Chapter Three - The Establishment of the Eighth Federal Reserve District

Would St. Louis have a Federal Reserve bank? Without a doubt, thought the city's bankers. It was the nation's fourth largest city, and one of only three central reserve cities in the national banking system. With 26 trunk line railroads, it was a major hub of the midcontinent and southwestern distribution systems, and it led the nation in shipping hardware, hardwood lumber and a variety of agricultural products. St. Louis was the world's largest fur market, a major livestock market, a brewing center and a leading distributor of dry goods. In manufacturing, the city was the national leader in shoes, stoves, streetcars and millinery. After being known primarily as a wholesaling and jobbing center for more than a half-century, St. Louis by the end of the nineteenth century had achieved parity between manufacturing and wholesaling.[1]


In 1914, St. Louis was the nation's fourth-largest city, a major railroad hub, the world's largest fur market, a major livestock market, a brewing center and a leading distributor of dry goods. View looking west on Washington Ave. at Broadway. | St. Louis Fed
In 1914, St. Louis was the nation's fourth-largest city, a major railroad hub, the world's largest fur market, a major livestock market, a brewing center and a leading distributor of dry goods. View looking west on Washington Ave. at Broadway.


In preparing for their appearance before the Federal Reserve Bank Organizing Committee, the St. Louis Clearing House's representatives concentrated on winning a generously sized district with a balance of economic interests. It seemed to them unlikely that they would be denied a reserve bank, but there was a chance that rival claimants might threaten the "natural" boundaries of their district-to-be. These ideal boundaries covered a lot of ground, as H. Parker Willis had pointed out. Willis's "preliminary committee" had sounded out aspirants for a Federal Reserve bank before the Organizing Committee's visit, and they had found according to Willis that New York, Chicago and St. Louis together wanted the whole country for their districts.[2]


Secretary of the Treasury William G. McAdoo and Secretary of Agriculture David Houston | St. Louis Fed
Secretary of the Treasury William G. McAdoo and Secretary of Agriculture David Houston

Though there is no evidence that Secretary Houston's St. Louis connections affected the Committee's deliberations, they did create a favorable climate for St. Louis. | St. Louis Fed
Though there is no evidence that Secretary Houston's St. Louis connections affected the Committee's deliberations, they did create a favorable climate for St. Louis.



Under the Federal Reserve Act, after hearing testimony from the interested cities, the Organizing Committee would choose the bank locations and draw up district boundaries. Secretary of the Treasury William G. McAdoo, a New Yorker; Secretary of Agriculture David Houston, a New England native who had been president of Texas A.&M. University before becoming chancellor of Washington University; and Comptroller of the Currency John Skelton Williams, a native of Richmond, Virginia, were the members of the Organizing Committee. All three of the members took part in the decisions, but the interviews in most cities were conducted by McAdoo and Houston.

The committee was to determine the number of districts, between eight and 12 under the Federal Reserve Act, set the boundaries of the districts according to the "customary course of business," and select the Federal Reserve cities. Since the act mandated a minimum capital of $4 million for each reserve bank, based upon a investment of 6 percent of their capital and surplus by the member banks, it followed that some western districts would have to be much larger in area than the eastern. Each national bank was required to join the Federal Reserve System within 30 days after notification by the Organizing Committee or surrender its federal charter. One-sixth of each bank's required investment was due immediately in gold or gold certificates, and similar amounts three and then six months thereafter. The remaining 50 percent was due upon the call of the Federal Reserve Bank.[3]

Beginning in New York on January 4, 1914, the Committee held hearings in 18 cities, taking testimony from clearing house associations, chambers of commerce and business groups from more than 200 cities, 37 of which requested designation as Federal Reserve cities. Within the area that St. Louis considered to be its territory, there were eight other aspirants for that designation: Kansas City, Memphis, New Orleans, Indianapolis, Nashville, Dallas, Houston and Fort Worth. Outside cities including Chicago, Birmingham, Cincinnati, Atlanta, Louisville, Omaha and Denver, also claimed some part of this territory.

The Organizing Committee sent ballots to 7,471 national banks and more than 16,000 state banks and trust companies, asking them for their preferences for a reserve bank connection. St. Louis received 299 first and 580 second-choice votes from national banks, a majority of them from Missouri, Arkansas, southern Illinois and Oklahoma, with a scattering of first and substantial second-choice support from Texas, Tennessee, Louisiana, Kansas, Mississippi and Indiana. Kansas City had more first-choices from national banks in Missouri than St. Louis, but when state chartered banks were included, St. Louis ranked fourth nationally, after New York, Chicago and San Francisco.[4]


Frank O. Watts laid out the St. Louis bankers' plan for an eight-district Federal Reserve System, along with Festus Wade. | St. Louis Fed
Frank O. Watts laid out the St. Louis bankers' plan for an eight-district Federal Reserve System, along with Festus Wade.

Secretaries McAdoo and Houston conducted their St. Louis hearings on January 21 and 22, 1914. In preparation for this event, Festus Wade and Frank O. Watts, president of the St. Louis Clearing House Association and chairman of its special "Committee of 18," respectively, sent a letter to the clearinghouse's bank correspondents, asking them for their support for a St. Louis-based Federal Reserve district. The clearinghouse wanted a long north-and-south axis to ensure a balance of economic interests. The cotton-belt bankers from Tennessee through Arkansas, Mississippi and Louisiana to Texas, with their heavy seasonal demands for credit, should press the Organizing Committee to give St. Louis a self-sufficient district with a variety of economic interests, such as mining and manufacturing, and enough banking resources to absorb seasonal credit demands.

To persuade bankers in New Orleans, Dallas, Memphis and other cities that wanted their own reserve bank, the St. Louisans claimed that the system was designed to provide plenty of branches, so that all sections of a district would be well-served. No doubt there would be 10 to 15 branches in a St. Louis district, each of which would provide all essential services. There would be local control in each branch through a seven-man board selected by the reserve bank and the Federal Reserve Board, as good as having the bank itself, so the letter implied. As for St. Louis, it had been the center of commerce and finance for "this splendid district" for a half-century. Since the law was intended to give the natural flow of business "new and effective aid," St. Louis bankers assumed that their correspondents would want to be in a St. Louis district, and that they would so inform the Organizing Committee. The letter was signed by 19 St. Louis bank presidents.[5]


David R. Francis' St. Louis Republic, 'American's Foremost Democratic Newspaper' led the celebration following the announcement that St. Louis would get a Reserve Bank headquarters. | St. Louis Fed    9b-th
David R. Francis' St. Louis Republic, "American's Foremost Democratic Newspaper" led the celebration following the announcement that St. Louis would get a Reserve Bank headquarters.


David R. Francis' St. Louis Republic, the oldest newspaper west of the Mississippi River, which carried the slogan "America's Foremost Democratic Newspaper" on its masthead, hailed the impending arrival of McAdoo and Houston as a major event in St. Louis history. St. Louis was prepared, according to the Republic, to make a showing that would give it one of the four largest regional banks, including 12 states within its district boundaries. Spokesmen for thousands of banks from Missouri, Kansas, Nebraska, Texas, Arkansas, Oklahoma, Kentucky, Tennessee, Louisiana, Mississippi, southern Illinois and southern Indiana would speak for St. Louis. The Republic had been told that civic and business groups everywhere in the lower Mississippi Valley had sent hundreds of letters and resolutions favoring St. Louis to the Committee. No other city in the Southwest could command such support according to the jubilant editorialist.[6]

On the 21st, a reception committee of the Businessmen's League headed by the league's president, A.L. Shapleigh, and including Festus Wade and Albert Bond Lambert, met McAdoo and Houston at the Union Station. After checking in at the Jefferson Hotel, the two officials were escorted to the Federal Building at Eighth and Olive streets, where the hearings were held in the United States Circuit Courtroom. The Republic reported that the crowd overflowed into the hall and adjacent rooms. The Committee of 18, which handled the arrangements for the stay, was not surprisingly an honor roll of the business leadership. In addition to Shapleigh and Wade, it consisted of Frank O. Watts, E.C. Simmons, Walker Hill, J.C. VanRiper, Edwards Whitaker, Jackson Johnson, Thomas H. West, James Barroll, Robert S. Brookings, David R. Francis, Murray Carleton, Breckinridge Jones, E.F. Goltra, H.F. Bush, D.C. Nugent and James Bulck.


Rolla Wells entertained McAdoo, Houston and 25 other quests at his home on Lindell Boulevard on their first evening in St. Louis. | St. Louis Fed
Rolla Wells entertained McAdoo, Houston and 25 other quests at his home on Lindell Boulevard on their first evening in St. Louis.


