In the grand narrative of the modern financial system, few institutions are like the Federal Reserve System, and its birth itself is full of dramatic and far-reaching significance. Its establishment is not an overnight policy decision, but the final product of a series of financial crises, political struggles and economic trends in American history. Understanding the birth of the Federal Reserve is like clearing the fog and gaining insight into how a country seeks order in chaos and how it casts its future in crisis.
Before the establishment of the Federal Reserve, the United States tried many times to establish a central bank, but all failed for various reasons. A deep-rooted concept is that a strong central bank may threaten the autonomy of local States and even be considered contrary to the spirit of democracy. This vigilance against centralization has made the United States a country lacking central financial coordination institutions for a long time. The defects of this system are exposed in the fluctuations of the economic cycle. Whenever the economy goes down, bank runs and financial panic will erupt periodically. Without the lender of last resort, the whole financial system is like a piece of sand and fragile.
Among them, the most representative crisis occurred in 1907. A panic triggered by speculative bankruptcy in the stock market quickly turned into a nationwide bank run. Due to the lack of intervention by the central bank, the financial market has been paralyzed, a large number of enterprises have closed down and the unemployment rate has soared. At the height of the crisis, J.P. Morgan, the founder of JPMorgan Chase, the financial giant of Wall Street, organized a targeted rescue by himself. He summoned bankers from new york, used their personal wealth and influence to provide loans to banks on the verge of bankruptcy, and managed to stabilize the situation. This incident has profoundly revealed that the financial stability of a country should not depend entirely on the goodwill and ability of individuals. Wall Street's self-help, although temporarily alleviating the crisis, has also become a powerful catalyst to promote reform.
After the crisis, all walks of life in the United States began to reflect extensively. The public and politicians generally realize that it is urgent to establish a central institution that can prevent and deal with financial panic. However, there are quite different views on how to establish it. Bankers hope to establish a system dominated by private banks to protect their own interests; Populists, on the other hand, oppose any institution controlled by Wall Street and advocate the establishment of a central bank led by the government and serving the public interest. The game between different interest groups makes this legislation progress extremely difficult.
In this context, a top secret meeting was held in Jekyll Island, Georgia. An elite small group composed of senators, bankers and scholars secretly drafted a central bank reform plan, far from the public eye. Although this plan is controversial in many details, it eventually became the core blueprint of the Federal Reserve Act. In order to balance the interests of all parties, the final bill has adopted a unique structure: it is neither an institution completely controlled by the government nor a pure private banking alliance. A Federal Reserve Board in Washington, D.C. is responsible for macro-control, and at the same time, 12 relatively independent federal reserve banks have been set up to serve different parts of the country. This decentralized structure not only soothes the concerns about centralization, but also ensures the unity and effectiveness of policies.
In 1913, a few days before Christmas, the US Congress passed the Federal Reserve Act, and then President Woodrow Wilson signed it. The Federal Reserve was formally established. Its birth marks that the United States bid farewell to the "anarchy" era of the financial system and entered a new era coordinated and managed by the central bank. Although the operation of the Federal Reserve faced many challenges and controversies in the later history, its establishment was undoubtedly a milestone in the financial history of the United States, which laid the institutional foundation for dealing with the Great Depression, World War II and numerous financial turmoil in the future. Its story is a historical picture of crisis and change, compromise and innovation, which still profoundly affects the pulse of the global economy.
