Wilson's New Freedom Reforms: Federal Reserve Act for kids
President Woodrow Wilson, like his predecessors Theodore Roosevelt and William Taft, was a firm supporter of the Progressive Movement and Progressive reforms. His New Freedom polices included the passing of the US law known as the Federal Reserve Act.
Federal Reserve Act for kids: Background History
The United States of America had been without a central bank since the charter of the Second Bank of the United States had expired in 1836. The Bank War initiated by Andrew Jackson brought about the destruction of the unregulated Second Bank of the United States and the transfer government money into selected state banks.
Federal Reserve Act for kids: Why was the amendment to the law passed?
The Federal Reserve Act was passed because public confidence in the US banking system was extremely low due to the collapse of small banks during periods of depression in which many Americans had lost their homes, businesses and life savings. There was no central bank and Wilson decided to take action to centralize the system, control American monetary policy and restore the confidence of Americans in banks. The law became commonly referred to as the Currency Bill.
Who sponsored the Federal Reserve Act aka the Owen-Glass Act?
The Federal Reserve Act, aka the Owen-Glass Act, was sponsored by the chairmen of the House and Senate Banking and Currency committees by the progressive representatives Carter Glass, a Democrat of Virginia and Senator Robert Latham Owen, a Democrat of Oklahoma. The law was passed on December 23, 1913.
What did the Federal Reserve Act do? What was the Purpose of the Act?
Woodrow Wilson signed the 1913 Federal Reserve Act into law that established a a Federal Reserve system regulated by a Board of Governors with the power to set the interest rates the reserve banks charged other banks. The objectives included the prevention of financial panics and the ready availability of cash from a money reserve.
12 Federal Reserve banks were created that served as depositories for the cash reserves of the banks that joined the system
The 12 Federal Reserve banks were governed by a Federal Reserve Board, whose 7 members were appointed by the President
The Act gave the Federal Reserve System the authority to print money and thereby set the monetary policy of the United States
Authority was also given to sell Treasury securities (bonds issued by the U.S. government)
Power was given to adjust the discount rate and the federal funds rate. (The federal funds rate is the interest rate banks charge each other on loans used to meet reserve requirements)
The law further required that all federally-chartered banks belonged to the Federal Reserve System and purchased a certain amount of stock in the Federal Reserve bank
Significance of the Federal Reserve Act
The Federal Reserve Act was one of Wilson's most successful enduring legislative accomplishments - it was landmark legislation that created the central banking system (the Federal Reserve). The law assured greater flexibility in the money supply and provision was made for issuing federal reserve notes to meet business demands.
Before the law was passed the U.S. government had left control of its money supply largely to unregulated private banks who often over-stretched themselves prompting periodic financial panics as investors scrambled to turn their bank paper into coin. The Federal Reserve Act, aka the Owen-Glass Act or the Currency Bill, is the most significant law governing American finances - it has been amended on numerous occasions and impacts the modern free market economic system in the United States.
For further information on banking reforms refer to the Glass-Steagall Act aka 1933 Banking Act.