The first U.S. institution with central banking responsibilities was the First Bank of the United States, chartered by Congress and signed into law by President George Washington on February 25, 1791, at the urging of Alexander Hamilton.
In 1816, however, Madison revived it in the form of the Second Bank of the United States. Years later, early renewal of the bank's charter became the primary issue in the reelection of President Andrew Jackson. After Jackson, who was opposed to the central bank, was reelected, he pulled the government's funds out of the bank. Nicholas Biddle, President of the Second Bank of the United States, responded by contracting the money supply to pressure Jackson to renew the bank's charter forcing the country into a recession, which the bank blamed on Jackson's policies.
Jackson is the only President to completely pay off the national debt.
The bank's charter was not renewed in 1836. From 1837 to 1862, in theFree Banking Era there was no formal central bank. From 1862 to 1913, a system of national banks was instituted by the 1863 National Banking Act. A series of bank panics, in 1873, 1893, and 1907 provided demamd for the creation of a centralized banking system
Creation of Third Central Bank
Main article: History of the Federal Reserve System
According to many economists, the previous national banking system had two main weaknesses: an inelastic currency and a lack of liquidity.
In 1908, Congress enacted the Aldrich-Vreeland Act, which provided for an emergency currency and established the National Monetary Commission to study banking and currency reform.[147] The National Monetary Commission returned with recommendations which were repeatedly rejected by Congress.
A revision crafted during a secret meeting on Jekyll Island by Senator Aldrich and representatives of the nation's top finance and industrial groups later became the basis of the Federal Reserve Act.
The House voted on December 22, 1913, with 298 yeas to 60 nays, and the Senate voted 43–25 on December 23, 1913.[150] President Woodrow Wilson signed the bill later that day.[151]
Federal Reserve Act
Main article: Federal Reserve Act
Newspaper clipping, December 24, .
In early November 1910, Aldrich met with five well known members of the New York banking community to devise a central banking bill. Paul Warburg, an attendee of the meeting and longtime advocate of central banking in the U.S., later wrote that Aldrich was "bewildered at all that he had absorbed abroad and he was faced with the difficult task of writing a highly technical bill while being harassed by the daily grind of his parliamentary duties".
After ten days of deliberation, the bill, which would later be referred to as the "Aldrich Plan", was agreed upon. It had several key components, including a central bank with a Washington-based headquarters and fifteen branches located throughout the U.S. in geographically strategic locations, and a uniform elastic currency based on gold and commercial paper. Aldrich believed a central banking system with no political involvement was best, but was convinced by Warburg that a plan with no public control was not politically feasible.
The compromise involved representation of the public sector on the Board of Directors.[153]
Aldrich's bill met much opposition from politicians. Critics charged Aldrich of being biased due to his close ties to wealthy bankers such as J. P. Morgan andJohn D. Rockefeller, Jr.,
The plan became the basis for the Federal Reserve Act, which was proposed by SenatorRobert Owen in May 1913. The primary difference between the two bills was the transfer of control of the Board of Directors (called the Federal Open Market Committee in the Federal Reserve Act) to the government. The bill passed Congress on December 23, 1913,[154][155] on a mostly partisan basis, with most Democrats voting "yea" and most Republicans voting "nay".[144]
Key laws
Key laws affecting the Federal Reserve have been:
- Federal Reserve Act
- Glass–Steagall Act
- Banking Act of 1935
- Employment Act of 1946
- Federal Reserve-Treasury Department Accord of 1951
- Bank Holding Company Act of 1956 and the amendments of 1970
- Federal Reserve Reform Act of 1977
- International Banking Act of 1978
- Full Employment and Balanced Growth Act (1978)
- Depository Institutions Deregulation and Monetary Control Act (1980)
- Financial Institutions Reform, Recovery and Enforcement Act of 1989
- Federal Deposit Insurance Corporation Improvement Act of 1991
- Gramm–Leach–Bliley Act (1999)
- Financial Services Regulatory Relief Act (2006)
- Emergency Economic Stabilization Act (2008)
- Dodd–Frank Wall Street Reform and Consumer Protection Act (201
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