Federal Reserve Act of 1913: Jekyll Island, the Pujo Hearings and 12 Banks

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From 1836 to 1913 the United States had no central bank. This episode traces the fight from Alexander Hamilton's First Bank of the United States, chartered in 1791 over Thomas Jefferson's objections and dissolved in 1811 when renewal failed by one vote in each chamber, to the Second Bank of 1816, which Andrew Jackson let expire in 1836. Without a central bank the country had immobile reserves and an inelastic currency, so the harvest-season demand for cash could set off cascading bank runs, and the Panic of 1907 made reform unavoidable. In November 1910, Senator Nelson W. Aldrich and Wall Street financiers met in secret on Jekyll Island, Georgia, and drafted the Aldrich Plan for a bank-controlled National Reserve Association.

Public anger over a money trust led to Arsene Pujo's congressional hearings in 1912 and 1913, and the Democrats who swept the 1912 election had campaigned against the Aldrich Plan. Woodrow Wilson, advised by Louis Brandeis, steered between William Jennings Bryan's call for government control and bankers' demands for private control. Carter Glass and Robert Latham Owen wrote a hybrid of 12 regional reserve banks controlled by member banks under a Washington board appointed by the president, and Wilson signed it in December 1913 after a 54 to 34 Senate vote. Later changes doubled the currency in 1917 to fund World War I, created the Federal Open Market Committee in 1933 and added the dual mandate in 1977.

• The federal government was the First Bank's largest shareholder but had no role in managing it.
• Member banks bought stock paying a guaranteed 6 percent dividend and gained access to the discount window for emergency cash.
• The act let national banks make mortgage loans on farmland, a practice that had been heavily restricted.
• The 1927 McFadden Act made the Fed's original 20-year charter permanent before the Great Depression turned public anger on banks.
• Critics cite Congress's Article 1, Section 8 power to coin money in questioning whether it could delegate that power.