What Is the History of the Federal Reserve Bank?


Quick Answer

The modern Federal Reserve Bank was signed into law by President Woodrow Wilson in 1913 in order to regulate banking activities and to loan banks money. Since then, the institution's role has expanded to include insuring all deposits up to a certain threshold through the Federal Deposit Insurance Corporation (1935) and coordinating fiscal policy with the White House (1946).

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Full Answer

The Federal Reserve Bank was established in an effort to prevent a repeat of the banking crises that plagued the country in the early 1900s. Banks at that time were frequently asked for more withdrawals than they had cash on hand, forcing the institutions to close. This in turn led to a larger economic collapse as businesses could not borrow the capital they needed. The Federal Reserve system requires banks to consistently have minimum assets on hand to prevent this scenario.

Originally, the FDIC regulated state banks. In 1980, the FDIC raised its insurance threshold to $100,000. In 1989, an act of Congress abolished the Federal Savings and Loan Insurance Corporation and transferred its regulatory powers to the FDIC, which became responsible for thrift institution and real estate appraisal regulations, in addition to its other tasks. The organization was strengthened further in 1991, when Congress granted the FDIC additional supervisory regulatory standards while expanding prohibitions against insider trading.

The financial goals of the country were defined as including "maximum employment, production and purchasing power" in 1946, and expanded to include price stability, balanced budgets and balanced levels of trade in 1978. Two groups, the Council of Economic Advisers (White House) and Joint Economic Committee (Congress) were established in 1946 to achieve these aims. The president is required to submit an annual report on the economy.

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