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11 03 2015 | by Victor Xing | Central Banks

Who were behind the Federal Reserve Act (1913)?

The Federal Reserve Act was the concluding chapter of an evolving (and controversial) effort to create a central bank in the United States.

The initial effort was led by Senator Nelson W. Aldrich (R-Rhode Island).  He was the chair of an eighteen-member National Monetary Commission launched in 1908.

The (in)famous “Jekyll Island Duck Hunt”

In November 1910, Sen. Aldrich, Assistant Secretary of the Treasury A. Piatt Andrew, investment banker Paul Warburg, vice-president of Bankers Trust Benjamin Strong(who would later become the first New York Fed President), senior J.P. Morgan partnerHenry Pomeroy Davison, president of National City Bank of New York Frank A. Vanderlip, as well as a few other bankers attended a secret ten day conference at the luxurious Jekyll Island Hunt Club retreat to draft what was to become the Aldrich Plan to create an entity called the “National Reserve Association.”

The conference was held secret (under the guise of a “duck hunting trip”) on concerns that such gathering would face public scrutiny and the proposal would be perceived as “designed by and for the bankers.”

The Aldrich Plan

In 1912, Sen. Aldrich and the Commission presented the proposal to the Congress, but it was attacked by opponents in both the House and Senate.  Facing mounting opposition, the proposal quickly stalled as Democrat Woodrow Wilson won the 1912 election, and Democrats gained control of both the House and Senate.

The Glass-Owen Act (Federal Reserve Act)

With the Aldrich Plan essentially defeated.  President Wilson turned to Rep. Carter Glass(D-Virginia) and Sen. Robert Latham Owen (D-Oklahoma) to create a compromise bill.  The reform bill, known as Glass-Owen Act, retained many aspect of the Aldrich Plan but changed the centralized system into a system of regional banks (which became the Federal Reserve Banks).  President Wilson preferred an oversight agency and favored a central board (which became the Board of Governors of the Federal Reserve System).

After months of negotiations and amendments, the legislation was enacted as the Federal Reserve Act on December 23rd 1913.  Below are some of the original architects:

Federal Reserve Act: Sen. Nelson Aldrich
Sen. Nelson Aldrich
Federal Reserve Act - Paul Warberg
Paul Warburg
Federal Reserve Act: Benjamin Strong
Benjamin Strong Jr. (first President of the New York Fed)

Next article11 03 2015 | by Victor Xing | Economics

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