would use profits from loan interest payments to restore and grow their reserves. A national bank whose reserves were being drained would replace its reserves by selling stocks and bonds, by borrowing from a clearing house or by calling in loans. As there was little in the way of deposit insurance, if a bank was rumored to be having liquidity problems then this might cause many people to remove their funds from the bank. Because of the crescendo effect of banks which lent more than their assets could cover, during the last quarter of the 19th century and the beginning of the 20th century, the United States economy went through a series of financial panics.[3]

The National Monetary Commission, 1907-1913

Prior to a particularly severe panic in 1907, there was a motivation for renewed demands for banking and currency reform.[4] The following year, Congress enacted the Aldrich-Vreeland Act which provided for an emergency currency and established the National Monetary Commission to study banking and currency reform.[5]

Fed Reserve

The chief of the bipartisan National Monetary Commission was financial expert and Senate Republican leader Nelson Aldrich. Aldrich set up two commissions – one to study the American monetary system in depth and the other, headed by Aldrich, to study the European central-banking systems and report on them.[5]

Aldrich went to Europe opposed to centralized banking but, after viewing Germany's banking system, he came away believing that a centralized bank was better than the government-issued bond system that he had previously supported. Centralized banking was met with much opposition from politicians, who were suspicious of a central bank and who charged that Aldrich was biased due to his close ties to wealthy bankers such as J.P. Morgan and his daughter's marriage to John D. Rockefeller, Jr.[5]

In 1910, Aldrich and executives representing the banks of J.P. Morgan, Rockefeller, and Kuhn, Loeb & Co., secluded themselves for ten days at Jekyll Island, Georgia.[5] The executives included Frank A. Vanderlip, president of the National City Bank of New York, associated with the Rockefellers; Henry Davison, senior partner of J.P. Morgan Company; Charles D. Norton, president of the First National Bank of New York; and Col. Edward M. House, who would later become President Woodrow Wilson's closest adviser and founder of the Council on Foreign Relations.[6] There, Paul Warburg of Kuhn, Loeb, & Co. directed the proceedings and wrote the primary features of what would be called the Aldrich Plan. Warburg would later write that "The matter of a uniform discount rate (interest rate) was discussed and settled at Jekyll Island." Vanderlip wrote in his 1935 autobiography From Farmboy to Financier:[7]

Despite my views about the value to society of greater publicity for the affairs of corporations, there was an occasion, near the close of 1910, when I was as secretive, indeed, as furtive as any conspirator. None of us who participated felt that we were conspirators; on the contrary we felt we were engaged in a patriotic work. We were trying to plan a mechanism that would correct the weaknesses of our banking system as revealed under the strains and pressures of the panic of 1907. I do not feel it is any exaggeration to speak of our secret expedition to Jekyl Island as the occasion of the actual conception of what eventually became the Federal Reserve System. ... Discovery, we knew, simply must not happen, or else all our time and effort would be wasted. If it were to be exposed publicly that our particular group had gotten together and written a banking bill, that bill would have no chance whatever of passage by Congress. Yet, who was there in Congress who might have drafted a sound piece of legislation dealing with the purely banking problem with which we were concerned?

Despite meeting in secret, from both the public and the government, the importance of the Jekyll Island meeting was revealed three years after the Federal Reserve Act was passed, when journalist Bertie Charles Forbes in 1916 wrote an article about the "hunting trip".[8]

The 1911–12 Republican plan was proposed by Aldrich to solve the banking dilemma, a goal which was supported by the American Bankers' Association. The plan provided for one great central bank, the National Reserve Association, with a capital of at least $100 million and with 15 branches in various sections. The branches were to be controlled by the member banks on a basis of their capitalization. The National Reserve Association would issue currency, based on gold and commercial paper, that would be the liability of the bank and not of the government. The Association would also carry a portion of member banks' reserves, determine discount reserves, buy and sell on the open market, and hold the deposits of the federal government. The branches and businessmen of each of the 15 districts would elect thirty out of the 39 members of the board of directors of the National Reserve Association.[9]

Aldrich fought for a private monopoly with little government influence, but conceded that the government should be represented on the board of directors. Aldrich then presented what was commonly called the "Aldrich Plan" – which called for establishment of a "National Reserve Association" – to the National Monetary Commission.[5] Most Republicans and Wall Street bankers favored the Aldrich Plan,[6] but it lacked enough support in the bipartisan Congress to pass.[10]

Because the bill was introduced by Aldrich, who was considered the epitome of the "Eastern establishment", the bill received little support. It was derided by southerners and westerners who believed that wealthy families and large corporations ran the country and would thus run the proposed National Reserve Association.[10] The National Board of Trade appointed Warburg as head of a committee to persuade Americans to support the plan. The committee set up offices in the then-45 states and distributed printed materials about the proposed central bank.[5] The Nebraskan populist and frequent Democratic presidential candidate William Jennings Bryan said of the plan: "Big financiers are back of the Aldrich currency scheme." He asserted that if it passed, big bankers would "then be in complete control of everything through the control of our national finances."[11]