McAdoo and Houston were entertained privately the first evening, along with 25 other guests, by Rolla Wells at his home on Lindell Boulevard. In addition to most of the members of the Committee of 8, Wells had invited Charles Nagel, a distinguished Republican attorney who had been Secretary of Commerce and Labor in the Taft administration, and James Campbell, a utilities magnate who was a major investor in Mexican silver mines, a matter of interest to the Wilson administration because of its heavy involvement in Mexican internal affairs, an involvement which led to the American seizure of Vera Cruz a few weeks later. On the second evening, the two cabinet members were guests of honor at a dinner for 600 people at the Planters Hotel.[7]

St. Louis, as did every city on their schedule, used every advantage it could muster to impress the visitors. Ex-mayor Wells, David R. Francis, Edward F. Goltra and Breckinridge Jones were nationally prominent Democrats with close ties to the Wilson administration. Wells had been the president's campaign treasurer in 1912. Francis was not only publisher of a major Democratic newspaper, he had been mayor of St. Louis, governor of Missouri, and Secretary of the Interior, and he was soon to be named Minister to Russia by Wilson. Goltra, a Democratic national committeemen, had been an early Wilson supporter in 1912. Banker Breckinridge Jones was an important Democratic fund-raiser. From another angle, Secretary Houston, who was on leave as chancellor of Washington University, knew most of the welcoming committee personally. When he sat down to dinner at Wells' home, he must have thought it was a meeting of his board of trustees. Francis, an alumnus, had been a trustee for years, as had Jackson Johnson and A. L. Shapleigh, and several other committee members. Robert S. Brookings, one of Houston's predecessors as chancellor, was Washington University's greatest benefactor, having given it a fortune in money and land. In addition to their interest in university affairs, Rolla Wells and Houston saw a lot of each other at their summer homes in Wequetonsing, Michigan. While there is no evidence that any of these considerations affected the Organizing Committee's deliberations, this web of relationships certainly did not create an unfavorable climate for St. Louis's case.[8]

Festus Wade, whose standing among American bankers and his 'important if at times irritating role in the formation period of the Federal Reserve Act was well understood by the Organizing Committee, and Frank O. Watts, president of the Third National Bank and Chairman of the Clearing House's presentation committee, laid out the banker's case for McAdoo and Houston. Wade, the first witness, requested the committee to create eight banks, the minimum under the law, so that each would have sufficient capital to serve its district adequately and so that excessive decentralization of reserves might be avoided. Branches could meet the needs of distant areas in a district. Wades argument reflected his confidence that St. Louis was high on the list for a regional bank, and it was a characteristic view of big bankers who had favored the Aldrich plan and still wanted as much concentration of reserves as possible.

As usual, Wade stressed financial balance. Both borrowing and lending areas should be included in a St. Louis district, with credit-hungry cotton and other agricultural territory offset by cities with large banking resources. Reaching out in all directions, he pleaded for a district broad and long enough to include a variety of crops harvested at different times. Even the touted "natural course of business" should give way if necessary to achieve balance. In short, St. Louis's district would be extended beyond its existing trade patterns. At this point, Wade presented his proposed "District Five," built around St. Louis and including Missouri, Arkansas, Oklahoma, Texas, Louisiana, southern Illinois (including Springfield), southern Indiana (including Indianapolis), western and central Tennessee (including Nashville), and southeastern Iowa with its Keokuk dam.[9]

This ambitious proposal, which had been "tamed down" from Wades original version as printed in the newspapers, was not unreasonable if there were to be eight districts of similar size and financial strength. As of October 31, 1913, there were 1,483 national banks and 1,806 state banks and trust companies eligible for membership in the Federal Reserve System. The national banks had an aggregate capital and surplus of $262.7 million, providing the reserve bank with $15 .8 million in capital subscriptions. If all of the eligible state banks became members, they would add $9.4 million to the reserve bank's capital. The 62 banks and trust companies of the St. Louis Clearing House had a combined capital and surplus of $78.6 million, one-seventh of the aggregate in the proposed territory, and deposits of $302 million, one-sixth of the total. This was twice the capital and surplus of the banks in New Orleans, despite talk that the Crescent City had been gaining on St. Louis in the lower Mississippi Valley.[10]

Frank Watts, who followed Wade before the committee, laid out the remainder of St. Louis's plan for the entire system. District One would be New England (Boston); District Two, New York and bits of New Jersey and Connecticut (New York City); District Three, the seaboard-South; District Four, the Ohio Valley; District Six, the North Central States (Chicago); District Seven, the Great Plains and Rocky Mountains; District Eight, the Pacific Coast (San Francisco). This plan severely restricted New York in area to keep its capital down to $24.1 million. Chicago, Boston, St. Louis and the Ohio Valley (including Philadelphia!) would have reserve banks with capitals ranging from $14.7 to $17.9 million. The two western banks and the seaboard-south would be smaller, but well above the $4 million mandated in the Federal Reserve Act.[11]

This banking plan would nave distributed banking capital tar more evenly than the 12-district plan finally adopted. Ironically, it would have reduced New York's financial dominance, in contrast to the larger number of districts favored by Carter Glass and Parker Willis, for whom the concentration of reserves in New York was the major reason for banking reform. Paul Warburg had argued before the Glass Committee that there should be no more than five reserve banks, warning that a larger number would guarantee that New York would dominate the system, exacerbating the condition the committee was trying to rectify.[12]

A.L. Shapleigh of the Shapleigh Hardware Company, one of the nation's largest wholesale firms, Jackson Johnson, president of the International Shoe Company, the largest shoe manufacturer in the country, and Murray Carleton, president of Ferguson-Carleton Dry Goods Company, made the St. Louis case for businessmen. Shapleigh had a larger view than Wade or Watts: he expanded their plan to include Kentucky and Kansas as far west as Wichita, both areas being a part of the St. Louis trade territory. Shapleigh also reminded the committee that one-third of the United States' population was within 12 hours of St. Louis by train. St. Louis firms had sold $568 million worth of goods in 1913, chiefly in Missouri, Illinois, Texas, Indiana, Kansas, Arkansas, Oklahoma, Iowa, Louisiana, Mississippi, Tennessee and Kentucky, in that order. Johnson and Carleton agreed with Shapleigh, stressing that St. Louis's trade was even more far-ranging than its banking influence, and that since banking followed trade, that influence was certain to grow. McAdoo interposed after Carleton's statement, saying "Yes, and trade follows transportation." This had to be considered a friendly comment, since St. Louis' transportation facilities were unsurpassed elsewhere.[13]

Several other St. Louis speakers followed, making the case that St. Louis was one of the great grain and livestock markets in the world, the third largest manufacturing city in the nation and the largest wholesaler in many lines. David R. Francis, after praising the committee for its objectivity, submitted a map illustrating in detail that St. Louis was the hub of the greatest producing area in the country. Kansas City was in that territory and it would be a shame to divide Missouri between two districts. As an inveterate world traveler, Francis stated that St. Louis was better and more favorably known in Europe, China and Japan than any other American city, a not-too-subtle allusion to his own contribution to that end. J.C. VanRiper advised the committee that St. Louis, Chicago and San Francisco could handle the entire West, beginning with Ohio's western boundary. Edwards Whitaker, president of Boatmen's Bank, noted that St. Louis had been the ultimate lender for the area in question for more than 50 years. Not a single national bank had failed in St. Louis since 1887, which could not be said of Kansas City, Pittsburgh, Chicago, New York, Boston or Philadelphia.[14]

In a second appearance before the committee, Frank O. Watts made the point that while St. Louis had received deposits because it was a central reserve city, most of its out-of-state deposits were the products of St. Louis investments. On October 21, 1913, St. Louis banks' investments outside of Missouri had been $63.5 million, and they had held deposits of $32.4 million from non-Missouri banks. Texas, Illinois, Oklahoma and Arkansas were St. Louis' principal partners, followed by Kansas, Louisiana, Tennessee, Mississippi and Indiana. Festus Wade added that St. Louis had relatively more banking capital than any city in the United States with a population of 200,000 or more, with its aggregate capital and surplus constituting more than 25 percent of its deposits on that October date. "There had never been a day, a week, or month," according to Wade, "when any banker, planter, or farmer in the Southwest, banking in St. Louis and entitled to credit, was delayed one hour in getting all of the cash or credit to move crops . . . not excepting the panicky days of 1907." St. Louis had been the source of development funds for Southwestern hotels, street railway, and utility plants.[15]

