The Federal Reserve System will celebrate its 68th birthday on Wednesday. So far as federal institutions are concerned, it has reached senior citizen status. Only a few regulatory agencies, such as the Interstate Commerce Commission and the Food and Drug Administration, are older.

The origins of the Fed, as it is dubbed, are deep. After the charter of the Second Bank of the United States was left to expire in 1836, the nation frequently underwent trying economic conditions, with runs on banks leading to failures and panics. For many Americans, such economic instability was a price that had to be paid, for the alternative was another central bank like the Bank of the United States, which, under the leadership of its president, Nicholas Biddle, pursued unpopular policies.

After the expiration of the Bank of the United States, the federal government spurned all banking institutions, choosing instead to store its money in vaults. Then came the Civil War and the opportunity of a national emergency to forge new legislation. The national banking system was established, creating federally chartered banks that could issue a national currency and proscribing certain activities of state banks, most significantly in issuing individual bank notes.

But the legacy of the act was less the fostering of economic stability than the creation of a dual banking system, eventually reaching 27,000 institutions, of which state banks were in the vast majority.

And so bank failures and panics continued, with a rather severe one in 1907. Congressional investigations in 1912 put the blame on the "money trust" of J. Pierpont Morgan controlling 110 corporations with assets in excess of $22 billion. With the election of President Woodrow Wilson, with his record as a reform governor of New Jersey, came the impetus for more comprehensive banking legislation. he act that emerged on Dec. 23, 1913, after nearly a year of sometimes bitter debate, was a classic example of American compromise. Private bankers wanted one central bank akin to the Second Bank of the United States, with control vested in branches and member banks proportional to their capitalization. To critics of bankers, the goal was governmental control over the system. The compromise was a core of 12 private Federal Reserve banks, regulated by an indirectly controlled government "capstone," the Federal Reserve Board.

The history of the Fed since 1913 has emphasized, most of all, the expansion of its activities: from serving as a bankers' bank and fiscal agent of the federal government to enticing commercial banks to subscribe to Fed membership and regulation to providing mechanisms for clearing checks.

In recent years the Fed has been charged with objectives relating to high levels of employment, favorable trade balances, and a strong dollar abroad. But its most publicized and controversial function is its determination of monetary policy through changing reserve requirements of member banks, buying and selling U.S. government securities (open market operations), and setting the rate of interest charged on loans to member banks (discount rate).

As monetarist economics assumed stature, the Fed, like Biddle's bank, became subject to greater scrutiny and criticism, particularly for its alleged role in exacerbating the onset and course of the Great Depression of the 1930s. Legislation in 1975 required the chairman of the Federal Reserve Board to report quarterly to Congress on the economy and the Fed's monetary goals.

In spite of criticism, the Fed has grown stronger in prestige and power. Full General Accounting Office audits of the Fed are proscribed. Sunshine and freedom of information acts also provide exceptions for the Fed. And unlike other government institutions that depend on Congress, the Fed is self-supporting. The private aspects of the system provide earnings from fees charged to member banks.

As for the Fed's future, continued existence in the nation's mixed economy seems certain, although some critics hope for greater controls. But that might be as overly optimistic as expecting the Fed to celebrate its annual anniversary, falling two days short of Christmas, by sending out cards containing crisp new federal reserve notes.