The Federal Reserve Act of 1913: Definition & Overview

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Foreign Currency Exchange: Supply and Demand for Currency

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
Your next lesson will play in 10 seconds
  • 0:01 What Was the Federal…
  • 0:37 Importance
  • 1:33 The Board of Governors
  • 1:56 Regional Banks
  • 2:34 Federal Open Market Committee
  • 3:16 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Speed Speed Audio mode
Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

The Federal Reserve Act of 1913 was one of the most important Congressional Acts of the 20th Century. In this lesson, you'll learn about the act and the central banking system it created. A short quiz follows.

What Was the Federal Reserve Act?

As the name suggests, the United States Congress enacted the Federal Reserve Act in 1913. The Federal Reserve Act essentially created the Federal Reserve System (the Fed). The Fed serves as the central bank of the United States. The act also created a banking system consisting of both private and public organizations. It established 12 regional Federal Reserve banks. The Act required that a board of governors would govern the Fed. The act also authorized the creation of the Federal Reserve note, the money that is currently in your pocket, purse, or wallet.


The Federal Reserve Act was enacted in response to a series of financial crises that occurred in 1907. The intent of the act was to create a degree of financial stability. The act empowers the Fed to regulate and supervise banks and to develop and implement monetary policy. Monetary policy is a government's decision-making with regard to the money supply and interest rates. The Fed uses its regulatory powers in an effort to keep inflation and unemployment at tolerable rates for economic growth and stability. The Fed basically uses its policy to smooth out the bumps and pitfalls in the normal business cycle of booms and busts.

You can break down the Federal Reserve System created by the Federal Reserve Act into three components: its Board of Governors, the regional Federal Reserve banks, and the Federal Open Market Committee. Let's take a quick look at each of these parts of the Fed.

The Board of Governors

The Board of Governors runs the Fed and is responsible for setting Fed policy. The board consists of seven members who are appointed by the United States president and confirmed by the United States Senate. Each board member serves a single 14-year term. A chairman is selected from one of the seven members and is also appointed by the president and confirmed by the Senate. The chairman serves a four-year term, which can be renewed.

To unlock this lesson you must be a Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use

Become a member and start learning now.
Become a Member  Back
What teachers are saying about
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account