After the St. Louisans had completed their testimony, the Organizing Committee heard from guests from the trade territory. O.H. Leonard of the Tulsa Exchange Bank testified to Oklahoma's dependence on St. Louis for long-term capital. He did not wish to be attached to a Texas bank. Kansas City was a little closer, but "when we want anything we usually come to St. Louis and we usually get it." H.V. Bird of Ryan, Oklahoma (on the Texas border near Wichita Falls) said that southwestern Oklahoma was more closely allied with St. Louis than any other city. J. C. Reynolds, of Moody, Texas (near Waco) said "we would prefer St. Louis to New Orleans or any other city save Dallas." This sentiment was echoed in writing by bankers from Corpus Christi, Denison, Brownwood and several other cities and towns from all sections of Texas except the El Paso area. More than 50 Arkansas cities and towns endorsed St. Louis, as did R.L. Pennfox of Boyle, Mississippi (near Greenville) who wrote, "St. Louis can serve us better than Memphis. Memphis feels the burden of making a cotton crop just as we do, and is so dependent on the cotton industry that its funds are low at the same times our funds are low."[16]

Many Illinois and Missouri bankers were present at the hearing to testify for St. Louis. J.K. McAlpen of Metropolis, Illinois, said southern Illinois was unanimous in favor of St. Louis. H. W. Harris of Sedalia believed that three-fourths of Sedalia's business was done with St. Louis. A.H. Waite of Joplin acknowledged that he had signed a petition for Kansas City, but he knew St. Louis would be better for his territory. "You signed with repugnance, then?" asked McAdoo. "Yes," Waite admitted, "the K. C. boys are full of pep, and they are nice fellows and we have nothing against them."[17]

According to one history of Missouri banking, there was considerable doubt that St. Louis would get a reserve bank when McAdoo and Houston conducted their hearings in St. Louis. While Secretary Houston did write in his Eight Years with Wilson's Cabinet that he was surprised that St. Louis did not have more first-place support in Texas and Oklahoma, there is no evidence that this did any more than constrict St. Louis' territory. There were subtleties in the local situation that apparently eluded some observers. During the hearing, Houston asked aloud, of no one in particular, whether "a community that would not accommodate itself to a task like finishing the free bridge ought to have a reserve bank?" The authors of the study mentioned above apparently accepted this as a serious question, reflecting Houston's distaste for "St. Louis's spoils-dominated administration."[18] The infamous Butler machine that had ruled the city at the turn of the century had been routed by crusading district attorney Joseph W Folk and rather more quietly by Mayor Rolla Wells during Wells' first term (1901-05). St. Louis in 1914, in comparison to its past and that of other major cities, was a "clean" city, and Houston knew it. He also knew that his friends Wells and Francis, Festus Wade, and several other insiders in the hearing room had been fighting the free bridge for years. Even if Houston were a free-bridge advocate, which is by no means certain, the question was irrelevant to the discussion, merely a needling comment.

More to the point, Houston recalled in his memoirs that he had entered into the hearing process with the idea that Boston, New York, Chicago and San Francisco were obvious choices, followed by St. Louis, New Orleans, and either Washington, Baltimore or Philadelphia. Richmond had never entered his head, and New Orleans was fatally weakened by having virtually no financial or trade connections with Texas. That state related primarily to St. Louis, but the Texans wanted a reserve bank themselves. As for Kansas City, which was favored in Kansas, Missouri and Oklahoma, Houston thought it was too near St. Louis, which was a more impressive banking center. He had favored having only eight banks in the beginning, but it soon became obvious that if they did not go to the maximum, "the Reserve Board would have no peace until that number was reached". The hearings demonstrated that a great deal of local pride was involved, that the committee was "in for a great deal of roasting no matter what we decided."[19]


As Secretary Houston had predicted, a great deal of local pride was involved in the reserve bank city selection, and the committee was 'in for a great deal of roasting no matter what we decided.' | St. Louis Fed
As Secretary Houston had predicted, a great deal of local pride was involved in the reserve bank city selection, and the committee was "in for a great deal of roasting no matter what we decided."


Cities and states acted as if their very survival depended upon their being selected. St. Louisans were outraged when Chicago claimed East St. Louis, and Chicagoans resented St. Louis's pretensions to their state's capital. When Secretary McAdoo suggested in Kansas City that it might become part of a St. Louis district, bankers there protested that he had it backward, since Kansas City's clearings had been growing at a much faster rate than St. Louis'. They did not mention absolute increases nor the fact that St. Louis had three times Kansas City's banking capital. The president of the Kansas City Clearing House Association agreed that St. Louis should have a reserve bank, but he thought it "would be fatal to attach Kansas City to it." The Kansas City Journal denounced the "effrontery of St. Louis" in claiming the Kansas City trade territory. To follow up their protests at their hearing, Kansas Citians sent a delegation to Washington to plead their case with the third Organizing Committee member, Comptroller John Skelton Williams.[20]

Many factors affected the final choices. Clearly, the members paid a great deal of attention to the bankers' preferential ballots. In some instances, seemingly illogical selections had been based upon future prospects rather than upon present conditions. Texas was still heavily dependent upon St. Louis, Chicago and New York financially, and Dallas, its largest city, had less than one-seventh of St. Louis' population (687,000) in 1910, but the state was huge and it was growing rapidly. In the main, it opposed being attached to an out-of-state bank, most fiercely to a New Orleans bank. A San Antonio clearinghouse official suggested a district including Texas, Louisiana, Arkansas, Oklahoma and Missouri, with its reserve city in Texas. Under questioning, he conceded that St. Louis would be a better choice for such a district. St. Louis had received the largest number of first-choice votes in Texas except for Texas cities; it was behind only Dallas in second-place votes; and it had by far the largest number of third-place votes. The committee's main problem with attaching Texas to St. Louis was the distance from St. Louis to points in West Texas and along the Rio Grande. Bankers Wade and Watts had urged in vain that branches would take care of the distance problems, conceding that at some time in the future Texas would need its own bank.[21]

Parker Willis, as an author of the Federal Reserve Act and chairman of the preliminary technical committee, had considerable influence on the Organizing Committee's deliberations, though at times he gave contradictory advice. He advocated districts relatively similar in strength, urging the Committee especially to avoid creating a large bank which would dominate the rest. Neither should it set up two classes of banks, with one class very strong and the other dependent on it. He said that the historic volume of clearings was unimportant, since that volume would be rearranged by the system itself once it was in operation. Banking capitalization was relatively unimportant, but railway facilities were of the utmost importance. Paradoxically. Willis dismissed the idea that large borrowing and lending areas should be included in one district. Since one reserve bank might rediscount the paper of another, self-sufficient districts were unnecessary. Carter Glass shared this view with Willis, as he did on nearly every point, a strange position for the framers of the Glass-Owen bill.[22] If the districts, irrespective of size, were not to be relatively equal in financial strength, why have districts at all? What had happened to the concept of regionally controlled central banking?

The Organizing Committee, with Willis's advice, created its own monster. The Federal Reserve Act required a minimum capital of $4 million for each reserve bank. Since banking capital was heavily concentrated in the East, especially in the New York area, the Committee's decision to create 12 reserve districts made it virtually impossible to approach parity among them without reducing New York's territory to Manhattan Island. Because of the $4 million minimum, the shortage of capital in the South and West forced the Committee to extend some district boundaries deep into areas where they were not wanted and where the reserve bank city had never had a commercial and financial presence. Prompt enrollment in the system by eligible state banks would have helped, but at the time the committee made its decisions, very few had done so. Willis thought there would be no harm done if a few districts could not meet their minimum capital, but the committee chose to follow the law.[23]

In the end, the committee's selection of reserve cities and district boundaries reflected a combination of city size, preference ballots, some banking realities and a lot of politics. The eagerly awaited announcement came on April 2, 1914. Some of the decisions had been easy, according to the Committee report. New York, Chicago, Philadelphia, St. Louis, Boston and Cleveland were the largest cities in the United States; their accessibility and banking strength justified their selection. As the only major metropolis on the Pacific Coast, San Francisco was an obvious choice. Portland, Oregon, had been considered, but it finally had been rejected because it lacked banking capital, a consideration the committee was less sensitive to in Minneapolis and Atlanta. By including the Northwest in the San Francisco district, the Committee had achieved a balance of borrowers and lenders, a standard that it had rejected in principle and did not apply consistently.[24]

The original districts--modified later, principally to enlarge the New York district--were as follows:[25]


District Reserve City Captial in Millions Area in Square Miles
One Boston $   9.9 66,465
Two New York 20.6 49,170
Three Philadelphia 12.9 39,865
Four Cleveland 11.6 183,995
Five Richmond 6.5 173,315
Six Atlanta 4.7 223,860
Seven Chicago 13.1 176,840
Eight St. Louis 6.2 146,474
Nine Minneapolis 4.7 437,930
Ten Kansas City 5.7 509,649
Eleven Dallas 5.6 404,826
Twelve San Francisco 8.1 693,658


Editorial cartoons, particularly in Missouri, pointed out the state's unusual catch: two Federal Reserve Bank headquarters in the same state. | St. Louis Fed
Editorial cartoons, particularly in Missouri, pointed out the state's unusual catch: two Federal Reserve Bank headquarters in the same state.


