Federal Reserve Act Of 1913 Research Paper

On December 23rd, 1913 the Federal Reserve was created. Prior to this congress discussed their concerns about the banking system in the United States. Many Americans were fearful that the banking system was not stable, and that they would later worry about the liquidity of their assets. The ways the US banking system was operating was very antiquated. So they took initiative to write reforms on how the banking system can improve ie. have a central bank. In 1913 they came up with the Federal Reserve Act of 1913 to address the political and social concerns of the US Banking system.

Today the Federal Reserve is the United States central bank, and works to conduct the nation's monetary policy to promote maximum employment, stable prices, and moderate

This panic had a lot to do with New York City trust companies. “Trust companies were state-chartered intermediaries that competed with banks for deposits,”(Moen) but they were not a central part of the payments system as banks were. These trusts held a lower percentage of cash reserves, relative to its deposits. Since trust company accounts were demandable in cash, trusts, like banks were susceptible to runs. Even though they had a smaller role in the payment transactions system, trusts were very important to the financial system, because they made large loans in New York equity markets including the

This shows that overnight panics can be the initial catalyst for longer economic downturns. The panic of 1907 shows further links between financial distress and failure among financial intermediaries specifically trust companies, and the poor performance of the nonfinancial firms that depended on them for loans and other financial services. This shows that there needed to be some form of a central bank to help mitigate these panics. More importantly the panic of 1907 had many severe effects, “industrial output fell 17% in 1908, and real GNP fell by 12%”