Stars and stripes, eagle and laurels—patriotism, federalism, strength, and peace; each of these symbols and values represented on the seal of the Federal Reserve Bank of St. Louis, Missouri, spoke to the mission of the system as a whole. The first central banking institution allowed to open in the United States since Andrew Jackson’s disastrous war on the Second Bank of the United States in the 1830s, the Federal Reserve emerged in a final-hour act of Congress on December 23, 1913. After years of politicking among the financial and legislative leaders of the nation, the system simultaneously allowed for a centralization of reserves and policy making within a federated system that refused to allow a single center of power (either Capitol Hill in Washington, D.C. or New York City’s Wall Street) too much dominion. It was designed to prevent such financial catastrophes as had most recently occurred in the Panic of 1907, to reduce seasonal shortages of funds for necessary manufacturing or agricultural business, and thus to balance the national financial power between urban and rural needs.

Missouri was the only state granted the privilege of two headquarters locations within the new twelve-unit Federal Reserve System. What led organizers to grant St. Louis and Kansas City such an honor as to preside over two reserve districts, encompassing states across the nation’s midsection from Colorado to parts of Tennessee and Kentucky, including banks that might otherwise look to major cities such as Chicago for financial leadership? Ultimately, a combination of tradition, Democratic Party politics, existing business relationships, the geography of existing trade routes, and consideration of capital “balance” aided in the selection of these two cities for Federal Reserve headquarters.

Origins of the Federal Reserve Act

Historians frequently point to the Panic of 1907 as an essential motivation for reforming the nation’s financial system. Though panics on Wall Street, and even broader depressions had cycled through the American economy throughout the nineteenth century, this event’s “perfect storm” highlighted the restrictions of the money supply and the banks’ inability to coordinate an effective response.¹ Much of the blame for the 1907 financial panic can be attributed to a failed attempt to consolidate (corner) stock on the Amalgamated Copper Company, and the ripple effects it had on stock brokerages, banks, and trust companies connected to the owner, Fritz Augustus Heinze, and his associates. Other factors such as seasonal farm credits (a typical issue leading to short currency supplies in the fall), and the 1906 San Francisco Fire also drew significant amounts of gold away from the nation’s financial center in New York. Failing institutions led to a spreading panic throughout the country, and many banks were forced to close or issue scrip as currency due to the lack of supply of hard currency. The aging private financier J.P. Morgan stepped up to organize a response to the financial crisis. An effective response required significant commitments from the large banks of New York City to stabilize the financial system, a private bailout to the order of tens of millions of dollars. Overall, the Panic of 1907 demonstrated that the national banking system, unreformed since 1863 and lacking a centralized response structure or reserve system to respond to financial crises, needed significant overhaul. The panic also heightened many Americans’ long-existing distrust of bankers, Wall Street, and the “Money Trust,” which meant that reform efforts had to address the public’s fears of corporate control. In a period of increasing progressivism, the appeal of government control or at least oversight of the banking system was increasingly attractive—to many outside the financial sector.

In order to turn toward the government as a central force in banking, Americans had to overcome deep-seated fears of a central bank. These fears reached their height in the 1830s when Andrew Jackson killed the charter for the federally authorized national Second Bank of the United States, but traditional agrarian, anti-bank sentiments prevailed in the still majority-rural population. At the turn of the twentieth century, policymakers still considered a central bank impossible. German immigrant banker Paul Warburg led the way in proposing an institution more in line with European financial systems and helped convince conservative Republican Senator Nelson Aldrich to form a legislative research committee and write a reform plan.² The process took years, however. The tumultuous politics of progressivism, and the toxicity of Aldrich’s conservative name and record, led to delays and the handing over of bank reform plans to Democrats under Woodrow Wilson. Democrats also were divided on the issue of finance, being the party of Jackson and the still highly influential populist William Jennings Bryan, an advocate for the Free Silver Movement, which promoted unlimited coinage of silver. Still, reformers caught Wilson’s attention and convinced him of some of the important details of a new banking system. He coaxed along Congressional leaders Representative Carter Glass of Virginia and Senator Robert Owen of Oklahoma and eventually prodded Congress into passing the Federal Reserve Act in the waning days before Christmas in 1913. The United States had finally overcome fears of a central bank to create a uniquely American, federated system of regional banks with a blend of government and private control.

Organization of the Reserve Districts

Early in 1914, a committee to organize the Reserve Bank system got to work. Secretary of the Treasury William G. McAdoo, Secretary of Agriculture David F. Houston, and Comptroller of the Currency John Skelton Williams traveled 10,000 miles over six weeks, holding interviews in 18 cities to determine where the eight to twelve reserve cities specified by the Federal Reserve Act should be located. Chicago, New York, and St. Louis, which the National Banking Act of 1863 had already designated as reserve cities, were considered “obvious choices.”³ To choose the other five to nine cities, the committee listened to business leaders give testimony on commercial, industrial, and agricultural statistics, trade and banking conditions, transit and communication links, and population figures that would aid a city’s case for a headquarters.

