Editing Federal Reserve Act (section)

== Background ==
Central banking has made various institutional appearances throughout the history of the United States. These institutions started with the [[First Bank of the United States|First]] and [[Second Bank of the United States|Second]] banks of the United States, which were championed in large part by [[Alexander Hamilton]].

=== First Bank of United States ===
The American financial system was deeply fragmented after the [[American Revolutionary War]]. The government was burdened with large wartime debts, and the new republic needed a strong financial institution to give the country a resilient financial footing. [[Alexander Hamilton]] and [[Thomas Jefferson]] had opposing views regarding whether or not the US could benefit from a European-style national financial institution. Hamilton was in favor of building a strong centralized political and economic institution to solve the country's financial problem. He argued that a central bank could bring order to the US monetary system, manage the government's revenues and payments, and provide credit to both the public and private sectors. On the other hand, Jefferson was deeply suspicious of a central bank because, he argued, it would undermine democracy. Jefferson and Southern members of congress also believed that a strong central financial institution would serve commercial interests of the north at the expense of Southern-based agriculture interests whose credit was provided by local banks during the post-revolutionary war era.
[[First Bank of the United States|The First Bank of the United States]] was established in 1791 chartered for a period of twenty years. The US government was the largest shareholder of the bank. Despite its shareholder status, the government was not permitted to participate in management of the bank. The bank accepted deposits, issued bank notes, and provided short-term loans to the government. It also functioned as a clearinghouse for government debt. The bank could also regulate state-chartered banks to prevent [[overproduction]] of banknotes. While some credited the bank with helping stabilize government finances and influence the broader economy, it remained a source of controversy. Many [[Jeffersonian democracy|Jeffersonians]] argued that the bank was unconstitutional and concentrated too much financial power in a centralized institution.<ref>{{Cite book |last=Ellis |first=Joseph J. |url=https://archive.org/details/americansphinx00jose/page/145/mode/1up?q=central+bank |title=American sphinx : the character of Thomas Jefferson |last2=Rogers D. Spotswood Collection. TxSaTAM |date=1998 |publisher=New York : Vintage Books |others=Internet Archive |isbn=978-0-679-76441-0}}</ref><ref>{{Cite web |title=Founders Online: Opinion on the Constitutionality of the Bill for Establishing … |url=https://founders.archives.gov/documents/Jefferson/01-19-02-0051#:~:text=15%20February%201791-,Opinion%20on%20the%20Constitutionality%20of%20the%20Bill%20for%20Establishing%20a,laws%20of%20Forfeiture%20and%20Escheat. |access-date=2025-04-20 |website=founders.archives.gov |language=en}}</ref> In 1811, the first bank of the United States failed to be renewed by one vote in both the House and the Senate.<ref>{{cite web|url=http://www.let.rug.nl/usa/essays/general/a-brief-history-of-central-banking/the-first-bank-of-the-united-states-(1791-1811).php|title=The First Bank of the United States (1791-1811) < A Brief History of Central Banking in the United States - Edward Flaherty < General < Essays < American History From Revolution To Reconstruction and beyond|website=Let.rug.nl}}</ref><ref>{{cite web|url=https://eh.net/encyclopedia/the-first-bank-of-the-united-states/|title=The First Bank of the United States|website=eh.net}}</ref>

=== Second Bank of the United States ===
After the War of 1812, economic instability necessitated the creation of a second national bank. Due to expanding money supply and lack of supervision, individual bank activity sparked high inflation. In 1816, a [[Second Bank of the United States|second national bank]] was created with a charter of twenty years. Three years later, during the [[panic of 1819]] the second bank of the United States was blamed for overextending credit in a land boom, and would tighten up credit policies following the panic.<ref>{{cite book |last1=Wilentz |first1=Sean |title=The Rise of American Democracy: Jefferson to Lincoln |date=17 September 2006 |publisher=W. W. Horton and Company}}</ref>
The Second bank was unpopular among the western and southern state-chartered banks, and constitutionality of a national bank was questioned. President [[Andrew Jackson|Jackson]] would come into office, and wished to end the current central bank during his presidency. Under the premise that the bank favored a small economic and political elite at the expense of the public majority, the Second Bank became private after its charter expired in 1836, and would undergo liquidation in 1841.

For nearly 80 years, the U.S. was without a central bank after the charter for the [[Second Bank of the United States]] was allowed to expire. After various financial panics, particularly a [[panic of 1907|severe one in 1907]], some Americans became persuaded that the country needed some sort of banking and currency reform that would,<ref>{{cite web |title=The Panic of 1907 |url=https://www.federalreservehistory.org/essays/panic-of-1907 |website=Federal Reserve History}}</ref> when threatened by financial panics, provide a ready reserve of liquid assets, and furthermore allow for currency and credit to expand and contract seasonally within the U.S. economy.

