Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Contents

The Federal Reserve Act of 1913...... 1 Immediate Origins of the System ...... 2 The Banking System in 1914...... 3 A Note on Gold in 1 91 4 ...... 4 Incorporation of the Federal Reserve Bank of New York ...... 4 Early Response of the Commercial Banks.. 7 Organization and First Actions of the Board 8 Chairman Jay and Governor Strong...... 10 Opening Day, Monday, November 16, 1914.. 10 Sixty-Two Cedar Street...... 12 Early Problems of Check Clearing and Collection ...... 14 Naming of Reserve Banks as Treasury Depositories and Fiscal Agents ...... 15 Early History of Earnings and Expenses___ 15 Chairmen of the Federal Reserve Bank of New Y ork ...... 17 Bank S upervision...... 18 Presidents of the Federal Reserve Bank of New Y o rk ...... 19 The Federal Reserve Today...... 20 Buffalo Branch ...... 21

1914-1964 The opening was spoken of as an occasion origins of Federal Reserve functions and show “marking the foundation of financial emancipa­ how they have developed over the years. These In 1964 the Federal Reserve Banks marked the tion" and as the start of a new era in United vignettes originally appeared in this Bank’s Fiftieth Anniversary of their opening. Through­ States banking. But even the most optimistic Monthly Review throughout 1964. They appear out the year most of us have been learning, in observers were unable to foresee the vital role here with some additional material giving a vivid one way or another, something about the early the System was to play in the economy of the picture of the early days of the System and of days of the System. country and the world. It was the half century this Bank. The year in which the banks opened, 1914, that followed that showed the System’s value It is with sincere pleasure and a touch of pride was one of turmoil and uncertainty. War had and potential. that we present you with this memento of our broken out in Europe in August, and the stock After one day of business, the assets of the Golden Anniversary. market was closed. As the holiday season ap­ Federal Reserve Bank of New York totaled $105 proached, business was slow and jobs scarce. million. At the close of business exactly 50 years Against this setting, the Federal Reserve Bank later, on November 16, 1964, assets exceeded of New York-and the other 11 Reserve Banks- $14.6 billion. But this difference is merely sug­ opened for business on Monday, November 16, gestive of the evolution of this Bank and of the nearly a year after President Wilson signed the entire System. 0 Alfred Hayes, Federal Reserve Act. Most of the sketches in this booklet trace the December 1964 President Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis The Federal Reserve Act of 1913

December 23, 1963, marked the fiftieth anniver­

sary of President Wilson’s signing of the Federal Harris & Ewing Reserve Act. This action by the President fol­ lowed many years of concern over the problem of freeing our growing and increasingly com­ plex economy from the inflexible currency and credit structure that existed under the National Banking Act. The money panic of 1907 under­ scored the problem and the need for action. Less than seven months after the peak of the crisis, Congress passed the Aldrich-Vreeland Act, which created a commission to study and report on central banking systems. By 1912 a commission proposal—the Aldrich Bill-was in­ troduced into Congress. This first legislative effort was unacceptable, primarily because it Carter Glass called for a single central bank. In 1913 Representative Carter Glass, Chair­ The work of organizing the Federal Reserve man of the House Banking and Currency Com­ System took almost the full year 1914. By April 2, mittee, introduced what became the Federal a committee consisting of the Secretary of the Reserve Act—providing for a system of regional Treasury, the Secretary of Agriculture, and the reserve banks with supervisory power vested in Comptroller of the Currency had determined a Board in Washington. On September 18, 1913, that there were to be twelve Reserve Banks, this bill passed the House, and on December 19 had designated the twelve cities in which the it received approval of the Senate. Reserve Banks would be located, and had de­ fined their districts. President Wilson The district to be served by the New York Bank originally included only the State of New York (the northern counties of New Jersey were added in 1915 and Fairfield County, Connecti­ cut, in 1916). By mid-August 1914, the national banks in New York had elected six directors of the full nine-man board of the New York Bank. The remaining three directors of the New York Bank were appointed by the Federal Reserve Board on September 30. The Federal Reserve Board^tyat^b^p fully constituted on August 10, following Senate ap­ proval of five members appointed by the Presj&\ / it ' dent; the other two member^ wer&The Secretary ars Ewing & Harris of the Treasury and the Comptroller1 of the Currency. All the Reserve Banks operife<[1&t I^0v6^ber Digitized for FRASER 16, 1914. At the close of business^on Tfiat first 1 http://fraser.stlouisfed.org/ LIBRARY Federal Reserve Bank of St. Louis day the balance sheet of the New York Bank a large part of these funds in stock market call and prices of stocks and bonds would drop showed assets of $105 million, consisting of loans. In most years, seasonal currency with­ sharply. $103 million in gold and lawful money and drawals from the New York banks during the The nation experienced some or all of these $2 million in bills discounted for member banks. autumn harvest time were met without major dif­ conditions in 1873, 1884, 1893, 1901, 1903, and ficulty. Occasionally, however, the withdrawals 1907, but each occurrence except the last led Immediate Origins of the System were so great or came at such a time that they to only minor legislative changes. In 1907, the triggered a money panic. In the absence of a economy was in a recession and stock prices In the decades prior to the establishment of the “ lender of last resort,” the New York banks, were trending downward over much of the year. Federal Reserve System, it became increasingly undergoing heavydemands forcurrency-which As the seasonal demand for currency and credit apparent that the country’s financial system constituted their legally required reserves built up at crop-harvesting time, a large trust failed to meet fully the needs of a growing econ­ against demand deposits—would restrain with­ company in New York experienced difficulties omy. These shortcomings were most dramati­ drawals by their correspondent banks. Failure and suspended operations on October 23. Runs cally revealed in fairly frequent “ money panics.” by out-of-town banks to meet demands for cash developed on two other New York trust com­ New York City was the fulcrum of the banking would then often follow. With the outflow of cur­ panies, and correspondent banks stepped up system operating under the National Bank Act. rency from New York, moreover, banks would their withdrawals of currency from national Many out-of-town banks kept large deposits withdraw funds from stock market financing, banks. The net losses of currency from New with New York banks, which in turn employed interest rates would rise to extraordinary levels, York banks to the rest of the country increased fourfold over seasonal norms during October The New York Times: October 23, 1907 and remained at peak levels through November. New York banks strongly discouraged or even rationed currency payments to correspondents, and the usual widespread disruption of pay­ THE WEATHER. ments followed. Call loan rates at one point

