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.

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.

Current Federal Reserve Board

Jerome H. Powell (Chair)

Richard H. Clarida (Vice Chair)

Randal K. Quarles (Vice Chair for Supervision)

Michelle W. Bowman

Lael Brainard

Christopher J. Waller

(Seat Currently Empty)

Source: Federal Reserve.

Current Federal Reserve Bank Presidents

Name of President

Bank Location-District

Eric S. Rosengren

John C. Williams

Patrick T. Harker

Philadelphia-3

Loretta J. Mester

Cleveland-4

Thomas I. Barkin

Raphael W. Bostic

Charles L. Evans

James Bullard

St. Louis-8

Neel Kashkari

Minneapolis-9

Esther L. George

Kansas City-10

Robert S. Kaplan

Mary C. Daly

San Francisco-12

Source: Federal Reserve.

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.