Locating Federal Reserve Districts and Headquarters Cities

The Federal Reserve System was designed so that each of the Reserve district banks would play a significant role in regional economic stability. Subsequent changes in legislation have centralized control of monetary policy in the Board of Governors and Federal Open Market Committee. Public interest in the System has naturally followed the policy power shift to the Board in Washington, D.C.

Interest today in the Reserve district banks is often limited to questions such as: Why are there two Federal Reserve banks in the state of Missouri? And why are there so many Reserve bank cities in the East vs. the West? Answers to these location questions are usually attributed to politics.

The charge that politics played a role in locating the Reserve district banks was made by many, including one of the architects of the original Federal Reserve Act, Henry Parker Willis, who commented in a 1923 work: "In none of the ... surveys of the situation was ... a bank at Richmond ... ever seriously considered, although that city, like others, had early engaged special counsel of various kinds and Comptroller Williams was well known to be doing his utmost to forward its claims." Willis adds, "... only a casual survey was necessary to make it clear that there was a serious error in the attempt to insert a Richmond district. ... There was very considerable ground for question as to the wisdom shown in the selection of Cleveland, the home of Secretary of War Baker. ... Atlanta might have been omitted ... but the influence of Senator Hoke Smith was generally regarded as having turned the scale in favor of ... Atlanta; indeed, there was a prevailing impression that the designation of Atlanta was part of a ... political understanding." ¹

But are these claims disingenuous? Other than Willis' commentary, very little exists on the processes and procedures used in making the location decisions by those involved at the time. The goal here is to explain the process leading to the location of the Federal Reserve district banks, including the very central role played by Henry Parker Willis and focusing, in large part, on review of an unpublished 1914 document written by Willis. This document, we will see, not only provides insight into Willis' thinking at the time key decisions were made about the nascent Federal Reserve, but also somewhat contradicts statements Willis would make in the 1923 work cited in the previous paragraph.

The Federal Reserve Act of 1913

The Federal Reserve Act of 1913 created the Federal Reserve System. Distrust of private banking interests and the strength of American populism—embodied in the political power of William Jennings Bryan, President Woodrow Wilson's Secretary of State during the Act's drafting and passage—was counterpoised against the fear, expressed by private financial interests, of the federal government becoming involved in monetary and financial markets. The Act was a compromise between these interests, reflecting the attempt to balance private interests with federal government assistance, protection and oversight. ²

Attempting to provide economic stability, the Act called for "not less than eight nor more than twelve" Federal Reserve district banks. This system would provide an elastic currency, regulate interest rates, supervise and regulate, and act as a clearinghouse for member commercial banks within their district, wrote economist Richard Timberlake. The Reserve banks were to be spread throughout the country, with populists proposing one Reserve bank for each state, plus the District of Columbia and perhaps Alaska, according to Timberlake.

The House version of the Act reflected the populist leaning and provided for "not less than twelve" Reserve cities. The Senate's version of the Act called for between eight and 12 district banks. The final range was arrived at in legislative conference with the Senate's language prevailing.

Coordination and management of the System was provided for by a Federal Reserve Board, consisting of the Secretary of the Treasury, the Comptroller of the Currency, members ex officio and five members appointed by the president and confirmed by the Senate, sited in Washington, D.C. ³

The Reserve Bank Organization Committee

The Federal Reserve Act delegated the actual districting and designation of Federal Reserve cities to the Reserve Bank Organization Committee, consisting of the Secretary of the Treasury, the Secretary of Agriculture and the Comptroller of the Currency. The Reserve Bank Organization Committee was also charged with setting in place an operational plan for the Federal Reserve System.

Locating the Reserve cities and districts was a contentious issue. ⁴  
The members of the committee—William McAdoo (Treasury), David F. Houston (Agriculture) and John Skelton Williams (Comptroller of the Currency)—met Dec. 26, 1913, to plan their schedule.⁵  They set an ambitious itinerary of cross-country travel, starting in New York City Jan. 5, 1914, and ending in Cleveland Feb. 17, 1914, to take testimony on the location of district cities and district boundaries. This resulted in upwards of 5,000 pages of testimony taken in 18 cities from over 300 individuals. A copy of this testimony is kept in the Federal Reserve Board's library in Washington, D.C.

Simultaneously, the Treasury Department sent ballots to the 7,471 nationally chartered commercial banks to assess their preferences as to which city they wanted as their Reserve district headquarters. The ballot allowed for the naming of first, second and third choice. The ballots were gathered prior to designation of any district boundaries, so banks were unconstrained in their choice of cities. Comments by committee members in the various cities indicate that they had access to the results of the balloting prior to both the completion of their tour and their deliberations, which occurred between Feb. 17, 1914, and April 2, 1914.

