Act meant to remedy perceived inadequacies of the U.S. banking structure revealed during the bank failures and panics of 1873, 1893, and 1907, which occurred because of the lack of regulatory federal legislation.
In January 1908, Senator Nelson Aldrich, Republican from Rhode Island, introduced a bill to permit the creation of emergency currency backed by state, municipal, and railroad bonds. But the currency commission of the American Bankers Association and other banking and merchant interests immediately opposed the Aldrich Bill, which many felt simply raised the value of railroad bonds and thus benefited the large eastern banks. In March, Aldrich—after meeting with George Perkins, a representative of the J. P. Morgan Company—removed railroad bonds as collateral for emergency currency. By the end of the month, the Senate had passed the bill. During the hearings in the House of Representatives, overwhelming opposition arose. Yet many wanted some type of regulation to prevent a financial panic similar to that in 1907. Congressman Edward B. Vreeland, speaking for the Republican caucus in the House, subsequently introduced a compromise bill.
Passed by Congress on May 30,1908, the Aldrich-Vreeland Emergency Currency Act made available $500 million in emergency currency to certain national banks over the next six years by allowing them to issue circulating notes. The bill also allowed extra currency on bonds of towns, cities, counties, and states. But a graduated tax of up to 10 percent limited the issuance of currency. Moreover, the act established the National Monetary Commission, composed of nine members from the Senate and nine members from the House of Representatives, to investigate the deficiencies in the country’s banking system. The commission, with Senator Aldrich as its chair, appointed experts to study the history of banking and the current condition of the industry in the United States. The commission subsequently issued a 49-volume report in 1911 that recommended the establishment of a national reserve association with branches to act as a central bank run by private bankers free of any real government control. The Aldrich-Vreeland Act preceded the Federal Reserve Act of 1913, which established a stable banking system in the United States.
