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

Which companies will lose the most from the energy windfall tax?
Energy stocks

Which companies will lose the most from the energy windfall tax?

The government’s new energy windfall tax has muddied the waters for investors and companies alike. Rupert Hargreaves explains how it might affect some…
27 May 2022
The MoneyWeek Podcast with Russell Napier at the Library of Mistakes
Investment strategy

The MoneyWeek Podcast with Russell Napier at the Library of Mistakes

Merryn talks to Russell Napier about Edinburgh’s Library of Mistakes, the age of debt and financial repression, plus why he has never invested in Chin…
27 May 2022
Cryptocurrency roundup: another torrid week for crypto
Bitcoin & crypto

Cryptocurrency roundup: another torrid week for crypto

Cryptocurrencies suffered yet another intense week. Saloni Sardana rounds up the week's crypto news.
27 May 2022
Ocado faces a “crunch” year – should you buy or avoid?
Share tips

Ocado faces a “crunch” year – should you buy or avoid?

Ocado was one of the big winners from the pandemic as customers moved online. But now it’s struggling, and losses are growing. So, asks Rupert Hargrea…
27 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
The Federal Reserve wants markets to fall – here’s what that means for investors
Stockmarkets

The Federal Reserve wants markets to fall – here’s what that means for investors

The Federal Reserve’s primary mandate is to keep inflation down, and lower asset prices help with that. So, asks Dominic Frisby – just how low will st…
25 May 2022
Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?
Investment trusts

Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?

After a spectacular couple of decades, the Scottish Mortgage Investment Trust has fallen by almost 45% so far this year. Rupert Hargreaves asks if no…
26 May 2022