Other than specifying the number of Reserve districts, the Act gave little instruction to the committee on districting. The Act stated that: "... the districts shall be apportioned with due regard to the convenience and customary course of business and shall not necessarily be coterminous with any State or States." ⁶

Henry Parker Willis and the Preliminary Committee on Organization

Early in January 1914, Secretary McAdoo, on behalf of the committee, appointed Henry Parker Willis as chairman of the Preliminary Committee on Organization.⁷ Willis' role was more significant than just chairing the preliminary committee. As Willis writes: "Secretary McAdoo assigned to the author individually the duty of preparing a districting plan ... which should afford the basis for the [Reserve Bank Organization] Committee's final work. At the various hearings ... reports were taken ... and these with the various briefs and documents filed by witnesses were reviewed by him and ... used as the basis for a report in which plans were laid down for drawing the district lines." ⁸

The Willis report suggests business flow, transportation, district capital and factors other than political opportunism for the number and location of Reserve districts and district cities.

Willis and the preliminary committee submitted their report, which included their thoughts on districting in early 1914. However, the section on districting in this report is general in scope and limited in content.

In its report, the preliminary committee provided the general principles that they felt should guide districting. These principles followed the broad guidelines in the Act. According to Willis in 1914, the fundamental principles of districting should be:

• (a) Eight to 12 districts, the choice of the number within these limits entirely open and to be decided without prejudice.

• (b) The Act intended to establish a number of different and independent institutions, each sufficiently strong to care for itself.

• (c) The institutions should be reasonably similar to one another in size, located as will most nearly convenience the business of the country.

• (d) The creation of any one large bank should be avoided. No bank should be so preponderating in importance as to make it ipso facto the most conspicuous and by far the strongest element in the System. Creation of two distinct classes of banks, one consisting of large, powerful institutions, the other consisting of smaller and weaker institutions should be avoided.

• (e) While the law requires that a minimum capital of $4 million shall be present in each and every Reserve district, there is no harm in approaching closely to it or even in going below this limit if in the near future growth will provide the necessary capital.

• (f) Special study should be given both in establishing the districts and in establishing the point in each district where the headquarters bank is to be situated. The facilities and speed of transportation both between such point and those at which other headquarters banks are located, and between such headquarters point and the outlying portions of the district itself, should be considered.

A constraint identified by Willis in 1914 was "the fact that to a certain extent the sites of reserve banks must be regarded as practically predetermined, as in the case of New York, Chicago, and St. Louis, the present central reserve cities." Willis noted that assigning these cities also suggested regions around them and this affected districting in the rest of the country.

These are the specifics on districting from Willis and the preliminary committee in 1914. Intriguingly, Willis refers to a "detailed statistical and geographical analysis" giving the "sites for the Reserve Banks and the limits of the districts pertaining thereto." According to Willis, this analysis includes versions of a System with eight, nine, 10, 11 and 12 Reserve bank cities and districts, which Willis handed to McAdoo and the Reserve Bank Organization Committee. Further, according to Willis in 1923, "It was an analysis designed to apportion the banks of the country upon commercial and financial lines from the point of view of convenience and financial efficiency." However in the preliminary organization committee's report of 1914: "The Committee having since that date established the districts and indicated the headquarters of the banks, the detailed analyses are here omitted."

Willis' writing in 1923 on the Federal Reserve System extends and develops the points made above but fails to provide more information on the district banks and districting that he may have suggested to the committee.

Upon public announcement of its decision (see Figure 1) on April 2, 1914, critics charged that politics influenced the Reserve Bank Organization Committee in the choice of the number of districts and the location of as many as four of the Reserve bank cities. Especially upset with this plan were people and politicians in the cities of Baltimore, Denver, Pittsburgh and New Orleans, who believed that St. Louis, Kansas City, Cleveland, Atlanta and/or Richmond were indefensible choices as Reserve bank cities.

Private bankers in large cities (for example, New York and Chicago) thought that too many Reserve districts were chosen; these critics felt that the committee should have started with eight or even fewer districts and Reserve banks.

As quoted above, Willis' 1923 account of the choice of number of districts and Federal Reserve bank cities agrees with the critics of the time that political activity explains many of the choices made by the Reserve Bank Organization Committee. Whether the charges were true, the committee fully expected that its decision would arouse strong feelings. For example, Secretary of Agriculture David Houston wrote in his memoirs that the committee would be "in for a great deal of roasting no matter what we decided."

Willis and the "Report on Districting"

If politics indeed played a significant role in the location decisions, Willis, with an academic background and with fewer constraints than the members of the committee, would be expected to provide districting schemes different from that chosen by the committee. (For example, Secretary McAdoo—Wilson's son-in-law—was politically ambitious, seeking the Democratic Party's nomination for president in 1924.) Evidence of significant differences between Willis' recommendations and the final outcome could provide evidence for the "political influence" hypothesis. On the other hand, if Willis suggested virtually the same districting scheme that was announced by the committee, this would either weaken the political influence hypothesis, or it suggests that Willis gave the committee what it desired (thus playing politics himself). This would allow the committee to hide its political decisions behind a veil created by a supposedly neutral and unbiased expert. In this case, one expects that the committee would justify its location decisions by publicly referencing Willis' report.

