CHAPTER ONE Getting Started The Federal Reserve was not the nation's first attempt at a central bank a government bank to control the nation's money supply Two previous central banks had been established one in 1791 and the other in 1816 Each had lasted for 20 years before closing The first bank was troubled by fraud The second was closed by president Andrew Jackson For a time America went without a central bank Hundreds of banks across the country issued their own colorful banknotes and counterfeit money was everywhere Banks were only loosely regulated Many made risky loans Some did not keep enough money in their reserve accounts the accounts used to clear customers checks or provide customers with currency These conditions led to banking panics in the late 1800s and early 1900s Panics were often sparked by rumors that a bank owner had gotten into financial trouble in the stock market Nervous customers would make a run on the bank That is they would pull their money out of the bank In many cases the bank did not have enough money to pay all its customers As a re During the Panic of 1893 bank runs became common as hundreds of banks closed throughout the
GETTING STARTED sult the bank failed or went out of business As Federal Reserve banks were established in 12 word of one bank's failure spread people made cities Boston New York Philadelphia Cleve runs on other banks They knew that if they did land Richmond Atlanta Chicago St Louis not get their deposits out before the bank failed Minneapolis Kansas City Dallas and San Fran they would never see that money again cisco The banks opened on November 16 1914 The most severe banking panic occurred in less than a year after the Federal Reserve Act had 1907 It spurred a new attempt at the creation of been signed The opening of these banks marks a central bank In May 1908 Congress estab a new era in the history of business and finance lished the National Monetary Commission to in this country U S Treasury secretary William study the U S banking system It was headed McAdoo said It is believed that they will put an by senator Nelson Aldrich In November 1910 end to the annual anxiety from which the coun Aldrich held a secret meeting with a number try has suffered for the past generation of bankers to make a plan for a central bank The main purpose of the newly established The meeting was kept quiet because Aldrich Fed was to create an elastic currency This feared that Americans would not like a plan that meant that the Fed would control the amount had been crafted by of money in the bankers He was right economy according to The opening of these banks marks Many Americans the country's needs opposed the plan a new era in the history of business In addition reserve which called for a and finance in this country banks would hold central bank led by a the reserves of their board of bankers Most believed this would give local member banks making the money easy financial institutions too much power Congress for banks to access And if a bank ran short on made a number of changes to the plan In place of reserves the reserve bank would serve as lender a single central bank Congress called for several of last resort and provide a loan to the bank The reserve banks to be set up across the country Bank Federal Reserve also established a new standard ers opposed these changes But this version of the ized banknote It set up a national check clearing plan became the basis for the Federal Reserve Act system and regulated member banks which was passed in 1913 Not all banks were members of the Federal
n annum Bank security was serious business in the early 1900s reflecting anxieties about the industry and
