Federal Reserve System
FEDERAL RESERVE SYSTEM
Before Congress created the Federal Reserve System, periodic financial panics had plagued the nation. These panics had contributed to many bank failures, business bankruptcies, and general economic downturns. A severe crisis in 1907 prompted Congress to establish the National Monetary Commission, which put forth proposals to create an institution that would counter financial disruptions of these kinds.
After much debate, Congress passed the Reserve Act, which was signed into law by President Woodrow Wilson, on December 23, 1913. The Act stated that its purpose was to provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of discounting commercial paper, and to establish a more effective supervision of banking in the United States. Soon after the creation of the Federal Reserve, it became clear that the act had broader implications for national economic and financial policy. As time has passed, further legislation has clarified and supplemented the original purposes.
The Federal Reserve System is considered to be an independent central bank. It is, however, only in the sense that its decisions do not have to be ratified by the President or anyone else in the executive branch
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