In his 1914 "Report on Districting" to the Reserve Bank Organization Committee, Willis provided plans for a System featuring eight, nine, 10, 11 and 12 Federal Reserve districts along with suggestions for Reserve bank cities for each district.⁹

Willis' analyses leading to his various plans show that he sifted through the 5,000 pages of testimony carefully in an attempt to satisfy the Act and the organizing principles. However, it does not appear that Willis had access to the ballots submitted by the national banks when he was preparing his report.

Most individuals testifying before the Reserve Bank Organization Committee, unsurprisingly, provided arguments as to why their particular city should be the headquarters city for a region that they conveniently had surrounding their city. As Secretary Houston put it in Kansas City on Jan. 23: "Each place we go is the center." This boosterism was sometimes shameless.

Willis' report starts with "Part I: A theoretical treatment of the general principle. ..." The section runs for the first 13 pages and is the source for the "fundamental principles" paraphrased above from the Report of the Preliminary Committee and also the source for the lengthy treatment on the same topics that is reproduced in Willis' 1923 volume. The Willis report is sharper in focus, detail and attitude than either the report of the Preliminary Committee or his volume of 1923. For example, whereas in the Report of the Preliminary Committee, Willis writes that the choice of New York, Chicago and St. Louis is "practically predetermined," in his 1914 report Willis says "the choice of these cities may be regarded as axiomatic."

Parts II and III present his proposed eight, nine, 10, 11 and 12 Federal Reserve district plans. Part IV is "A defence of the grouping suggested." Part V is "A discussion of the location of the headquarters banks and of their branches."

Concentration of banking capital in New York and Chicago meant these cities had to serve either very small, but capital-dense, districts (New York, where there was even the suggestion by one witness that New York City be split into two different reserve districts) or very large and capital-sparse (outside the headquarters city) districts (for example, Chicago). This is especially true when the plans for a smaller number of districts (eight or nine) are considered. Willis' eight- and nine-district plans appear as Figure 2. The districting is identical except for the division of the Chicago district into two, with the new district headquartered at Minneapolis spreading north and westward toward the Pacific Northwest.¹⁰

In all of Willis' plans, determining boundaries for the Northeast and Atlantic seaboard were the most vexing. Starting at New York City,
"The argument in favor of ... a bank at New York is so strong as to need no further development," Willis wrote in 1914. Moving to the Northeast, testimony taken in Boston made it clear that while bankers and businessmen considered it their financial hub, transport time did not dictate a district bank in Boston. And witnesses in Boston said that they could deal with a district bank in New York. However, in order to keep the New York district bank from being disproportionately large in capitalization, Willis placed the New England states, the eastern third of New York and northern Connecticut into a separate Boston district.

Then Willis moved on to the Philadelphia district. (With New York City and Boston being self-evident locations for Reserve bank cities, Willis referred to the districts surrounding them by their city names. However, as his work progressed, he followed a schema of districting first and then determining and recommending headquarters cities. This did not stop him from referring to some districts by a city name, for example, the "Philadelphia District," but justification for this came later.) Again, balancing the flows of business and banking with transportation considerations and the requirements of capital size in districting, Willis created a district south and east of New York. Virginia was included in this district because, as Willis wrote in 1914, "testimony ... seems to show that the banks of Virginia are considerably closer in their connections with those at New York, Philadelphia and Baltimore than they are to the institutions south of them."

Willis next determined the eastern extension of the Chicago district and then his Great Lakes district, which went east into New York and south to include parts of Kentucky. Here Willis in 1914 was very deliberate in not identifying the district with a city: "It will have been noted that nothing has been said in this discussion with reference to the headquarters [city]. The cities ... which might ... be ... headquarters ... include Cincinnati, Pittsburgh, Cleveland, and possibly Detroit, Buffalo, and Louisville. From the standpoint of accessibility, convenience and general advantage it is believed that Cleveland is probably to be preferred. ... The question of proper headquarters point is merely touched upon here and will be dealt with more fully in the section devoted to that subject."

Willis then jumped to the "Problem of the West ... A large region without the excessive concentration of banking capital ... is to be subdivided. The problem is that of establishing a division corresponding ... with the commercial habits of the people, placing together those cities which are most nearly allied to one another and joining in the same district, territories which are easily accessible one to another by available railway transportation." In 1914 Willis refers to this as the Chicago district and adds: "One further point ... needs to be considered. This is the relation of the Chicago district to the other districts. For somewhat the same reasons which were controlling in the case of the New York district it is desirable that the Chicago district should not be too large."

At this point Willis outlines the St. Paul-Minneapolis district and a large Pacific Coast district with San Francisco as its headquarters. The St. Paul-Minneapolis district is suggested, but Willis says that if the committee wants an eight-bank plan, then that district should be subsumed into the Chicago district.