Some of this was chronicled in the reports of the [[National Monetary Commission]] (1909–1912), which was created by the [[Aldrich–Vreeland Act]] in 1908. Included in a report of the Commission, submitted to Congress on January 9, 1912, were recommendations and draft legislation with 59 sections, for proposed changes in U.S. banking and currency laws.<ref name=Commission>[http://llsdc.org/attachments/files/124/FRA-LH_S-Doc-62-243.pdf Report of the National Monetary Commission] {{webarchive|url=https://web.archive.org/web/20100609015132/http://www.llsdc.org/attachments/files/124/FRA-LH_S-Doc-62-243.pdf |date=2010-06-09 }}. January 9, 1912, letter from the Secretary of the Commission and a draft bill to incorporate the National Reserve Association of the United States, and for other purposes. Sen. Doc. No. 243. 62nd Congress. U.S. Government Printing Office. 1912.</ref> The proposed legislation was known as the [[Aldrich-Vreeland Act|Aldrich Plan]], named after the chairman of the Commission, Republican Senator [[Nelson W. Aldrich]] of Rhode Island.

The Plan called for the establishment of a National Reserve Association with 15 regional district branches and 46 geographically dispersed directors primarily from the banking profession. The Reserve Association would make emergency loans to member banks, print money, and act as the fiscal agent for the U.S. government. State and nationally chartered banks would have the option of subscribing to specified stock in their local association branch.<ref name=Commission /> It is generally believed that the outline of the Plan had been formulated in a secret meeting on [[Jekyll Island]] in November 1910, which Aldrich and other well connected financiers attended.<ref name=Whitehouse>[https://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3815 Paul Warburg's Crusade to Establish a Central Bank in the United States] Michael A. Whitehouse, 1989. In attendance at the meeting were Aldrich; [[Paul Warburg]]; [[Frank A. Vanderlip]], president of National City Bank; [[Henry P. Davison]], a J.P. Morgan partner; [[Benjamin Strong]], vice president of Banker's Trust Co.; and [[A. Piatt Andrew]], former secretary of the National Monetary Commission and then assistant secretary of the Treasury.</ref>

Since the Aldrich Plan gave too little power to the government, there was strong opposition to it from rural and western states because of fears that it would become a tool of bankers, specifically the Money Trust of New York City.<ref>{{Cite journal |last=Wicker |first=Elmus |title=The Great Debate on Banking Reform: Nelson Aldrich and the Origins of the Fed |year=2005 |publisher=Ohio University Press.}} See also [http://eh.net/bookreviews/library/1104 book review].</ref>  Indeed, from May 1912 through January 1913 the [[Pujo Committee]], a subcommittee of the [[United States House Committee on Banking and Currency|House Committee on Banking and Currency]], held investigative hearings on the alleged Money Trust and its interlocking directorates.  These hearings were chaired by Rep. [[Arsene Pujo]], a Democratic representative from Louisiana.<ref name=Pujo>[https://fraser.stlouisfed.org/title/80 Money Trust Investigation] – Investigations of Financial and Monetary Conditions in the United States under House Resolutions Nos. 429 and 504 before a subcommittee of the House Committee on Banking and Currency. 27 Parts. U.S. Government Printing Office. 1913.</ref>

In the [[United States House elections, 1912|election of 1912]], the Democratic Party won control of the White House and both chambers of Congress.  The party's platform stated strong opposition to the Aldrich Plan.  The platform also called for a systematic revision of banking laws in ways that would provide relief from financial panics, unemployment and business depression, and would protect the public from the "domination by what is known as the Money Trust." The final plan, however, was quite similar to the Aldrich Plan, with a few revisions. Sen. Carter Glass made these revisions, although the main premise of the Aldrich Plan was in there.<ref name="H-Rept">{{cite web |url=http://www.llsdc.org/assets/FRA-LH_H-Rpt-63-69-pp-1-74.pdf |title=Archived copy |access-date=2009-08-20 |url-status=dead |archive-url=https://web.archive.org/web/20110927113502/http://www.llsdc.org/attachments/files/109/FRA-LH_H-Rpt-63-69-pp-1-74.pdf |archive-date=2011-09-27 }}</ref> Changes in the Banking and Currency System of the United States, House Report No. 69, 63rd Congress to accompany H.R. 7837, from the House Committee on Banking and Currency, was submitted to the full House by [[Carter Glass]], on September 9, 1913.  A discussion of the deficiencies of the then current banking system as well as those in the Aldrich Plan and quotations from the 1912 Democratic platform are laid out in this report, pages 3–11.<ref>Parthemos, James. [http://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/economic_review/1988/pdf/er740403.pdf "The Federal Reserve Act of 1913 in the Stream of U.S. Economic History"] {{Webarchive|url=https://web.archive.org/web/20121019100835/http://www.richmondfed.org/publications/research/economic_review/1988/pdf/er740403.pdf |date=2012-10-19 }}, Federal Reserve of Richmond Economic Review, Richmond, July 1987. Retrieved on 11 November 2013.</ref>