There was also Republican opposition to the Aldrich Plan. Republican Sen. Robert M. La Follette and Rep. Charles Lindbergh Sr. both spoke out against the favoritism that they contended the bill granted to Wall Street. "The Aldrich Plan is the Wall Street Plan ... I have alleged that there is a 'Money Trust'", said Lindbergh. "The Aldrich plan is a scheme plainly in the interest of the Trust". In response, Rep. Arsène Pujo, a Democrat from Louisiana, obtained congressional authorization to form and chair a subcommittee (the Pujo Committee) within the House Committee Banking Committee, to conduct investigative hearings on the alleged "Money Trust". The hearings continued for a full year and were led by the subcommittee's counsel, Democratic lawyer Samuel Untermyer, who later also assisted in drafting the Federal Reserve Act. The "Pujo hearings"[12] convinced much of the populace that America's money largely rested in the hands of a select few on Wall Street. The Subcommittee issued a report saying:[13]

If by a 'money trust' is meant an established and well-defined identity and community of interest between a few leaders of finance ... which has resulted in a vast and growing concentration of control of money and credit in the hands of a comparatively few men ... the condition thus described exists in this country today ... To us the peril is manifest ... When we find ... the same man a director in a half dozen or more banks and trust companies all located in the same section of the same city, doing the same class of business and with a like set of associates similarly situated all belonging to the same group and representing the same class of interests, all further pretense of competition is useless. ...[11]

Seen as a "Money Trust" plan, the Aldrich Plan was opposed by the Democratic Party as was stated in its 1912 campaign platform, but the platform also supported a revision of banking laws intended to protect the public from financial panics and "the domination of what is known as the "Money Trust." During the 1912 election, the Democratic Party took control of the presidency and both chambers of Congress. The newly elected president, Woodrow Wilson, was committed to banking and currency reform, but it took a great deal of his political influence to get an acceptable plan passed as the Federal Reserve Act in 1913.[10] Wilson thought the Aldrich plan was perhaps "60–70% correct".[5] When Virginia Rep. Carter Glass, chairman of the House Committee on Banking and Currency, presented his bill to President-elect Wilson, Wilson said that the plan must be amended to contain a Federal Reserve Board appointed by the executive branch to maintain control over the bankers.[11]

After Wilson presented the bill to Congress, a group of Democratic congressmen revolted. The group, led by Representative Robert Henry of Texas, demanded that the "Money Trust" be destroyed before it could undertake major currency reforms. The opponents particularly objected to the idea of regional banks having to operate without the implicit government protections that large, so-called money-center banks would enjoy. The group almost succeeded in killing the bill, but were mollified by Wilson's promises to propose antitrust legislation after the bill had passed, and by Bryan's support of the bill.[11]

Enactment of the Federal Reserve Act (1913)

After months of hearings, amendments, and debates the Federal Reserve Act passed Congress in December, 1913. The bill passed the House by an overwhelming majority of 298 to 60 on December 22, 1913[14] and passed the Senate the next day by a vote of 43 to 25.[15] An earlier version of the bill had passed the Senate 54 to 34,[16] but almost 30 senators had left for Christmas vacation by the time the final bill came to a vote. Most every Democrat was in support of and most Republicans were against it.[11] As noted in a paper by the American Institute of Economic Research:

In its final form, the Federal Reserve Act represented a compromise among three political groups. Most Republicans (and the Wall Street bankers) favored the Aldrich Plan that came out of Jekyll Island. Progressive Democrats demanded a reserve system and currency supply owned and controlled by the Government in order to counter the "money trust" and destroy the existing concentration of credit resources in Wall Street. Conservative Democrats proposed a decentralized reserve system, owned and controlled privately but free of Wall Street domination. No group got exactly what it wanted. But the Aldrich plan more nearly represented the compromise position between the two Democrat extremes, and it was closest to the final legislation passed.[6]

Frank Vanderlip, one of the Jekyll Island attendees and the president of National City Bank, wrote in his autobiography:[7]

Although the Aldrich Federal Reserve Plan was defeated when it bore the name Aldrich, nevertheless its essential points were all contained in the plan that was finally adopted.

