The Federal Reserve Act of 1913

The Federal Reserve Act (Public Law 63-43, 38 Stat. 251), signed by President Woodrow Wilson on December 23, 1913, established the Federal Reserve System as the central bank of the United States. It is one of the most consequential pieces of legislation in American financial history, reshaping how money is created, distributed, and regulated in the United States.

The Crisis That Made Reform Inevitable

Before 1913, the United States operated without a central bank. The Second Bank of the United States had been killed by President Andrew Jackson in 1832, leaving the country with a fragmented system of nationally chartered banks and state-chartered banks. This system repeatedly proved unable to prevent financial panics.

The Panic of 1907 was the immediate catalyst for the Federal Reserve Act. Beginning in October 1907, a stock market collapse triggered a cascading series of bank runs across the country. Deposits were frozen, credit evaporated, and businesses failed. The crisis was ultimately stemmed not by any government action, but by the private intervention of banker J.P. Morgan, who organized a consortium of New York banks to inject liquidity into failing institutions. The spectacle of a private citizen single-handedly rescuing the American financial system alarmed legislators and the public alike. If Morgan had not acted — or had not been wealthy enough to act — the consequences might have been catastrophic.

In response, Congress created the National Monetary Commission in 1908, chaired by Senator Nelson Aldrich of Rhode Island. The Commission studied central banking systems in Europe, particularly the Bank of England and the German Reichsbank, and published a detailed report in 1912. Aldrich's resulting proposal, known as the Aldrich Plan, called for a centralized national reserve association controlled primarily by private bankers. It failed to pass in Congress, but it laid the intellectual groundwork for what followed.

The Jekyll Island Meeting (1910)

In November 1910, six men met in secret at the Jekyll Island Club off the Georgia coast. The meeting — one of the most consequential in American financial history — was so secret that attendees traveled under aliases and avoided being seen together in public. The participants included:

• Senator Nelson Aldrich, Republican Senate Majority Leader
• Frank Vanderlip, President of National City Bank of New York
• Henry P. Davison, senior partner at J.P. Morgan & Co.
• Charles D. Norton, President of First National Bank of New York
• Benjamin Strong, head of Bankers Trust
• A. Piatt Andrew, Assistant Secretary of the Treasury
• Paul Warburg, partner at Kuhn, Loeb & Co., and an expert on European central banking

Over nine days, they drafted what became the foundation of the Federal Reserve System. The group was particularly influenced by Warburg, who had immigrated from Germany and had deep knowledge of the German banking system. The secrecy of the meeting stemmed from political reality: any plan visibly crafted by Wall Street bankers would be politically toxic in an era of agrarian populism and Progressive-era reform.

Source: Federal Reserve History: The Jekyll Island Meeting

The Path to Passage

When Woodrow Wilson won the presidency in 1912, he brought with him a Democratic Congress and a mandate for reform. Wilson supported a central banking system but insisted it must be publicly controlled — not dominated by private bankers. Key figures in the legislative process included:

• Representative Carter Glass of Virginia, Chairman of the House Banking and Currency Committee, who drafted the original House bill
• Senator Robert Owen of Oklahoma, Chairman of the Senate Banking Committee, who co-authored the Senate version
• William Jennings Bryan, Wilson's Secretary of State, who pushed for direct government issuance of currency and strong public control over the new system

The resulting compromise created a distinctly American hybrid: a decentralized system of 12 regional Federal Reserve Banks, privately owned by member commercial banks but publicly overseen by a Federal Reserve Board appointed by the President. This structure was designed to prevent both excessive concentration of power in New York (the fear of agrarian Democrats) and direct political interference in monetary policy (the fear of bankers).

The bill passed the House on September 18, 1913, by 287–85. The Senate passed it on December 19, 1913, by 54–34. President Wilson signed it four days later, on December 23, 1913.

Key Provisions of the Act

The Federal Reserve Act of 1913 established several foundational principles:

Twelve Federal Reserve Districts. The country was divided into 12 Federal Reserve Districts, each served by a Federal Reserve Bank. The districts were drawn to balance regional economic interests, not state boundaries. The 12 cities chosen were Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

Federal Reserve Notes. The Act authorized the issuance of Federal Reserve Notes as legal tender. These notes were to be backed by gold and eligible commercial paper (short-term business loans), giving the currency a connection to real economic activity. Over time, the gold backing requirement was reduced and eventually eliminated (see: Bretton Woods and Nixon Shock).

The Federal Reserve Board. A seven-member Federal Reserve Board in Washington, D.C. — appointed by the President and confirmed by the Senate — was created to oversee the system. The Secretary of the Treasury and the Comptroller of the Currency were initially ex-officio members (this changed with the Banking Act of 1935).

Discount Window. Federal Reserve Banks were authorized to lend money to member banks at the "discount rate" — the interest rate the Fed charges banks for short-term loans. This was the primary monetary policy tool in the early years of the Fed.

Reserve Requirements. Banks were required to hold reserves — a percentage of their deposits — either in the form of vault cash or deposits at their regional Federal Reserve Bank. This gave the Fed a tool to influence how much money banks could lend.

Membership. All nationally chartered banks were required to join the Federal Reserve System. State-chartered banks could join voluntarily (and many did).

Source: Federal Reserve Act, Pub.L. 63-43, 38 Stat. 251 (December 23, 1913). Full text at: federalreserve.gov

Amendments and Evolution

The Federal Reserve Act has been amended many times since 1913. The most important amendments include:

Banking Act of 1933 (Glass-Steagall). Separated commercial and investment banking, created the FDIC, and gave the Fed authority to set margin requirements on stock purchases. Named for its primary authors, Senator Carter Glass and Representative Henry Steagall.

Banking Act of 1935. Restructured the Federal Reserve Board into the "Board of Governors of the Federal Reserve System," removed the Secretary of the Treasury and Comptroller from the Board, created the Federal Open Market Committee (FOMC) in its modern form, and centralized monetary policy control in Washington.

Employment Act of 1946. Gave the federal government — and implicitly the Federal Reserve — responsibility for promoting maximum employment, production, and purchasing power.

Federal Reserve Reform Act of 1977. Formally established the Fed's "dual mandate": maximum employment and stable prices. This is the legal basis for the two-target framework the Fed uses today.

Gramm-Leach-Bliley Act (1999). Repealed key provisions of Glass-Steagall, allowing commercial banks, investment banks, and insurance companies to consolidate.

Dodd-Frank Wall Street Reform and Consumer Protection Act (2010). Greatly expanded the Fed's regulatory authority following the 2008 financial crisis, established the Financial Stability Oversight Council, and created the Consumer Financial Protection Bureau.