This Day In Market History: US Federal Reserve System Is Created

Each day, Benzinga will take a look back at a notable market-related moment that happened on this date.

What Happened? On Dec. 23, 1913, the U.S. Federal Reserve system was created.

Where Was The Market? The creation of the Federal Reserve predates the S&P 500 but the Dow Jones Industrial Average was trading at around 79.

What Else Was Going On In The World? In 1913, the first crossword puzzle was published in the New York World. The 17th Amendment changed the selection process of U.S. Senators from appointment via state legislature to elections by the general public. A loaf of bread cost about 6 cents.

Fed Is Born: Most investors know only the Federal Reserve as the central bank of the U.S., but the nation has actually had three central banks throughout history. The first central bank operated from 1971 to 1811. The second Bank of the United States operated from 1816 to 1836 until President Andrew Jackson refused to renew its charter as part of the Bank War.

The U.S. was then hit by a severe depression in 1837, which was known as the Great Depression until the 20th century U.S. depression took over that title.

From 1836 to 1913, the U.S. had a system of state-run banks issuing their own currency. Starting in 1863, the U.S. also had nationally chartered banks. This system did very little to stabilize the economy. During the panic of 1907, J.P. Morgan coordinated an effort among a group of private banks to put together a bailout of the financial system.

When Morgan died in 1913, many Americans realized the need for a centralized financial system authority. On Dec. 23, 1913, President Woodrow Wilson signed the Owen-Glass Act, which created the Federal Reserve system the U.S. still relies upon to this day.

• Photo: Federal Reserve building. Dan Smith via Wikimedia Commons