FEDERAL RESERVE ACT Meaning and
Definition
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The Federal Reserve Act refers to a comprehensive legislation passed by the United States Congress in 1913 that established the Federal Reserve System, the central banking system of the United States. This Act served as a response to a series of banking panics that occurred in the late 19th and early 20th centuries, aiming to address the vulnerabilities in the American banking system of that time.
The Federal Reserve Act granted the Federal Reserve System the authority to act as the nation's central bank, responsible for managing and controlling the country's monetary policy. It established the Federal Reserve Board, which consists of seven members appointed by the President of the United States and confirmed by the Senate, to oversee the operations of the Federal Reserve System.
Under the Act, the Federal Reserve System gained the power to regulate and supervise commercial banks, implement monetary policies to promote stability in prices and employment levels, and act as the lender of last resort during financial crises. Additionally, it established the Federal Open Market Committee, which is responsible for making key decisions regarding interest rates and open market operations.
The Federal Reserve Act has played a crucial role in shaping the American financial system. It has granted the central bank considerable independence to carry out its duties, reducing the influence of political authorities on monetary policy decisions. This Act is regarded as a landmark legislation that centralized banking power and aimed to stabilize the country's financial system.