The St. Louis district comes next. Willis writes in 1914: "The real problem is ... the drawing of a line from the southwestern corner of the Great Lakes district ... to include in the St. Louis district the territory naturally and properly belonging thereto as distinct from the southeastern district while making a proper subdivision of capitalization ... and at the same time making the best possible provision for transportation requirements in the two districts."

In this plan Texas is trisected. "Such a division of Texas is sustained by a study of the transportation situation. ... Analysis of the testimony taken at New Orleans, Austin, Tex., and elsewhere will ... sustain this division ... it being the present opinion that to whatever city Dallas and Ft. Worth may be assigned as headquarters, their business tends northward rather than to New Orleans. Thus in the absence of a headquarters bank in Texas itself the middle and western region of Texas is thrown to the north of a line dividing it from the southeastern section of the country in somewhat the way indicated." (Emphasis added.)

Finally, the Southern district, a "district ... established entirely by a residual process." Willis also suggests on the same page in his 1914 report "a headquarters located either at New Orleans or some point further east."

These are Willis' eight- and nine-district plans. Summarizing, he writes in 1914: "... the plan just mapped out provides ... a reasonably practicable division of the territory. ... this division is in certain sections ... far more satisfactory than in others ... but this condition is unavoidable, in view of the irregular distribution of population ... banking capital, as well as the differing character of transportation facilities, if it be desired to adhere as closely as possible to the smaller number of institutions indicated." ¹¹ See table.

Addressing the weaknesses in the eight- and nine-bank plans outlined, Willis creates 10, 11 and 12 bank plans as shown in Figure 3. ¹²  In his
10-district plan, Willis creates a district from portions of the St. Louis and Chicago districts, also adjusting the St. Louis district's eastern boundary. In this section in his 1914 report, Willis addresses the issue of the location of the headquarters bank explicitly. The candidates were Omaha, Lincoln, Denver and Kansas City. Willis finds that Kansas City has the best claim based on flows of business and Colorado's lack of bank capitalization. (See "Willis' Choice of Headquarters Cities and Selection Criteria.")

Following his method of balancing capitalization, flow of business, district size and transportation, Willis also proposes 11- and 12-district plans, as indicated in Figure 3. Addressing the issue of geographical size, he splits the Pacific Coast district into North and South Pacific districts with headquarters cities at Portland and San Francisco, creating an
11-district plan.

Finally, Willis addresses the issue of the disproportionate capital in the Great Lakes district by splitting it into Eastern and Western districts and breaks out capitalization in the eastern Great Lakes at $11,690,000 and in the western Great Lakes at $7,295,000, while capitalization in the other districts remains unchanged.

Of these plans, Willis strongly recommended the 12-district plan, stating that it is "more convenient and workable from the standpoint of transportation and hence of bank clearing, [and it is] also obvious that this division measurably satisfies the demands of the country for the establishment of reserve banks, and affords recognition in a substantial way to practically every distinct section of territory included
within it." ¹³ It is surprising, then, to read Willis in 1923 claiming that "either nine or ten was the first recommendation made to the [Reserve Bank Organization] Committee." This is certainly inconsistent with his opinion in his confidential report of 1914.

Willis was also concerned in 1914 with the legality of rearranging districts that would be necessary if a smaller number of districts were to be created initially, with the number increased later. He even held out hope that if 12 proved to be too few "... that, when the need arises for more, Congress will make due provision for ... others." ¹⁴

Reserve bank cities

The choice of Reserve bank cities was the most hotly contested issue before the committee. Almost without fail, witnesses in every location made the best case for their city as a Reserve city. Given the newness of the Act, the uncertainty of the power and scope of the institutions it was creating and the speed with which it would be implemented, this type of testimony was to be expected.

Witnesses knew only that eight to 12 Reserve district banks would be created. The nature and responsibilities of these banks were unknown. When the subject of branches (of the Reserve banks) came up, more confusion arose. At the time of the committee's tour it was not at all clear what role the branch banks would play and what power they would have. Consequently, witnesses were not at all mollified to hear that their city might receive a branch bank if it did not get a Reserve bank.

Willis addresses the choices of Reserve bank cities in Part V of the 1914 report: "Wherever possible, the preference should be given to a city which has ... a distinct leadership in matters of business, and with which the banks within the district are in the habit of dealing. Where the choice between two cities would otherwise be difficult to make on account of practical equality in the extent and importance of their commercial relationships, the city to be chosen should be that which has the advantage in ease of communication. This is fundamentally desirable because of the necessities of the clearing process and the advantage to be gained from having all parts of the district within easy reach of headquarters." ¹⁵ (See table for headquarters cities recommended by Willis and his rationale for selecting some of them.)

Willis and the Reserve Bank Organization Committee

The committee's districting plan, Figure 1, at first glance looks very different than Willis' 12-district plan in Figure 3, especially in the East. There is little explanation for the differences.¹⁶ Willis submitted his report prior to the committee's final deliberations, but the committee does not refer specifically to Willis' report in either the release of April 2, 1914, or that of April 10, 1914. I have found no meeting notes covering the committee's deliberations; further, Willis' letter to Hamlin (see endnote 13) suggests that there was no recorded vote.