Ironically, in October 1913, two months before the enactment of the Federal Reserve Act, Frank Vanderlip proposed before the Senate Banking Committee his own competing plan to the Federal Reserve System, one with a single central bank controlled by the Federal government, which almost derailed the legislation then being considered and already passed by the U.S. House of Representatives.[17] Even Aldrich stated strong opposition to the currency plan passed by the House.[18]

However, the former point was also made by Republican Representative Charles Lindbergh Sr. of Minnesota, one of the most vocal opponents of the bill, who on the day the House agreed to the Federal Reserve Act told his colleagues:

But the Federal reserve board have no power whatever to regulate the rates of interest that bankers may charge borrowers of money. This is the Aldrich bill in disguise, the difference being that by this bill the Government issues the money, whereas by the Aldrich bill the issue was controlled by the banks ... Wall Street will control the money as easily through this bill as they have heretofore.(Congressional Record, v. 51, page 1447, Dec. 22, 1913)

Republican Congressman Victor Murdock of Kansas, who voted for the bill, told Congress on that same day:

I do not blind myself to the fact that this measure will not be effectual as a remedy for a great national evil – the concentrated control of credit ... The Money Trust has not passed [died] ... You rejected the specific remedies of the Pujo committee, chief among them, the prohibition of interlocking directorates. He [your enemy] will not cease fighting ... at some half-baked enactment ... You struck a weak half-blow, and time will show that you have lost. You could have struck a full blow and you would have won.[19]

In order to get the Federal Reserve Act passed, Wilson needed the support of populist William Jennings Bryan, who was credited with ensuring Wilson's nomination by dramatically throwing his support Wilson's way at the 1912 Democratic convention.[11] Wilson appointed Bryan as his Secretary of State.[10] Bryan served as leader of the agrarian wing of the party and had argued for unlimited coinage of silver in his "Cross of Gold Speech" at the 1896 Democratic convention.[20] Bryan and the agrarians wanted a government-owned central bank which could print paper money whenever Congress wanted, and thought the plan gave bankers too much power to print the government's currency. Wilson sought the advice of prominent lawyer Louis Brandeis to make the plan more amenable to the agrarian wing of the party; Brandeis agreed with Bryan. Wilson convinced them that because Federal Reserve notes were obligations of the government and because the president would appoint the members of the Federal Reserve Board, the plan fit their demands.[11] However, Bryan soon became disillusioned with the system. In the November 1923 issue of "Hearst's Magazine" Bryan wrote that "The Federal Reserve Bank that should have been the farmer's greatest protection has become his greatest foe."

Southerners and westerners learned from Wilson that the system was decentralized into 12 districts and surely would weaken New York and strengthen the hinterlands. Sen. Robert L. Owen of Oklahoma eventually relented to speak in favor of the bill, arguing that the nation's currency was already under too much control by New York elites, whom he alleged had singlehandedly conspired to cause the 1907 Panic.[6]

Large bankers thought the legislation gave the government too much control over markets and private business dealings. The New York Times called the Act the "Oklahoma idea, the Nebraska idea" – referring to Owen and Bryan's involvement.[11]

However, several Congressmen, including Owen, Lindbergh, La Follette, and Murdock claimed that the New York bankers feigned their disapproval of the bill in hopes of inducing Congress to pass it. The day before the bill was passed, Murdock told Congress:

You allowed the special interests by pretended dissatisfaction with the measure to bring about a sham battle, and the sham battle was for the purpose of diverting you people from the real remedy, and they diverted you. The Wall Street bluff has worked.[21]

When Wilson signed the Federal Reserve Act on December 23, 1913, he said he felt grateful for having had a part "in completing a work ... of lasting benefit for the country,"[22] knowing that it took a great deal of compromise and expenditure of his own political capital to get it enacted. This was in keeping with the general plan of action he made in his First Inaugural Address on March 4, 1913, in which he stated:

We shall deal with our economic system as it is and as it may be modified, not as it might be if we had a clean sheet of paper to write upon; and step-by-step we shall make it what it should be, in the spirit of those who question their own wisdom and seek counsel and knowledge, not shallow self-satisfaction or the excitement of excursions we can not tell. [23]

While a system of 12 regional banks was designed so as not to give eastern bankers too much influence over the new bank, in practice, the Federal Reserve Bank of New York became "first among equals". The New York Fed, for example, is solely responsible for conducting open market operations, at the direction of the Federal Open Market Committee.[24] Democratic Congressman Carter Glass sponsored and wrote the eventual legislation,[10] and his home state capital of Richmond, Virginia, was made a district headquarters. Democratic Senator James A. Reed of Missouri obtained two districts for his state.[25] However, the 1914 report of the Federal Reserve Organization Committee, which clearly laid out the rationale for their decisions on establishing Reserve Bank districts in 1914, showed that it was based almost entirely upon current correspondent banking relationships.[26] To quell Elihu Root's objections to possible inflation, the passed bill included provisions that the bank must hold at least 40% of its outstanding loans in gold. (In later years, to stimulate short-term economic activity, Congress would amend the act to allow more discretion in the amount of gold that must be redeemed by the Bank.)[6] Critics of the time (later joined by economist Milton Friedman) suggested that Glass's legislation was almost entirely based on the Aldrich Plan that had been derided as giving too much power to elite bankers. Glass denied copying Aldrich's plan. In 1922, he told Congress, "no greater misconception was ever projected in this Senate Chamber."[20]

Operations, 1915-1951

Wilson named Warburg and other prominent experts to direct the new system, which began operations in 1915 and played a major role in financing the Allied and American war efforts.[27] Warburg at first refused the appointment, citing America's opposition to a "Wall Street man", but when World War I broke out he accepted. He was the only appointee asked to appear before the Senate, whose members questioned him about his interests in the central bank and his ties to Kuhn, Loeb, & Co.'s "money trusts".[5]

Accord of 1951 between the Federal Reserve and the Treasury Department

The 1951 Accord, also known simply as the Accord, was an agreement between the U.S. Department of the Treasury and the Federal Reserve that restored independence to the Fed.

