Banking Act of 1935 Restructures Federal Reserve, Reduces Wall Street Influence Over Monetary Policy

President Roosevelt signs the Banking Act of 1935 on August 23, 1935, fundamentally restructuring the Federal Reserve System to centralize monetary policy authority in a reformed Board of Governors in Washington rather than the twelve regional Federal Reserve Banks, which had been dominated by private banking interests. The legislation, championed by Federal Reserve Board chairman Marriner Eccles, aims to democratize control over monetary policy by shifting power from Wall Street bankers to publicly-appointed officials, representing a direct challenge to the financial elite’s control over the nation’s money supply.

The Act renames the Federal Reserve Board as the Board of Governors of the Federal Reserve System and increases the terms of board members from 10 to 14 years while removing the Secretary of the Treasury and Comptroller of the Currency from the Board—both changes designed to insulate monetary policy from short-term political pressure and private banking influence. Most significantly, the Act creates the Federal Open Market Committee (FOMC) as a permanent body to coordinate open market operations affecting interest rates and credit availability, with a majority of voting members appointed by the President rather than selected by private banks.

Senator Carter Glass of Virginia, co-author of the original Federal Reserve Act of 1913, fiercely opposes Eccles’s reforms as centralizing too much power in Washington and diminishing the role of regional banks where private bankers traditionally held sway. Wall Street institutions and the American Bankers Association lobby against the legislation, defending the decentralized system that had allowed major money center banks to effectively control monetary policy through their influence over regional Federal Reserve Banks. The compromise legislation that emerges retains some regional bank influence but significantly shifts the balance of power toward public authority. The 1935 restructuring establishes the modern Federal Reserve framework that persists through subsequent decades, though the tension between public accountability and private banking influence remains a persistent feature of American monetary policy.