In 1923 Willis strongly suggests that politics played a major role in the placing of district banks in Richmond, Atlanta and Cleveland (and the absence of one in New Orleans). Yet, his own confidential report of 1914, presumably untainted by politics, recommends Cleveland and Atlanta, while not recommending New Orleans. Willis makes no mention of these similarities in 1923.

In an effort to stem growing criticism of its plan, the committee did put out supplementary material April 10, 1914, including publishing the results of the national commercial bank balloting in support of their plan. Yet they did not cite Willis' report.

If politics played as large a role as Willis claimed in 1923, his strongly suggested 12-district plan and that of the committee should be significantly different. At the very least, the choices of the Reserve bank cities should be different. However, the two schemes are similar in many respects. They are both 12-district plans; the districting in the western region of the country is quite similar; and, while the committee made a district out of Texas (and parts of Arizona, New Mexico, Oklahoma and Louisiana), this is in the spirit of Willis' comments (see endnote 16).

The two biggest differences are the committee's expansion of the New York district to include the entire state of New York (whereas Willis split the state between greater New York City, Boston and the Eastern Great Lakes districts) and the creation of a district including West Virginia, Virginia, North and South Carolina with Richmond, Va., as a Reserve city.

Willis, though aware of the political pressure for Richmond, does not recommend a district with Richmond as headquarters city. The potential for political pressure was seen to come from the facts that Carter Glass, the U.S. House of Representatives member who wrote the Act with Willis and saw it through the intense political trip through the U.S. Congress, represented Virginia; and that the Comptroller of the Currency, John Skelton Williams, and the president, were both from Virginia. Willis himself had taught in Virginia at Washington and Lee University for nine years prior to joining the National Monetary Commission and then the House Banking and Currency Committee as an expert in 1912.

Willis did not recommend Richmond as a Reserve bank city. However, in comments upon the outcry against the committee's decision and the small likelihood of relocating the Reserve banks away from the largest cities once the decision had been announced, Willis writes in 1923: "With these [New York City, Chicago and St. Louis] was usually ranked the Richmond bank, not because of any fondness for that institution, but because of the belief that it had special protection which would enable it to resist all attack."

However, Willis does give the following advice to the committee: "To sum ... up, the division should be made by assigning each individual bank to a given district so far as possible in accordance with preference."

Now, it was these preferences (of the banks) that Willis did not have or, at least, never refers to. Meanwhile, the committee does refer to these preferences when justifying its districting plan. The committee also specifies that following state boundaries where possible was an objective and states its decision of April 2, 1914, in the U.S. Senate document. This self-imposed constraint (the language not being in the Act) may explain the committee's squaring off of several of Willis' suggested districts. For example, fewer states are bisected or trisected under the committee's scheme. Further, appeal to the national bank ballots does support the Richmond decision, according to the U.S. Senate document.

Willis and the committee agree on 10 of the 12 headquarters Reserve bank cities, differing only on Richmond and Dallas (committee), vs. Cincinnati and Portland, Ore. (Willis).

Conclusion

Willis' 12-district plan presents the committee with basically the same districts and cities as they announced on April 2, 1914, excepting the Dallas and Richmond districts. It cannot be denied that politics may have played a role in the decision to designate Richmond as a Reserve bank city, as charged by critics. However, its selection is also supported by the votes of the nationally chartered banks in that district. The Dallas district was mentioned as a possibility, albeit briefly, in Willis' report and is also supported by the ballots.

Given this, the Willis report (echoed by the committee) suggests business flow, transportation, district capital and factors other than political opportunism for the number and location of Reserve districts and district cities.

The political wrangling may have been played out in both the House and Senate during the debates over the Act. It is also possible that those individuals disagreeing with the Reserve Bank Organization Committee's decision thought that the soon-to-be appointed Federal Reserve Board would significantly alter the committee's districting scheme in both number and shape.

Of course, this is exactly what happened, but attempts at large-scale change were cut short by the decisions of the attorney general and the failure of the dissident group within the Federal Reserve Board to carry their challenge to the Supreme Court.

The advent of World War I may have played a role in the failure of the proponents of a more centralized Federal Reserve System to take this dispute to a higher court. The Act created an entirely new, national and quasi-governmental financial organization in the United States at almost the same time as the start of the war. Perhaps not wishing to add additional uncertainty to an international financial scene that was about to become very unsettled, proponents of a smaller, more centralized Federal Reserve may have withdrawn their criticisms in support of presenting a united financial front to the rest of the world.

Further, given the nature and content of Willis' confidential report, it is surprising that the committee does not use it in defense against the charges of politics. A tentative reason may be that the committee was also receiving strong criticism from the powerful private commercial banking communities that they had chosen too many districts. Perhaps the committee did not wish to provide those critics with viable, worked-out plans for eight or nine districts, subject to the concerns Willis expressed earlier (see endnotes 11 and 12), produced by its own expert that critics could have then used against the committee.

