The Federal Reserve System, established in 1913, marked a significant milestone in the United States' financial history. Prior to its creation, the country experienced numerous banking crises and recessions that disproportionately affected the poor. The Federal Reserve Act, signed into law by President Woodrow Wilson on December 23, 1913, aimed to provide a more stable and flexible monetary system.
The Act created 12 Federal Reserve Banks, which served as central banks for their respective districts. These banks were responsible for managing the money supply, maintaining financial stability, and preventing banking crises. The Federal Reserve Banks were given the authority to expand and contract the available money supply to meet the needs of an expanding economy.
They could also intervene in times of crisis to prevent banking-sector meltdowns that had severe consequences for the poor. One of the key mechanisms for achieving this was the "discount window," which allowed local commercial banks to borrow money from their district Fed. To access this window, local banks had to provide collateral, typically promissory notes from earlier loans made to merchants and farmers.
The creation of the Federal Reserve System was a response to the growing need for a more robust and centralized banking system.
More details: See hereUnited States financial history.
The evolution of the United States' financial landscape has been shaped by various factors, including government policies, economic trends, and technological advancements. One significant development was the establishment of the Securities and Exchange Commission (SEC) in 1934, which aimed to regulate the stock market and protect investors.
The SEC's creation was a response to the stock market crash of 1929, which led to widespread financial losses and a decline in investor confidence.
The commission's role in overseeing the securities industry has been instrumental in maintaining fair markets and promoting transparency. According to a source from the Twin Cities, the SEC's efforts have contributed significantly to the stability of the US financial system.
The US financial system has undergone significant transformations over the years, with various financial institutions playing crucial roles in shaping its development.
Commercial banks, investment banks, and insurance companies have been key players in the financial sector, providing a range of services to individuals, businesses, and governments.
The Glass-Steagall Act of 1933, for instance, separated commercial and investment banking, aiming to reduce risk and prevent conflicts of interest.
However, the Gramm-Leach-Bliley Act of 1999 repealed parts of Glass-Steagall, allowing commercial banks to engage in investment activities.
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The column last week explained basic concepts of money and the history of banking in our country. It ended at Congress establishing 12 Federal Reserve Banks in 1913. These could expand and contract available money to meet the needs of an expanding economy. They also could intervene as needed to prevent banking-sector crises that touched off major recessions.
These scourged the poor harder than anyone else.When a local commercial bank in a district was short of cash, whether to meet depositors' withdrawals or to make more loans to merchants and farmers, it could borrow from its district Fed's "discount window." The Feds demanded collateral. Promissory notes already made to local banks on earlier loans filled this need.
If a bank did not repay its loans from the Fed, that institution had rights to principal and interest paid by the original farm or business borrower.
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