During World War II, the Federal Reserve pledged to keep the interest rate on Treasury bills fixed at 0.375 percent. It continued to support government borrowing after the war ended, despite the fact that the Consumer Price Index rose 14% in 1947 and 8% in 1948, and the economy was in recession. President Harry S. Truman in 1948 replaced the then-Chairman of the Federal Reserve Marriner Eccles with Thomas B. McCabe for opposing this policy, although Eccles's term on the board continued for three more years. The reluctance of the Federal Reserve to continue monetizing the deficit became so great that, in 1951, President Truman invited the entire Federal Open Market Committee to the White House to resolve their differences. William McChesney Martin, then Assistant Secretary of the Treasury, was the principal mediator. Three weeks later, he was named Chairman of the Federal Reserve, replacing McCabe.

Post Bretton-Woods era

In July 1979, Paul Volcker was nominated, by President Carter, as Chairman of the Federal Reserve Board amid roaring inflation. He tightened the money supply, and by 1986 inflation had fallen sharply.[28] In October 1979 the Federal Reserve announced a policy of "targeting" money aggregates and bank reserves in its struggle with double-digit inflation.[29]

In January 1987, with retail inflation at only 1%, the Federal Reserve announced it was no longer going to use money-supply aggregates, such as M2, as guidelines for controlling inflation, even though this method had been in use from 1979, apparently with great success. Before 1980, interest rates were used as guidelines; inflation was severe. The Fed complained that the aggregates were confusing. Volcker was chairman until August 1987, whereupon Alan Greenspan assumed the mantle, seven months after monetary aggregate policy had changed.[30]

2001 recession to present

From early 2001 to mid-2003 the Federal Reserve lowered its interest rates 13 times, from 6.25 to 1.00%, to fight recession. In November 2002, rates were cut to 1.75, and many interest rates went below the inflation rate. On June 25, 2003, the federal funds rate was lowered to 1.00%, its lowest nominal rate since July, 1958, when the overnight rate averaged 0.68%. Starting at the end of June 2004, the Federal Reserve System raised the target interest rate and then continued to do so 17 straight times.

In February 2006, Ben Bernanke was appointed by President George W. Bush as the chairman of the Federal Reserve.[31]

In March 2006, the Federal Reserve ceased to make public M3, because the costs of collecting this data outweighed the benefits.[32] M3 includes all of M2 (which includes M1) plus large-denomination ($100,000 +) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks as well as at all banks in the United Kingdom and Canada.

2008 subprime mortgage crisis

Due to a credit crunch caused by the sub-prime mortgage crisis in September 2007, the Federal Reserve began cutting the federal funds rate. The Fed cut rates by 0.25% after its December 11, 2007 meeting and disappointed many individual investors who expected a higher rate cut: the Dow Jones Industrial Average dropped by nearly 300 points at its close that day. The Fed slashed the rate 0.75% in an emergency action on January 22, 2008 to assist in reversing a significant market slide influenced by weakening international markets. The Dow Jones Industrial Average initially fell nearly 4% (465 points) at the start of trading and then rebounded to a more tolerable 1.06% (128 point) loss. On January 30, 2008, eight days after the 75 points decrease, the Fed lowered its rate again, this time by 50 points.[33]

On August 25, 2009, President Barack Obama announced he would nominate Bernanke to a second term as chairman of the Federal Reserve.[34]

In October 2013, Janet Yellen was nominated to succeed Ben Bernanke as the chairperson of the Federal Reserve.

In December 2015, the Fed raised its benchmark interest rates by a quarter of a percentage point to between 0.25 and 0.50 percent, after 9 years of an unchanged and stable very low interest rate.[35]

Key laws affecting the Federal Reserve

Key laws affecting the Federal Reserve have been:[36]

