On This Day: All twelve Federal Reserve Banks open on the same day - Nov. 16, 1914

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Reserve Banks Open for Business November 1914

“The opening of these banks marks a new era in the history of business and finance in this country. It is believed that they will put an end to the annual anxiety from which the country has suffered for the past generation about insufficient money and credit to move the crops each year, and will give such stability to the banking business that the extreme fluctuations in interest rates and available credits which have characterized banking in the past will be destroyed permanently.”
—Treasury Secretary William McAdoo’s Press Announcement

Some seven months after the Reserve Bank Organization Committee announced which cities and districts were selected, all twelve Reserve Banks opened on the same day, Monday, November 16, 1914. There was a sense of urgency to open the Reserve Banks, as World War I was affecting commerce and banking, but there were many organizational hurdles to overcome.

The Reserve Banks answered to both the Federal Reserve Board in Washington and to a local board of directors. The Federal Reserve Board had authority over certain activities of the Reserve Banks, but, in general, the Reserve Banks had considerable independence in their day-to-day operations. The Banking Act of 1935 subsequently gave the Federal Reserve Board more authority over the Reserve Banks.

The Federal Reserve Act specified that each Reserve Bank would have a governor to oversee the day-to-day operations of the Bank (the Banking Act of 1935 changed the titles of chief executive officers of Federal Reserve Banks to president). The Reserve Banks were also staffed with bankers; clerks, including a cashier, an auditor, a bookkeeper, a credit manager, and a discount clerk; some currency handlers; as well as support staff, such as stenographers and messengers. On opening day, some Reserve Banks had as few as eight employees (Minneapolis), though most had around twenty. The largest Reserve Banks, located in Chicago and New York, had forty-one and eighty-five employees, respectively, on opening day.
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https://www.federalreservehistory.org/essays/reserve-banks-open

(edited from Wikipedia)
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Federal Reserve Bank

A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve Act of 1913. The banks are jointly responsible for implementing the monetary policy set forth by the Federal Open Market Committee.

History

The Federal Reserve Banks are the most recent institutions that the United States government has created to provide functions of a central bank. Prior institutions have included the First (1791–1811) and Second (1818–1824) Banks of the United States, the Independent Treasury (1846–1920) and the National Banking System (1863–1935). Several policy questions have arisen with these institutions, including the degree of influence by private interests, the balancing of regional economic concerns, the prevention of financial panics, and the type of reserves used to back currency.

A financial crisis known as the Panic of 1907 threatened several New York banks with failure, an outcome avoided through loans arranged by banker J. P. Morgan. Morgan succeeded in restoring confidence to the New York banking community, but the panic revealed weaknesses in the U.S. financial system, such that a private banker could dictate the terms of a bank's survival. In other parts of the country, clearing houses briefly issued their own money notes to carry on business. In response, Congress formed the National Monetary Commission to investigate options for providing currency and credit in future panics. Based on the Commission's findings and other proposals, Congress established the Federal Reserve System in which several Federal Reserve Banks would provide liquidity to banks in different regions of the country. The Federal Reserve Banks opened for business in November 1914.

Federal Reserve Act

The Federal Reserve Act was passed by the 63rd United States Congress and signed into law by President Woodrow Wilson on December 23, 1913. The law created the Federal Reserve System, the central banking system of the United States.

The Panic of 1907 convinced many Americans of the need to establish a central banking system, which the country had lacked since the Bank War of the 1830s. After Democrats won unified control of Congress and the presidency in the 1912 elections, President Wilson, Congressman Carter Glass, and Senator Robert Latham Owen crafted a central banking bill that occupied a middle ground between the Aldrich Plan, which called for private control of the central banking system, and progressives like William Jennings Bryan, who favored government control over the central banking system. Wilson made the bill a top priority of his New Freedom domestic agenda, and he helped ensure that it passed both houses of Congress without major amendments.

