Federal Reserve Act

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Federal Reserve Act
Strong backing of Wilson resulted in the Congress passing a bill creating the Federal Reserve banking system. Under the new law, the country was divided into 12 districts, each with its own federal reserve bank. All of the federal reserve banks would be supervised by the Federal Reserve Commission which would control the money supply.
The Federal Reserve Act of 1913 created the modern banking system as it exists today in the United States. The act was designed to make the banking system more effective in dealing with changing economic situations. It did this by establishing 12 regional banks governed by a board of governors, appointed by the President. The federal banks became bankers' banks. Every national bank was required to maintain part of its money on deposit with the federal banks. The federal reserve banks would then lend money to local banks at interest rates that varied over time. This interest rate became known as the discount rate. Thus, the federal banks could use the discount rate to expand or tighten credit in response to changing economic circumstances.