References

  1. ^ Johnson, Roger T. "Historical Beginnings ... The Federal Reserve" (PDF). Federal Reserve Bank of Boston.
  2. ^ Andrew Jackson, "Veto Message, Washington, July 10, 1832," in Richardson, ed., Messages and Papers of the Presidents, II, 576–591.
  3. ^ Flaherty, Edward. "A Brief History of Central Banking in the United States". University of Groningen, Netherlands.
  4. ^ Herrick, Myron (March 1908). "The Panic of 1907 and Some of Its Lessons". Annals of the American Academy of Political and Social Science. JSTOR 1010701.
  5. ^ a b c d e f g h Whithouse, Michael (May 1989). "Paul Warburg's Crusade to Establish a Central Bank in the United States". Minnesota Federal Reserve.
  6. ^ a b c d e "America's Unknown Enemy: Beyond Conspiracy". American Institute of Economic Research.
  7. ^ a b Frank Arthur Vanderlip; Boyden Sparkes (1935). "XXI. A Conclave on Jekyl Island". From farm boy to financier. D. Appleton-Century Co. pp. 210–219. OCLC 1000045. Excerpts at Eric deCarbonnel (June 19, 2009). "Frank Vanderlip And The Creation Of The Federal Reserve". Market Skeptics. Retrieved February 10, 2012.
  8. ^ Leslie's Weekly, Oct. 19, 1916, p. 423. Collected in B. C. Forbes (1917). Men who are making America. B. C. Forbes Publishing Co. pp. 398–400. OCLC 629297.
  9. ^ Link, Arthur. Wilson and the Progressive Era New York: Harper, (1954) pp. 44–45
  10. ^ a b c d e "Born of a panic: Forming the Federal Reserve System". Minnesota Federal Reserve. August 1988. Archived from the original on June 20, 2007.
  11. ^ a b c d e f g h Johnson, Roger (December 1999). "Historical Beginnings ... The Federal Reserve" (PDF). Federal Reserve Bank of Boston.
  12. ^ "Pujo, Arsene, a brief biography".
  13. ^ "U.S. Congress, Excerpts from the Report of the Committee Appointed to Investigate the Concentration of Money and Credit, House Report No. 1593, 3 vols. (Washington, D.C., 1913), III: pp. 55–56, 89, 129, 140".
  14. ^ "Money Bill Goes to Wilson To-day". New York Times: 1. December 23, 1913.
  15. ^ "Wilson signs the currency bill". New York Times: 1. December 24, 1913.
  16. ^ "Currency Bill Passes Senate". New York Times: 1. December 20, 1913.
  17. ^ "Wilson Upholds Glass Money Bill; But Senators Think His Statement Offers a Loophole for His Accepting Vanderlip Plan" (PDF). New York Times. October 25, 1913.
  18. ^ "Aldrich Sees Bryan Back of Money Bill; Socialist, Unconstitutional Measure, Says Ex-Senator". New York Times. October 18, 1913. Retrieved May 4, 2010.
  19. ^ (Congressional Record, v. 51, pp. 1443–44, Dec. 22, 1913)
  20. ^ a b Page, Dave (December 1997). "Carter Glass: A Brief Biography". Minnesota Federal Reserve. Archived from the original on May 16, 2008.
  21. ^ (Congressional Record, 22 December 1913)
  22. ^ "Wilson Signs Currency Bill". New York Times, December 24, 1913. December 24, 1913. Retrieved May 4, 2010.
  23. ^ "President Wilson's First Inaugural Address". Civic Webs Virtual Library.
  24. ^ Keleher, Robert (March 1997). "The Importance of the Federal Reserve". Joint Economic Committee. US House of Representatives. Archived from the original on February 28, 2008.
  25. ^ A Foregone Conclusion: The Founding of the Federal Reserve Bank of St. Louis by James Neal Primm – stlouisfed.org – Retrieved January 1, 2007
  26. ^ Reserve Bank Organization Committee (April 14, 1914). "Decision of the Reserve Bank Organization Committee Determining the Federal Reserve Districts and the Location of Federal Reserve Banks under the Federal Reserve Act approved December 23, 1913". U.S. Government Printing Office.
  27. ^ Arthur Link, Wilson: The New Freedom; pp. 199–240 (1956).
  28. ^ Bartlett, Bruce (June 14, 2004). "Warriors Against Inflation". National Review.
  29. ^ Source: A Monetary Chronology of the United States, American Institute for Economic Research, July 2006
  30. ^ A Monetary Chronology of the United States, American Institute for Economic Research, July 2006
  31. ^ "Bernanke Biography". US Federal Reserve Bank. Archived from the original on January 24, 2010. Retrieved January 30, 2010.
  32. ^ "FRB: H.6 Release--Discontinuance of M3". Retrieved December 28, 2010.
  33. ^ Michael M. Grynbaum and John Holusha (January 22, 2008). "Fed Cuts Rate 0.75% and Stocks Swing". The New York Times. The New York Times Company. Retrieved January 22, 2008.
  34. ^ Hilsenrath, Jon; Williamson, Elizabeth; Weisman, Jonathan (August 26, 2009). "Calm in Crisis Won Fed Job". The Wall Street Journal. Archived from the original on February 4, 2010. Retrieved January 30, 2010.
  35. ^ "Fed raises interest rates, citing ongoing U.S. recovery". Reuters. December 17, 2015. Retrieved May 5, 2016.
  36. ^ ebook: The Federal Reserve – Purposes and Functions:http://www.federalreserve.gov/pf/pf.htm
    for info on government regulations, see pages 13 and 14. Addressing bank panics on page 83. Implementation of monetary policy on page 12 and 36. Board and reserve banks responsibility on page 12. Key laws affecting the federal reserve on page 11. Monetary policy uncertainties on pages 18–19.

