Federal Reserve Act

The United States had no central bank after the Second Bank of the United States lost its charter in 1836, and recurring financial panics, especially the Panic of 1907, showed the need for a lender of last resort and a more elastic currency. A National Monetary Commission led by Senator Nelson Aldrich studied European central banks, and after debate over public versus private control, Representative Carter Glass and Senator Robert Owen shaped a compromise. President Woodrow Wilson signed the Federal Reserve Act on December 23, 1913.

The act created twelve regional Federal Reserve Banks, owned by member banks in their districts, and a Federal Reserve Board in Washington to supervise them, combining private and public elements in a decentralized system. The Banking Act of 1935 restructured the Board as the Board of Governors, whose seven members serve staggered 14-year terms and can be removed by the President only for cause, and created the modern Federal Open Market Committee. The Treasury-Federal Reserve Accord of 1951 freed the Fed from pegging interest rates on government debt, and a 1977 amendment set the dual mandate of maximum employment and stable prices.

Later laws gave the Fed further roles, including the Dodd-Frank Act of 2010, which created a vice chair for supervision and tightened oversight of large banks after the 2008 financial crisis. The Fed's independence has long drawn debate, and in 2025 President Trump sought to remove a Fed governor, citing allegations of mortgage fraud she denied, and on June 29, 2026, in Trump v. Cook, the Supreme Court refused to let the removal take effect, saying removal for cause requires notice, a chance to respond, and a reviewable factual basis. Supporters of independence say monetary policy needs insulation from short-term politics, while critics say an unelected body with such power should be more accountable to elected officials.