ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How the banking industry led to the creation of the U.S. Federal Reserve

Updated on July 12, 2019
Zerubabel Dinsa profile image

Writes on central banking, he covers a wide range of topics on finance.

Today, central banks are among the most influential global financial institutions on the planet. They're the ones responsible for conducting monetary policy. In the United States; for example, the U.S. Federal Reserve has the capacity to influence the rate of interest on the market, the amount of credit available and the whole money supply in the U.S. financial system. So it's quite significant in that sense. It's decisions affect both aggregate economic output and the rate of inflation in the country.

In order for us to understand the role of central banking in the United States, we're taking a closer look as to how the role of central banking itself, has evolved overtime. Which takes us back to the late eighteenth century. We should note, that it's the introduction of commercial banking in the U.S. that's later led to the establishment of a central bank in the first place.

In its early days, one major controversy surrounding the banking industry, was whether the federal government or indeed the individual states themselves should reserve the right to charter U.S. banks. So some advocated for more centralized control of the banking industry. While others were wary of centralized banking.

Those in favour of more centralized control included federalists like Alexander Hamilton, who was also the first Secretary of the U.S. Treasury. The federalists supported the federal chartering of U.S. banks.

So in 1782, the modern architecture of commercial banking in the United States began with the chartering of a bank in the U.S. state of Philadelphia, also known as the Bank of North America. It's success really opened the door for the whole American banking industry.

But major controversies still loomed around about who should really reserve the right to charter U.S banks. There were those in favour of more centralized banking and those opposing the whole idea. So in 1791, their prolonged discussions led to the establishment of the first central bank in the United States.

But there were some concerns still lingering, many were skeptical to say the least.

So the fear of centralized power in the American political sphere at the time, was really characterized by a growing sense of resistance towards the establishment of a central bank. Which was mainly the result of increasing public distrust in big moneyed interests. Many thought, that having a central bank, was indeed the most prominent symbol of centralized banking.

Among those skeptical, were agricultural interests.

Farmers in particular were quite suspicious of centralized power in the banking industry. So most advocated for the state chartering of U.S. banks. Their distrust of big moneyed interest in the United States, led advocates to boycott the Bank of the United States. This was somewhat popular at the time. So in 1811, it's chartering was simply not renewed. It was quite stark in that sense.

In essence, it basically led to the demise of the first central bank, whose function was to monitor the banking system in the country.

Following this dramatic news, states were allowed to charter their own banks for sometime. But their efforts were met with a certain sense of mismanagement on their part, which later revived the need for a central bank anyway.

So the U.S. government was then tasked of having to raise the funds meant to establish another central bank. It needed to do so, especially during the war of 1812, so the U.S. congress was quite supportive of the whole idea.

In 1816, a central bank was chartered by congress.

This time, the Second Bank of the United States. Whose sole purpose was to serve the interests of the American people. But many still remained skeptical. In 1836, amidst the rise of Andrew Jackson, a strong advocate of state's rights, the Bank of the United States was made to lapse. It was quite odd in that way.

This basically led to a period of no central bank. Which really was quite striking news at the time. So the U.S. went through a period of its own ups and downs for sometime. In any case, there was a great need for a central bank in the United States and the banking industry would soon come to see the light of day. There was a great deal of good news to that end

In 1913, the Federal Reserve Act, established the Federal Reserve System of the United States. The U.S. central bank of our time.

Today, the Federal Reserve is perhaps one of the most influential financial institutions on the planet. It's a very big deal. It's actions have the capacity to influence global financial markets. So it's very significant.

The Federal Reserve practically conducts the banking supervision in the United States.

It's a public institution. One with two main objectives. Sustaining the current state of stable prices in the United States & keeping the rate of low unemployment in the job market. Which it does in such an elegant fashion. Since then, the U.S. Federal Reserve has championed the American economic success story.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2019 Zerubabel Dinsa

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)