BEGINNING OF THE FEDERAL RESERVE SYSTEM

On Dec. 23, 1913, President Woodrow Wilson signed the Owen-Glass Act, creating the Federal Reserve System, an independent agency of the U.S. Government.

Before Federal Reserve began its operation in November 1914, America's banks functioned in widely divergent ways. These varied banking practices resulted in four major financial crises in fewer than 40 years.

Under the terms of the first major banking reform to follow the Civil War, the Federal Reserve System, or "Fed," was designed to keep the economy healthy through the formulation of U.S. monetary policy.

As the nation's money manager and central banking authority, the Fed has regulatory and supervisory responsibilities and ensures that sufficient amounts of currency and coin circulate to meet the public's demand. It also establishes interest rates and monitors the availability of money and credit.

The Federal Reserve consists of a board of governors, nominated by the president and confirmed by the Senate to serve 14-year terms of office, 12 regional Federal Reserve Districts, or regions, and branches of Federal Reserve banks in 25 other cities.

Federal Open Market Committee sets the Fed's monetary policy–carried out through the trading desk of the Federal Reserve Bank of New York. The Federal Advisory Council, the Consumer Advisory Council, and the Thrift Institutions Advisory Council advise the Federal Reserve Board directly on its various responsibilities.

All national banks chartered by the federal government are required to join the Federal Reserve System; to subscribe to capital stock in the Federal Reserve Bank in an amount equal to six percent of its combined capital and surplus; to invest three percent (as a reserve requirement) of their holdings in the system; and to hold another three percent subject to call. These stipulations enabled the Fed to curtail the money and credit flow problems characteristic of the late 1800s and early 1900s and to respond to many of the demands of the growing economy.

Nonetheless, the early Federal Reserve System proved fallible. After The Great Depression and again after the inflation and disinflation crises of the 1970s and 1980s, the role of the Federal Reserve was reexamined and overhauled to meet new needs.

New banking acts were passed and the banking industry underwent reform. This process continues today, as the action of the Fed profoundly affects the national and global economy.