50Th Anniversary Publication

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 Harris & Ewing 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.

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