Federal Reserve

Topics: Federal Reserve System, Central bank, Monetary policy Pages: 4 (1135 words) Published: October 14, 2013


History of the Federal Reserve System:
Evolutionary Banking System

History of the Federal Reserve System
Throughout history there have been severe financial crisis that required an urgent need of a financial reform. Among many reforms an example includes the Consumer Protection Act which was created in response to recent financial crisis. But one of the most notable to date is the creation of the Federal Reserve System in 1913. The Federal Reserve System was established after Woodrow Wilson signed Federal Reserve Act. Its purpose was to serve as the U.S. central bank and create a more stable and secure financial system. Banking in America during 1863 was difficult to operate and was undependable. During those times, The First Bank and Second Bank of the United States were the only official representatives of the U.S. Treasury. The rest of the banks throughout the United States were privately owned or operated within their own states. This created a huge mess throughout the banking system because each bank would have their own currency which made it difficult to keep track the variety of notes and their value. Since the population in the United States was growing and changing, it was time for change. Therefore in 1863 Congress made an attempt to reform the financial system. The National Bank was initiated to attempt to make a more stabilized banking system. It began with creating and enforcing standards that should be included in banks. For example it set the minimum of money a bank could hold and regulate how they administer loans. The National Bank Act was able to terminate the use of the different bank currency by putting into effect a 10% tax on them. However there was still the absence of a central bank and so the problems remained and banks continued to suffer from financial crisis. Due to the new regulations, banks were unable to meet the growing money demands because they couldn’t get short term money loans. Since this...
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