The Federal Reserve System (FRS), created in 1913, is in a sense an unusual combination of state and independent banking structures.
As the central banking system that controls banking in the United States, it was created primarily as a response to a series of banking panics at the beginning of the 20th century, especially a serious crisis in 1907. Over time, her roles and responsibilities expanded, the structure developed. Some events, especially the Great Depression, were the factors that led to changes in it.
The federal reserve system historically has its origins in financial and credit institutions, organized since the end of the 18th century and acting as a central bank. These are the constitutional gold standard, the First and Second US banks, Independent Treasuries, the National Banking System, associations of clearing houses, the National Reserve Association. Banking in America was not at all easy or, rather, unreliable. The first and second banks were official representatives of the US Treasury, which issued and supported the official currency. All other structures were managed by either state or independent parties. Each bank issued its own banknotes. Public and private institutions competed among themselves. People traveling around the country did not know exactly what money they could get from any bank located in a particular area. With the growth of the population, the greater economic activity of banks, and the types of money became more, which threatened chaos in the entire financial system.
In 1863, Congress passed the first law on national banks, providing for a controlled system of national banks that had higher standards for reserves and business practices than in state banks. The law established operational standards, according to them it was determined how much capital banks could have and how they should manage loans. In addition, the law imposed a ten percent tax on state banknotes, thus effectively removing non-federal currency from circulation.
The federal reserve system, as formulated in the Federal Reserve Act, which entered into force in December 1913, had other goals besides responding to banking panics. Among the main ones: ensuring a stable currency and moderate long-term interest rates, establishing effective control over banking in the United States. The term “federal” implies that the law is applied throughout the country; the “reserve” one emphasizes the role of the new institution as a holder of reserves. The Central Bank of the United States, which acts as the Fed, according to the law approved by President Woodrow Wilson, is the body vested with the right to issue Fed and Federal Reserve Bank notes as legal tender. Any bank that uses the definition of "national" must be a member of the Fed.
The structure of the Fed includes a board of governors with the head and his deputy, who is elected by the US president and approved by the Senate, the federal committee for open markets, 12 regional federal reserve banks, numerous private banks, various advisory councils. Accordingly, the US Federal Reserve includes both private and public component. It was designed to serve the interests of public and private organizations. In the system of central banks, it is considered a unique structure.
The Board of Governors controls the activities of 12 Federal Reserve Banks, several financial credit and consumer advisory committees and thousands of banks (members of the Fed). It sets the minimum reserve limits for all banks, in other words, determines how much capital a bank can have “on hand”. The Federal Reserve is considered an independent central banking institution, as its policies should not be approved by the president or any other executive or legislative branch. Although the government exercises some control over the Fed, namely through the appointment and establishment of wages for top-level employees in the system.