In St. Louis, the press hailed the selection in their lead articles as a great victory for Missouri and for St. Louis. The Democratic St. Louis Republic published a front-page cartoon on April 4, showing the symbolic Missourian, a black-hatted, frock-coated mustachioed southern colonel, smoking an enormous black cheroot which had emitted two puffs of smoke, the one labeled "St. Louis," the other "Kansas City." The caption read, "D'you All notice Ouah smoke?" The accompanying editorial was more restrained, reflecting the conflicting reactions of bankers and businessmen. Following the lead of Frank O. Watts, the editorialist called St. Louis's selection "a foregone conclusion." Twelve banks instead of eight "has somewhat reduced the area of which the city felt sure." The district's eastern limits were "about what was forecast . . . our territory to the West and Southwest is deeply cut into by the Dallas and Kansas City district.[26]

The bankers were disappointed that they had lost Texas, Oklahoma and the western tier of Missouri counties, but they did have a district in which they quickly discovered formerly hidden virtues. Now they realized that Arkansas had the greatest potential of any Mississippi Valley state, with new cotton land being reclaimed every day from its northeastern swamps. Kentucky was "a big surprise," a delightful one. Now the great Mammoth Caverns and most of Kentucky's white tobacco-growing area were in the St. Louis district, as well as western Tennessee and northern Mississippi. Louisville and Memphis were fine catches, though the former was a reluctant captive.[27]

Within a few hours of the announcement, Festus Wade could find virtue in the previously unthinkable. He told the Globe-Democrat that any disappointment over the loss of Texas and eastern Oklahoma was overbalanced by Missouri getting two banks. "All Missourians should rejoice," he said. "Each will augment the other, give a financial strength to this section of the country, and make us a great lending power." Besides, Kansas City's district was chiefly far to the north of the St. Louis's trade territory, extending as it did all the way to Yellowstone Park, in the extreme northwestern corner of Wyoming. As for the St. Louis district, it had a compact appearance, compared to some others.[28]

Reflecting this overnight conversion, the Republic advised one and all to "cease wondering why Atlanta received a bank instead of New Orleans, Cleveland instead of Cincinnati, Richmond instead of Baltimore," and so on, "and devote our thought to things that may be made out (understood)." Dallas had received the cream of the St. Louis territory, but it should be remembered that banking follows trade; trade does not follow banking. St. Louis manufacturers and jobbers sell millions of dollars worth of goods, in the territory of the Dallas Federal Reserve Bank. "Our Texas customers give promissory notes for their purchases. But they do not give these notes in Texas, they give them to the St. Louis manufacturer or jobber. They will be discounted by St. Louis banks and rediscounted by the St. Louis Federal Reserve Bank." In the end, the "result will be the same as if Texas were in the St. Louis district." Texas merchants and shippers do business in St. Louis "because it pays them to do so." The trade that St. Louis has in Texas would build up the St. Louis bank rather than the Dallas bank.[29]

Perhaps also reflecting its status as the nation's "foremost Democratic newspaper," the Republic stressed Carter Glass and Parker Willis' major argument for the district reserve system. New York would still be the greatest financial center. St. Louis would handle as much Oklahoma, Texas and Louisiana paper as ever. "It is the artificial elements in finance that will be done away-the vast accumulations of money in New York, not sent there by purchases of New York business men, but heaped up for stock exchange speculation because the call loan market was the only place in the United States where great sums of money could earn interest and still be subject to instant demand. No longer will New York monopolize the country's credit." Determined to make the best of the situation and consoled by not having been shut out as Baltimore, Pittsburgh, Cincinnati and New Orleans had been, St. Louis bankers had decided to take high ground and look to the future. Prophecy was not their strong point, but they were among the winners, after all.[30]

As David Houston had predicted, the disappointed cities and states cried foul. Not only did New Orleans, Baltimore, Pittsburgh, Cincinnati, Denver, Omaha and Washington raise a ruckus, so did the New York bankers, frustrated by their squeezed-down condition. A look at the map of the districts, with its variety of contortionate shapes, supported the view that the Organizing Committee had done a hard job poorly, but some of the charges went far beyond that, to allegations of favoritism and base motives. Among the milder criticisms was that of James Forgan, president of the First National Bank of Chicago, who claimed that the committee had ignored the overwhelming opinion of the nation's bankers by creating 12 districts instead of eight. Wall Street agreed, and there was some talk of seeking an injunction to prevent the plan from being carried out, but that project died after the bankers were assured by someone, perhaps McAdoo, that their district's boundaries would be expanded by the Federal Reserve Board. New York's major complaint, their bankers said, was that political considerations had invaded the selection process, which boded ill for the future of the Federal Reserve System. Was it a coincidence that two of the reserve banks were to be in Missouri, the home of Secretary Houston? Was not Atlanta the birthplace of Secretary McAdoo, and Richmond the native city of Comptroller Williams? Were Missouri, Georgia and Virginia solidly Democratic? Indeed they were.[31]

Republican Senator John W Weeks of Massachusetts echoed these charges, alleging that only one of the four cities in question (presumably St. Louis) was entitled to a Federal Reserve bank. These charges were readily accepted by the disappointed or cynical, but they lacked substance. The Organizing Committee reacted by explaining its decisions, but it ignored the political slander.[32] McAdoo had been born in Atlanta, but he had lived in Tennessee as a youth, and he had made his career in New York City. Houston had only lived in Missouri for a few years, he had been in Texas for a longer time, and he was a native New Englander. Even if he had favored St. Louis unfairly, the critics agreed that St. Louis was a logical choice, and he was no more pro-Kansas City than the St. Louis bankers were before April 2, which was not much. The complaint about Williams and Richmond was more persistent, but it was still speculative.

New Orleans could hardly believe, and much of the country wondered with it, that it had been denied a Federal Reserve bank. Sol Wexler, a prominent member of the A.B.A.'s currency committee throughout the Federal Reserve System's gestation period, drew up a slashing set of resolutions which were adopted at a mass meeting in New Orleans on April 4, and read into the Congressional Record the next day. The resolutions dismissed Richmond as an insignificant trade center, and charged that it had been selected for political and personal reasons. As for Atlanta, the Federal Reserve city for the district including New Orleans, it had neither the population nor the banking resources that New Orleans had, its only commercial connections with the Crescent City were of a tributary nature, and it had received no Louisiana votes in the banker's poll, not even third-place votes. St. Louis had been the only outside city receiving first-place votes in Louisiana. Memphis had attracted some second- and third-place support.[33]

Baltimore hated to be in the Richmond district. The Maryland metropolis was the seventh-largest city in the United States, five times the size of Richmond, which ranked 39th. It had been a major commercial center since colonial days, while Richmond's claim to fame was having been the Confederate capital. Baltimoreans thought they were the victims of a political payoff, and they thought it no coincidence that John Skelton Williams was a native of Richmond and Carter Glass a near neighbor. The Globe-Democrat quoted unnamed local bankers in support of this position, noting that St. Louis, Baltimore and New Orleans had done most of the banking business east of the Mississippi and south of the mouth of the Ohio since the Civil War. The Globe was in an equivocal position. Most of the political charges were being made by Republicans, and it was a self-styled Independent Republican newspaper. But St. Louis had been awarded a reserve bank, and the editors approved the Organizing Committee's effort. It did give more space to the negative news than the Republic, perhaps because the latter was Democratic.[34]

Denver and Omaha were outraged that Kansas City had been given a reserve bank "at their expense." Denver bankers asked why the 10th district, which covered one-sixth of the country, was the only district whose reserve bank was at its extreme eastern edge. They furnished their own answer. Senator John Thomas of Colorado had traded Denver's chances for an appointment in Secretary McAdoo's office! His son-in-law, William P. Malburn, had just been named Assistant Secretary of the Treasury. Until they heard that the appointment was coming, they had felt certain of a bank if there were 12 districts, and thought it a possibility if there were only eight. But with the appointment certain, they "threw up their hands," knowing that their city had been traded for "a mess of pottage." Omaha bankers resolved to campaign for a reserve bank of their own or to be transferred to the Chicago district. "Nothing in the world but politics" dictated the Committee's "disgraceful" choices, according to the president of the Nebraska National Bank.[35]