What is also surprising is Willis' failure to publish his report of 1914. The material in his book of 1923 is at odds in important respects from the confidential report that he provided to the committee. The recommendations in his report are much closer in most respects to the committee's final decision than one would guess from his 1923 volume. Why this is remains a mystery requiring further study.¹⁷ At this point we know that from 1914 to 1918 Willis was the first Secretary to the Federal Reserve Board, two members of which were also on the Reserve Bank Organization Committee (McAdoo and Williams). Following that, he was the Federal Reserve Board's director of analysis and research in New York (1914-1918) while also teaching at Columbia University (1916 until his death). A cynical, but unsubstantiated, suggestion is that Willis saved his charges of politics until 1923 when, presumably, they would be harder to refute and also when his charge would have fewer repercussions on his career.

This article is a somewhat abbreviated version of the author's original research paper. [PDF format]

References

Bothwell, Wilbur Clarence, The Federal Reserve Bank of St. Louis, Ph.D. dissertation, Washington University, St. Louis, Mo., June 1941.

Federal Reserve Bank of Minneapolis, The Region, Vol. 2, No. 2, August 1988.

Gunn, John A., A Century of Liberal Education for Business and Selected Professions, Washington and Lee University.

Johnson, Roger T., Historical Beginnings ... The Federal Reserve, Federal Reserve Bank of Boston. Revised, December 1995.

Mishkin, Frederic S., Money, Banking and Financial Markets, 6th ed., Boston: Addison Wesley, 2000.

Morgan, Perl W. (ed.), History of Wyandotte County Kansas and Its People, Chicago: The Lewis Publishing Co., 1911.

Nelson, Clarence W., Reflections From History: First Half-Century of the Minneapolis Federal Reserve Bank, Federal Reserve Bank of Minneapolis, November 1964.

Odell, Kerry A., and Weiman, David F., "Metropolitan Development, Regional Financial Centers, and the Founding of the Fed in the Lower South," The Journal of Economic History, Vol. 58, No.1, March 1998, pps. 103-125.

Preliminary Committee on Organization, Report to the Reserve Bank Organization Committee, Confidential No. 45, Library of the Federal Reserve System, Washington, DC, 1914.

Primm, James Neal, A Foregone Conclusion: The Founding of the Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, 1989.

Reserve Bank Organization Committee, Stenographic Reports, unpublished, held at the Library of the Federal Reserve System, Washington, DC, 1914.

Timberlake, Richard H. Jr., Monetary Policy in the United States: An Intellectual and Institutional History, Chicago and London: The University of Chicago Press, 1993.

United States Senate, Location of Reserve Districts in the United States, 63rd Congress, 2nd Sess., Document No. 485, Washington, DC: Government Printing Office, 1914.

Warburg, Paul G., The Federal Reserve System: Its Origin and Growth: Reflections and Recollections, New York: Macmillan Co., 1930.

West, Robert Craig, Banking Reform and the Federal Reserve, 1863-1923, Ithaca: Cornell University Press, 1977.

White, Eugene Nelson, The Regulation and Reform of the American Banking System, 1900-1929, Princeton, N.J.: The Princeton University Press, 1983.

Willis, H. Parker, The Federal Reserve System, Legislation, Organization and Operation, New York: The Ronald Press Co., 1923.

Willis, H. Parker, Report on Districting, unpublished manuscript, National Archives, College Park, Md., 1914.

Willis, H. Parker, Letter to Governor Hamlin, unpublished, National Archives, College Park, Md., Dec. 22, 1915.

Willis, H. Parker, Collected Papers, Rare Book and Manuscript Library, Columbia University, New York.

Endnotes

¹ Willis' account is repeated in Bothwell (1941) and recounted in Primm (1989). The charge of political influence is hard to discount. James Beauchamp Clark, a Democrat and Speaker of the U.S. House of Representatives during this period was from Missouri. The Missouri congressional delegation featured two Democratic senators and 15 (of a possible 16) Democratic House members. Kansas, meanwhile, had one Democratic Senator and five (of eight) Democratic House members. This political power is offered as the reason why there are two Federal Reserve district banks in Missouri.

It is undoubtedly this type of information that prompts questions like: "What political realities might explain why the Federal Reserve Act of 1913 placed two Federal Reserve banks in Missouri?" (See Mishkin, 2000, p. 389, emphasis added.)

Prominent Virginians, including President Wilson, were involved both in drafting and passing the Act, often this is presented as evidence for the location of the Reserve district bank in Richmond, Va. Other influential members of the Cabinet were thought to be inveigling for a city or cities in their home state.

Odell and Weiman (1998) investigate the economic characteristics of major Southern cities in the early 1900s and suggest that economic factors made Atlanta and Dallas likely candidates for a Reserve district bank. They report (1998, pages 104, 119) Willis' (1923) contention that politics played a decisive role in the choices of Atlanta and Dallas as Federal Reserve district headquarters. They note, however, that both Willis (1923) and the Reserve Bank Organization Committee (1914) cite economic analyses and justifications for the choices of these cities.