External links

Aldrich–Vreeland Act

The Aldrich–Vreeland Act was passed in response to the Panic of 1907 and established the National Monetary Commission, which recommended the Federal Reserve Act of 1913.

On May 27, 1908, the bill passed the House on a mostly party-line vote of 166–140, with 13 Republicans voting against it and no Democrats voting for it. On May 30, it passed in the Senate with 43 Republicans in favor and five Republicans joining 17 Democrats opposed. President Roosevelt signed the bill that same night.The act also allowed national banks to start national currency associations in groups of ten or more, with at least $5 million in total capital, to issue emergency currency. These bank notes were to be backed by not just government bonds but also just about any securities the banks were holding. The act proposed that this emergency currency had to go through a process of approval by the officers of these national currency associations and then distributed by the Comptroller of the Currency.

However, it is possible that because there was a 5 percent tax placed on this emergency currency for the first month it was "outstanding" and a 1 percent increase for the following months it was "outstanding," no bank notes were issued. Another possible explanation that the emergency currency was never issued might have been that it was unnecessary.Congress modified and extended the law in 1914 when British and other foreign creditors demanded immediate payments, in gold, of amounts which would ordinarily have been carried over and paid through exports of commodities.

Senator Nelson W. Aldrich (R-RI) was largely responsible for the Aldrich-Vreeland Currency Law and became the Chairman of the National Monetary commission. The co-sponsor of the legislation was Rep. Edward Vreeland, a Republican from New York.

A usage of the law occurred at the outbreak of the World War I in 1914 when the first great financial panic of the 20th century befell the world, necessitating the closure of the New York Stock Exchange. Secretary of the Treasury William Gibbs McAdoo appeared in New York City and assured the public that ample stocks of emergency banknotes had been prepared in accordance with the Aldrich–Vreeland Act and were available for issue to the banks. As of October 23, 1914, $368,616,990 was outstanding.

The Federal Reserve Act of December 23, 1913, took effect in November 1914 when the 12 regional banks opened for business. Ultimately the emergency currency issued under the Aldrich-Vreeland Law was entirely withdrawn.

Allan H. Meltzer

Allan H. Meltzer (; February 6, 1928 – May 8, 2017) was an American economist and Allan H. Meltzer Professor of Political Economy at Carnegie Mellon University's Tepper School of Business and Institute for Politics and Strategy in Pittsburgh, Pennsylvania. Meltzer specialized on studying monetary policy and the US Federal Reserve System, and authored several academic papers and books on the development and applications of monetary policy, and about the history of central banking in the US. Together with Karl Brunner, he created the Shadow Open Market Committee: a monetarist council that deeply criticized the Federal Open Market Committee.Meltzer originated the aphorism "Capitalism without failure is like religion without sin. It doesn't work." That is, guarding companies from failure "removes the dynamic process that makes stockholders responsible for losses and disciplines managers who make mistakes."

FRASER

The Federal Reserve Archival System for Economic Research (FRASER) is a digital archive begun in 2004 by the Federal Reserve Bank of St. Louis to safeguard, preserve and provide easy access to the United States’ economic history, particularly the history of the Federal Reserve System, through digitization of documents related to the U.S. financial system.

Federal Reserve Economic Data

Federal Reserve Economic Data (FRED) is a database maintained by the Research division of the Federal Reserve Bank of St. Louis that has more than 500,000 economic time series from 87 sources. The data can be viewed in graphical and text form or downloaded for import to a database or spreadsheet, and viewed on mobile devices. They cover banking, business/fiscal, consumer price indexes, employment and population, exchange rates, gross domestic product, interest rates, monetary aggregates, producer price indexes, reserves and monetary base, U.S. trade and international transactions, and U.S. financial data. The time series are compiled by the Federal Reserve and many are collected from government agencies such as the U.S. Census and the Bureau of Labor Statistics.

The economic data published on FRED are widely reported in the media and play a key role in financial markets. In a 2012 Business Insider article titled "The Most Amazing Economics Website in the World", Joe Weisenthal quoted Paul Krugman as saying: "I think just about everyone doing short-order research — trying to make sense of economic issues in more or less real time — has become a FRED fanatic."