Pittsburgh newspapers charged politics, too; Cleveland was selected, Pittsburgh's bankers believed, because of its connections in the Wilson administration. Secretary of War Newton D. Baker was one of its own. Cincinnati, also placed in the Cleveland district, ridiculed the choice. Some of its bankers suggested that Cincinnati's inveterate Republicanism contrasted unfavorably with Cleveland's affinity for the Democracy. Milwaukee was unhappy, too, but not for the usual reasons. It had been put in the Chicago district, which was agreeable, but most of the rest of Wisconsin had been required for the Minneapolis district, which cut off Milwaukee from its own constituency.[36]

Whatever its reasons, the Committee's decision to establish two districts in the Southeast created a host of difficulties. Baltimore was too close to New York and Philadelphia to be considered for a reserve bank, the Committee reasoned. It could not go north, and it had no support in the Carolinas. Richmond had to have the richer part of the seaboard South, making it necessary to extend the capital-poor Atlanta district far to the West to enable it to meet the $4 million minimum capital requirement. Atlanta had to have a reserve bank, it has been charged, because of powerful pressure exerted on the committee by the Bryanite Senator Hoke Smith of Georgia, a reform-minded ex-governor of that state. New Orleans was the big prize for Atlanta but it could not be isolated from the rest of the district, which meant that southern Mississippi had to be in the Atlanta district to provide a corridor. With New Orleans out of the picture, these Mississippians would have preferred St. Louis, in company with the rest of their state and western Tennessee. Without eastern Oklahoma, Missouri's Joplin lead district, or southern Mississippi, St. Louis's district had insufficient capital, a condition the Committee remedied by giving it southern Indiana and western Kentucky including Louisville, both of which had preferred Cincinnati. Without these areas, Cincinnati was not a viable candidate for a Federal Reserve bank.[37]

At first, despite the indignity of being charged with "tangoing about the country asking the people if they wanted a reserve bank" (by Senator Weeks), the Organizing Committee declined to respond to the avalanche of complaints. But on April 10, Senator Gilbert M. Hitchcock of Nebraska, whose obstreperousness as a member of the Banking Committee during the Glass-Owen hearings was well- remembered, launched a stinging assault on the committee's judgment and its motives. He demanded to see the documents it had used; he thought it contemptible that Kansas City had been chosen as a reserve bank city, especially for a district that included Omaha and all of Nebraska; and he questioned the choices of second-rank cities such as Richmond and Atlanta while omitting New Orleans.[38]

This attack from the Senate floor from such a prominent politician forced McAdoo's hand. He released a 4,000-word statement, stressing the committee's hard work and careful attention to the claims of Omaha, Lincoln, Denver and Kansas City. Denver had wanted Montana, but Montana preferred Minneapolis or Chicago. Neither Kansas, west Texas nor Nebraska wanted Denver, and Idaho favored Portland or San Francisco. Only Nebraska among the eight plains and mountain states Omaha asked for cared to be in an Omaha district. Kansas City banks served a vast territory and they had loans and discounts totaling $91.7 million, more than Denver, Omaha and Lincoln combined. McAdoo did not mention that Kansas City also had Senator James A. Reed, whose late conversion had broken the deadlock in the Senate Banking Committee, allowing the Glass-Owen bill to pass. Reed was a powerful friend and a dangerous enemy, he had the administration's attention, and he had given the Organizing Committee the benefit of his views.

As for New Orleans, it had selected a district extending from New Mexico to the Atlantic Ocean. Texas had no trade with New Orleans and its bankers preferred St. Louis or Kansas City after one of its own. New Orleans had a larger capital and surplus than Atlanta or Dallas, but its national banks had a smaller total in loans and discounts than either of them. McAdoo's letter made it clear that there would be no reversals of the Organizing Committee's selection, but that point hardly needed to be stated. President Wilson had told the press on April 6 that he had "unqualified confidence" in the Organizing Committee's decisions on the 12 Federal Reserve districts, a statement intended to quiet the clamor from the disgruntled.[39]

The Globe-Democrat, now that the protests "swelling into wails" had been heard, was sure that the banking community had confidence in its new system, attested to by the fact that nearly every national bank in the country had applied for membership well within the 60-day grace period provided after the passage of the Federal Reserve Act. Now the chief concern was the caliber of the Federal Reserve Board. "Superb ability and high character" were needed. The editor believed that President Wilson would meet the challenge, especially now that members of Congress had promised that they would make no recommendations for appointments. Even ex-Senator Aldrich hoped for the best. He was quoted in the press as saying there was a chance the system might succeed, depending upon the "character and wisdom" of those who controlled the banks, especially the Federal Reserve Board. By ability, character and wisdom, the Globe-Democrat and Aldrich meant conservative men acceptable to the major bankers. Wall Street's grumbling reaction to the districting plan served notice that it had better be satisfied with the president's appointments. Paul Warburg advised his friends to mute their criticisms until the Board was in place. As usual, Warburg was in close touch with Colonel E.M. House, Wilson's closest adviser.[40]

At the White House, Secretary McAdoo and Colonel House battled for influence over Board appointments. McAdoo pleaded with the president for men who would work with him to break Wall Street's grip on the nation's credit. House wanted a Board that would satisfy the bankers. Wilson agreed with House, who claimed that the president feared his future son-in-law was trying to subordinate the Federal Reserve Board to the Treasury Department. Accordingly, House dominated the selections, with one or two exceptions. The extent of House's victory was apparent when Wilson offered an appointment to Richard Olney, a noted Boston railroad attorney. As Cleveland's attorney-general in 1894, Olney had broken the Pullman strike near Chicago, and then had jailed the American Railway Union's president, Eugene V Debs. Rewarded by a promotion to Secretary of State, Olney in 1895 faced down the British government in a confrontation over the boundary line between Venezuela and British Guiana, thereby adding a corollary to the Monroe Doctrine. Bankers and businessmen were delighted with the Olney nomination, but Olney was nearly 80 years old and eventually he turned Wilson down, as did Henry A. Wheeler of Chicago.[41]

On May 4, 1914, the President submitted his nominees to the Senate. In addition to Olney and Wheeler, the list included W P G. Harding of Birmingham, president of Alabama's biggest bank; Paul Warburg of Kuhn, Loeb, and Company; and Thomas D. Jones of Chicago, a director of the International Harvester Company, who had been a trustee of Princeton University when Woodrow Wilson was its president. Progressives and conservatives alike were stunned. When they recovered, financial and business spokesmen gave the nominees their delighted approval.[42]

Carter Glass and Parker Willis, who had not been consulted, were dismayed. They feared their federal reserve system had been handed over to its enemies, the Aldrich plan crowd. One midwestern progressive senator thought Frank A. Vanderlip of the National City Bank must have selected the nominees, "a more reactionary crowd could not have been found with a fine-tooth comb."[43]

To replace Olney and Wheeler, Wilson nominated Charles S. Hamlin, a Boston attorney, and Adolph Miller, a former professor of economics at the University of California. When the revised list of nominees reached the Senate on July 15, Senator Reed of Missouri, with his Kansas City reserve bank safely in hand, loosed his heavy artillery on the Jones and Warburg appointments. Warburg was a target for the obvious reasons: he was a Wall Street banker and a noted advocate of central banking. Jones was worse. His "Harvester Trust" was the most hated of all businesses by midwestern farmers, and it was under indictment as an illegal combination. Even ex-president Taft joined the chorus, saying that if he had nominated such a man for an important position, "the condemnation that would have followed it staggers my imagination."[44]

President Wilson fought hard for Jones, alleging that his friend had joined the Harvester Board to clean up the organization, but under grilling by Reed, Senator Hitchcock and other banking committee members, Jones admitted that he had approved all of the company's policies since he had joined its board in 1909. Noting that the president had just persuaded the Senate to approve an anti-trust bill (the Clayton Act), Hitchcock wondered how he could ask senators to approve "a maker of trusts." Finally Wilson asked Secretary Bryan to intercede, which he did at no small cost to his conscience. Hitchcock had no use for Bryan anyway, and Reed was not persuaded. Ironically, by opposing Jones, Hitchcock was helping McAdoo, whom he had so bitterly denounced for not giving Omaha a reserve bank. The banking committee refused to move, and the president withdrew the nomination. Wilson had suffered his first defeat in Congress, and he was angry.[45]

The Senate committee also refused to confirm Warburg unless he appeared before it for questioning. Members wanted him to explain how a Wall Street banker proposed to conquer the Money Trust. His pride wounded, Warburg refused to appear and asked Wilson to withdraw his nomination. The president would not do it, and Senator Hitchcock broke the stalemate by asking the imperious banker to come before the banking committee, not for a grilling but for a "conference." Warburg conferred with the committee on August 1 and 3, 1914. Either he satisfied the senators or they did not wish another confrontation with the president. Paul Warburg was confirmed by the Senate on August 7, along with Frederic A. Delano, a Chicago railroad man who had replaced Jones as a nominee. Since Adolph Miller and Charles Hamlin had already been confirmed, the board was completed, and the bankers were well-satisfied.[46]

