Final answer:
The Federal Reserve System, established in 1913, plays a crucial role in guarding against financial panics by regulating the banking industry, controlling the money supply, and managing monetary policy to ensure economic stability.
Step-by-step explanation:
One of the primary purposes of the Federal Reserve System (the Fed) is to guard against financial panics which may occur when there is a mass withdrawal of money from banks by people worried about the solvency of their investments. Established in 1913 through the Federal Reserve Act, the Fed is the central bank of the United States with the goal of promoting a stable economy through various means. These include influencing monetary policy, supervising and regulating banks, and providing financial services like loans.
The Fed's three original goals were to promote maximum employment, stable prices, and moderate long-term interest rates, which all contribute to economic stability. Over time, the Fed's role has expanded, and it now also includes the supervision of financial institutions, maintenance of the payment system, enforcement of consumer protection laws, and ensuring that currency is maintained properly.
During the 2008-2009 financial crisis, the critical role of the Fed in maintaining a safe and stable national financial system became very apparent. The crisis outlined the importance of the Fed's role in protecting not only individual savings but the integrity of the entire financial structure. By regulating the banking industry, controlling the money supply, and adjusting interest rates, the Fed works to prevent economic disasters that can result from failures within the financial system.