Federal Reserve Reform Act of 1977

The Federal Reserve Reform Act of 1977 enacted a number of reforms to the Federal Reserve, making it more accountable for its actions on monetary and fiscal policy and tasking it with the goal to "promote maximum employment, production, and price stability". The act explicitly established price stability as a national policy goal for the first time. It also required quarterly reports to Congress "concerning the ranges of monetary and credit aggregrates for the upcoming 12 months." It also modified the selection of the Class B and C Reserve Bank Directors. Discrimination on the basis of race, creed, color, sex, or national origin was prohibited, and the composition of the directors was required to represent interests of "agriculture, commerce, industry, services, labor and consumers". The Federal Reserve Act, which created the Federal Reserve in 1913, made no mention of services, labor, and consumers. Finally, the act established Senate confirmation of chairmen and vice chairmen of the Board of Governors of the Federal Reserve. The Federal Reserve Reform Act made the Federal Reserve more transparent to Congressional oversight.

Federal Reserve responses to the subprime crisis

The U.S. central banking system, the Federal Reserve, in partnership with central banks around the world, took several steps to address the subprime mortgage crisis. Federal Reserve Chairman Ben Bernanke stated in early 2008: "Broadly, the Federal Reserve’s response has followed two tracks: efforts to support market liquidity and functioning and the pursuit of our macroeconomic objectives through monetary policy." A 2011 study by the Government Accountability Office found that "on numerous occasions in 2008 and 2009, the Federal Reserve Board invoked emergency authority under the Federal Reserve Act of 1913 to authorize new broad-based programs and financial assistance to individual institutions to stabilize financial markets. Loans outstanding for the emergency programs peaked at more than $1 trillion in late 2008." Broadly stated, the Fed chose to provide a "blank cheque" for the banks, instead of providing liquidity and taking over. It did not shut down or clean up most troubled banks; and did not force out bank management or any bank officials responsible for taking bad risks, despite the fact that most of them had major roles in driving to disaster their institutions and the financial system as a whole. This lavishing of cash and gentle treatment was the opposite of the harsh terms the U.S. had demanded when the financial sectors of emerging market economies encountered crises in the 1990s.

G. Edward Griffin

G. Edward Griffin (born November 7, 1931) is an American author, filmmaker, and conspiracy theorist. Griffin's writings promote a number of false views and conspiracy theories regarding various of his political, defense and health care interests. In his book World Without Cancer, he argues that cancer is a nutritional deficiency that can be cured by consuming amygdalin, a view regarded as quackery by the medical community. He is the author of The Creature from Jekyll Island (1994), which promotes false theories about the motives behind the creation of the Federal Reserve System. He is an HIV/AIDS denialist, supports the 9/11 Truth movement, and supports a specific John F. Kennedy assassination conspiracy theory. He also believes that the biblical Noah's Ark is located at the Durupınar site in Turkey.

Gary Taylor (journalist)

Gary Dale Taylor (born March 4, 1947) is an American journalist and author best known for reporting for newspapers and magazines from Houston, Texas, since 1971 and for the attempt on his life in 1980 by controversial Texas attorney Catherine Mehaffey Shelton. He recorded his recollection of that event in an award-winning 2008 memoir entitled Luggage By Kroger.

George Gund II

George Gund II (April 13, 1888 – November 15, 1966) was an American banker, business executive, and real estate investor who lived in Cleveland, Ohio in the early and middle part of the 20th century. Heir to the George Frederick Gund brewing and banking fortune, he was a philanthropist for most of his life. He established The George Gund Foundation in 1952 and endowed it with most of his $600 million fortune at his death.

History of Federal Open Market Committee actions

This is a list of historical rate actions by the United States Federal Open Market Committee (FOMC). The FOMC controls the supply of credit to banks and the sale of treasury securities. The Federal Open Market Committee meets every two months during the fiscal year. At scheduled meetings, the FOMC meets and makes any changes it sees as necessary, notably to the federal funds rate and the discount rate. The committee may also take actions with a less firm target, such as an increasing liquidity by the sale of a set amount of Treasury bonds, or affecting the price of currencies both foreign and domestic by selling dollar reserves (such as during the Mexican peso bailout in 1994). Jerome Powell is the current chairperson of the Federal Reserve and the FOMC.

Jekyll Island

Jekyll Island is located off the coast of the U.S. state of Georgia, in Glynn County. It is one of the Sea Islands and one of the Golden Isles of Georgia barrier islands. The island is owned by the State of Georgia and run by a self-sustaining, self-governing body.Long used seasonally by indigenous peoples of the region, beginning in the colonial era, some of its lands became privately owned. A few structures still stand made of tabby, a coastal building material of crushed oyster shells. The island was developed in the late 19th and early 20th centuries. It was evacuated during World War II by order of the US government. In 1947 the state of Georgia acquired all the property, for security and preservation.

A popular tourist destination, the island has beaches frequented by vacationers. Guided tours of the Landmark Historic District are available. Bike trails, walks along the beaches and sandbars, and Summer Waves, a water park, are among the active attractions. The historic district features numerous impressive and ambitious buildings from the late nineteenth and early twentieth centuries. The island is also full of wildlife, consisting of many different mammals, reptiles, and birds living and breeding in the island's inland salt marshes. In 2018, Architectural Digest named Jekyll Island the eleventh most beautiful small town in America.

