In December 1913 Congress passed the Owen-Glass Act, better known as the Federal Reserve Act. This act created a government-controlled, decentralized national banking system. It provided for the establishment of not less than 8 nor more than 12 federal districts. Each district would have a federal reserve bank to serve as bankers’ banks. Federal reserve banks hold the required cash reserves, or deposits, of national and state banks. National banks were required to join the system; state banks could choose whether to join. Reserve banks issue reserve notes to private member banks, which lend the money to businesses and individuals. The Federal Reserve Board oversees the system and controls the money supply by expanding or contracting the amount of money it makes available to loan. The Board can also adjust the interest rate that banks can charge by adjusting the interest rate reserve banks charge member banks. President Woodrow Wilson proposed the legislation to Congress in response to the Panic of 1907.
