Federal Reserve Act Creates Central Banking System: Wilson Signs Compromise Between Private Bank Control and Government Oversight

President Woodrow Wilson signed the Federal Reserve Act at 6:00 p.m., creating the Federal Reserve System as the central banking system of the United States. The need for a central bank became evident during the Panic of 1907, when the federal government lacked tools to respond and had to depend on private bankers like JP Morgan to provide capital infusions to sustain the banking system. Following the 1912 elections giving Democrats control of Congress and the presidency, Congressman Carter Glass and Senator Robert Latham Owen introduced legislation to create a central bank. The proposal reflected debate between those favoring private control (like proponents of the earlier Aldrich Plan) and those favoring government control (including progressives like William Jennings Bryan). Glass and Owen crafted a compromise: private banks would control twelve regional Federal Reserve Banks, but a controlling interest was placed in a central board filled with presidential appointees. The system of twelve regional banks was designed to diminish Wall Street’s influence. After months of hearings, amendments, and debates, the House passed the bill 298 to 60 on December 22, 1913, and the Senate passed it 43 to 25 on December 23. Most senators immediately rushed to Union Station to catch trains home for the holidays, while chief sponsors went to the White House. Wilson used four pens for the signing, giving one to each leading sponsor. Wilson said he felt grateful for having had a part “in completing a work of lasting benefit for the country.” The Act laid the foundation for the modern U.S. financial system, providing a more stable, centralized framework for managing the nation’s money supply and banking institutions, though critics argued it institutionalized Wall Street influence over monetary policy.