Fair to-day and to-morrow; fresh were reported at 125 per cent per annum, xk northwest to west winds. and price declines in the securities markets Sinter worsened rapidly. Eventually, the panic was stemmed. Gold .- TWENTY PAGES. In Greater New York, I Elsewhere, 1907 ONE CEN T Jersey City, and Newark, I TWO CTCNT8. flowed in from abroad, partially reflecting a balance-of-trade improvement and higher inter­ GIRLS. the train for New York, telegraphing first est rates. Treasury deposits of currency in New to tho local Sub-Treasury to release $8,- 000,000 of Government money to the banlcs York banks reduced the pressure on the central Jes Insti- AID TRUST CO. KNICKERBOCKER of this city upon thoir deposit with the >1 leg e . Sub-Treasury of collateral. money market. Clearing houses served as self­ was an- The statement which was given out In Washington ran as follows: assistance groups for local banks by placing lobei t N. OF AMERICA WILL NOT OPEN “ The Secretary of the Treasury Is keep­ :ity, who ing In close touch with the business condi­ the credit of the group behind each member. ast week, tions throughout the country. In the jtlon for It Has Twelve Millions, and as matter of public deposits he will at times Conference of Bankers Deems It Nevertheless, in New York City alone three rard Col- consult the needs of legitimate business national banks, eight state banks, and four trust iively for Much as May Be Needed Interests and will not hesitate to deal Unwise to Aid the Trust Com­ effective promptly and adequately with any situa­ companies, with total deposits and other liabili­ >w, Mrs. Is Pledged. tion that may arise." pany Further To-day. I will be After the Secretary had gone there was ties of about $110 million, had either failed or the city given out at the department a statement showing that there still remain outstand­ temporarily suspended operations. vlth that J. P. MORGAN IS TO HELP ing only $6,070,000 of the 4 per cent, bonds, EIGHT MILLIONS WITHDRAWN ided the which are being redeemed under the cir­ The panic of 1907 spurred serious study of le world, cular of April 2. In some quarters this i bequest was taken to mean that the $6,000,000 re­ the basic problem. By May 30, 1908, a means of II not be With Other Financiers He Acts ported from New York to have been de­ Attorney General Jacksont mlnatlon. posited had been sent there for the re­ creating an emergency currency to stem panics shall be at Night Meeting with demption of these 4 per cent, bonds. Though, Will Take No Step ■cullar or had been provided in the Aldrich-Vreeland Act. Secretary Cortelyou. The Examination. to Close the Institution. While the flnunclnal community was nstructe4 busy yesterday In watching closely the This act of Congress also established the Na­ if Chris- efforts which were being made to re­ y sect Is THE SITUATION CLEARING habilitate the affairs of the Knickerbock­ STILL HOPES FOR THE BEST tional Monetary Commission, to consist of nine nds, but er Trust Company. If possible, the State 2 reference Senators and nine Representatives, for the pur- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis pose of examining the monetary and banking and dispose of short-term earning assets were of the travels of individual checks through these system and reporting on needed changes. The poorly developed by today’s standards. Most of correspondent links proved absurdly time con­ monumental study of this commission (twenty- the relatively small amount of United States suming. four volumes of published material) and its rec­ Government securities held by commercial Lending consisted primarily of short-term ommendations for a central banking system banks was unavailable for trading, because commercial financing based on promissory became—in a greatly modified form—the basis these securities were required as legal backing notes or secured by marketable staples. These for the Federal Reserve Act of 1913 which was for the outstanding notes of national banks. notes were generally not very liquid; corre­ “to furnish an elastic currency, to afford means Even in 1914, payments by check were esti­ spondent relationships - under which smaller of rediscounting commercial paper, [and] to es­ mated to account for about 90 per cent of all banks could rediscount this paper with larger tablish a more effective supervision of banking business payments. Local clearing-house banks when pressed for funds—were of extreme in the United States.” arrangements were efficient, but the collection importance in providing what liquidity there of out-of-town checks often proved slow and was. Correspondent deposits and discounting The Banking System in 1914 costly. Many banks, particularly those outside concentrated in money centers—especially New financial centers, deducted exchange fees from York City—where the banks did not themselves In early 1914, the nation’s commercial banking the facevalue of checks drawn on theirdeposits. have ready access to a source of liquidity in system was very different from the system we To avoid these charges, banks sought to route times of stress. One of the purposes of the new know today. For one thing, there were almost checks only to correspondent banks, and some Reserve System was to fill this void. As the twice as many commercial banks—25,500, com­ pared with 13,400 today. About 7,500 had Wall Street, Panic of 1907 national charters; the remaining 18,000 were chartered by states. Demand deposits and currency totaled $11.6 billion in 1914, compared with the current money supply of about $160 billion. Currency then in­ cluded national bank notes, gold coin, and gold certificates-all of which have now disappeared —as well as the still-familiar United States notes, silver certificates, and silver and minor coins. Federal Reserve notes, the bulk of today’s cur­ rency, were of course unknown. Banking services were neither as flexible nor as diversified as they are today. Bankers’ ac­ ceptances, which were often used in Europe to finance domestic and foreign trade, were not commonly created by national banks until after passage of the Federal Reserve Act, or by New York State banks until shortly afterward. The Federal Reserve Act contains specific authori­ zation for national banks to create bankers’ ac­ ceptances. In New York, the State Banking Law of 1914 contains similar authorization for New York banks. At the time these acts were passed, one-third of the nation’s exports and more than one-half its imports passed through the port of New York. Digitized forMarkets FRASER in which banks could readily obtain http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Reserve Bank Organization Committee, estab­ system. The expectation was that this improve­ the Reserve Banks had, on this basis, excess lished under the Federal Reserve Act, began to ment—and the base for a “ more flexible” cur­ gold reserves of about $138 million. One of the deliberate on how many Reserve Districts to rency provided by Federal Reserve rediscount­ uses to which the Reserve Banks applied their create (the law specified a maximum of twelve ing of commercial paper—would contribute to gold was the establishment of an Interdistrict and a minimum of eight) and where to locate the avoidance of money panics. Settlement Fund, maintained in Washington. It the Federal Reserve Banks, it was certain that The Federal Reserve Act required that capital was easy and inexpensive to settle payments New York City would have one of the Federal subscriptions of member banks be paid in gold between districts arising from check collections Reserve Banks. or gold certificates. The Federal Reserve Board by notifying the Fund to transfer gold reserves also urged member-banks-to-be to pay as much from the account of one Reserve Bank to an­ A Note on Gold in 1914 as possible of their required reserve deposits other. In time, these transfers replaced the ex­ in gold or gold certificates. By December 31, pensive and cumbersome shipments of gold and Gold played a key role in the domestic as well 1914, the Reserve Banks held $229 million in gold certificates around the country that were as in the international payments system in 1914. these assets-more than 12 per cent of the common prior to the establishment of the This brief note touches on only a few facets of nation’s monetary gold. Required by the Federal System. a vast and complex subject. Reserve Act to maintain gold reserves equiva­ As a result of the resumption of specie re­ lent to at least 40 per cent of their outstanding Incorporation of the demption in 1879 (following its suspension dur­ notes and 35 per cent of their deposit liabilities, Federal Reserve Bank of New York ing the Civil War) and with the enactment of the Gold Standard Act of 1900, the United States The seal of the Bank indicates that the Federal was on a full gold standard, characterized by Reserve Bank of New York was incorporated free coinage and circulation of gold and the on May 18, 1914. This major step toward the convertibility of paper currency into gold coin. opening of the Bank for business on November In November 1914, as the Federal Reserve 16, 1914 required a number of preliminary ac­ Banks prepared to open for business, the United tions. For example, the Organization Committee States had an estimated $1,835 million of mone­ established by the Federal Reserve Act—com­ tary gold. Of this amount, $666 million was in posed of the Secretary of the Treasury, the the form of gold coin held by commercial banks Secretary of Agriculture, and the Comptroller of and the public, $256 million in uncommitted the Currency —had to complete the work of Treasury balances, and $913 million in circu­ designating Federal Reserve Districts and of lating gold certificates issued to the public and fixing the location of the new Reserve Banks secured 100 per cent by gold in the Treasury. within the Districts. The Committee then had to Gold coin and certificates outside the Treasury file with the Comptroller a certificate containing — roughly $1.6 billion-m ade up more than 40 per this information. cent of the nation's supply of coin and cur­ National banks, which were required to be­ rency. An estimated $800 million of the gold and come members of the new system if they were Resolution adopted by the New York certificates outside the Treasury was held by to keep their national charters, had been given Clearing House Association, Nov. 13, 1914 banks, serving as part of their legally required sixty days following passage of the act in which reserves. to signify their acceptance of its terms and pro­ "RESOLVED, The Federal Reserve Bank of The first Annual Report of the Federal Re­ visions. The action was not required of state New York having applied for the clearing serve Bank of New York stated that “gold is the facilities of the Clearing House, the Clearing banks and trust companies, which were free to most uneconomical medium of hand-to-hand House Committee is hereby authorized to decide individually whether or not to apply for circulation since, when held in bank reserves, arrange the details to accomplish this ob­ membership. By April 2, 1914, when the lines of it will support a volume of credit equal to four ject, under such regulations and for such the new Districts and locations of Reserve or five times its own volume.” The Federal Re­ annual compensation as the Committee may Banks were announced, 477 national banks had serve Act made possible more effective use of prescribe.” submitted their assent in this District, which 4 gold as a foundation for the domestic payments then encompassed only New York State. Based Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis C ir c u l a r N o. i .

FEDERAL RESERVE BANK OF NEW YORK

TEMPORARY OFFICE. 27 PINE STREET

N e w Y o rk C it y , October 28, 1914.

