Jekyll Island and the Ghost of Knickerbocker Trust (Part 3)

May 23, 2019

Picture showing the members of the Reserve Bank Organization Committee


After muddling along without a central bank for nearly 80 years, it took only 98 days for a committee commissioned by Congress to identify cities where Regional Federal Reserve Banks would be located and draw the respective District boundaries. The Federal Reserve System was up and running within a year of the signing of the Federal Reserve Act of 1913.
Rob Hajduch, Principal Credit Analyst

In December 1913, the rough architecture of the new U.S. central banking system was sketched in the Federal Reserve Act (the Act). The unenviable task of framing the physical form of the Federal Reserve System fell to what was called the Reserve Bank Organization Committee (RBOC). The RBOC included Secretary of the Treasury, William G. McAdoo; Secretary of Agriculture, David F. Houston; and Comptroller of the Currency, John Skelton Williams. Their first task was to identify eight to twelve cities where the regional Federal Reserve Banks (Regional Banks) would be established. Once the cities were identified, they would apportion the country into districts that would each be anchored by one of the Regional Banks. The Act provided broad guidance toward drawing district boundaries, with the RBOC having to account for each region's "convenience and customary course of business."

Over the course of a month and a half, the RBOC members travelled thousands of miles to hold public hearings in 18 cities to permit local bankers, business leaders and other constituencies to argue the merits of placing one of the Regional Banks in their cities. Additionally, the RBOC polled national banks to determine the sector's first, second and third choices for Regional Bank locations. Following the public hearings, the RBOC waded through the 5,000+ pages of testimony and, in April 1914, published a report for Congress detailing its conclusions. Of 37 applicant cities, the RBOC accepted the maximum number allowed by the Act with each assigned a numbered district: Boston (1), New York (2), Philadelphia (3), Cleveland (4), Richmond (5), Atlanta (6), Chicago (7), St. Louis (8), Minneapolis (9), Kansas City (10), Dallas (11) and San Francisco (12).

Map showing the location of the twelve Federal Reserve Banks and the Boundaries of the Twelve Federal Reserve Districts as determined by the reserve bank organization committee

Source: FRASER, St. Louis Fed


Some of the cities selected (New York, Chicago and St. Louis) were foregone, as they had been designated as federal central reserve cities under the National Banking Act of 1863 and most of the other nine selected did not prove especially controversial. However local politicians, business leaders and press in some rejected cities - particularly Baltimore and New Orleans - erupted in indignation as both had formerly been the site of branches of the First and Second Banks of the United States. It also did not escape notice that one of the chosen cities was in the home state of both Woodrow Wilson and Carter Glass (D - Virginia) and that Missouri had been assigned a second location besides St. Louis. The uproar compelled the RBOC to publish the results of the poll conducted among the national banks as well as a statement defending its decisions. New Orleans had been passed over as its banking sector had largely been stable over the trailing decade, while those of Dallas and Atlanta had doubled in size. Baltimore had been passed over as Richmond had received more votes in the national bankers' poll. 

Notwithstanding the tumult, attention turned to selecting members of the Federal Reserve Board in Washington, DC. It, in turn, was tasked with organizing and chartering the twelve Regional Banks with the goal of opening all twelve on the same day in the coming November. Treasury Secretary McAdoo's instructions to the respective banks' chief executives were direct, "Buy a few chairs and pine-top tables. Hire some clerks and stenographers, paint ‘Federal Reserve Bank' on your office door and open up. The way to begin is to begin. When you make a start, everything will be smoothed out by practice." The Atlanta Bank's first location was selected only 16 days before opening, while the Minneapolis Bank borrowed the board room and teller cages of the Minnesota Loan & Trust Company. Regardless of the inconspicuous beginning, the Regional Banks all managed to open simultaneously on November 16, 1914. Most started with roughly 20 employees, although the Minneapolis Bank opened with eight and Chicago and New York counted 41 and 85, respectively, on opening day.

Despite the controversies swirling around the site selection process and its humble beginning, the Federal Reserve System was up and running and the Regional Banks continue to operate in the original cities. Moreover, the District boundaries drawn by the RBOC have only seen minor alterations to this day. As was foreseen by William McAdoo, the Federal Reserve System has had to learn as it went, with varying degrees of success in addressing economic crises over time. Depositor runs of the variety that doomed the Knickerbocker Trust Company remained a persistent, recurring problem until Federal deposit insurance was created during the depths of the Great Depression, but that is another story.


FRASER - St. Louis Fed, Decision of the Reserve Bank Organization Committee Determining the Federal Reserve Districts and the Location of Federal Reserve Banks Under Federal Reserve Act Approved December 23, 1913, page 9.

Sandra Kollen Ghizoni, Federal Reserve History, Reserve Bank Organization Committee Announces Selection of Reserve Bank Cities and District Boundaries, April 1914

Sandra Kollen Ghizoni, Federal Reserve History, Reserve Banks Open for Business, November 1914

David Wheelock, Federal Reserve History, The Fed's Formative Years: 1913-1929