Of the five appointed members, only Charles Hamlin allied himself in policy matters with ex-officio members McAdoo and Williams. One immediate issue facing the Board was that of redistricting. All members agreed that some alterations in district boundaries had to be made, especially in New Jersey counties within eyeshot of Manhattan which had not been included in the New York district. McAdoo, as chairman, appointed Delano, Harding and Warburg to a redistricting committee. In McAdoo's view, boundary readjustments were all that was necessary, but the committee and Adolph Miller were determined to reduce the number of districts, perhaps to as low as eight. Warburg believed that the language of the Federal Reserve Act (Section 2, paragraph 1), which stated that the Organizing Committee's decisions "shall not be subject to review except by the Federal Reserve Board when organized" gave the Board the power to reduce the number of districts if it thought it necessary. The power to review included the power to consolidate, in the opinion of the majority of the Board. Six strong districts (One, Two, Three, Four, Seven, and Twelve) had been created. The other six were weak. If the ideal of self-sufficient districts were to be realized, their number should be reduced to eight or nine. Atlanta (Six) and Minneapolis (Nine) were especially vulnerable, followed by Kansas City (Ten) and Dallas (Eleven).[47]

Board Chairman McAdoo and members Hamlin and Williams, and Carter Glass and Parker Willis as well, saw an Aldrich-Plan conspiracy in the effort to consolidate districts. This reaction seems unjustified if not ridiculous. The minimum was eight districts under the law; only Congress could change it. Warburg, Delano, and Harding had supported the Aldrich plan, but they had lost the battle. In their view, they were simply trying to strengthen the Federal Reserve System-to make it work. In their redistricting committee report, they warned that decentralization would defeat its purpose unless the regional banks were "strong enough in themselves to be effective, large enough to command respect, and active enough to exert a continuous and decisive effect on banking affairs in their districts."[48]

Since he was outnumbered on the Board, McAdoo looked for outside help. Not surprisingly, he found it in one of his cabinet colleagues. He requested an opinion from Attorney General T.W. Gregory on the question of the Federal Reserve Board's power to alter the Organizing Committee's districting decisions. As expected, Gregory took a narrow view of the statute, ruling on November 22, 1915, that the power to readjust districts "does not carry with it the power to abolish districts and banks." In April, 1916 Gregory gave the opinion that the Board could not change the location of any Federal Reserve bank.[49]

On May 4, 1915, the Board transferred 12 counties in northern New Jersey from the Philadelphia to the New York district; two counties in northern West Virginia from the Richmond to the Cleveland district; and 25 counties in southern Oklahoma from the Dallas to the Kansas City district. These moves were made in response to petitions from the areas affected. One county in western Connecticut was transferred from the Boston to the New York district in March, 1916, and in October of that year 20 counties in eastern Wisconsin were shifted from the Minneapolis to the Chicago district. St. Louis picked up a Mississippi county in 1920, at the expense of Atlanta.[50]

On May 11, 1914, the Organizing Committee designated the German National Bank of Little Rock; the Ayers National Bank of Jacksonville, Illinois; the Second National Bank of New Albany, Indiana; the National Bank of Kentucky at Louisville; and the First National Bank of Memphis to execute the Eighth Federal Reserve District's organizing certificate. Representatives of these banks met in St. Louis on May 18, signed the certificate, and sent it to the Comptroller of the Currency. The Federal Reserve Bank of St. Louis was now a corporate body.[51]

The Federal Reserve Act provided that each reserve bank should have nine directors, divided into three classes. Three class A directors were to be bankers representing stockholding banks; three Class B directors were also to be elected by the stockholding banks, from persons "actively engaged in their district in commerce, agriculture, or some other industrial pursuit." The district's member banks were to be divided into three groups according to size, and each group was entitled to elect one Class A and one Class B director. Three Class C directors were to be appointed by the Federal Reserve Board, one of them to be the chairman of the district bank's board and Federal Reserve Agent. No Class C director could be an officer, director or stockholder of any bank, although the one named Chairman and Federal Reserve Agent had to be a person of "tested banking experience." The terms of office for directors was three years, staggered so that one director in each class would complete his term each year.

On June 4, 1914, member banks of the Eighth District met in St. Louis to determine the procedure for electing directors, and then to elect them. Festus Wade of the Mercantile Trust Company, the only state-chartered bank in the district that had joined the Federal Reserve System, was elected temporary chairman. In turn, Wade appointed a Rules Committee consisting of one member from each of the seven states in the district. The committee ruled that there would be no proxy voting, which gave rise to charges that St. Louis would dominate the choices because it had more delegates present. A motion that would have nullified that ruling was defeated.[52]

Walker Hill, president of the Mechanics-American National Bank of St. Louis, was elected a Class A director by Group One banks (those with more than $100,000 in capital and surplus). For its Class B director, Group One selected Murray Carleton of the Ferguson-Carleton Hardware Company of St. Louis. Group Two ($50,000 to $100,000 in capital and surplus) elected Frank O. Watts of the Third National Bank of St. Louis as their Class A director and W B. Plunkett, president of the Plunkett-Jewell Grocery Company of Little Rock as their Class B director. Group Three (banks with under $50,000 in capital and surplus) named Oscar Fenley, president of the Kentucky National Bank of Louisville to their Class A position, and former United States Senator Leroy Percy of Greenville, Mississippi, to the Class B seat. There was no requirement that Class A directors be selected from their own group. Both Watts and Fenley were presidents of large banks.[53]



First Board of Directors, Federal Reserve Bank of St. Louis. Seated: John W. Boehne, Rolla Wells, William McChesny Martin, Walker Hill, and W.B. Plunkett. Standing: Murray Carleton, Oscar Fenley, F.O. Watts, Walter W. Smith, and LeRoy Percy. | St. Louis Fed
First Board of Directors, Federal Reserve Bank of St. Louis. Seated: John W. Boehne, Rolla Wells, William McChesny Martin, Walker Hill, and W.B. Plunkett. Standing: Murray Carleton, Oscar Fenley, F.O. Watts, Walter W. Smith, and LeRoy Percy.


This situation was corrected on September 26, 1918, by an amendment to the Federal Reserve Act, requiring Class A directors to be members of the group that elected them. On the same day, to give banks voting power commensurate with their stock ownership in their reserve banks, the Federal Reserve Board reclassified the groups. Group One was defined as those with over $599,000 in capital and surplus; Group Two, $100,000 to $599,000; and Group Three, under $100,000. In the Eighth Federal Reserve District on that date there were 34 Group One, 168 Group Two and 307 Group Three banks.[54] Primarily because nine more large state banks and trust companies, including the Mississippi Valley Trust Company, the District's second largest bank, had joined the Mercantile Trust, the largest, as member banks, the St. Louis Federal Reserve Bank's authorized capital had increased from the original $6.2 million to $7.6 million. At that time, the Mercantile Trust Company's capital and surplus was $9.5 million and the Mississippi Valley Trust Company's $6.5 million.[55]


The Bank's greatest problem during its first year of operation, according to its first chairman of the board, William McChesny Martin, was to get member banks to understand the facilities available and the ease with which they could be used. | St. Louis Fed
The Bank's greatest problem during its first year of operation, according to its first chairman of the board, William McChesny Martin, was to get member banks to understand the facilities available and the ease with which they could be used.


The Federal Reserve Board announced St. Louis' Class C directors' appointments on September 30. William McChesney Martin, a 40-year old native of Lexington, Kentucky, was named Chairman of the Board and Federal Reserve Agent. Martin, a graduate of Washington and Lee University, had come to St. Louis in 1896 as secretary to his uncle, William S. McChesney, the superintendent of the Louisville and Nashville Railroad's St. Louis terminals. After graduating from the Washington University School of Law and being admitted to the St. Louis bar in 1900, Martin entered the trust department of the Mississippi Valley Trust Company. He became vice president of the company in April, 1914.[56]

On September 15, 1914 Chairman McAdoo had offered the Chairman-Agent position at St. Louis to Rolla Wells, hoping that Wells would serve at least until "things were in good working order." Wells declined, but at McAdoo's request he agreed to find someone for the position. As Mayor of St. Louis, Wells had worked closely with Martin's uncle William McChesney, who had become president of the St. Louis Terminal Railway Association in 1903, in an effort to block the municipal free bridge movement. As a director of the Mississippi Valley Trust Company, Wells had been impressed with Martin's performance as a trust officer. Accordingly, he took Martin to Washington, where they had a successful interview with McAdoo. The other Class C appointees were Walter W Smith of St. Louis, Deputy Federal Reserve Agent, and John W Boehne of Evansville, Indiana.[57]

Each reserve bank's operating officers, under the law, were to be elected by its board of directors, but Secretary McAdoo took a hand in selecting them, at least in St. Louis's case. He wired Rolla Wells on October 27, asking him to accept the governorship. "You will render great public service by so doing. I do not think it will burden you heavily, and it will not be necessary for you to give up your business interests or investments . . . Have telegraphed to Watts and Martin." The wording of McAdoo's telegram suggests that he expected Wells to be an impressive figurehead, with the management of the bank, in its daily routine if not in all matters, in the hands of others. Either its subordinate officers or the federal reserve agent would run the bank.[58]



The Federal Reserve Bank of St. Louis opened for business on November 16, 1914, in rented quarters at the northeast corner of Broadway and Olive with six officers and 17 other employees. | St. Louis Fed
The Federal Reserve Bank of St. Louis opened for business on November 16, 1914, in rented quarters at the northeast corner of Broadway and Olive with six officers and 17 other employees.