T o t h e P r e s id e n t ,

D ear S ir : Referring to the notice sent you by the Federal Reserve Board, calling for payment on November 2, 1914, of the first installment on the amount of capital stock of the Federal Reserve Bank of New York allotted to your bank by the Organization Committee, you are now advised that the amount to be paid should be one-sixth of the par value of the amount allotted to you without regard to any changes which may have occurred in the amount of the capital stock or surplus of your bank since the date of allotment. The law requires this payment to be made in gold or gold certificates, and you are requested to make such payment, so far as may be practicable, in gold certificates of large denominations from the reserves held in your own vaults. These should be delivered on November 2d, to the Federal Reserve Bank of New York at the office of the New York Clearing House Association, No. 77 Cedar Street, New York City, where, through the courtesy of that Association, arrangements have been made to receive the pay­ ment of the first installment of the capital stock. Fractional amounts which cannot be paid in gold or gold certificates may be paid in lawful money. The Federal Reserve Board has authorized the Federal Reserve Banks to pay the express charges involved in making this payment. The amount of such charges should not be deducted from the amount remitted, but a statement of the amount paid for expressagc should be rendered after November 16th, for which remittance will be made or credit given in your account. Unless otherwise requested, certificates of payment (which are not transferable) will be mailed to member banks, at their risk without registration. A form of letter to be returned with your remittance is herewith enclosed, which you are requested to complete by filling in the blanks. In accordance with the desire which the Secretary of the Treasury has expressed to the Board of Directors of this bank, that the operation of the Federal Reserve system shall be declared established on November 16th, the Directors are endeavoring to complete the neces­ Circular No. 1 of the Bank, which was sary organization to receive the reserves to be transferred by member banks, and to transact addressed to the Presidents of the member such business as will be undertaken at the outset. Further notice in relation to the transfer banks, set November 2, 1914, as the date for of reserves will be sent you at an early date.

payment of the first installment on the FEDERAL RESERVE BANK OF NEW YORK, capital stock of the Bank allotted to them. Benj. Strong, Jr., As the circular points out, the law required that Governor. Digitized for FRASER payment be made in gold or gold certificates. 5 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis m g k r n m ajf tjM iiU iaU ttJl % dim tfltg P

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vvtiC wibwz^o m ij 'ftaru) a m 1* .'caf af afj tcc tlto jovt xtec tx£ft ^ .Jaijaf This Certificate formally authorized the Federal Reserve Bank of New York to “ commence business and to exercise all ^ ^ / 1 C *~*- f powers granted to it by law.” John Skelton / Cv>mptu‘*t,Li z ^ tile Manhattan Bank. considerable portion of required reserves could Buffalo; First National Bank, Syracuse; and ■ Marine National Bank, Buffalo, converted be—and usually was—deposited in earning ac­ Irving National Bank, New York. (As a result of to a state bank and is now the Marine Trust counts. Furthermore, the smaller banks in par­ various changes in organization, none of these Company of Western New York. ticular looked with disfavor at the possibility of banks survives under the same name today.) ■ First National Bank, Syracuse, merged par check collection, since many obtained a These incorporators executed a certificate of into the First Trust and Deposit Company of sizable portion of their earnings from exchange organization specifying the name, the jurisdic­ Syracuse. fees deducted from the face value of the checks tion, the capital structure, the membership, and ■ Irving National Bank, New York, converted sent to them by other banks for payment. These to a state bank called the Irving Bank of New other attributes of the new Bank. The certificate banks were also apprehensive over the addi­ York, which is now the IrvingTrust Company. also stated that it “is made to enable those tional supervision of the Federal Reserve au­ banks executing same, and all banks which thorities, while both large and small state- have subscribed or may thereafter subscribe chartered banks felt further uncertainty as to to the capital stock of such Federal Reserve whether or not they could legally withdraw from Bank, to avail themselves of the advantages of the System once they had accepted membership. this [Federal Reserve] act.” There were, of course, powerful factors work­ The completed certificate was filed with the Early Response ing toward broad bank membership. These in­ Comptroller of the Currency on May 18, 1914. of the Commercial Banks cluded the service facilities that the new System Under the terms of the Reserve Act, incorpora­ was about to develop, and the knowledge that tion was automatic upon this filing. During 1914, as the Federal Reserve System membership contributed to an over-all strength­ Although the corporate life of this Reserve was about to be launched, one of the major ening of the commercial banking structure. Of Bank began on that day, much remained to be questions was how well the System would be even greater importance was potential access done before the November opening. In the in­ accepted by prospective member banks. There to the Federal Reserve “discount window.” The tervening time, positions on the Board of Direc­ existed considerable evidence that not all im­ previous absence of a “lender of last resort” tors were filled as prescribed by the Federal portant commercial banking interests were in had often led to embarrassment for individual Reserve Act, bylaws were adopted, and account­ accord with the principles of the Federal banks and had contributed to damaging money ing procedures established. Reserve Act. While the measure was being dis­ panics affecting the entire financial system. The franchises of the Reserve Banks were cussed in Congress in 1913, an apparent con­ The first evidence of the response of the originally granted for a specified period of sensus among bankers had favored the earlier banking community proved highly encouraging. twenty years—perhaps an echo of the historical Aldrich proposal, which had pointed toward a By April 2, 1914, no less than 7,471 national controversies involving the first and second more centralized institution with greater repre­ banks had applied for stock in the Federal Re­ Banks of the United States, and quite possibly sentation for banking interests. Even Benjamin serve Banks, leaving only 15 choosing to relin­ also a reflection of the uncertainty of how the Strong, then president of Bankers Trust Com­ quish their charters rather than join the System. new System would work out. This limiting fea­ Digitized for FRASER pany, New York, and shortly to become the first Since national banks held about half of the http://fraser.stlouisfed.org/ture was removed by Congress in 1927. Governor of the Federal Reserve Bank of New banking system’s deposits, acceptance of 7 Federal Reserve Bank of St. Louis membership by this overwhelming majority was appointed by the President could come from of critical importance. the same Federal Reserve District and that two Second District Membership The pace of entry proved considerably slower should be experienced in banking or finance. among the estimated 9,000 state banks and trust National State Banks The new body was to exercise general super­ companies who met the Reserve Act’s capital Year Banks & Trust Co’s. Total vision over the Federal Reserve Banks. requirements for membership. By the end of President Wilson had spent several months 1914 480 0 480 1916, 37 state-chartered institutions had joined 1915 615' 1 616 making the selections, and the Senate did not the System and 119 more had become members 1916 6232 2 625 confirm all the appointments until the end of by converting or reorganizing as national banks. 1917 624 43 667 July. Charles S. Hamlin, a Boston lawyer who Meanwhile, however, evidence was accumulat­ 1918 622 101 723 was then serving as an Assistant Secretary of ing that membership did provide tangible bene­ 1919 636 122 758 the Treasury, was designated Governor of the fits to offset some of the apparent disadvan­ Board (equivalent to the present Chairman). tages. Moreover, the passage of an amendment 1131 banks in New Jersey added through re­ The Vice Governor (Vice Chairman) was to be to the Reserve Act on June 21, 1917—when the adjustment of district boundary to include Frederick A. Delano, a railroad executive from number of state-chartered members had risen the eleven northernmost counties. Chicago. Paul M. Warburg, a member of a to 53—assured state members that they could 215 banks in Fairfield County, Conn., added New York banking firm, and W. P. G. Harding, as a result of change in district boundary. withdraw if they desired. Between that date and president of a national bank in Birmingham, the year end 197 banks entered the System, and Alabama, were selected as the members with in 1918 an additional 686 became members. banking or financial experience. The fifth ap­ By the fall of 1919, five years after the inaugu­ pointee was A. C. Miller, a former professor of ration of the Federal Reserve System, it was economics at the University of California, who clear that commercial banks generally sup­ was serving as Assistant to the Secretary of the ported the System. Its membership included Interior. almost one-third of all commercial banks, and Under the new law the Secretary of the Treas- these members held over 70 per cent of all de­ ury and the Comptroller of the Currency were posits in such banks. Today, a half century ex-officio members. Thus, Secretary William later, 45 per cent of all commercial banks, ac­ Gibbs McAdoo and John Skelton Williams com­ counting for over 83 per cent of commercial pleted the “Supreme Court of Finance,” as the bank deposits, are Federal Reserve members. Board was informally called. (The Federal Re­ serve Act was amended in 1935, removing the provision for ex-officio membership, making all Organization and First Actions seven positions appointive, and changing the of the Board official title to the Board of Governors of the Federal Reserve System.) Many important Washington figures gathered in When the members of the new Board assem­ the office of the Secretary of the Treasury on bled for their first meeting the Thursday after Monday morning, August 10, 1914, to witness being sworn in, they had to make a choice be­ swearing-in of the new Federal Reserve tween immediately completing the organization / Board.. It must have been a solemn occasion. of the Reserve Banks or developing emergency War had broken out in Europe the previous programs to counteract the financial disturb­ week, bringing with it great uncertainty and ances caused by the war. The latter course was perplexing financial problems. adopted, resulting in the establishment of a The men who were to confront these prob­ gold pool and a cotton loan fund. lems had come to Washington from different One of the earliest and most trying financial backgrounds and regions. The Federal Reserve consequences of the war was a highly abnormal Digitized8 LtfltfPnad for FRASER specified that no two of the five men condition in the foreign exchange market. The http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis balance-of-payments position was deteriorating seriously in August 1914, with both the trade and capital accounts contributing to a large deficit. Exports declined sharply because of the disorganization of ocean shipping and the vir­ tual collapse of European credit markets, the usual source for United States export financing. At the same time Europeans were dumping holdings of American securities in the New York market, and a large amount of American obligations held by foreigners was scheduled to mature in the near future. Discussing this situation, the first Annual Report of the Federal The original Federal Reserve Board, 1914. Reserve Board observed: “The securities mar­ Standing: Paul M. Warburg, Member; John kets were badly demoralized, prices fell with Skelton Williams, Comptroller of the Currency, alarming rapidity, and the country was exposed Member; W. P. G. Harding, Member; A. C. Miller, to a serious and disastrous drain of gold.” Member. Seated: Charles S. Hamlin, Governor; In response to this problem the Federal William G. McAdoo, Secretary of the Treasury; Reserve Board took the initiative in calling a Frederick A. Delano, Vice Governor. conference of private bankers to discuss emer­ gency action. The larger banks throughout the country agreed to subscribe $100 million to a gold pool, which could be used to settle Amer­ ican debts to Europe and thus help restore con­ fidence in the dollar. In addition, a very serious problem confronted the cotton-producing states. Since 60 per cent of American cotton production was normally exported, interruption of Atlantic shipping and the closing of the United States and British cotton exchanges resulted in a major financial crisis in the South. Cotton exporters needed credit to finance their higher-than-normal in­ ventories, but Southern banks were already overextended.To provide relief, the major banks in the North, cooperating with the Federal Re­ serve Board, agreed to establish a $100 million cotton loan fund, from which credit could be made available to the cotton exporters. Operations actually required under the gold exchange fund were small, and under the cotton loan fund virtually zero. However, the two plans had a highly beneficial psychological impact. Thus, even before the Reserve Banks opened, the new System had demonstrated its useful­ ness to the country. 9 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Opening Day, Monday, November 16, 1914

