The Federal Reserve Bank officially opened for business in 1914.

The Federal Reserve Bank grew out of a series of steps taken to find a remedy for the bank panics that were frequent in the U.S in the 1800s and early 1900s. At the time, banks issued banknotes to borrowers, which were spent much like paper money is spent today. Banknotes were redeemable for gold or silver. Sometimes, for a number of reasons, the public would become afraid that a particular bank could not honor the promise to redeem their banknotes. Large numbers of people would rush to the bank to redeem their notes at once, causing financial panic. Even the most stable banks could not afford to redeem all the outstanding banknotes at one time, and such a run on a bank usually forced the bank to close. Banks responded to the panics by restricting credit and holding on to their reserves of gold and silver. Often, this caused economic activity throughout the community to slow. A particularly large panic in 1907 prompted Congress to take action to reform the banking system and prevent panics. A federally appointed commission called the National Monetary Commission found that the independent and competitive nature of banks was a large part of the problem. The Federal Reserve Act was passed in 1913 in response to the Commission's report and provided for the formation of the Federal Reserve Bank. The Federal Reserve was created to provide "a safer, more flexible and more stable monetary and financial system." Although the Federal Reserve was originally a passive institution designed to prevent bank panics, today it plays a more active role. The Federal Reserve is the central bank for the United States, with twelve branches throughout the nation. It provides financial services to the U.S. government, makes monetary policies, supervises and regulates banks and maintains the stability of the U.S. financial system.

EconEdLink
On October 15, 1998, Alan Greenspan and the Board of Governors, in a surprise move, ordered short-term interest rates cut by 0.25%. What prompted the Fed to take this action? What impact will the rate change have on the economy? In Fed Orders Interest Rate Cut (9-12), students analyze several articles to examine the linkages between actions of the Federal Reserve Bank and economic performance.

In A Case Study: The Federal Reserve System and Monetary Policy (9-12), students explore several economic concepts to better understand monetary policy. The FOMC meets about every six weeks. The Committee consists of the seven Governors of the Federal Reserve Board and five of the twelve Presidents of the Federal Reserve Banks. Governors are appointed by the U.S. President and confirmed by the U.S. Senate. The Presidents of the Federal Reserve Banks are selected by the Boards of each Bank. The primary function of the FOMC is to direct monetary policy for the U.S. economy.

In Multipliers and the Mystery of the Magic Money (9-12), students study the reserve requirement set by the Federal Reserve and calculate potential money creation using a "money multiplier." By participating in this activity, students come to understand how the Federal Reserve's most powerful tool can encourage economic stability.

In Fiscal and Monetary Policy Process (9-12), students follow each step of fiscal and monetary policy processes, to see the logic of how the Federal Reserve uses tools to correct economic instability.

WHERE DID ALL THE MONEY GO? The Great Depression Mystery (9-12), students investigate the Great Depression, including how the policies of the Federal Reserve System during the 20s and 30s affected the Great Depression.