# 1913 Federal Reserve Act: Definition and Why It's Important

> **Definition**
>
> The U.S. Congress passed the 1913 Federal Reserve Act to govern the purpose, structure, and function of the Federal Reserve System.

## What Is the 1913 Federal Reserve Act?

The 1913 Federal Reserve Act created the Federal Reserve System in the United States. The law was passed after years of economic turmoil in the country. Congress passed the Federal Reserve Act to establish economic stability in the U.S. by introducing a central bank to oversee monetary policy. Passed by President Woodrow Wilson, the law also established the Fed's dual mandate for jobs and price stability.

### Key Takeaways

*   The 1913 Federal Reserve Act created the Federal Reserve System, which is known as the Fed.
*   The Act was implemented to establish economic stability in the U.S. by introducing a central bank to oversee monetary policy.
*   The Federal Reserve Act is one of the most influential laws shaping the U.S. financial system.

![1913 Federal Reserve Act: The legislation that created the Federal Reserve System in the United States.](https://www.investopedia.com/thmb/VwBzjmRal2H2iQP7HZmEvVDv90E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/1913-federal-reserve-act.asp-FINAL-1-1-ed7cc26588e44bb98d08d375e42c73cb.png)

*The act aimed to provide a more stable and flexible financial system. — Investopedia Joules Garcia*

## Understanding the 1913 Federal Reserve Act

Financial panics were common before 1913 because investors were unsure of the safety of their bank deposits. Private financiers like J.P. Morgan, who bailed out the government in 1895, often provided lines of credit to provide stability in the financial sector.

Congress passed the 1913 Federal Reserve Act to set out the purpose, structure, and function of the Federal Reserve System. Under the law, the U.S. government has the authority to amend the Federal Reserve Act and has done so several times.

The 1913 Federal Reserve Act was signed into law by President Woodrow Wilson, and it gave the Fed the ability to print money and policy tools to ensure economic stability. The Federal Reserve System also established what's known as the Fed's [dual mandate](https://www.investopedia.com/articles/investing/100715/breaking-down-federal-reserves-dual-mandate.asp) of maximizing employment and keeping prices stable.  

> **Important**
>
> The Federal Reserve Act is perhaps one of the most influential laws concerning the U.S. financial system.

## History of the 1913 Federal Reserve Act

The Federal Reserve was established after severe economic turmoil. The federal government formed centralized national banks earlier in its history, much to the consternation of its more rural citizens. These banks were typically controlled by large eastern banking powers, making them untrustworthy to those outside the area. State-chartered or free banks took over, issuing their own currency, which was [backed by gold](https://www.investopedia.com/ask/answers/09/gold-standard.asp).

The National Banking Act of 1863 allowed for nationally chartered banks again, and this offered a way of providing a standardized currency backed by American securities. Unstable financial markets in 1893 and 1907 resulted in market crashes and depressions, however, alleviated only by private infusions from J.P. Morgan.

Banking reform became a priority to reassure the populace of the safety of their money. President Woodrow Wilson asked for a solution from the House Committee on Banking and Finance in 1912. A central bank was the committee's answer, and it was established in the 1913 Federal Reserve Act.  

## Provisions of the 1913 Federal Reserve Act

### Fed Powers and Tools

The Fed has designed several tools over its lifetime. It uses open market operations, a variable interest rate range, its discount window rate, interest on reserve balances, and the overnight reverse repurchase facility rate to implement monetary policy as of 2025.

The Federal Reserve attempts to smooth the booms and busts of the economic cycle through the monetary tools at its disposal and maintain an adequate base of money and credit for current production levels.

Global central banks also use [quantitative easing](https://www.investopedia.com/terms/q/quantitative-easing.asp), similar to open market operations, to expand private credit, lower interest rates, and increase investment and commercial activity. Quantitative easing is mainly used to stimulate economies during recessions when credit is scarce, such as during and following the 2008 financial crisis.   

### The Fed System

The 12 [Federal Reserve banks](https://www.investopedia.com/articles/investing/061515/what-do-federal-reserve-banks-do.asp) are each in charge of a regional district. They're located in Boston, New York, Philadelphia, Cleveland, Richmond, St. Louis, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco.

The seven members of the Board of Governors are nominated by the president and approved by the U.S. Senate. Each governor serves a maximum of 14 years, and each governor's appointment is staggered by two years to limit the power of the president. The law also dictates that appointments be representative of all broad sectors of the U.S. economy.

Here is the list of Federal Reserve Board members as of July 2025:  

This is the list of Federal Reserve Bank Presidents as of 2025:  

## What Did the Federal Reserve Act Do?

The Federal Reserve Act created the Federal Reserve System after it was passed by Congress in 1913. The Fed was created to combat banking panics that wreaked havoc on the U.S. banking system at the time.

## Who Opposed the Federal Reserve Act in 1913?

Twenty-five Republican senators opposed the bill, some of whom were William Borah (R-ID), William Dillingham (R-VT), and John D. Works (R-CA).

## What Crisis Led to the Creation of the Federal Reserve Act?

Recurring financial panics, especially in 1907, led to bank runs and prompted legislators to create a central bank to manage banking panics.

## The Bottom Line

The Federal Reserve is the central bank of the United States. It was created with the passage of the 1913 Federal Reserve Act, a law that was established in response to a series of financial crises that hit the United States. Its goal was to help bring stability to the country's financial system through monetary and fiscal policy.

> **Article Sources**
>
> 1.  Federal Reserve Board. "[Federal Reserve Act](https://www.federalreserve.gov/aboutthefed/fract.htm)."
>     
> 2.  Federal Reserve Board. "[Federal Reserve Act: Section 16. Note Issues](https://www.federalreserve.gov/aboutthefed/section16.htm)."
>     
> 3.  Federal Reserve History. "[Federal Reserve Act Signed into Law](https://www.federalreservehistory.org/essays/federal-reserve-act-signed)."
>     
> 4.  Federal Reserve Board. "[What Economic Goals Does the Federal Reserve Seek to Achieve Through its Monetary Policy?](https://www.federalreserve.gov/faqs/what-economic-goals-does-federal-reserve-seek-to-achieve-through-monetary-policy.htm)"
>     
> 5.  Federal Reserve History. "[National Banking Acts of 1863 and 1864](https://www.federalreservehistory.org/essays/national-banking-acts)."
>     
> 6.  Federal Reserve Bank of St. Louis. "[History and Purpose of the Federal Reserve](https://www.stlouisfed.org/in-plain-english/history-and-purpose-of-the-fed)."
>     
> 7.  Federal Reserve Board. "[The Twelve Federal Reserve Districts](https://www.federalreserve.gov/aboutthefed/federal-reserve-system.htm)."
>     
> 8.  Federal Reserve Bank of St. Louis. "[Introduction to the Fed Board of Governors](https://www.stlouisfed.org/in-plain-english/federal-reserve-board-of-governors)."
>     
> 9.  Federal Reserve Board. "[Current Fed Leaders](https://www.federalreservehistory.org/people/current-fed-leaders)."
>     
> 10.  Law Librarian's Society of Washington, DC. "[51st Congressional Record 1487-1488](https://www.llsdc.org/assets/FRAdocs/fra-lh_v51-cr-1487-1488-sen.pdf)."