At 10 a.m., Monday, November 16, 1914, the Federal Reserve Bank of New York opened for business. The Bank had been incorporated May 18, 1914 and its directors elected and ap­ pointed by September 30. Pierre Jay had be­ come Chairman of the Board of Directors and

c Federal Reserve Agent. At the first board meet­ 3 (DCl ing, on October 5, Benjamin Strong, Jr., Presi­ i o 0 dent of Bankers Trust Company of New York, Cl 9° was elected Governor of the Bank. An acting C 3 Q- deputy governor and a secretary-counsel also 0) 1 were appointed during October. Temporary o o CL offices were located at 27 Pine Street. On October 26, Secretary of the Treasury Pierre Jay, this Bank’s first Chairman and Benjamin Strong, Jr., was founder and prin­ Federal Reserve Agent, served in those offi­ cipal guiding spirit of this Bank in the form­ ces 12 years —longer than any other man. ative years of the Federal Reserve System. At the time of his appointment by the new The Bank’s directors at their first meeting Federal Reserve Board on September 30, named Mr. Strong as Governor. That was 1914, he was vice president of the Bank of six weeks before the Bank opened for busi­ The Manhattan Company. He left the Fed­ ness. Governor Strong was 42 then and pres­ eral Reserve Bank of New York at the end ident of Bankers Trust Company. of 1926, when he was appointed American Governor Strong was a man of energy and member of the Transfer Committee of the courage. Historians say no one exerted Reparation Commission. more influence on the early development of Chairman Jay was credited with making the Reserve System and that no central scholarly and painstaking studies of a mul­ banker has been more influential to this day. titude of novel and complex problems of During his 14 years as Governor of the Bank, early Federal Reserve operations. One of he was a dominant force in American mone­ these was explaining to the banking com­ tary and banking policies. munity and various sectors of the public the During the 1920’s, Governor Strong was significance of the new Federal Reserve the leader of a move to promote more effec­ System. tive cooperation among the world’s central Benjamin Strong said that he worked so banks, and he traveled extensively to carry quietly and modestly that few people outside out this objective. his immediate circle of associates realized Governor Strong kept this reminder in the the influence he exerted in the Bank, the top drawer of his desk: System, and the whole business community. To the Governor of this Bank: Never forget The telegram on the right was the Bank’s Chairman Jay had a broad knowledge of that it was created to serve the employer authority to “commence business’’ on Monday economic matters, fine analytical abilities, and the working man, the producer and the morning, November 16, 1914. It was sent and was a master of tactful diplomacy. consumer, the importer and the exporter, from Washington at 6:40 p.m. on the Saturday He was 79 when he died in 1949. the creditor and the debtor; all in the inter­ before. The certificate or charter that the est of the country as a whole. telegram refers to is reproduced on page 6. Governor Strong died in office in 1928. Note the typographical error in the Bank's 10 name on the second line of the telegram. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis W. G. McAdoo notified the twelve Reserve Banks the Bank’s present 33 Liberty Street address- a new banking era and commented, “with the that the Comptroller of the Currency planned was on what is nowthe Chase Manhattan Plaza.) opening of the Federal Reserve Banks through­ to authorize their opening on November 16. The Bank moved into the Cedar Street quarters out the country today the consummation of the Chairman Jay replied that he would endeavor only one week before opening day. On Satur­ long standing agitation for currency reform in to assemble a temporary organization so that day, November 14, John Skelton Williams, the United States may be said to have been the Bank could, in fact, begin to operate that Comptroller of the Currency, signed the cer­ attained.” day. Governor Strong wired Secretary McAdoo tificates authorizing the twelve Banks to open, Seven officers and eighty-five employees, that the need to provide suitable safeguards as provided for in the Federal Reserve Act. mostly borrowed from banks and the subtreas­ for handling the amount of money involved in Secretary McAdoo commented that the open­ ury, made up the New York Bank’s opening day the Bank’s opening might make it impossible ing of the Banks marked a new era in the his­ staff. A permanent staff was organized during to comply literally with the opening date an­ tory of business and finance in this country. the next eight weeks. The main business dur­ nouncement. Mr. Jay and Governor Strong Paul M. Warburg, closely identified with the ing the opening day was accepting reserve de­ promised, however, to do everything possible birth of the System and a member of the first posits from Second District member banks. The to meet the date. Federal Reserve Board, declared that coming National City Bank of New York was the first Two weeks before the scheduled opening generations would commemorate the date as city member to deposit reserves ($21 million banking rooms were subleased at 62 Cedar the beginning of financial emancipation. The including $16 million in gold). By the end of Street. (The site of that building—a block from Wall Street Journal said the openings marked the day, 221 of 480 Second District members had deposited about $100 million in reserves, including $82 million in gold and gold certifi­ cates and $11 million in silver and silver cer­ ||j!^ WCSTERM UNION tificates. The Chemical National Bank of New York t e A a m 7 / made the first application for rediscounting for q u o WO« w . t . ATKINS. vic» w>«»io«mt______NtWCOMB CAWLTON. w w i e n r ______■BLVIPWW ■WOOKC OTC^gwwtwaw the stated purpose of demonstrating its desire to support and use the facilities of the new 16 D lY ST. pa.V. reserve banking system. The bills submitted WASHINGTON D C NOV U TT T T914------■s— and accepted for rediscount under this appli­ cation totaled $2,182,500—the largest such oper­ PicRRE J VCHAjRMAN B0ARJ) 0F J),r ecto rs FEDERAL RESERVE BANK OF NEWYORK ftV ation by the New York Reserve Bank in its first L 9 1 1 NEWYORK NY Q year. At the close of business the first day the Bank had total assets of $105 million, including THIS IS TO NOTIFY YOU THAT THE CERT IFI C(TEjQR__CHARTE^ payments on capital subscriptions received AUTHORIZING THE GENERAL RESERVE BANK OF NEWYORK TO COMMENCE BUSINESS earlier in the month. By 8 p.m. the books had I n been proved and balanced, and the first daily IN ACCORDANCE WITH THE PROVISIONS. OF SECTION 4 OF THE report and balance sheet were sent to Wash­

