Events

Federal Reserve Act of 1913

Federal Reserve Act of 1913

Full Name
Federal Reserve Act of 1913
Event Type
Primary Date
12/1913

The Federal Reserve Act of 1913 established the Federal Reserve System as the central bank of the United States. Considered as one of the most influential laws shaping the US financial system, the Act provides a safer, more flexible, and more stable monetary and financial system, by introducing a central bank to oversee monetary policy. It also gave the 12 Federal Reserve banks the ability to print money to ensure economic stability, setting out purposes, structure, and functions of the System as well as outlines aspects of its operations and accountability. The Federal Reserve System created the dual mandate to maximize employment and keep inflation low. The act also authorized the creation of the Federal Reserve note, regulating and supervising banks to develop and implement monetary policy.

  • Section 13(3) grants the Fed authority to lend to non-member banks
    • Used in 1932 to 1936
    • Used in 2008 to fund Maiden Lane LLCs (purchase Bear Stearns underwater assets)
    • Required 2/3 majority of Fed Governors to invoke
    • Dodd Frank Act Updated the Rules
      • Prohibits lending that helps specific companies
      • Prohibits lending to insolvent borrowers
      • Requires the U.S. Treasury Secretary to approve
      • Requires the Fed to charge a premium to market rates (for emergency loans)
  • Stipulates that the Fed can only own paper (assets) that are backed up by the full fait of the US Government (Treasuries, etc.)
    • They circumvented this rule during the 2020 Covid crisis by setting up special purpose entities
    • Allows them to purchase anything they want - including corporate bonds, ETFs or even stocks
    • The legality of this wasn't clear (circa 20200