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-60-
FOR BETTER OR WORSE:
The Selection of the Federal Districts
Although 6 criteria were
used to select the 12 Federal Reserve districts, politics played a
significant role. The Committee maintained the selection of cities was
based upon 1.) Capital --or the ability of a district to provide the
required 4,000,000 "dollars"; 2.) Business --its mercantile, Industrial,
and financial activity; 3.) Ability--to meet the business needs placed
upon it; 4.) Distribution --the equitable division of available capital
among the Federal districts; 5.) Geography --the geographical factors
and existing networks of communication and transportation; and 6.)
Population--of the area (Johnson, 44).
While the Committee declared a city's failure to
receive a Federal Reserve Bank did not mean it lacked importance or
would suffer future growth, it did argue the 12 cities selected were
more important as pertaining to location, banking resources and future
growth (Johnson, 50-51).
On April 2, 1914, the Committee announced its decision:
its choices included Atlanta, Boston, Chicago, Cincinnati, Dallas,
Kansas City, Minneapolis, New York, Philadelphia, Richmond, St. Louis,
and San Francisco (Johnson, 44).
Lincoln, Nebraska was outraged by its exclusion
(Johnson, 47). Mass demonstrations were held in New Orleans and
Baltimore, both of which were larger than Richmond, Dallas, Atlanta,
Kansas City and Minneapolis. Even Mr. H. Parker Willis agreed the
selection of Richmond was difficult to justify (Johnson, 47). It was
known Carter Glass was from Virginia, and John Skelton Williams,
comptroller of the currency, and one of the three Committee members, was
from Richmond (Johnson, 48).
St. Louis and Kansas City were criticized because both
are in Missouri, a state of political significance in the Wilson
Administration. Champ Clark, Speaker of the House, was from Missouri,
and Congressman James Reed, was from Kansas City, while David Houston,
Secretary of Agriculture, and one of the 3 Committee members was from
St. Louis (Johnson, 48).
Mr. Hicks declares,
There were those who observed that a third Bank of the United States could hardly have done more violence to the doctrine of "states' rights" than the establishment of 12 regional banks rather than 1 for each state (450).
Organization
The Federal Reserve Act gave National Banks 60 days to join the Federal Reserve system. By the end of February 1914, 99 percent of the Nation Banks had joined (Johnson, 52). By May 5th, National Banks in each district had obtained the 4,000,000 "dollars" required to organize a Federal Reserve Bank. The five banks in each district were left to incorporate; and by May 18th, all twelve districts had incorporated their Federal Reserve Bank (Johnson, 53).
Member banks then elected 6 of
the 9 members of the Board of Directors for each Federal Reserve bank.
Three directors were elected to represent the banks and were known as
"Class A Directors." "Class B Directors" were elected to represent
commerce, agriculture or industry of the district while having no
connection with a commercial bank. The third class was the "Class C
Directors" and they were appointed by the Federal Reserve Board for each
Federal Reserve Bank (Johnson, 54).
The Federal Reserve Board was comprised of the
Secretary of the Treasury and the Comptroller of the Currency, both of
whom served as members "ex-officio", and 5 other members were to be
appointed by the President and confirmed by the Senate for 10 year
terms. The Banking Act of 1935 renamed the Board as the Board of
Governors of the Federal Reserve System. The same Act changed the number
of members to 7 who would be appointed and confirmed by the Senate for
14-year terms. The Secretary of Treasury and the Comptroller of the
Currency no longer served on the Board (Johnson, 54).
On August 10, 1914, the Federal Reserve Board was sworn in
with C. S. Hamlin as Governor (Johnson, 58), Paul Warburg, partner in
Kuhn, Loeb and Company, a Wall Street investment firm, Adolph Miller,
former economics professor at the University of California and William
P. G. Harding, President of the First National Bank of Birmingham
(Johnson, 55).
On Monday, November 16, 1914, the twelve Federal Reserve banks
began to operate. It was required by Law that their currency be backed
40 percent by gold (Lockman, 8), but by a series of acts, Congress had
eliminated all backing from Federal Reserve notes, and had removed from
circulation all notes such as Gold Certificates and Silver Certificates
that were redeemable in the precious metals.