100 Years of Service
The Federal Reserve Bank of St. Louis, along with the rest of the Federal Reserve System, recently turned 100. In this special report to mark the centennial, you will read about the financial instability in the country that led to the birth of the Fed, our nation's third attempt at a central bank. You will also find out why, a half-century later, the St. Louis Fed came to be known as the maverick in the Fed system. But this report also looks at our Bank today and what lies ahead. See how we serve not only financial institutions and the Treasury, but educators, those who work in community development, the wide variety of people who look to us for economic research and data, and the public at large. The accompanying video captures some of the highlights of where we've been and where we're going.
It began with the need for stability, a need to bring structure and security to the nation's panicked financial system. The solution — a system of independent regional banks that together with a board of governors in Washington, D.C., would represent the economic interests of businesses and citizens across the country. Main Street America would have a seat at the table alongside those representing Wall Street. President Woodrow Wilson signed the Federal Reserve Act into law on December 23rd, 1913.
Today the Fed is best known for monetary policy. But monetary policy was not on the radar screen when the Federal Reserve act was signed. The Fed was established mainly to correct defects in the US banking and monetary system that reformers viewed as contributing to financial instability.
Those defects included, one, a national currency whose supply was relatively fixed and did not adjust to changes in demand; two, the concentration of the nation's bank reserves in a few financial centers, especially New York City; and, three, the investment of those reserves in short term loans to stock market speculators. When Congress was deliberating the act, the idea of a central bank was anathema for most members of government, the business community, and the general public. The central banks of European countries were private and secretive. And they served highly concentrated banking systems from national capitals. The Fed's proponents stressed that the Federal Reserve would not be a central bank but rather a confederation of regional reserve banks that serve their local community banks and citizens.
The act called for between 8 and 12 regional banks to be established across the country. 37 cities submitted a request. St. Louis — nation's fourth largest city, a banking center, and the gateway to the nation's westward expansion — was a logical choice. On May 18th, 1914, St. Louis was one of 12 banks to be incorporated, becoming the headquarters of the 8th Federal Reserve district, covering all or parts of seven states.
Six months later, on November 16th, the bank opened its doors for the first time at the current Marquette building at Broadway and Olive streets. From these humble beginnings was born an institution that over time steadily grew in size and stature. Within a few years, branch offices opened in Louisville, Memphis and Little Rock.
In 1925, the bank completed a new headquarters in downtown St. Louis. The neoclassic building was constructed atop the bank's vault with its 44-ton, 30-inch-thick door. In more ways than one, a solid foundation was in place. In subsequent years, through depression and prosperity, through war and through peace, the St. Louis Fed stood as a rock solid institution, one that banks, businesses, the government, and the public could rely upon.
But lest anyone confuse stability with conformity, the bank in the late 1950s began to develop an identity that defines it to this day. It was at this time when the bank started to earn a reputation as an institution unafraid to challenge the status quo or question conventional wisdom. Under President Darryl Francis and research director Homer Jones, the St. Louis Fed challenged prevailing views by fueling the monetarist revolution that stretched into the 1970s.
Inflation was very high in the 1970s, over 12% at times. Within the Fed as well as outside the Fed, blame was being put on oil shocks, labor unions, monopolistic price setting by firms, and growing federal budget deficits. But the St. Louis Fed's view was that the Federal Reserve was to blame because its policies were permitting excessive growth of the money supply.
Arthur Burns, who was then Fed chairman, repeatedly scoffed at that theory. Francis and Jones pushed back, citing their extensive research, something for which the St. Louis Fed is still known. When it was claimed that in FOMC meetings that it was impossible anyhow to control the growth of money, Francis fired off an angry letter to Burns, saying, "Damn it all, Arthur, we could and did predict the growth of monetary aggregates."
Eventually the St. Louis Fed took its fight public, leading others to dub St. Louis the maverick bank in the system. Although the Fed never embraced monetary targeting wholeheartedly, the Fed's leaders came to recognize the importance of maintaining a credible commitment to price stability.
The message was clear and enduring. The 8th District was brimming with big ideas and big ambition and should not be overlooked.
Toward the end of one century and into the next, the St. Louis Fed continued to make a difference, doing so through employees working together to achieve the bank's mission of promoting stable prices, encouraging maximum sustainable economic growth and supporting financial stability. In 2014, as the bank commemorates its centennial, the St. Louis Fed thrives through bold leadership, innovative thinking and research, and superior products and services. The bank stands out for its world class economic research and data; leadership in serving the U.S. treasury; high-caliber supervision and regulation of financial institutions; efficient cash and payment services for district banks; outreach, education, and engagement in local communities; outstanding corporate citizenship and support for the community; strong business planning, processes, technology, and innovation; and for being an organization that attracts, develops, and retains outstanding employees.
The successes and lessons from the bank's past served to frame a future that promises continued thought leadership; innovative solutions; and service with passion, integrity, and purpose. After 100 years, the Federal Reserve Bank of St. Louis' foundation remains strong and its future shines bright.
Also in this year's report..