The board of directors held its first regular meeting on October 28, 1914, in the boardroom of the Mississippi Valley Trust Company in St. Louis. After adopting a set of bylaws, the board elected Rolla Wells governor, WW. Hoxton deputy governor and secretary, and C.E. French cashier. Gold arriving from member banks to pay for their reserve bank stock was stored in a vault at that location until the reserve bank's temporary quarters were ready. The St. Louis Federal Reserve Bank opened for business on November 16, 1914, on the fourth floor of the Boatmen's Bank on the northeast corner of Olive Street and Broadway, with six officers and 17 other employees.[59]

Ignoring the Organizing Committee's suggestion that district boards' executive committees should consist of three elected board members, the Eighth district board chose a five-man executive committee made up of the governor, the federal reserve agent, and three board members elected from Classes A and B. Walker Hill, Murray Carleton, and Frank O. Watts joined Wells and Martin on the committee. All of the members were from St. Louis, presumably because they would be readily available. In most of the other districts, the Federal Reserve Agent was not on the executive committee. By including Martin, the St. Louis board added to his status and power. Since Rolla Wells had accepted the governorship with the understanding that it would not seriously disrupt his other activities, the way was open for Martin to assume the primary managerial responsibilities, which he did with Well's approval.[60]

After stating publicly that it would have to pay good salaries to attract able men, the Federal Reserve Board set the agents' salaries at less than the going rate for top-level bank officials. Only one of the district agents was paid more than the $12,000 annual stipend for Board members. In New York the agent was paid $ 16,000; in Dallas and Atlanta, $6,000; in the other districts from $7,500 to $12,000. Martin's was near the average at $10,000. Governors' salaries were determined by the district boards with the approval of the Federal Reserve Board, and most of the governors were paid much more than their agents, supporting the view that theirs was the most important office. Their salaries ranged from $30,000 for Benjamin Strong in New York to $7,500 for the Kansas City governor. While the agents' salaries reflected local conditions and the relative importance of their districts, it is hard to explain why Kansas City valued its governor so little except that his stipend matched that of its Federal Reserve Agent. Rolla Wells' salary, at $20,000, was among the four highest paid to governors. St. Louis was a larger banking center, despite the relative weakness of the Eighth District, than most of the other Federal Reserve cities, but the major reason for Wells' high salary was probably his standing as one of the most powerful men in St. Louis. He was an important national political figure as well, with intimate ties to the Wilson administration.[61]


Looking north on Broadway, where the Federal Reserve Bank would rent its first quarters. View from Market Street. | St. Louis Fed
Looking north on Broadway, where the Federal Reserve Bank would rent its first quarters. View from Market Street.


Eight days after it opened, the St. Louis bank offered to collect for member banks checks and drafts drawn on any Federal Reserve bank or any member bank in the Eighth District. To take care of its clearing responsibilities, the bank's staff was expanded from six officers and 17 other employees to six officers and 40 other employees. This proved to be more than was necessary, and a few weeks later the staff was reduced to five officers and 34 employees. The board met on the first and third Wednesday of each month, and during the first year the average attendance was seven of the nine directors. In his First Annual Report, Chairman-agent Martin noted that it had been rumored that directors were paid $5,000 a year. This was not true; the directors were paid their travel expenses and the "usual fee" for attending meetings. This small amount was not at all adequate. One of the directors, Leroy Percy, spent a night and a day traveling from his home to St. Louis.[62]

In December 1914, the board gave the executive committee power to fix and change the rediscount rate for the district, subject to the approval of the Federal Reserve Board. The executive committee met at 10:30 A.M. on Monday and Thursday of each week and at other times when necessary. By December 31, 1915, the committee had met 150 times. From the beginning, the board regarded adjustment of the rediscount rate as the most important of its functions. The rate was set at 6 percent when the bank opened for all maturities. In January, 1915 money became more plentiful, and the committee decided to lower the rate for shorter maturities, to 4.5 percent for 30-day paper, 5 percent for 60 days, and 5.5 percent for 90 days. Agricultural loans running from 90 days to 6 months remained at 6 percent. During the first year, demand was disappointingly low, and on several occasions rates were dropped to attract more business.[63]

Partly because of pressure from the Federal Reserve Board, Martin and the directors tried to encourage the use of trade acceptances by lowering their rate to 3.5 percent, but there was very little response to this and other preferential rates. From the opening in November 1914 to December 31, 1915, the St. Louis Federal Reserve Bank accepted 3,828 notes for rediscount, totalling $8.2 million. One hundred thirty-one banks were accommodated, just over a fourth of the district's member banks. Smaller banks in Missouri, Tennessee, Arkansas and Illinois made the heaviest use of their rediscounting privilege. Large banks in St. Louis and Louisville seldom did so. A year after it opened, the reserve bank held 25 percent of the Eighth District's total loans, including 48 percent of the loans in its part of Tennessee and 30 percent of the Illinois paper. The Indiana and Kentucky banks had made the least use of their Federal Reserve Bank, but Missouri was disappointing as well. Eighth District member banks had placed one-third of their loans outside of their district, in most cases at rates that were as high or higher than the rates offered at their reserve bank.[64]


An early example of currency issued by the Federal Reserve Bank of St. Louis | St. Louis Fed
An early example of currency issued by the Federal Reserve Bank of St. Louis.


The greatest problem faced by the St. Louis Federal Reserve Bank, during its first year of operation, according to Chairman Martin, was to get member banks to understand the facilities available and the ease with which they could be used. Banks often thought they had no paper eligible for rediscount, "when in fact the greater part of their paper was eligible." Many bankers thought there was a lot of red tape, that it was difficult to do business with the reserve bank. This impression arose largely from the fact that the reserve bank would not accept paper for rediscount that was unaccompanied by a statement, either from the maker of a note or the banker offering it, revealing the customer's assets and obligations. Despite the issuance of a circular letter to all member banks covering eligible paper and giving specific examples of the types of paper that were eligible for discount, 22 addresses on the topic throughout the district by the Chairman, and many visits to individual banks by the deputy agent, after a year a substantial minority of the banks were still "uninformed." Apparently some did not read their mail and others did not understand it.[65]

In December 1915, the St. Louis Federal Reserve Bank moved into new quarters in the New Bank of Commerce building, on the northeast corner of Broadway and Pine Streets, one block south of its former location. The building was renamed the Federal Reserve Bank Building, and it furnished a "light, commodious, and convenient" banking area on the second floor, with plenty of vault space.[66]


In its first year of operation, the Bank operated at a loss, but had 'stablized conditions and made it possible for any customer in the district to get money at a reasonable rate.' | St. Louis Fed
In its first year of operation, the Bank operated at a loss, but had "stablized conditions and made it possible for any customer in the district to get money at a reasonable rate."

During its first year of operation, chiefly because rediscounting volume had not met expectations, the St. Louis Federal Reserve Bank had operated at a loss, though it did show a month-to-month profit beginning in the fall of 1915. Far more important, according to Chairman Martin "a much higher service to the district than the making of money has been rendered. It has stabilized conditions and made it possible for any customer in the district to get money at a reasonable rate." It had also operated a clearing system that had eliminated exchange charges on a majority of the checks drawn on member banks in the district.[67]

No doubt Martin, Rolla Wells and the board of directors of the St. Louis Federal Reserve Bank were consoled by remarks made by Paul Warburg at a conference of reserve bank governors on October 22, 1915.

