After a scheme to corner stocks on copper failed, several banks who had loaned money to the operation lost large sums of money. This forced the Knickerbocker Trust Co (the third largest) to become insolvent; this began a run on banks nationwide and led to a 50% decline in the NYSE. Financiers (such as JP Morgan) had to supply some of their own money to ensure the banking system survived. It was this crisis that prompted the creation of the Federal Reserve System
Congress passes the act, designed to let national banks issue currency in the case of shortage (increasing demand for a central bank)
Creation of the Federal Reserve
Congress approves the Federal Reserve Act, signed by Pres. Wilson. It's goals are to, "provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.”
Allowed for the collection of a federal income tax in order to make up for revenue lost following new lowering of tariffs to encourage trade
Opening of Fed banks
12 Federal Reserve Banks opened nationwide:
Atlanta, Philadelphia, New York, Boston, Richmond, Cleveland, St. Louis, Minneapolis, Kansas City, Chicago, Dallas & San Francisco
1920 - 1929
Federal Reserve reduced reserve requirements, embracing an easy credit policy and encouraging people to speculate in stocks and investments; this was supported with banking and monetary policies that moved away from the gold standard. Beginning of the use of Open Market Operations by the Fed.
The Great Depression
October 1929 - 1933
After the stock market crashed and the country fell into depression, the Fed was blamed for much of the ensuing economic hardship the country faced.
Separated public and investment banks to help protect depositors from having their funds speculated with, and also established the FDIC to further ensure the safety of private deposits.
Global Political Events
World War I
June 1914 - November 1918
The Fed helps keep credit lines open to European countries in the war and helps the US finance its own wartime effort after it entered the conflict in 1917.
Assasination of Ferdinand
June 28, 1914
Archduke Franz Ferdinand (heir to the Austro-Hungarian throne) and his wife, Duchess Sophie, are assassinated in Sarajevo. This marks what is commonly seen as the beginning of WWI