Given this, it appears as if a simple charge of politics as the answer to the location questions would be harder to sustain. Odell and Weiman (1998) make clear that in the cases of Atlanta and Dallas economic factors justify their selection. This supports the claims by the Organization Committee (1914).

² The Federal Reserve Act was signed into law Dec. 23, 1913. There are echoes in the Act of the longstanding issues confronting the nation since its founding. Issues of states rights vs. federal rights, urban vs. agrarian interests and the distrust of private power vs. the distrust of centralized—usually federal—government power were hotly debated. See West (1977), White (1983) and Timberlake (1993, especially chapter 15).

³ Prior to the Act, the Aldrich Plan and the Aldrich-Vreeland Act proposed to reform the U.S. monetary system. The Aldrich-Vreeland Act was a "temporary palliative" (Johnson, 1995, p. 17) and the Aldrich Plan had no hope of passing in a Congress hostile to a Republican president (Johnson, 1995, p. 19). It was the election of Woodrow Wilson and Democratic majorities in both the House and Senate that allowed such large-scale monetary reform as proposed in the Federal Reserve Act to take place (West, 1977, pps. 90-91; Timberlake, 1993, chapter 15).

⁴ See U.S. Senate (1914), Willis (1923, chapters 24 and 34), Nelson (1964), Minneapolis Federal Reserve Bank (1988), Primm (1989) and Johnson (1995).

⁵ McAdoo was raised in Georgia, becoming prominent in New York before being named to the Cabinet. Houston, a New England native, was president of Texas A&M University and chancellor of Washington University in St. Louis prior to Cabinet service. Williams, of Richmond, Va., awaited confirmation by the Senate to the office of Comptroller of the Currency as the committee began its work. Consequently, he was not present on the tour of the country, joining the committee for its final deliberations and decision-making. See Primm (1989, p. 38) and Johnson (1995, pps. 35 and 36).

⁶ The Act also specified that the member commercial banks in each Reserve district should be able to supply at least $4 million total in paid-in capital into the district's Reserve bank. This would be generated by each member commercial bank buying stock in the Reserve bank equal to 6 percent of their paid-in capital. This made the Reserve banks privately owned by member commercial banks. It also provided a constraint on districting, as the district would have to have at least $66.67 million in nationally chartered and state member bank capital in order to satisfy the requirement.

⁷ Other members chosen by Willis were Edmund D. Fisher, Andrew A. Benton, O. Howard Wolfe, Joseph A. Broderick, Ralph Dawson and Stephen H. Farnham. These members worked on matters regarding the organization and operation of the Federal Reserve System. From Willis' comments quoted in the text of this article, none of these members of the Preliminary Committee assisted Willis in his drafting of the report on districting for the Reserve Bank Organization Committee.

⁸ The exact date of this assignment is unknown. Willis testified before the committee in New York City Jan. 5, 1914. There was no mention by either McAdoo or Willis, at that time, of Willis being engaged upon work for the committee. At the time of his testimony, Willis was editor of the New York Journal of Commerce. Previously he had been a professor of economics at Washington and Lee University, a professor and dean at George Washington University (1907-1912), the executive director of the National Monetary Commission and, through 1913, had served as the expert adviser to the House Committee on Banking and Finance, chaired by Carter Glass of Virginia (see Gunn, 1995).

⁹ This report is in the National Archives, College Park, Md. It is typescript in the form of a letter from Willis to the Reserve Bank Organization Committee. It is approximately 140 pages long, signed in ink by the author on the last page and covered throughout with pencil markings, notations and instructions for printers, appearing as if it were being readied for typesetting and printing. On the first page Willis has written in pencil across the top: "Appendix II. Report on Districting. The following is the report submitted by the author to the Reserve Bank Organization Committee on the question of dividing the country into federal reserve districts." Two copies—without either corrections or maps—are in the Willis Collection at Columbia University.

¹⁰ Given that discounting of bills was to be done by banks presenting the bills to be discounted to their Reserve bank, much care and consideration was given to travel times and railway schedules. When debating the Act in the Senate, Sen. John Schafroth of Colorado argued that there should be a "one night's train ride" constraint on distance from the farthest flung bank and its district Reserve bank (Timberlake, 1993, p. 220). The Reserve Bank Organization Committee sought information on these transportation and timing matters in the testimony presented, and Willis also considers this constraint important in his work.

¹¹ Willis (1914, p. 67) finds the Chicago district in the eight-district plan awkward: "This district would be clumsy and unwieldy with long stretches of transportation for checks passing to the headquarters at Chicago from the "far-flung" western and northern borders of the territory, but it must be admitted that the general drift of transportation and trade would permit such a consolidation, aided by the establishment of a suitable branch or branches, were it desired to keep the number of banks down to the minimum of eight established by law."

