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History of Federal Reserve Free Edition Free Digital Edition A Visual History of the Federal Reserve System 1914 - 2009 This is a free digital edition of a chart created by John Paul Koning. It has been designed to be ap- chase. Alternatively, if you have found this chart useful but don’t want to buy a paper edition, con- preciated on paper as a 24x36 inch display. If you enjoy this chart please consider buying the paper sider donating to me at www.financialgraphart.com/donate. It took me many months to compile the version at www.financialgraphart.com. Buyers of the chart will recieve a bonus chart “reimagin- data and design it, any support would be much appreciated. ing” the history of the Fed’s balance sheet. The updated 2010 edition is also now available for pur- John Paul Koning, 2010 FOR BETTER OR FOR WORSE, the Federal Reserve has Multiple data series including the Fed’s balance sheet, This image is published under a Creative Commons been governing the monetary system of the United States interest rates and spreads, reserve requirements, chairmen, How to read this chart: Attribution-Noncommercial-No Derivative Works 2.5 License since 1914. This chart maps the rise of the Fed from its inflation, recessions, and more help chronicle this rise. While Start origins as a relatively minor institution, often controlled by this chart can only tell part of the complex story of the Fed, 1914-1936 Willliam P. Harding $16 Presidents and the United States Department of the we trust it will be a valuable reference tool to anyone Member, Federal Reserve Board 13b Treasury, into an independent and powerful body that rivals curious about the evolution of this very influential yet Adviser to the Cuban government Benjamin Strong Jr. Daniel Crissinger Roy A. Young Industrial Advances Act Passed Comptroller of the Currency President, Minneapolis Fed the Presidency in terms of prominence. controversial institution. President, Bankers Trust Co. of New York $14 1936-1968 Chairman, F.H. Smith Co. President, Boston Fed 1914-1936 13.13 Emergency Banking Act Passed IN ITS FIRST TWO YEARS, the Fed was a passive institution. It purchases, the dollar’s purchasing power plummeted. Friedman D 1968-1999 $12 set its lending rate above the market rate, making it unprofit- & Schwartz estimate that 5% of the government’s war expenses able for banks to turn to it for loans. As a result, discounts were paid for by the Fed’s “inflation tax”. 1933 Banking Crisis were negligible. This changed in 1917 with the entrance of the The events after the 1929 stock market crash brought many 1999-2010 US into World War I. The Fed, nowadays largely independent Glass-Steagall Act Passed 10a 10b 16.2 $10 changes to the Fed’s balance sheet and operating procedures. from other branches of the government, was then controlled The Emergency Construction, Emergency Banking, and The U.S. in World War I Britain leaves the gold standard by the Treasury Secretary. To help pay for looming war bills, the Industrial Advances Acts granted the Fed power to extend Fed was converted into a war-finance body. $8 Gold Reserve Act: loans to non-member individuals, partnerships, and corpora- C Gold revalued from $20.67/oz to $35 Amendments to the Federal Reserve Act paved the way. The tions under certain conditions by adding sections 13.3, 13.13, A original Federal Reserve Act emphasized that discounts were and 12b to the Federal Reserve Act. The First Glass-Steagall Act Charles S. Hamlin $6 B be made on “real bills” principles; only short term bills based brought in even larger modifications, firstly by allowing the Fed Assistant Secretary of the Treasury Member, Federal Reserve Board +23.5% on commercial transactions would be eligible for Fed loans. In to make advances on “any satisfactory collateral” to member E 1916, authorities began to break with this principle when the banks through Section 10b advances, and secondly by allowing Domestic gold holdings forbidden, Fed was given permission to lend to banks on the security of government securities purchased in the open market to stand $4 { To support Britain’s return to the gold gold exports banned government debt. In 1917, these “Section 13.8” advances were as sufficient backing for Federal Reserve notes. The latter freed standard, Strong extends$200 million to the Bank of England made “eligible” as collateral for notes. the Fed to monetize government debt via open market 18% F operations and not just discounts. Government debt on the The 1917 amendments also reduced the backing requirement Assets Eugene Meyer Fed’s