23 December 1913: The US Federal Reserve is created

After much debate, Woodrow Wilson finally signed the bill that would create the US Federal Reserve on this day in 1913.

The idea of creating a central bank of the United States is as old as the country itself. But whenever the idea was raised, suspicion followed. The south was wary of the north, the west of the east, regional interests were set against national, and private interests came into conflict with public.

Numerous financial crises followed over the decades as a result. But the Panic of 1907 was the final straw, when a full-blown meltdown was only just avoided. As there had been no central bank to turn on the money taps, it fell on the big bankers, led by JPMorgan, to step into the breach, and shore up the banking system.

In the aftermath of the crisis, the Aldrich-Vreeland Act was passed. It set up the National Monetary Commission essentially a fact-finding mission to Europe to see how things were done there. The commission agreed that a central bank would be a good idea in principle but how it would work was another matter. In a nutshell, the big banking interests, backed by the Republican Party, favoured a centralised lender of last resort that they would control. But agricultural interests demanded a regional system that would be flexible to their needs in terms of credit.

For a country riven by such internal conflict, the venue for a top-secret meeting of America's most powerful bankers and lawmakers in 1910 was more than a little ironic Jekyll Island, off the coast of Georgia. What emerged was the Aldrich Plan, which set out the principle of a central bank with regional branches. But suspicion raised its ugly head once more and the plan failed. Yet enough of the basic idea survived when the Democrats moved into the White House in 1912.

The Glass-Owen proposal, named after two Democrat congressmen, followed, calling for a regional reserve banking system. President Woodrow Wilson added the central bank idea back in and came up with a compromise: The Federal Reserve Act.

But even that proved highly controversial. During negotiations, the senator for Missouri found himself with a tie-breaking vote, which is why Missouri is the only state with two reserve banks one in St Louis, and the other in Kansas City. After much debating, broad agreement was eventually reached and President Wilson was able to sign the bill into law on 23 December 1913.

Recommended

What is Rihanna's net worth?
Entrepreneurs

What is Rihanna's net worth?

Rihanna became the youngest self-made billionaire in 2022. Here’s how she made her money.
2 Jun 2023
Best savings accounts – June 2023
Savings

Best savings accounts – June 2023

Interest rates have been creeping up - we look at the best savings accounts on the market right now.
2 Jun 2023
Share tips of the week – 2 June
Investments

Share tips of the week – 2 June

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
2 Jun 2023
The best one-year fixed savings accounts - June 2023
Savings

The best one-year fixed savings accounts - June 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
2 Jun 2023

Most Popular

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?
Savings

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?

Two fortunate NS&I Premium Bond winners are now millionaires. Find out here if you’re one of them.
1 Jun 2023
Housing slowdown ‘deeper than anticipated’ as property sales slump
House prices

Housing slowdown ‘deeper than anticipated’ as property sales slump

New data from HMRC shows a fall in property sales - now experts predict a delay to the housing recovery
1 Jun 2023
The best one-year fixed savings accounts - June 2023
Savings

The best one-year fixed savings accounts - June 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
2 Jun 2023