Cities actively lobbied for designation as a reserve city; 37 cities sought selection as a headquarters location and 18 received extensive hearings (beyond the already chosen New York, Chicago, and St. Louis). The final decisions produced some outcry among slighted cities. The Reserve Bank Organizing Committee (ROBC) ultimately produced more than 5,000 pages of evidence collected during its hearings, the results of a ballot poll among banks that would join the system, and statements defending its decisions to the American public. The committee thus presented ample documentation of their decisions to the American public.⁴ Kansas City, a more controversial pick than some, cited its new Union Station and ability to transport agricultural commodities through 16 major rail lines and 32 subordinate lines as evidence of its strength as a commercial center. Such rail lines also provided fast mail service to outlying parts of its eventual reserve district, as noted by testimonials from bankers as far away as Roswell, New Mexico. Mail correspondence was important to banking activity, thus the organizers strongly considered this point. Kansas City could also boast of higher correspondence banking activity, where banks in smaller towns and cities kept accounts in its banks for various reasons, than competing cities such as Denver and Omaha.⁵

A national poll asked 7,471 banks which cities would be their first, second, and third choice reserve city locations.⁶ Those giving St. Louis the edge for District 8 included bankers in the state of Arkansas, a large portion of Illinois (with Chicago as the other main vote-getter), and of course Missouri (votes split between Kansas City and St. Louis, 64-47). Portions of other states which the organizers eventually assigned to this district also selected St. Louis as a first choice, though other prominent choices included Chicago and Louisville.⁷ In the case of District 10, Kansas City received the overwhelming vote in Kansas, New Mexico, and northern Oklahoma. It also received more than half of the Missouri votes and mostly second place votes from Colorado and Nebraska institutions that eventually were incorporated into its district (and later given branches in Denver and Omaha).⁸

In the decision submitted to Congress and an accompanying public statement, the committee laid out the geographic boundaries of each district and pertinent statistics that had led them to draw the regional map as they did. For instance, St. Louis’s District 8 included at least 458 banks and up to $6,367,006 in capital (some of that accounting for state banks and trust companies that had applied for admission to the system after the initial membership period for national banks). Kansas City’s District 10 included at least 836 banks and up to $5,600,977 in capital. It should be noted that districts centered in New York City, Philadelphia, Cleveland, and Chicago controlled significantly larger capital per district, ranging from about $12 million to $20 million each, but the two Missouri-centered districts were on par with the other six reserve districts throughout the nation.⁹

The balance of capital throughout the nation’s districts upheld the validity of the committee’s choices for headquarter cities and helped thwart the desire of Wall Street bankers for financial control of most of the Northeast if not the rest of the nation. Some of the chosen cities produced controversy; the committee selected Dallas and Atlanta over New Orleans, which was larger at the time, due to recent economic growth and other considerations. A few observers thought the outsized influence of “numerous Missouri politicians then in office” might have affected the decision to place two reserve centers in the state; although at least one prominent Missourian, Senator James Reed, initially opposed the Federal Reserve Act before changing his tune to boost Kansas City’s fortunes.¹⁰ The RBOC ultimately defended its choices by offering up transparently the many statistics, maps, and testimonials that had supported the chosen cities. It also composed a public statement addressing complaints from cities such as New Orleans, Baltimore, Denver, and Omaha. The committee suggested that those that complained misunderstood the function of the Federal Reserve Banks. Ordinary consumers continued banking operations much as before, at no detriment to these prominent commercial cities. Banks could also continue doing business outside of their designated districts if they chose, but ballots and testimonial evidence supported the selection of the chosen cities as central to national banking operations. The statement concluded, “It is simply misleading for any city or individual to represent that the future of a city will be injuriously affected by reason of its failure to secure a federal reserve bank. Every city which has the foundations for prosperity and progress will continue to grow and expand, whether it has such a reserve bank or not, and well-informed bankers, especially, are aware of this.”¹¹ The Federal Reserve district map ratified the committee’s decisions and recognized Missouri’s significant contributions to the nation’s economy in the early twentieth century with its two headquarter cities.

Conclusion—How the Federal Reserve Functioned

The organizing committee had worked quickly to select the reserve cities in just a few months after the legislative birth of the Federal Reserve in December 1913. Selected by April 1914, the chosen reserve cities had to move quickly before opening operations officially on November 16, 1914. Each bank had to select a Governor to run day-to-day operations, as well as an average of 20 employees including bankers, clerks, currency handlers, and support staff. In addition, the organization of each reserve bank involved selection of a nine-member Board of Directors. The Federal Reserve Board (a national body) appointed Class C Directors, including the Chair and Vice Chairman of each district board. Class A Directors were bankers from the region, and Class B Directors were members of regional commerce, agriculture, or industrial businesses but not bankers. Regional member banks selected all Directors.¹² Even though a national board oversaw the overall system (and legislative acts during the 1930s would strengthen the national board still further), the fact that districts directly selected most of the members of the district reserve boards helped shield the system from accusations of too much centralization. Banks also appreciated that the semi-private structure of the Federal Reserve allowed them to receive six percent dividends from their district reserve bank.