balance sheet would grow inexorably from then on, 13% Eugene R. Black for Federal Reserve notes. Prior to 1917, all notes had to be (billions) Federal Farm Loan Commissioner further moving the Fed away from its “real bills” origins. Publisher, Washington Post President, Atlanta Fed double-backed by 100% real bills, and 40% gold. After 1917, G President, Atlanta Fed Chairmen of the Board { monthly notes need only be backed by 60% bills and 40% gold. At the Also significant were legislative changes that began to de-link Eccles } same time, reserve requirements were lowered by Congress the dollar from the gold standard. In 1933, private holdings of 8% 8% Presidents of the Reserve } from 18% to 13%, and a preferential lending rate introduced on gold were criminalized. Gold was brought to the Federal 6% 6% Bank of New York all 13.8 advances secured by government Liberty Bonds. The Reserve for notes, and on January 30, 1934 this gold was 4% 4% effect of all these changes was to dramatically increase the transferred to the US Treasury in return for certificates. The 2% Fed’s ability to issue notes. The private sector bought large next day the dollar was devalued from $20.67/oz to $35/oz. Interest Rates 2% Risk Spreads, Reserve 0% 0% { 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 quantities of government war bonds, then used these bonds as The capital gain, therefore, was credited to the Treasury, not the Requirements, and Ination 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 security to get Fed 13.8 advances at below-market rates. In Fed. The $2.3 billion rise in Treasury cash, a liability of the Fed, 1 effect, they profited every time they transacted with the Fed. became the war-chest of the Treasury and its new Exchange WILSON HARDING COOLIDGE HOOVER ROOSEVELT U.S. Presidents Democrat Stabilization Fund, which would dominate monetary policy to { Republican Reconstruction Finance Corporation formed As a result of the Fed’s subsidization of government bond 3 1 1951, rendering the Fed a passive partner. 1929 Stock Market Crash Stock market decline ends Liabilities Great Bear market 1936-1968 The Fed gains power to make 13.8 -11% MUCH LIKE WWI, the Fed was harnessed to finance the between the two bodies culminated in the 1951 Accord, in (billions) advances to member banks 2 Rieer Burgess Doctrine and an activist George L. Harrison { policy rst articulated in Fed 10th Annual Report Second World War. Reserve requirements were reduced to which the Fed finally earned its independence and the 2.5% $4 Amendments of 1917 increase 16 19 ceiling was discontinued. The Korean War would not be -16% allow member banks to expand lending for the war effort, and a note issuing power of Fed 6 preferential discount rate of 0.5% was set for loans collateral- financed by the Fed. 13a Agricultural Credits Act Passed ized by government debt. Unlike WWI, the latter was hardly Central bankers meet in New York In 1959, the Fed agreed to one of the only reductions in its $6 to deal with Britain’s overvalued used. Far more attractive to member banks were the open pound and consequent gold outow power to date. Section 13b of the Federal Reserve Act, passed Bank of the United States fails market buying rates set by the Fed. By offering to buy all Deputy Governor, New York Fed in 1934 to allow the Fed to lend directly to businesses for President, New York Life Insurance Co. government t-bills at 0.35% and long term bonds at 2.5%, the working capital purposes, was removed. Fed ensured that government debt prices would never fall. This $8 Emergency Construction and 13.3 Exchange Stabilization Fund price-fixing scheme allowed the government to issue huge The dollar’s link to gold was an important issue after WWII. Relief Act of 1932 passed amounts of Victory Loans to finance the war, and guaranteed The war-time accumulation of government bonds on its balance William McChesney Martin Jr. begins operations Assistant Secretary of the Treasury for Monetary Aairs the capital safety of the private sector’s investment. sheet threatened the 40% gold backing requirement for Federal $80 Various directorships and trusteeships $10 12a second Glass-Steagall Act Reserve notes and deposits. Rather than sell government bonds The result was one of the fastest increases in the government establishes FOMC 4 to regain the 40% level, the requirement was legally reduced to bond portion of the Federal Reserve’s balance sheet to date. At Thomas B. McCabe Federal Deposit Insurance Corporation begins operations 25% for notes and deposits in 1945.
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