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Federal Reserve Act
December 23, 1913· Law or policy· Laws, labor & antitrust
Well documentedSolid records, texts or physical evidence.
The 1913 law that created the Federal Reserve, America's central bank, to supply emergency cash and stop banking panics.
See it on the Innovation & Wealth map →What happened
After the Panic of 1907, Senator Nelson Aldrich and Wall Street bankers secretly drafted a plan on Jekyll Island, Georgia, in 1910. Democrats reshaped it: Carter Glass and Robert Owen's bill, signed by Woodrow Wilson on December 23, 1913, created 12 regional Reserve Banks owned by member banks and overseen by a presidentially appointed board in Washington. The Fed could lend to banks against sound assets and issue Federal Reserve notes, an 'elastic' currency that expands when cash demand spikes. It opened in 1914.
Impact on society and the economy
It gave the US a lender of last resort, ending reliance on private rescuers like J. P. Morgan, and later became the main manager of interest rates and money.
How we know
The Act's text, congressional debates, Wilson's and Glass's papers, and participants' accounts of Jekyll Island, including banker Frank Vanderlip's 1935 magazine memoir.
Still debated
The secret Jekyll Island meeting still fuels conspiracy theories; historians see secretive lobbying, not a plot, but debate how much bankers shaped the final law.
Connections (4)
▸Bank of England and the national debt was a model for Federal Reserve ActMostly agreed
The connection
By the late 1800s the Bank of England had become Britain's lender of last resort, lending freely in panics against good collateral, as Walter Bagehot urged in 1873. America had no central bank after 1836 and suffered repeated panics. After 1907, US planners studied it and its European peers and gave the Fed similar rescue tools.
When and how
London, 1694–1900s; Washington, 1908–1913. The National Monetary Commission under Senator Nelson Aldrich toured European central banks; banker Paul Warburg advised.
How sure are we?
The Commission published dozens of volumes on foreign banking systems, including the Bank of England, and the Fed's discount lending follows their methods.
Debates
How British the model was is debated: Warburg, from Hamburg, leaned on Germany's Reichsbank, and the Fed's 12 regional banks were a uniquely American design.
▸J. P. Morgan acted as a one-man central bank before Federal Reserve ActMostly agreed
The connection
In the Panic of 1907, with no central bank, 70-year-old J. P. Morgan gathered bankers in his New York library, decided which trust companies to save, and organized rescue pools. It worked, but it alarmed Congress: the nation's financial safety depended on one aging private banker. Reform began in 1908 and produced the Federal Reserve five years later.
When and how
New York, October–November 1907; Morgan, Treasury Secretary George Cortelyou, banker Benjamin Strong and others. Morgan died in March 1913, months before the Act.
How sure are we?
Press accounts, participants' memoirs, and the 1908 Aldrich–Vreeland Act, which created the National Monetary Commission in direct response to the panic.
Debates
Did Morgan act for the public good or his own gain? He had US Steel buy a rival cheaply mid-crisis. Fear of his 'money trust' shaped the Fed's decentralized design.
▸Progressive Era reform and trust-busting created Federal Reserve ActWell documented
The connection
Progressives distrusted Wall Street's 'money trust,' which the 1912–13 Pujo hearings put on display, so they rejected a banker-run Republican plan and insisted on public oversight. Wilson's compromise kept privately owned regional Reserve Banks but placed them under a presidentially appointed board and made the new currency an obligation of the US government.
When and how
Washington, 1912–1913; President Woodrow Wilson, Representative Carter Glass, Senator Robert Owen, Secretary of State William Jennings Bryan, Louis Brandeis and banker Paul Warburg.
How we know
Congressional debates, Wilson's and Glass's papers, and the shift from the Aldrich plan to the Glass–Owen bill document the reformers' role.
Debates
Whether the final Fed served the public or the bankers is still argued from both left and right; its mixed private-public structure remains unusual.
▸Federal Reserve Act failed to prevent Crash of 1929 and the Great DepressionDebated
The connection
The Fed was built to stop panics, yet from 1930 to 1933 it let about 9,000 banks fail and the money supply shrink by about a third. In 1931 it even raised interest rates to defend the dollar's gold value. Milton Friedman and Anna Schwartz argued in 1963 that these mistakes turned a recession into the Great Depression.
When and how
Washington and New York, 1928–1933; Fed officials, adrift after the 1928 death of New York Fed leader Benjamin Strong; later analysts Friedman, Schwartz and Ben Bernanke.
How sure are we?
Money-supply and bank-failure data, Fed records, and Bernanke's 2002 remark as a Fed governor: 'Regarding the Great Depression, you're right, we did it. We're very sorry.'
Debates
Others, such as Barry Eichengreen, stress gold-standard limits and collapsing spending; whether the Fed could have acted differently under its rules is still debated.