Which Act established the Federal Reserve?

• A. Banking Act of 1933
• B. Independent Treasury Act
• C. Federal Reserve Act
• D. Federal Trade Commission Act

Answer: (C)

This question tests understanding of which law created the Federal Reserve, the United States’ central banking system. The Federal Reserve Act of 1913 established the Federal Reserve System, creating a national central bank structure with a Board of Governors and 12 regional reserve banks to oversee monetary policy and financial stability. It was meant to prevent banking panics and provide an elastic currency by giving the system tools to influence money supply and liquidity, such as setting reserve requirements and acting as a lender of last resort to banks. This act responded to the volatility and crises of earlier decades, especially the Panic of 1907, by putting in place a coordinated mechanism to stabilize the banking system. Other laws listed were important reforms but did not establish the Federal Reserve: the Banking Act of 1933 reformed the system and created the FDIC, the Independent Treasury Act created a separate treasury system, and the Federal Trade Commission Act established the FTC.