To promote the development of a sound economy and a reliable banking system, Congress passed, and President Woodrow Wilson signed, the Federal Reserve Act on December 23, 1913. The act was a response to the recurring bank failures and financial panics that had plagued the nation.

After much disagreement, but eventual compromise, all parties to the discussions—the government, banks, other financial institutions, and a few business and labor leaders—agreed that a central U.S. bank was essential for the economic health of the country. Starting with the goal of stabilizing the nation's monetary and financial system, the Federal Reserves System (Commonly called the Fed) has undertaken a number of responsibilities that are described later in this article.

Structure of the System

Designed by Congress and subject to congressional authority, the Fed is a politically independent and financially self-sufficient federal agency. It consists of the...