Earning Capacity must never be the test of the efficiency of Federal Reserve banks . . . I should have felt heartily ashamed had all our banks, considering the circumstances . . . earned their dividends in the past year . . . [it] would have been proof that they had completely misunderstood their proper function and obligations.[68]

Despite these comforting words, Chairman Martin installed a Spartan discipline at the bank in 1916. Rediscounting volume actually decreased, but economies and large and profitable purchases of bankers' acceptances in New York and Boston resulted in a profit of $145,000 on total earnings of $286,000. The bank declared a 6 percent dividend on its capital stock, covering the period from the opening of the bank to March 15, 1915.[69] Relationships between the district bank and its constituency were still in a tentative, formative stage, but by the most conservative standard, the St. Louis Federal Reserve Bank was on a sound footing. St. Louis bankers had played a prominent role in the banking reform movement, and they could congratulate themselves that their city and its area were assured of a significant role in the future of the Federal Reserve System.


  1. Frank A. Vanderlip, "The Modern Bank" in The Currency Problem, and the Present Financial Situation (New York, 1908), 3, cited in Robert A. Degan, The American Monetary System (Lexington, Massachusetts, 1987), 15-16. See also Gabriel Kolko, The Triumph of Conservatism (New York, 1963), 152; and Robert H. Wiebe, Businessmen and Reform (Cambridge, Massachusetts, 1962), 63-65. (Back to text)

  2. Milton Friedman and Anna Jacobson Schwartz, in A Monetary History of the United States (New York, 1963), 165-167, suggest that the restriction of payments was "therapeutic," giving time for the panic to "wear off." (Back to text)

  3. Kolko, Triumph of Conservatism, 152; Wiebe, Businessmen and Reform, 65. (Back to text)

  4. Kolko, Triumph of Conservatism, 149. (Back to text)

  5. Hubbard and Davids, Banking in Mid-America, 122. (Back to text)

  6. W B. Stevens, A Centennial History of Missouri (St. Louis, 1922), III, 56-60; Hubbard and Davids, Banking in Mid-America, 86. (Back to text)

  7. Stevens, A Centennial History of Missouri, III, 56-60; Primm, Lion of the valley, 423. (Back to text)

  8. Kolko, Triumph of Conservatism, 183-184. (Back to text)

  9. Ibid., 184; Wiebe, Businessmen and Reform, 76. (Back to text)

  10. Degen, American Monetary System, 26-27. (Back to text)

  11. Ibid., 27; Kolko, Triumph of Conservatism, 184. (Back to text)

  12. Degen, American Monetary System, 25; Robert Craig West, Banking Reform and the Federal Reserve (Ithaca, 1977), 76-77, 82, 84-85; Paul Warburg, The Federal Reserve System; Its Origin and Growth (New York, 1930), II, 201-214. (Back to text)

  13. Thibault de Saint Phalle, The Federal Reserve, An International Mystery (New York, 1985), 49; Nathaniel W Stephenson, Nelson W. Aldrich (New York, 1930), 340. (Back to text)

  14. In each branch district and in each association, three-fifths of the governing directors would be chosen by member banks, each having one vote. The remaining two-fifths were to be chosen with each member bank voting in proportion to its capital, See J. Laurence Laughlin, Banking Reform (Chicago, 1912), 13-14. (Back to text)

  15. West, Banking Reform, 74-75; Warburg, The Federal Reserve System (New York, 1930), 1, 90-91. (Back to text)

  16. West, Banking Reform, 84. (Back to text)

  17. Wiebe, Businessmen and Reform, 77; Laughlin, Banking Reform, 16-18. (Back to text)

  18. Wiebe, Businessmen and Reform, 77-78. (Back to text)

  19. Kolko, Triumph of Conservatism, 185-186. (Back to text)

  20. Ibid., 187-189. (Back to text)

  21. Paolo E. Coletta, William Jennings Bryan (Lincoln, 1969), II, 126; Kolko, Triumph of Conservatism, 189. (Back to text)

  22. Carter Glass, An Adventure in Constructive Finance (New York, 1927), 29. (Back to text)

  23. From the Progressive Party platform of 1912, quoted in Arthur S. Link, Wilson, The New Freedom (Princeton, 1956), 201. (Back to text)

  24. Testimony of J. P. Morgan, senior partner of J. P. Morgan and Company, December 19, 1912. Final Report from the Pujo Committee, February 28, 1913, in Herman E. Krooss, editor, Documentary History of Banking and Currency in the United States (New York, 1969), III, 2107-2122, 2143-2195. (Back to text)

  25. Glass, Constructive Finance, 29. (Back to text)

  26. William Diamond, The Economic Thought of Woodrow Wilson (Baltimore, 1943), 101. (Back to text)

  27. Kolko, Triumph of Conservatism, 218, 226. (Back to text)

  28. Ibid., 223-226; Link, The New Freedom, 202; West, Banking Reform, 92-96. (Back to text)

  29. Glass, Constructive Finance, 61, 83-84. (Back to text)

  30. Quoted in Kolko, Triumph of Conservatism, 226. (Back to text)

  31. Glass, Constructive Finance, 81-84. (Back to text)

  32. Ibid., 91; Kolko, Triumph of Conservatism, 225-226. (Back to text)

  33. Glass to Festus Wade, July 31, 1913; quoted in Ibid., 222; Glass, Constructive Finance, 157. (Back to text)

  34. Krooss, Documentary History, 2207-2209; Glass, Constructive Finance, 90; Kolko, Triumph of Conservatism, 227; J. Laurence Laughlin, The Federal Reserve Act: Its Origins and Problems (New York, 1933), 136. (Back to text)

  35. Coletta, Bryan, II, 130-131; Glass, Constructive Finance, 94-96. (Back to text)

  36. Krooss, Documentary History, 2196-2206. (Back to text)

  37. Glass, Constructive Finance, 100-110. (Back to text)

  38. Ibid., 123-126; Coletta, Bryan, II, 130-133; David F. Houston, Eight Years With Wilson's Cabinet (Garden City, N.Y, 1926) I, 47-48. (Back to text)

  39. Brandeis suggested that bankers could assist the Federal Reserve Board as technical advisers. He believed they should have no voice in policy matters; their interests were "irreconcilable" with administration goals. Brandeis had been Wilson's first choice for Attorney-General, but New York and Boston bankers and railroad interests, fearing that he would press anti-trust prosecutions, had persuaded Wilson to look elsewhere. Brandeis' views were generally consistent with those of Bryan, La Follette, and other "radicals," but unlike them he did not attack business concentration as undemocratic or oppressive, but simply as unwieldy and inefficient. Henry L. Higginson, a Boston investment banker and Wilson supporter, orchestrated the attack on Brandeis' nomination. President A. Lawrence Lowell of Harvard also actively opposed Brandeis. See Coletta, Bryan, II, 133; Link, The New Freedom, 10-13, 212; Kolko, Triumph of Conservatism, 208. (Back to text)

  40. Krooss, Documentary History, 2207-2229. (Back to text)

  41. Link, The New Freedom, 216. (Back to text)

  42. Ibid., 217; Glass, Constructive Finance, 116. (Back to text)

  43. Kolko, Triumph of Conservatism, 232-233. (Back to text)

  44. Glass, Constructive Finance, 134-136. (Back to text)

  45. Ibid., 138-143; Link, The New Freedom, 218-223. (Back to text)

  46. Coletta, Bryan, 11, 135. (Back to text)

  47. Wiebe, Businessmen and Reform, 130-131; Link, The New Freedom, 225. (Back to text)

  48. Wiebe, Businessmen and Reform, 131-133. (Back to text)

  49. Ibid., 134-135; Link, The New Freedom, 225-227. (Back to text)

  50. Ibid., 228-229. (Back to text)

  51. Ibid., 229-232; Glass, Constructive Finance, 166-167; Kolko, Triumph of Conservatism, 239. (Back to text)

  52. Link, The New Freedom, 232-234; Wiebe, Businessmen and Reform, 136; Glass, Constructive Finance, 166-167. (Back to text)

  53. New York World, October 25, 1913, cited in Link, The New Freedom, 233-235. (Back to text)

  54. Kolko, Triumph of Conservatism, 240; Glass, Constructive Finance, 168-169. (Back to text)

  55. St. Louis Republic, November 20, 1913; Glass, Constructive Finance, 158. (Back to text)

  56. Ibid., 196, 220, 242-243. (Back to text)

  57. Link, The New Freedom, 237. (Back to text)

  58. Ibid., 237-238; West, Banking Reform, 132-135. (Back to text)

  59. New York Times, December 24, 1913; cited in Link, The New Freedom, 237-238. (Back to text)

  60. Coletta, Bryan, 11, 138-139. The Nation, November 26, 1914, 622; the New York Times, May 30, 1915; and the New York Tribune, December 24, 1913, all anti--Bryan for decades, conceded that his support for the Federal Reserve Act had been crucially important. (Back to text)

  61. Glass, Constructive Finance, 235; Kolko, Triumph of Conservatism, 242. (Back to text)
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