| FEDERAL RESERVE. ACT HAS BEEN OFFICIALLY SIGNED AND EXPBESSED TO ington. Chairman Jay and Governor Strong were quoted in the newspapers the next morn­ YOU AS IT IS IMPOSSIBLE TO HAVE THESE CERTIFICATES IN ing as commenting that everything had gone off ■ as smoothly as if the Bank had been open for THE POSSESSION OF ALL FEDERAL RESERVE BANKS BY THE MORNING six months. OF rOVEWBER SIXTEENTH THIS TELEGRAM WILL BE YOUR AUTHORITY P£NDING Years later, Governor Strong recalled the THE/ RECEIPT OF THE CERTIFICATE REFER?EB TO FOR THE «*EDE*AL RESERVE OF early days of the Bank in these words: “...we ' NEWYORK TO COMMENCE BUSINESS ON THE MORNING OF NOVEMBER were a lot of ‘greenhorns’ with no guide or SIXTEENTH NINETEEN FOURTEEN. compass, no experience, no cohesion — with JOHN SKELTON WILLIAMS COMPTROLLER OF THE everything to learn and, frankly, everything to \ PJRREBCY M0PM lose as the result of our inexperience.” 11 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Sixty-Two Cedar Street

The first banking office of the Federal Reserve Bank of New York was at 62 Cedar Street. The building was a six-story, white marble struc­ ture considered “well appointed" in its day. It was located on the south side of Cedar, between Nassau and William Streets. Across the street was the main office of Mutual Life Insurance Co., which built 62 Cedar for Harvey Fisk and Sons in 1903. The site of the old Fisk building is now part of Chase Manhattan Plaza, only a block from the present home of the New York Reserve Bank at 33 Liberty Street. The Bank subleased from Fisk the basement and a vault, the ground floor banking rooms, the mezzanine, and a second floor board room. The lease, dated November 6, only 10 days before opening day, called for an initial annual rental of $39,000, with increases to $41,000 for the final year ended May 1, 1918. There was con­ siderable discussion over price, and at one point negotiations were suspended. These negotiations and other organizational work were carried on from temporary quarters at 27 Pine Street, the first home of the Bank. Clinton and Russell, New York City architects who designed 62 Cedar, told the Bank before 62 Cedar St. is the second building on the right. the move that the structure was built “ in accord­ Office area ance with the very best modern practices. It is thoroughly substantial and extra strong ... no expense was spared in the construction of this building, and the workmanship and materials which entered into it were of the very best.’’ “We know of no building in the city of New York that is better constructed than this build­ ing,” the architects wrote the Bank. The building had a private elevator connect­ ing the basement, ground floor, mezzanine, and second floor. The elevator was “capable of carrying four people and specie and securities from one floor to another,” one description said. But the Bank soon found the elevator inade­ quate for its needs, and a new one was installed. Veteran employees can still remember the old 12 elevator getting stuck between floors. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis During the first year at 62 Cedar, the Bank spent $9,644 for alterations, improvements and changes. On December 16, 1915, a little more than a year after moving in, the Bank signed a lease for larger offices at 15 Nassau Street, which is at the Pine and Nassau corner of the Equitable Building. In 1918 the Bank acquired the major portion of the site of its present quarters at 33 Liberty Street. The cornerstone was laid May 31, 1922 and the building finished and in full use on October 6, 1924. Some years later, a small par­ cel of land at the William Street end of the present site was acquired, and an addition to the building was erected. This addition was completed in 1936.

Board room Vault Officers of Bank on Opening Day

Benjamin Strong, Jr., Governor (formerly President, Bankers Trust Company, New York)

William Woodward, Acting Deputy Governor (formerly President, Hanover National Bank)

An executive office James F. Curtis, Secretary and Counsel

G. E. Gregory, Acting Cashier (formerly Cashier, National City Bank of New York)

B. W. Jones, Acting Assistant Cashier (formerly Assistant Secretary, Bankers Trust Company)

R. H. Giles, Acting Assistant Cashier (formerly Assistant Treasurer, Bankers Trust Company)

S. A. Welldon, Acting Assistant Cashier (formerly Assistant Cashier, First National Bank of New York) Digitized for FRASER ______13 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Early Problems of Check Clearing Birmingham and Collection

