Creation of the Fed

By: Abbie Ruth & Madalyn Kirk

The Federal Reserve System

  • A Central Bank is a bankers bank, which can lend to other banks in times of need.
  • Set up in some ways like a corporation.
  • Any bank that joined had to purchase shares of stock in the system. All national banks were required to do so, and state-or part-owners-banks own the Federal Reserve System, not the federal government.
  • The Fed's own currency is called Federal Reserve Notes, eventually replacing all other types of federal currency.

Banking and the Great Depression

  • If account holders become worried about their banks they would rush to withdraw money before it failed.- Creating a bank run
  • On March 5,1933, President Roosevelt announced a bank holiday- A brief period during which every bank was required to close.

Federal Deposit Insurance

  • The banking act of 1933 created the Federal Deposit Insurance Corporation (FDIC) to ensure customer deposits in case of a bank failure.
  • If a bank was in danger of collapse the FDIC could do one of the following; Seize the bank, sell to a stronger one, liquidate and pay off the depositors.
  • If the bank was sold the sale was done in secrecy to prevent panic and to keep shareholders from selling worthless stock to unsuspecting investors.
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Federal Reserve Notes

  • The Federal Reserve Notes that were first introduced in 1914 have become the most visible component of our money supply.
  • All the federal currency's- National Bank Notes, Silver Certificates, Gold Certificates, and even the U.S. Notes, or "greenbacks"- have slowly retired and were replaced by the Federal Reserve Notes.

A Better Monetary System

  • One concern is the fact that some banks have become so large that they cannot be allowed to fail.