The Federal Reserve Act created the Federal Reserve System, consisting of twelve regional Federal Reserve Banks jointly responsible for managing the country's money supply, making loans and providing oversight to banks, and serving as a lender of last resort. To lead the Federal Reserve System, the act established the Federal Reserve Board of Governors, members of which are appointed by the president. The 1933 Banking Act amended the Federal Reserve Act to create the Federal Open Market Committee, which oversees the Federal Reserve's open market operations. A later amendment requires the Federal Reserve "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

Overview

With the passing of the Federal Reserve Act, Congress required that all nationally chartered banks become members of the Federal Reserve System. These banks were required to purchase specified non-transferable stock in their regional Federal Reserve banks, and to set aside a stipulated amount of non-interest bearing reserves with their respective reserve banks. Since 1980, all depository institutions have been required to set aside reserves with the Federal Reserve. Such institutions are entitled to certain Federal Reserve services. State chartered banks were given the option of becoming members of the Federal Reserve System and in the case of the exercise of such option were to be subject to supervision, in part, by the Federal Reserve System. Member banks became entitled to have access to discounted loans at the discount window in their respective reserve banks, to a 6% annual dividend in their Federal Reserve stock, and to other services.

Legislative History

In the aftermath of the Panic of 1907, there was general agreement among leaders in both parties of the necessity to create some sort of central banking system to provide coordination during financial emergencies. Most leaders also sought currency reform, as they believed that the roughly $3.8 billion in coins and banknotes did not provide an adequate money supply during financial panics. Under conservative Republican Senator Nelson Aldrich's leadership, the National Monetary Commission had put forward a plan to establish a central banking system that would issue currency and provide oversight and loans to the nation's banks. However, many progressives distrusted the plan due to the degree of influence bankers would have over the central banking system. Relying heavily on the advice of Louis Brandeis, Wilson sought a middle ground between progressives such as William Jennings Bryan and conservative Republicans like Aldrich. He declared that the banking system must be "public not private, [and] must be vested in the government itself so that the banks must be the instruments, not the masters, of business."

Democratic Congressman Carter Glass and Senator Robert L. Owen crafted a compromise plan in which private banks would control twelve regional Federal Reserve Banks, but a controlling interest in the system was placed in a central board filled with presidential appointees. The system of twelve regional banks was designed with the goal of diminishing Wall Street's influence. Wilson convinced Bryan's supporters that the plan met their demands for an elastic currency because Federal Reserve notes would be obligations of the government.

Criticisms

Throughout the history of the United States, there has been an enduring economic and political debate regarding the costs and benefits of central banking. Since the inception of a central bank in the United States, there were multiple opposing views to this type of economic system. Opposition was based on protectionist sentiment; a central bank would serve a handful of financiers at the expense of small producers, businesses, farmers and consumers, and could destabilize the economy through speculation and inflation. This created even further controversy over who would select the decision-makers in charge of the Federal Reserve. Proponents argued that a strong banking system could provide enough credit for a growing economy and avoid economic depressions. Other critical views included the belief that the bill gave too much power to the federal government after the senate revised the bill to create 12 board members who were each appointed by the president.

Preceding the creation of the Federal Reserve, no U.S. central banking systems lasted for more than 25 years. Some of the questions raised include: whether Congress has the Constitutional power to delegate its power to coin money (Article 1, Sec. 8, Clause 5, states: "The Congress shall have power To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures " ), whether the structure of the federal reserve is transparent enough, whether the Federal Reserve is a public Cartel of private banks (also called a private banking cartel) established to protect powerful financial interests, fears of inflation, high government deficits, and whether the Federal Reserve's actions increased the severity of the Great Depression in the 1930s (and/or the severity or frequency of other boom-bust economic cycles, such as the late 2000s recession).
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https://en.wikipedia.org/wiki/Federal_Reserve_Bank
https://en.wikipedia.org/wiki/Federal_Reserve_Act

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