Paul Warburg

Paul Moritz Warburg (August 10, 1868 – January 24, 1932) was an American investment banker born in Germany, and an early advocate of the U.S. Federal Reserve System.

Suffolk System

The Suffolk System was the first regulatory banking system arrangement of remote banks created in the United States. Starting in 1824, the Suffolk Bank of Boston, Massachusetts, along with six other banks, created a system that required country (non-federal) banks to deposit reserve balances in one or more of the participating banks, which guaranteed that each country bank could redeem their banknotes in specie. The Suffolk Bank became one of the most profitable in the country and continued to operate under the Suffolk System until 1858, when rival institutions complained of dictatorial practices and eventually national legislation banned state banknotes. The Suffolk System was the predecessor to modern banking practices and led to the creation of the Federal Reserve that still operates today.

Too big to fail

The "too big to (let) fail" theory asserts that certain corporations, particularly financial institutions, are so large and so interconnected that their failure would be disastrous to the greater economic system, and that they therefore must be supported by government when they face potential failure. The colloquial term "too big to fail" was popularized by U.S. Congressman Stewart McKinney in a 1984 Congressional hearing, discussing the Federal Deposit Insurance Corporation's intervention with Continental Illinois. The term had previously been used occasionally in the press.Proponents of this theory believe that some institutions are so important that they should become recipients of beneficial financial and economic policies from governments or central banks. Some economists such as Paul Krugman hold that economies of scale in banks and in other businesses are worth preserving, so long as they are well regulated in proportion to their economic clout, and therefore that "too big to fail" status can be acceptable. The global economic system must also deal with sovereign states being too big to fail.Opponents believe that one of the problems that arises is moral hazard whereby a company that benefits from these protective policies will seek to profit by it, deliberately taking positions (see asset allocation) that are high-risk high-return, as they are able to leverage these risks based on the policy preference they receive. The term has emerged as prominent in public discourse since the 2007–08 global financial crisis. Critics see the policy as counterproductive and that large banks or other institutions should be left to fail if their risk management is not effective. Some critics, such as Alan Greenspan, believe that such large organisations should be deliberately broken up: "If they're too big to fail, they're too big". More than fifty prominent economists, financial experts, bankers, finance industry groups, and banks themselves have called for breaking up large banks into smaller institutions.In 2014, the International Monetary Fund and others said the problem still had not been dealt with. While the individual components of the new regulation for systemically important banks (additional capital requirements, enhanced supervision and resolution regimes) likely reduced the prevalence of TBTF, the fact that there is a definite list of systemically important banks considered TBTF has a partly offsetting impact.

Walter Wyatt

Walter Wyatt (July 20, 1893 – February 26, 1978) was an American lawyer, who served as the twelfth Reporter of Decisions of the Supreme Court of the United States.

Born in Savannah, Georgia, Wyatt received his LL.B. from the University of Virginia in 1917. During World War I, Wyatt worked as legal adviser to the Selective Service System, the federal agency charged with enforcing the newly implemented military draft. From 1922 to 1946, he was an attorney for the Federal Reserve System, ending his career there as General Counsel of the agency, and from 1936 to 1946, he also served as counsel to a related agency, the Federal Open Market Committee. During this period, Wyatt also authored several books on banking law.

Wyatt was appointed as the Supreme Court's Reporter of Decisions on March 1, 1946, after the post had been vacant for two years following the death of Ernest Knaebel. He retroactively edited the volumes of the United States Reports covering those two years, volumes 322 to 325.

Wyatt died in Washington, D.C. in 1978. His papers are held at the Albert and Shirley Small Special Collections Library at the University of Virginia.

Warburg family

The Warburg family is a prominent German and American banking family of German Jewish and originally Venetian Jewish descent, noted for their varied accomplishments in biochemistry, botany, political activism, economics, investment banking, law, physics, classical music, art history, pharmacology, physiology, finance, private equity and philanthropy.They are thought to have originated as the Venetian Jewish del Banco family, Anselmo and Abraham Ha Levi Kahana de Palenzuela from Spain, one of the wealthiest Sephardic Venetian families in the early 16th century. Following restrictions imposed on banking and the Jewish community, they moved to Bologna, and thence to Warburg, in Germany, in the 16th century, after which they later took their name. The first known ancestor was Simon von Kassel.The family later established itself in Altona, near Hamburg in the 17th century, after the Thirty Years' War, and it was in Hamburg that M. M. Warburg & Co. was established in 1798, among the oldest still existing investment banks in the world. Other banks created by members of the family include: M.M.Warburg & Co., Warburg Pincus, S. G. Warburg & Co. (becoming UBS Warburg).

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