¹² Most of these weaknesses involve transportation. Willis (1914, p. 69): The southern district "is very large ... transportation between its eastern and western borders is decidedly unsatisfactory. In the Pacific Coast district the area is extremely large ... time of transportation ... very great. The districts in the area between the Great Lakes ... and the Rocky Mountains ... are likewise large and ... somewhat unsatisfactory in transportation ... the Great lakes region ... is widely extended ... while its transportation is good it ... includes an amount of bank capitalization which could ... be subdivided."

¹³ The recommendation of the 12-district plan is underlined in Willis' original report on page 110. It is the only such underlined and emphasized segment in the entire report. Odd then, that on Dec. 22, 1915, when there was a roiling internal debate (see endnote 14, following) about whether the Federal Reserve Board could alter, rearrange and/or reduce the number of Reserve districts, Willis—who by this time had been hired as the Secretary to the Federal Reserve Board—should write to then-Governor of the Federal Reserve Board Charles S. Hamlin on the issue:

"My dear Governor Hamlin: I have your letter of December 22 as to redistricting.

I am not sure what is meant by the expression "ballot of the hearings," but if this refers to a tabulation that was prepared of the testimony before the Organization Committee, I may say that there was no "vote" there. ... With reference to the quotation you make as to my supposed views, I may say that my views are the same that I expressed at a meeting of the Board some two weeks ago ... viz.: (1) I hold substantially the same views today that I held in my original report submitted to the Organization Committee. (2) That report contained a plan for eight, one for nine, one for ten, one for eleven, and one for twelve reserve banks. I also added that in conversation with the Secretary of the Treasury at the time I expressed a feeling that the establishment of probably nine or ten banks at the start would be wisest, leaving two or possibly three for subsequent establishment by the Federal Reserve Board. ... Trusting that this covers the ground, I am Sincerely, H. Parker Willis, Secretary." (Emphases in the original.)

This letter is also in the National Archives, College Park, Md.

Apparently, the Willis who strongly recommended 12 districts in his confidential 1914 report, "forgot" this when he was corresponding with Governor Hamlin less than two years later when he claims to have supported a nine- or 10-district scheme. It may be this contradiction that caused Willis to refrain from publishing his report.

Given the suspicions that surrounded the committee's choice of Richmond, and a district surrounding this city, it is unlikely that the committee would push to publish Willis' report. In fact, the committee does not name Willis' report in its listing of material sent to the U.S. Senate (see U.S. Senate, 1914, pps. 374-384 for a listing of the materials given to the Senate that aided the committee in its selection of Reserve bank cities and districts).

It is hard to underestimate the vehemence and passions surrounding the issue of whether the Federal Reserve Board had the legal authority to change the decisions of the Reserve Bank Organization Committee. In two rulings, Nov. 22, 1915, and April 16, 1922, the attorney general of the United States ruled that the Federal Reserve Board could not substantially alter the committee's decisions. Regarding the first decision, the Federal Reserve Board, via letters from Hamlin to both the attorney general and the president, attempted to keep the attorney general's opinion from the public. President Wilson acceded to this request. However, someone leaked the decision to the press and Hamlin withdrew his requests of both the attorney general and the president (this correspondence is at the National Archives, College Park, Md.).

¹⁴ These fears and concerns were well founded. In the year following the announcement of the Reserve Bank Organization Committee decision, several challenges—some from within the Federal Reserve Board itself—were made. Some dealt with trying to reduce the number of districts, some dealt with challenging the choices of Reserve bank cities. See Willis (1923, chapter 34), Warburg (1930), Nelson (1964, pps. 18-27), Primm (1989, pps. 46-52), Minneapolis Fed (1988, p. 8).

¹⁵ Here Willis is trying to solve a multi-objective programming problem. He was, in effect, the Reserve Bank Organization Committee's "computer" (I am indebted to Professor Richard Timberlake for this piquant characterization).

Here Willis digresses into a discussion on "Location of Branches" advising the committee (p. 124): "Care and judgment should be exercised in ... establishing branches on the first-named basis ... they should not be created unless they are actually needed for immediate purposes. Even in the latter event, there should be no undue haste in creating them ... the headquarters banks should be allowed to get a satisfactory start before the complicating elements involved in branch organization are allowed to enter the problem ... permitting the question of branch organization to remain in the background until such time as the actual establishment of the branches is resolved upon, when the type of such organization to be adopted may be indicated."

¹⁶ Willis does state (p. 118) that "the state of Texas has sufficient capital of its own and is organized upon a sufficiently independent economic basis to warrant the creation of a district running east and west, instead of dividing Texas between two longitudinal districts running north and south. This question was sufficiently considered, it would seem, in connection with the discussion of the southwestern and Mississippi Valley districts. The point to which attention is called just here is that probably no-where else in the districting, could this plan be employed to advantage."

¹⁷ This and other Willis-related work is currently in progress with Professor Doug Wills of Sweet Briar College, Virginia.