The use of checkbook or deposit money was firmly established in this country by the time Cincinnati the Federal Reserve Banks began operations Rochester in 1914. Five years earlier a National Monetary Commission study estimated that 95 per cent of the deposits received by banks was in the form of checks. The system of clearing and col­ lecting checks nevertheless left much to be desired. Philadelphia In most major cities the banking community had established adequate facilities for clearing and collecting local checks. But problems arose when checks had to move from one city or region to another. Many banks levied exchange New York charges on these out-of-town checks—“ nonpar collection.” These charges were defended on the ground that payment of out-of-town checks some bank customers, confident that checks of par check collection for its members. But involved costs, including maintenance of out- would wander around for a week or more, drew participation in these clearing systems was vol­ of-town balances with other banks and the checks on nonexistent deposits in the expecta­ untary, and by the end of 1915 only 25 per cent shipment of currency. tion of depositing the money before the checks of the member banks had agreed to par col­ In an effort to avoid such charges, banks were presented. lection. would often send checks to banks with which After the new Reserve Banks opened for In 1916 the Reserve Banks began to absorb they had par collection agreements (collection business, the necessity of establishing an effi­ the charges on currency shipments from mem­ at face value), rather than to the banks on which cient national clearing and collection facility ber banks to cover reserve deficiencies caused the checks were drawn. In extreme cases, the was quickly recognized, and par collection be­ by check clearance. This eliminated a second results were ludicrous. For example, Governor came one of the System’s major operational cost justification for exchange charges. There­ W. P. G. Harding, one of the original members goals. To achieve this end, the costs regarded upon, and in the same year, the Federal Reserve of the Federal Reserve Board, gave the follow­ by banks as justification for exchange charges Board adopted a regulation requiring member ing illustration: had to be minimized or eliminated. Since each banks to pay at par all checks drawn upon I recall an instance where a national bank in member bank had to maintain a balance (re­ themselves and presented by the Reserve Rochester, New York, sent a check drawn on a serve account) with its Reserve Bank, checks Banks. bank in North Birmingham, Alabama, to a cor­ could easily be paid by debiting these accounts, To broaden the par collection system further, respondent bank in New York City, by which thereby reducing the member bank’s need for Congress amended the Federal Reserve Act in it was sent to a bank in Jacksonville, Florida, correspondent balances and cutting the related 1917 to permit a nonmember bank to use the which sent it for collection to a bank in Phila­ costs. Thus, with the creation of the Federal System’s collection facilities, provided it main­ delphia, which in turn sent it to a bank in Balti­ Reserve System and its centralization of reserve tained a clearing balance at its district Reserve more, which forwarded it to a bank in Cincinnati, balances, one important reason for exchange Bank and paid at par checks received from the which bank sent it to a bank in Birmingham, by charges was eliminated in the case of member Reserve Bank. which bank final collection was made.1 banks. These early efforts to establish a national par Such circuitous routing was costly for the The Federal Reserve Banks, nonetheless, collection system were quite successful. By banking system as a whole, since the interme­ moved only cautiously toward the goal of actu­ 1921, all member banks and 91 per cent of some diate banks were burdened with unnecessary ally requiring par collection. By June 1915, each 'W . P. G. Harding, The Formative Period of the Federal 14 expenses in the handling of checks. Moreover, Federal Reserve Bank had established a system Reserve System (Boston, 1925), p. 51. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 20,000 nonmember banks were paying checks eral Reserve System itself was, of course, a System could perform many of the fiscal agency at par. Today, in addition to the 6,200 member major step in combating this and other inflex­ functions at least as efficiently as subtreasuries, banks, there are 5,800 nonmember banks clear­ ibilities in the country’s money and banking and that having both was an unnecessary ex­ ing at par, 125 of which keep clearing balances structure. pense. In May 1920, therefore, Congress passed at a Reserve Bank. There are still some 1,600 An early version of the Federal Reserve bill a bill directing the discontinuance of the nine nonmember banks which do not remit at par. required that all general funds of the Treasury subtreasuries on or before July 1, 1921. The be deposited in the Federal Reserve Banks Secretary of the Treasury proceeded to carry Naming of Reserve Banks within twelve months after passage of the act. out this task by transferring many of the re­ as Treasury Depositories and This provision was successfully opposed by maining fiscal agency functions from the sub­ Fiscal Agents Secretary of the Treasury McAdoo as being too treasuries to the Reserve Banks. The last sub­ rigid. Thus, the final version of the bill left the treasury, located in Cincinnati, was closed on The authors of the Federal Reserve Act were amount and timing of the transfer of funds up February 10, 1921. aware that the methods employed in managing to the discretion of the Secretary of the Treas­ the Treasury’s finances had serious defects. ury, thereby permitting him to continue using Early History of Earnings Many of the Government’s fiscal affairs were the subtreasuries and national banks as de­ and Expenses handled by the Independent Treasury System, positories. This earlier draft of the bill also which had been established in 1846 to provide appointed the Federal Reserve Banks as fiscal Relying in part on the experience of other cen­ places other than private banks for the safe­ agents, whereas the final act authorized the tral banks, the legislators and banking experts keeping of Government funds. The defects of Secretary of the Treasury to require the Banks who drafted the Federal Reserve Act expected that system had been described in a study pub­ to act as fiscal agents at his discretion. In actual that the earnings of the new Reserve Banks lished by the National Monetary Commission. fact, the Secretary of the Treasury began using would tend to average higher than their ex­ Most of the Treasury’s revenues from cus­ the new Reserve Banks as depositories in 1915 penses. The distribution of these earnings was toms and taxes were collected in currency and and as fiscal agents in January 1916. therefore carefully specified in the act. coin, and it was Treasury practice during most At first, the fiscal services performed by the First there was provision for a 6 per cent of the pre-World War I period to hold this Reserve Banks were limited to receiving de­ cumulative dividend on capital stock purchased money in the subtreasury offices located around posits of Government collectors of customs and by member banks. Earnings in excess of these the country until it was needed for disburse­ internal revenue and to paying checks and war­ dividend payments were then to be paid to the ments. Hence, whenTreasury receipts exceeded rants drawn upon the United States Treasury. United States Treasury (except that one-half of disbursements and the surplus was held in the However, after the United States entered World the excess was to be retained until the surplus subtreasury vaults, money in circulation de­ War I, Secretary McAdoo turned to the Reserve account equaled 40 per cent of paid-in capital). clined. Since currency and coin were also an Banks for other services. In particular, the Until 1933 these payments to the Treasury rep­ important component of bank reserves, its with­ Banks were authorized to sell, issue, exchange, resented a “franchise tax.” In that year the tax drawal from the banks contracted the reserve and convert Liberty bonds, and they became the was repealed to permit the Federal Reserve base, and there was no central banking mecha­ focal points for local Liberty Loan committees, Banks to replenish their surplus, which was nism through which this effect could have been which made a vital contribution to the financing substantially reduced when an act of Congress offset at times when reserve withdrawals were of the war. required the Banks to subscribe $139 million inappropriate in the light of current economic Another useful service performed by the to the capital of the new Federal Deposit Insur­ developments. Federal Reserve Banks was the transfer of ance Corporation. Since 1947, payments to Successive Secretaries of the Treasury had money around the country by wire and book­ the Treasury have been made as “interest on attempted on occasion to relieve undesirable keeping entries. This procedure — made pos­ Federal Reserve notes.” contractions of the bank reserve base by trans­ sible through the deposit of gold and gold Although the sources of potential Reserve ferring funds from the subtreasuries to the certificates by each Reserve Bank in the gold Bank earnings—loans and rediscounts for mem­ national banks, which had been used as de­ settlement fund in Washington—eliminated the ber banks and interest on securities acquired positories since the passage of the National necessity for expensive shipments of coin and in open market operations — were well known Banking Act. These attempts were only par­ currency between subtreasuries. from the outset, a few member banks were pes­ Digitizedtially for FRASER successful. The establishment of the Fed­ It soon became evident that the Reserve simistic about the prospect of receiving the 15 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis return specified by the statute. In New York of $1.7 million on member bank stock. In 1917 State, the directors of one member bank stated war financing swelled earnings, and at the year publicly that they were writing down to zero end the Reserve Banks made their first trans­ the value of their Reserve Bank stock since fers to surplus and payments to the Treasury. they did not foresee any dividend payments. By June 1918 all the Reserve Banks had brought In late 1914 and through 1915, such pessi­ dividend payments up to date. mism proved temporarily justified as total earn­ Since that time, there have been four years ings of the Federal Reserve Banks were in fact in which Reserve Bank earnings have not cov­ small. The Federal Reserve Act had lowered ered expenses and dividends. Over the past reserve requirements of national banks, and fifty years as a whole, however, the System has this step, coupled with an inflow of gold, brought paid into the Treasury more than $9.3 billion— about conditions of monetary ease so that there an amount that far exceeds the $590 million in was little need for rediscounting. Through the dividends paid to member banks on capital end of 1915, the twelve Reserve Banks accom­ stock during the same period. In 1964 the Re­ modated 2,073 member banks, but these dis­ serve Banks’ current earnings were $1.34 billion, counts had totaled only $183 million. their current expenses $197 million, dividends With respect to the acquisition of earning $31 million, and payments to the Treasury $1.58 assets through open market operations, the New billion. York Federal Reserve Bank noted that suitable investments were in strong demand, causing in­ Statement of Condition of the terest rates to decline. In its first Annual Report, Federal Reserve Bank of New York the Bank stated: (In millions of dollars) Realizing the influence which the reserve bank might have upon these rates if it pressed November 16, November 16, its funds upon the market, it has been the pol­ ASSETS 1914 1964 LIABILITIES 1914 1964 icy of the bank to follow rather than lead the Gold certificate account...... 55 3,366 Federal Reserve n o te s ...... — 8,057 market in its decline. In these circumstances, Redemption fund for F. R. notes ...... — 345 Deposits: Member bank reserves ...... 102 4,650 no thought could be given to earning dividends. Total gold certificate reserves .... 55 3,711 F. R. notes of other B a n k s ...... — 165 U. S. Treasurer—general account . — 83 Thus, from the beginning, the System felt Other cash ...... 6 39 Foreign ...... — 32 that central bank decisions should not be in­ Discounts and advances ...... 2 185 Other ...... - 132 fluenced by considerations of earnings. Acceptances: Total deposits ...... 102 4,897 In the aggregate, current expenses of all the Bought o u trig h t...... — 40 Deferred availability cash item s ...... — 1,236 Reserve Banks exceeded earnings by $141,000 Held under repurchase agreement - 32 Other liabilities and accrued dividends — 28 between the beginning of operations in Novem­ U. S. Government securities: Total Liabilities ...... 102 14,218 ber 1914 and the end of 1915. Reflecting re­ Bought outright— CAPITAL ACCOUNTS gional conditions, results varied among the Bills ...... - 1,263 Capital paid in ...... 3 137 Banks and two Banks actually posted sufficient Certificates...... — - Surplus ...... — 264 earnings after expenses to initiate dividend Notes ...... — 5,897 Other capital accounts ...... — 22 Total Liabilities payments. However, it was estimated that addi­ Bonds ...... — 1,225 Total bought outright...... — 8,385 and Capital Accounts ...... 105 14,641 tional net earnings of approximately $3.4 million Held under repurchase agreement — 210 Ratio of gold certificate reserves would have been needed to meet dividend re­ Total U.S. Government securities — 8,595 to deposit and F.R. note liabilities quirements of all twelve Banks. Total loans and securities ...... 2 8,852 combined ...... 54.2% b 28.6% In 1916, earnings of the Banks rose while Cash items in process of collection . . 42a 1,805 expenses, no longer affected by organizational Bank p re m is e s ...... — 8 a Represents total of “Clearing House Certificates.” outlays, remained steady. The twelve Banks Other assets ...... — 61 b If calculated as done currently (this figure was not 16 were therefore able to declare partial dividends Total Assets ...... 105 14,641 computed at the time). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Chairmen of the Federal Reserve Bank of New York

