History of the Federal Reserve

What is the Fed?

Central bank of the United states Sets monetary power Meets 8 times a year Release a statement on what it is going to do Federal Reserve is not part of the government Its private Increases and decreases

Us Currency in 1775-1791
In order to finance the American Revolution, congress printed the nations first paper money. Paper money at the time was known as continentals There was a inflation with these paper notes that after the war they became pretty much worthless.

1791-1811: First Attempt at Central Banking

The First bank of the United States was established Philadelphia, 1791 by Treasury Secretary Alexander Hamilton. Largest corporation in the country and was dominated by big banking and money interest. Many agrarian minded Americans were sceptical of the idea of a large and powerful bank opposed it.

1816-1836 A Second Try Fails

By 1816, Congress agreed to charter the Second Bank of the United States. Andrew Jackson, a central bank foe

Elected president president in 1828. Vowed to kill it.

I was not renewed.

Second Banks charter was expired in 1839

1836-1865 The Free Banking Era

States chartered banks and uncharted free banks,issuing their own notes.

Redeemable for gold and spices

Banks also began offering demand deposits to enhance commerce. Doing so the New York Clearinghouse Association was established.

1853

Provides a way for the city's banks to exchange checks and settle accounts.

1863 National Banking Act

Passed in 1863 Providing for nationally chartered banks. Act requires taxation on state banks notes

Effectively creating a uniform currency for the nation.

Despite taxation on state banks, state banks continued to flourish due to the growing popularity of demands deposites.

1873-1907 Financial Panics Prevail

1893 A banking panic set off the worst depression in the United States Economy stabilized after the invention of financial mogul J.P Morgan. Nations banking and financial system needed some attention.

1907 A Very Bad Year

J.P Morgan was called to fix the disaster. Most Americans were calling for a reform of the banking system. There were was a growing consensus among all Americans that a central banking authority was needed to ensure a healthy banking system and provide for an elastic currency.

1920s: The Beginning of Open Market Operations

After WWI, Benjamin Strong, head of New York Fed from 1914 to his death in 1928, recognized that gold no longer served as the central factor in controlling credit. His purchase of government securities gave clear evidence of the power to open market operations to influence the availability of credit in the banking system.

1913 The Federal Reserve System is Born

The Glass and Willis proposal was hotly debated, molded and reshaped. When Wilson signed the Federal Reserve Act into law, it stood as an example of compromise.

1908-1912 The Stage is Set for Decentralized Central Bank

The Aldrich-Vreeland Act of 1808, passed as an immediate response to the Panic of 1907 Provided for emergency currency issue during a crisis. Also established the national Monetary Commission to search for a long-term solution to the bankings and financial problems. 1912 election of Democrat Woodrow Wilson killed the Republican Aldrich plan.

1912 Woodrow Wilson as Financial Reformer

Soon became the chairman of the House Committee on Banking and Finance. Throughout most of 1912, Glass and Willis labored over a central bank proposal. Wilson labored over a central bank proposal, they presented Wilson with what became the Federal Reserve Act.

1914 Open for Business

November 16, 1914, the 12 cities chosen as sites for regional Reserve Banks were open for business Just as hostilities in Europe erupted into World War I

1914-1919 Fed War Policy

When war broke out, U.S banks continued to operate normally. Through mechanism, the U.S aided the flow of trade goods to Europe. Indirectly helping to finance the war until 1917.

1920 The Beginning of Open Market Operations

Benjamin Strong died in 1928. Strongs aggressive action gave clear evidence of the power of open market operations to influence the availability of credit in the banking system. During the 1920s the Fed began using open market operations as a monetary policy tool.

1929-1933 The Market Crash and the Great Depression

In the 1920s Virginia Representative Carter Glass warned the Stock Market people that something bad was going to happen In March 1930 President Roosevelt tried to make sure things were back to normal In 1930 to 1933 10,000 banks crashed

When this happened many people blamed the Federal

1933: The Depression Aftermath

When the Great Depression was going on, Congress passed down the Banking Act in 1933

Or the Glass-Steagall Act

It also established the Federal Deposit Insurance Corporation or the FDIC

Which after that they had to be examined by the Fed

Roosevelt after recalled all gold and silver certificates, which means he it will end gold and any other metallic standards.

1935: More Changes to come

The Banking Act of 1935 called changes for the Feds including the creation of the Federal Open market Committee (FOMC)

The removed the Treasury Secretary and the Comptroller of the Currency

In 1956 the Bank Holding Company Act made the Feds the regulators of many banks.

1951: The Treasury Accord

The Fed was forced to give up control of the size of its portfolio as well as money stock. Both President Harry Truman and Secretary John Snyder were both strong supporters of the low interest rate peg. The president felt that it was his duty to protect the people by not lowering their bonds that were purchased during the war. The Feds were focused on putting pressure on the economy just because of the Korean War. The Feds and the Treasury had an argument on who would control the interests rates and U.S. monetary policy. After an agreement was made they came up with something called Treasury-Fed Accord, which meant that the Feds cannot make the debt of the Treasury at a fixed rate.

1970s-1980s: Inflation and Deflation

In the 1970s there was inflation as consumer prices rose, oil prices rose as well. In 1979 a man named Paul Volcker was a Fed chairman and after that drastic action was need to break inflations stranglehold on the U.S. economy. He made it possible and put things back the way they were.

1980: Setting the Stage for financial Modernization

The Monetary Control Act of 1980 made the Feds to price its financial services competitively against private sector providers. This act made the beginning of a period of modern banking. This later on, made banks offer interest-paying accounts and instruments to attract other customers from brokerage firms. By 1999 the Gramm-Leach-Bliley Act was passed and it overturned the Glass-Steagall Act of 1933 which allowed banks to offer financial services as well as insurance.

1990s: The longest Economic Expansion

Two months after Alan Greenspan(Feds chairman) took control, The stock market crashed on October 19,1987. He made the Fed do a one-sentence statement before trading in October 20. The 10 year economic expansion of the 1990s came to close in march 2001. Because of what happened in the 1990s the Feds lowered interest rates. In the 1990s the Feds used monetary policy on some things such as the credit crunch and the Russian default on government securities from financial problems from affecting the real economy.

September 11,2001
The central bank was put to the test after the terrorist attack on New York, Washington and Pennsylvania disrupted U.S. financial markets. In the days that followed the Feds lowered their rates and gave more than 45 billion dollars to financial institutions in order to provide stability to the U.S. economy.

January 2003: Discount Window Operation Changes

In 2003, the Federal Reserve changed its discount window operations so as to have rates at the window set above the prevailing Fed Funds rate and provide rationing of loans to banks through interest rates.

2006 and Beyond: Financial Crisis and Responses

During the 2000s low mortgage rates and expanded access to credit made homeownership more easier for people. The housing boom got a boost from increasing securitization of mortgages. It even made it easier for people with low credit records.