In its early years, the Federal Reserve Banks’ primary roles included “discounting” loans from member banks (exchanging liquid currency for these assets), clearing checks for the district, expediting wire transfers of funds among district banks, regulating member banks through timely examinations, and offering professionalization services to the banking industry.¹³ At the board level, Directors contended with a range of national and international events affecting policy decisions, such as how to support government bond drives during World War I. In the fluctuating economy of the 1920s, Federal Reserve Boards debated how to use discount rates and other policies to control member banks’ overinvestment in speculative stocks and bonds. They also promoted “productive credit” for agriculture and industry in its place; however, they did not successfully ward off the economic collapse of the Great Depression.¹⁴ New legislative mandates and policy arrangements beginning in the 1930s with the Glass-Steagall Act eventually helped the Federal Reserve take its position as the influential economic powerhouse it is today.¹⁵

One other notable contribution of the Federal Reserve from this early period to the present, is its role as an economic research engine generating commercial and financial statistics for the various districts. The St. Louis Fed has offered such data as well as institutional histories and primary sources related to the Fed through its highly useful digital platforms, FRASER and FRED. FRED (Federal Reserve Economic Data) first became digitized in 1991, with the publication of U.S. Financial Data. The database has since added other journals to its collection. FRASER (the Federal Reserve Archival System for Economic Research), first online in 2004, builds on the legacy of St. Louis Fed Research Director Homer Jones, who first began providing economic information to the public in 1958. It offers the historical researcher ample material from the Fed’s legislative founding to the present.¹⁶ Missouri’s representation in the Federal Reserve System, not just in its two headquarters cities but also in its services to research and education, is therefore commendable.

1. Robert F. Bruner and Sean D. Carr, The Panic of 1907: Lessons Learned from the Market’s Perfect Storm (Hoboken, N.J.: John Wiley & Sons, 2007).
2. Roger Lowenstein, America’s Bank: The Epic Struggle to Create the Federal Reserve (New York: Penguin Books, 2015).
3. Sandra Kollen Ghizoni, “Reserve Bank Organization Committee, April 1914,” November 22, 2013, Federal Reserve History, https://www.federalreservehistory.org/essays/reserve-bank-organization-committee (accessed November 18, 2021).
4. Senate Document No. 485, 63rd Congress, 2d Session, Location of Reserve Districts in the United States; Letter from the Reserve Bank Organizing Committee Transmitting the Briefs and Arguments Presented to the Organization Committee of the Federal Reserve Board Relative to the Location of Reserve Districts in the United States (Washington, Government Printing Office, 1914); House of Representatives Document No. 1134, 63d Congress, 2d Session, First Choice Vote for Reserve-Bank Cities; Letter from the Reserve Bank Organization Committee Transmitting, in Response to the Resolution of the House of Representatives, Dated April 15, 1914, A Statement of the Ballots Cast by the Various National Banks of the United States to Determine Their Choice for Reserve Cities (Washington: Government Printing Office, 1914); and 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, April 2, 1914; With Statement of the Committee in Relation Thereto, April 10, 1914 (Washington, Government Printing Office, 1914).
5. Senate Document No. 485, Location of Reserve Districts; and Jaclyn Miller, ‘“A Magnificent Tower of Strength’: The Federal Reserve Bank of Kansas City,” in Wide-Open Town: Kansas City in the Pendergast Era, p. 78-83, edited by Diane Mutti Burke, Jason Roe, and John Herron (Lawrence: University Press of Kansas, 2018).
6. H.R. Document No. 1134, First Choice Vote for Reserve-Bank Cities.
7. Ibid., 11.
8. Ibid., 6, 12.
9. Decision of the Reserve Bank Organization Committee.
10. Ghizoni, “Reserve Bank Organization Committee”; Lowenstein, America’s Bank, 236; and Miller, ‘“A Magnificent Tower of Strength,”’ 81-82.
11. Decision of the Reserve Bank Organization Committee, 18.
12. Sandra Kollen Ghizoni, “Reserve Banks Open for Business, November 1914,” November 22, 2013, Federal Reserve History, https://www.federalreservehistory.org/essays/reserve-banks-open(accessed November 18, 2021).
13. Miller, ‘“A Magnificent Tower of Strength,’” 83-84.
14. Clay J. Anderson, A Half-Century of Federal Reserve Policymaking, 1914-1964. Federal Reserve Bank of Philadelphia. FRASER. http://fraser.stlouisfed.org/(accessed November 18, 2021).
15. Julia Maues, “Banking Act of 1933 (Glass-Steagall),” November 22, 2013, Federal Reserve History, https://www.federalreservehistory.org/essays/glass-steagall-act (accessed March 7, 2022).
16. “Introducing FRED…” Eighth Note 25, no. 3 (May/June 1991), 1; and “About FRASER,” FRASER, https://fraser.stlouisfed.org/about(accessed November 18, 2021).