Besides Pierre Jay, only two others served as full­ time chairmen of this Bank: Gates W. McGarrah, whose tenure ran from 1927 to 1930; and J. Herbert Case, who served from 1931 through part of 1936. When signed into law in 1913 the Federal Re­ serve Act required the “chairman of the Board of Directors of the Federal Reserve Bank and ‘Federal Reserve Agent’ ” to maintain a local office, make regular reports to the Federal Re­ serve Board, act as its official representative, and carry out other official duties. His chief statutory jobs related to the custody and issu­ ance of Federal Reserve Notes, and holding Gates W. McGarrah was named to succeed collateral behind them. At the direction of the J. Herbert Case, who is now 92 and living Chairman Jay in 1927, when Mr. Jay ac­ Federal Reserve Board, the Chairman and Fed­ in Plainfield, N. J., served the Bank almost cepted appointment to the Reparation Com­ eral Reserve Agent assumed responsibility for 20 years. He was named Deputy Governor mission’s Transfer Committee. The new the bank supervision and the research (then in 1917 and in 1930 became a class C direc­ chairman, then 64, resigned as chairman called statistics) functions, as well as for mak­ tor, Chairman and Federal Reserve Agent. of the executive committee of the Chase Mr. Case spent his entire business life in ing reports under several Board regulations. National Bank to accept the appointment. banking. A native of Elizabeth, N. J., his When the chief executive officer of each The next year, upon the death of Governor first job was as a clerk with the City Na­ Strong, he was appointed Acting Governor. Reserve Bank was given the title of President tional Bank of Plainfield, N. J., in 1887. Fif­ He remained chairman until 1930, when he under the Banking Act of 1935, the Chairman teen years later he helped organize the became American Director of the Bank for and Federal Reserve Agent ceased to be a full­ Plainfield Trust Co. which he served as International Settlements. time officer. Today, the Chairman in his other secretary and executive vice president for Upon his departure, fellow Reserve Bank capacity as Federal Reserve Agent is respon­ 15 years. In 1906, he was instrumental in directors lauded Mr. McGarrah for “rare sible chiefly for representing the Board of Gov­ organizing the Peoples Bank and Trust Co. judgment and an unselfish loyalty to the ernors in the custody and issuance of Federal of Westfield, N. J. He later became vice public good; sound and unswerving in prin­ Reserve Notes, and holding collateral. president of the Franklin Trust Co. of New ciple, yet very cooperative in attitude.” Be­ York and the Farmers Loan and Trust Co. Chairmen of this Bank since the office ceased fore serving with the Federal Reserve, Mr. of New York. to be a full-time position were: McGarrah had been president of the New During his years as Deputy Governor of Owen D. Young, (1938-1940), Honorary Chair­ York Clearing House Association in 1917-19 this Bank, Mr. Case served many times as and American member of the Reichsbank’s man of the Board, General Electric Company. Acting Governor during the absence of General Council in Berlin. He was a class A Beardsley Ruml, (1941-1946), Chairman, R. H. Governor Strong. As Chairman, he had an director of this Bank from 1923 through 1925. Macy & Co., Inc. important role in World War I and post-war Mr. McGarrah started in banking as a Robert T. Stevens, (1948-1953), Director, J. P. financing operations of the Treasury. When clerk at the Goshen National Bank, was Stevens & Co., Inc. he left the Bank, Mr. Case joined the invest­ president of the Leather Manufacturers Na­ Jay E. Crane, (1954-1956), Vice President, ment banking firm of R. W. Pressprich & Co. tional Bank of New York and then chair­ Standard Oil Company (New Jersey). His son Everett N. was named Deputy Chair­ man of the Mechanics and Metals National John E. Bierwirth, (1957-1959), Chairman, Na­ man of the Bank’s Board of Directors effec­ Bank until it was merged with Chase. He tional Distillers and Chemical Corporation. tive January 1, 1965. died in 1940. Philip D. Reed, (1960- ), Former Chairman of the Board, General Electric Company. 17 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Bank Supervision such statements and reports as it may deem Board directed that at least one regular ex­ necessary.” amination of each state member be made The fundamental objective of bank supervision The process of bank examination is primarily yearly by Federal Reserve examiners, inde­ is to foster and maintain a sound banking sys­ concerned with an evaluation of assets, pro­ pendently or in conjunction with state authori­ tem. One of the basic purposes of the Federal cedures, policies, and the effectiveness of man­ ties. Joint state-Federal Reserve examination of Reserve System, as stated in the preamble of agement. Examinations also provide the bank state member banks continues today, while na­ the Federal Reserve Act, was “to establish a supervisory authorities with the basic informa­ tional bank members are still examined by the more effective supervision of banking’’ in the tion necessary to perform other functions such Comptroller’s national examiners. United States. “More effective” were the key as issuance, interpretation, and enforcement of The System’s supervisory responsibilities as words, because banking had long been under regulations; merger and branching decisions; delineated by the Federal Reserve Act in 1913 the supervision of state and Federal govern­ and decisions concerning capital and corporate have been expanded by various acts of Con­ ments when the Federal Reserve Act was structure requirements. gress. The additional supervisory functions, to passed in 1913. The intimate information on bank operations name a few, include the processing of merger Some banks had been operating under vary­ derived from bank examinations also is useful applications of state member banks, the char­ ing degrees of state supervision since the early in the formulation of monetary policy. tering and supervision of companies organized and mid-1800’s, when a number of states passed Actually the System was slow to move into by banks to do a foreign banking and financing laws relating to bank chartering and opera­ the field of supervision. Regular examinations business, the registration of bank holding com­ tions. Indeed, the unique nature of banking of nationally chartered member banks were panies, and regulation of bank loans for pur­ tended to stimulate governmental supervision being made by national bank examiners. In 1917 chasing or carrying listed securities. although many states were slow to react. the Federal Reserve Banks were specifically The absence of restrictive definitions of the The National Bank Act was a major step to­ authorized to accept examinations by state supervisory duties and responsibilities of the ward improved supervision. Nevertheless, na­ authorities of state member banks in place of Federal Reserve System and the gradual broad­ tional bank examination methods had left some­ examinations made by Board-appointed exam­ ening of the Congressional mandate have been thing to be desired. In pre-Federal Reserve iners. The same year, the directors of the helpful in permitting the System to adapt its su­ days, national bank examiners worked under a Federal Reserve Bank of New York authorized pervisory functions to the far-reaching changes system of fixed fees for each examination, a the acceptance of examinations and reports in banking that have taken place since the pas­ faulty system in the opinion of John Skelton made by state authorities in the Second Reserve sage of the Federal Reserve Act. Williams who, as Comptroller of the Currency, District. was responsible for the administration of the For the next decade and a half, the Reserve National Bank Act. Banks confined themselves largely to special In the Comptroller’s annual report for 1915, credit investigations of member banks, gener­ it was stated that, under this arrangement, “the ally undertaken in cooperation with state au­ examiner necessarily made either a very super­ thorities but sometimes independently. These ficial and hasty examination of the bank or credit checks consisted mainly of a review of remained for closer consideration, at his own the quality of member bank loan portfolios. In expense, to perform a gratuitous service for addition to serving as a method of supervision, the Government.” they provided the Reserve Banks with supple­ The Federal Reserve Act authorized the Board mental information that could be used when of Governors of the Federal Reserve System, the member banks applied for discounts or upon recommendation of the Comptroller of the advances. Currency, to fix salaries for national bank exam­ In 1933, when it became apparent that a iners. Later the act was amended to direct the strengthening in supervision was necessary— Comptroller to set these salaries. The act also especially with respect to trust operations — gave the new Reserve Board the power to “ex­ the Board asked the Reserve Banks to expand amine at its discretion the accounts, books, and their examining facilities. affairs of...each member bank and to require The following year, the Federal Reserve Digitized18 for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Presidents of the the 12 Reserve Banks, and was general counsel In 1956, Mr. Sproul resigned to return to his Federal Reserve Bank of New York of the Federal Reserve Board before coming to native California, where he is serving as direc­ this Bank as Deputy Governor in 1920. Mr. tor of a bank and an industrial corporation. Harrison was instrumental in solving many problems concerning foreign relationships of Alfred Hayes became President of the Bank on the Federal Reserve. He died in 1958. August 1, 1956. He came from the New York Trust Company—now the Chemical Bank New Allan Sproul has been called one of our out­ York Trust Company—where he had been vice standing central bankers. He spent almost 36 president in charge of the Foreign Division for years in the Federal Reserve System, all but 10 seven years. George L. Harrison became chief executive at this Bank. He is a native of Ithaca, New York, and the officer of the Bank upon the death of Governor Mr. Sproul was President of the Bank for 15 son of a professor who taught constitutional Strong in 1928. For 13 years, first as Governor, years, from Januaty 1, 1941 to June 30, 1956, a law at Cornell. Mr. Hayes graduated from Yale. and then as President when the title was period covering World War II and the Korean After a year at the Harvard Business School changed, he guided the Bank through the trou­ conflict. He has been credited with making he received a Rhodes Scholarship and spent bled times of the stock market collapse in 1929, major contributions to our knowledge of mone­ two years at New College, Oxford, studying the Banking Holiday of 1933, the major revisions tary problems and policies. economics. in organization and operations in 1935, and into Mr. Sproul joined the Federal Reserve System He began his banking career in 1933 as an the start of World War II. Mr. Harrison left the in 1920 as head of the Division of Analysis and analyst in the Investment Department of the Bank in 1940 to become president of the New Research of the Federal Reserve Bank of San City Bank Farmers Trust Company. Seven years York Life Insurance Company. Francisco. He came to this Bank in 1930 as later he transferred to the Bond Department of After graduating from Yale, and the Harvard Assistant Deputy Governor and Secretary. Six the National City Bank, and in 1942 he joined Law School, Mr. Harrison for a year was legal years later he was named Deputy Governor, and the New York Trust Company as Assistant Sec­ secretary to Justice Oliver Wendell Holmes of in 1936 when official titles were changed, he retary in the Investment Department. the United States Supreme Court. He joined the was appointed First Vice President. He was Mr. Hayes has been Vice Chairman of the Federal Reserve System in Washington in the named Vice Chairman of the Federal Open Federal Open Market Committee since becom­ fall of 1914, two weeks before the opening of Market Committee in 1941. ing President of the Bank.

