Federal Reserve Act

What is the Federal Reserve Act?

Introduced by the 63rd president of the United States, the Federal Reserve Act came into effect in 1913. This law led to the formatting of the central banking system in the USA. The act was passed to build the Federal Reserve Bank of India. The Americans did not realize the importance of the central banking system until the 1907 panic.

Since the Bank War in the 1830s, America lacked an effective central banking system. After the 1912 elections, the Congress government established in the United States and the former president Wilson announced to launch a central banking bill. The congress parties ensured that the bill is passed by both houses without undergoing any form of modifications.

How Does the Federal Reserve Act Form?

The bills got passed and as a result, the Federal Reserve System came into existence. The system comprises a total of 12 reserve banks that are responsible for managing all types of community and regional banks, the country’s money supply, loans, and other financial management tasks. Not only are these banks responsible for overseeing the other regional banks in the states, but the federal banks are considered as the last lending resort.

According to this act, the Federal System Board of Governors was appointed by Wilson.

The members of this group are responsible for regulating and supervising all the operations in the federal banks. There have been several amendments introduced in the federal system law. Ever since the banks established in the United States, different acts were passed to make amendments to the law and make it stronger and beneficial for the country. One such amendment needs the federal system of the country to encourage maximum employment, reasonable interest rates, and stable prices.

Roles and Responsibilities of the Federal Reserve Banks

The Federal Reserve law was designed to introduce financial stability in the American banking system. Basically, it led to the formation of central banks that were responsible for overseeing the other community banks and managing monetary operations.

Initially, the law stated that a minimum of eight and a maximum of 12 federal banks will be established across different regions of the states. This includes private and public entities. As mentioned above, 12 banks were built and each bank had different branches. Now, in order to regulate the Federal bank operations, a community of 8 members is appointed regularly by the United States.

Appointed by the current president of the US, these members have to receive the approval of the US senate to work in the Federal Reserve Board. This Act led to the creation of the national currency for the United States. Additionally, it is supposed to control and manage all sorts of financial risks and stresses in the Financial System of the country. The main goal of the act was to promote a stable banking system. Also known as “The Fed”, the Federal Reserve Act happens to be the most crucial laws that shape the financial future of the United States.