The banks, in an attempt to avoid bank runs, were hoarding their money. However in order to hoard the money, they did not lend any out, bringing the economy to a standstill. The credit system of the country had ceased to operate, and thousands of firms went into bankruptcy. Something had to be done that would provide for a flexible amount of currency as well as provide cohesion between banks across the United States. A large regulated bank, like the Federal Reserve could make this happen. The Federal Reserve Act of 1913 helped to establish banks as a united force working for the people instead of independent agencies working against each other. By providing a flexible amount of currency, banks did not have to hoard their money in fear of a bank run. Because of this, there was no competitive edge to see who could keep the most currency on hand and a more expansionary economy was possible.... [continues]
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