156 MONTHLY REVIEW, AUGUST 1964 mended that commercial banks (in the investment of their the equity criterion was given less attention in the United time and savings deposits), savings banks, and savings States reports. The difference in the respective sets of and loan associations should all enjoy the least burden- recommendations can be traced at least partly to differ- sonic restriction which is commonly available to any of ences in underlying circumstances. In particular, impor- them. Furthermore, both groups recommended equaliza- tant groups of nonbanks have more closely stuck to their tion of time and savings deposit interest-rate regulations original specialized purposes in the United States than for all institutions and the placing of such controls on a similar groups have done in Canada. All three reports stand-by basis. are agreed, however, in urging public and legislative Important as these recommendations are in the United consideration of the problems arising from the structure States context, however, they clearly represent even in of financial institutions with a view to adapting the regu- combination a considerably more gradual approach to latory machinery to current economic and financial con- reform than that adopted by the Canadian Royal Com- ditions and to facilitating efficient and rapid response to mission. This does not necessarily mean, however, that further evolution. Fiftieth Anniversary of the Federal Reserve System— Organization and First Actionsof the Board Many important Washington figures gathered in the lawyer who was then serving as an Assistant Secretary of office of the Secretary of the Treasury on Monday morn- the Treasury, was designated Governor of the Board ing, August 10, 1914, to witness the swearing-in of the (equivalent to the present Chairman).The Vice Governor new Federal Reserve Board. It must have been a solemn (Vice Chairman) was to be Frederick A. Delano, a rail- occasion. War had broken out in Europe the previous road executive from Chicago. Paul M. Warburg, a member week, bringing with it great uncertainty and perplexing of a New York banking firm, and W. P. 0. Harding, financial problems. president of a national bank in Birmingham, Alabama, The men who were to confront these problems had were selected as the members with banking or financial come to Washington from different backgrounds and experience. The fifth appointee was A. C. Miller, a former regions. The Federal Reserve Act had specified that no professor of economics at the Universityof California, who two of the five men appointed by the President could was serving as Assistant to the Secretary of the Interior. come from the same Federal Reserve District and that Under the new law the Secretary of the Treasury and two should be experienced in banking or finance. The the Comptroller of the Currency were ex-officio members. new body was to exercise general supervision over the Thus, Secretary William Gibbs McAdoo and John Skelton Federal Reserve Banks. Williams completed the "Supreme Court of Finance", as President Wilson had spent several months making the the Hoard was informally called. (The Federal Reserve selections, and the Senate did not confirm all the appoint- Act was amended in 1935, removing the provision for ments until the end of July. Charles S. Hamlin, a Boston ex-officio membership, making all seven positions appoin- tive, and changing the official title to the Board of Gov- ernors of the Federal Reserve System.) When the members of the new Board assembled for * The eighth in a series of historical vignettesappearing during their first meeting the Thursday after being sworn in, the System's anniversary year. For more detailed information, the reader may wish to refer to The Federal Recent System, by they had to make a choice between immediately com- Henry Parker Wiltis, and The Formative Period of the Federal pleting the organization of the Reserve Banks or devel- Reserve System, by W. P. C. harding, from which the material in this article is largely drawn. oping emergency programs to counteract the financial FEDERAL RESERVE BANK OF NEW YORK 157 disturbances caused by the war. The latter course was ers to discuss emergencyaction. The larger banks through- adopted, resulting in the establishment of a gold p001 out the country agreed to subscribe $100 million to a and a cotton loan fund. gold pool, which could be used to settle American debts One of the earliest and most trying financial conse- to Europe and thus help restore confidence in the dollar. quences of the war was a highly abnormal condition in In addition, a very serious problem confronted the the foreign exchange market. The balance-of-payments cotton-producing states. Since 60 per cent of American position was deteriorating seriously in August 1914, with cotton production was normally exported, interruption both the trade and capital accounts contributing to a of Atlantic shipping and the closing of the United States large deficit. Exports declined sharply because of the and British cotton exchanges resulted in a major financial disorganization of ocean shipping and the virtual collapse crisis in the South. Cotton exporters needed credit to of European credit markets, the usual source for Unitcd finance their higher-than-normal inventories, but South- States export financing. At the same time Europeans were ern banks were already overextended. To provide relief, dumping holdings of American securities in the New the major banks in the North, cooperating with the Fed- York market, and a large amount of American obliga- eral Reserve Board, agreed to establish a $100 million tions held by foreigners was scheduled to mature in the cotton loan fund, from which credit could be made avail- near future. Discussing this situation, the first Annual able to the cotton exporters. Report of the Federal Reserve Board observed: "The Operations actually required under the gold exchange securities markets were badly demoralized, prices fell fund were small, and under the Cotton loan fund virtually with alarming rapidity, and the country was exposed to zero. However, the two plans had a highly beneficial a serious and disastrous drain of gold." psychological impact. Thus, even before the Reserve In response to this problem the Federal Reserve Board Banks opened, the new System had demonstrated its use- took the initiative in calling a conference of private bank- fulness to the country. .