19 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis The Federal Reserve Today Board of Governors, the President of the New Government and for banks. They are the Sys­ York Bank, and four of the other Bank Presi­ tem ’s direct links with the 6,200 member com­ Today’s Federal Reserve System includes the dents, who serve on a rotational basis. The other mercial banks in the Federal Reserve’s super­ Board of Governors, the Federal Open Market Presidents regularly attend all meetings, how­ vision of banks. Committee, and the twelve Federal Reserve ever, which in recent years have been held at The Boards of Directors of the Banks have Banks. Also included is the Federal Advisory intervals of approximately three weeks. responsibility, as noted, for establishing dis­ Council. Membership in the System totals about Today’s FOMC is a descendant of a Commit­ count rates, subject to the review and deter­ 6,200 commercial banks, which account for tee of Governors of four, and later five, of the mination of the Board of Governors. Since the about 85 per cent of the nation’s commercial Reserve Banks appointed by the Governors of passage of the Banking Act of 1935, the direc­ bank assets. the twelve Banks in 1922. The task of the Com­ tors of each Reserve Bank are required to es­ The Board of Governors has seven members mittee was to coordinate purchases and sales tablish a discount rate for the district at least who are appointed for 14-year terms by the of Government securities at the request of vari­ once every 14 days. President of the United States, with the advice ous Reserve Banks. The Committee was estab­ The directors of each Bank appoint a repre­ and consent of the Senate. The Board is an lished in 1922 after what was called an almost sentative to the Federal Advisory Council, the agency of the Federal Government, reporting accidental discovery that Reserve Bank pur­ twelve members of which meet in Washington directly to the Congress. Besides filling a major chases of Government securities, which were at least four times a year and advise the Board role in formulating monetary and credit policy, being made at the time partly to improve earn­ of Governors on matters affecting the affairs of the Board has certain supervisory responsibili­ ings, could be used, because of their effect on the System. ties over the Federal Reserve Banks and the the level of commercial bank reserves, as an The Federal Reserve today embodies many commercial banks that are members of the instrument of monetary policy. changes that have occurred during the last half System. After about a year of operation, the Commit­ century. Perhaps the most significant of these The Board has a role in the administration of tee of Governors became the Open Market In­ is described by W. Randolph Burgess, a former all the monetary instruments of the Federal vestment Committee, consisting of five Reserve Vice President of this Bank and Manager of the Reserve. The seven Governors are members of Bank Governors appointed by the Federal Re­ System Open Market Account, who wrote in this the Federal Open Market Committee which is serve Board. This Committee, unlike the first, Bank’s Monthly Review for November 1964: responsible for the formulation of policy direc­ was under the general supervision of the Board Over the fifty years of its life, the Federal tives governing Federal Reserve buying and and was directed by the Board to conduct its Reserve System has gradually been forged into selling operations in the Government securi­ purchases of securities “with primary regard one of the most important instruments for mak­ ties market, and since 1962, in the foreign ex­ to the accommodation of commerce and busi­ ing money serve the economic goals of democ­ change market as well. The Board has always ness, and to the effect...on the general credit racy. Nowhere is this process better depicted had the responsibility of reviewing and deter­ situation.” than in open market operations. For in them are mining discount rates established by the direc­ Later, the Committee was enlarged to include interwoven two great endeavors. tors of the Reserve Banks. Since 1933, the Board the Governors of the twelve Banks and was re­ One of these has been the effort to manage has been responsible for establishing, within named the Open Market Policy Conference. At money in the public interest rather than treat the limits authorized by Congress, the amounts this time, it was still possible for individual Re­ it as a semiautomatic and somewhat occult that member banks are required to maintain as serve Banks to withdraw from participation in mechanism. reserves in relation to their deposits. Prior to any operation recommended by the Committee. The second struggle has been to subject the Banking Act of 1933, a change in reserve The Banking Act of 1933 narrowed the possi­ money management to an effective unified con­ requirements needed Congressional action. bility somewhat, but the Banking Act of 1935 trol, while preserving the local and practical Since the mid-1930’s, the Board has been re­ removed the possibility completely. participation which is inherent in our concept sponsible for establishing stock market margin The Federal Reserve Banks issue Federal Re­ of democracy. This is, in effect, the story of how requirements. serve notes and introduce other currency and the twelve Federal Reserve Banks, conceived in The Federal Open Market Committee as we coin into circulation. The twelve Banks and their the democratic tradition as regional in spirit, know it today dates essentially from 1935. It has 24 Branches operate a nationwide check collec­ learned to act in coordination with a Govern­ become the primary policymaking body of the tion system and a system for other transfers of ment Board, as one unit, inspired wholly by 20 System. It comprises the seven members of the money and securities. They are bankers for the public motives.

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Buffalo Branch

In 1919, four and a half years after the Bank opened, a Branch was established at Buffalo “to make the facilities of the Federal Reserve Bank more readily available to banks in the western part of New York State.” The Annual Report of this Bank for 1919 stated that ‘‘the Branch was placed in Buffalo a city of more than 500,000 people whose industries are unusually diversified because of its commer­ cial and banking importance.” For many years the territory of the Branch covered the 10 westernmost counties of the State; in 1954 it was expanded to include4 more. There were 75 member banks in the territory when the Branch opened. The Branch was first located in the Buffalo Chamber of Commerce Building at 240 Main Street. Nine years later it moved to a building on the same block at the Swan Street corner. The present building was completed in 1958. The Branch opened with a staff of 40. At the end of the first year, it totaled 113. Today, it numbers 236. There were 53 member banks in the Branch territory at the end of 1964.

Buffalo Branch, 160 Delaware Avenue Former Location at Main and Swan Streets

Digitized for FRASER 2 1 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis