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1 YEARS OF SERVICE F E D E R A L R E S E R V E B A N K O F S T. L O U I S 100 Years of Service 1914–2014 On the occasion of the centennial anniversary of the Federal Reserve Bank of St. Louis, this book is a tribute to the thousands of employees who have worked diligently at the St. Louis Fed over the past century to serve the public. We dedicate it to them and those who will follow for the next 100 years. October 2014 1 Table of Contents A Commitment to Serving the Public A Message from James Bullard, President and CEO............................................................................................................................................ 5 Serving the Public Good A Message from Sharon Fiehler, Chair, Board of Directors............................................................................................................................ 11 Our History The Fed Is Born The Idea of a Central Bank Was Anathema to Many........................................................................................................................................ 17 Lessons from a Maverick How the St. Louis Fed Helped Shape the Nation’s Monetary Policy.................................................................................................... 27 A Foregone Conclusion How and Why St. Louis Was Chosen for a Federal Reserve Bank............................................................................................................53 Reaching Our Constituents To Better Serve the Eighth District, the St. Louis Fed Established Three Branches......................................................................83 A Symbol of Strength One Federal Reserve Bank Plaza.................................................................................................................................................................................... 97 Our Work Premier Service Provider Listening, Assessing, Maximizing Performance.................................................................................................................................................. 103 A Competition of Ideas Economists Need Freedom To Challenge Policymakers..............................................................................................................................107 Keeping a Watchful Eye Banking Supervisors Take On New Challenges................................................................................................................................................... 111 Fiscal Agent for the U.S. Treasury Delivering Innovation and Efficiency in Federal Financial Management...........................................................................................115 Adapting as Payments Evolve Reducing Costs While Maximizing Service............................................................................................................................................................ 119 Structure and Governance Providing Oversight and a Window to Main Street.........................................................................................................................................125 Accountability Yes, the Fed Is Audited, and It Has Been Since Its Founding................................................................................................................... 129 Earning the Public’s Trust Open and Direct Communication Is Key................................................................................................................................................................133 2 St. Louis Fed Branch Offices Bringing the Fed Closer to the Community..........................................................................................................................................................139 Dialogue with the Fed Meeting with the Public and Taking the Discussion beyond Financial Headlines.....................................................................144 Economic Education Fostering a Stronger Economy through the Classroom............................................................................................................................... 145 FRED and Family Bringing Data from around the World to Your Desk, Phone or Tablet............................................................................................... 147 The History of FRED.............................................................................................................................................................................................................149 IDEAS on the Web Keeping Up with Research from Economists around the World..............................................................................................................151 Center for Household Financial Stability Researching How Families Can Strengthen Their Household Balance Sheets.............................................................................153 Community Development Opening Doors for Low- and Moderate-Income Communities.............................................................................................................. 155 Office of Minority and Women Inclusion Fostering Diversity in the Workplace, in Contracts and in Educational Outreach......................................................................157 Inside the Economy Museum What’s Your Role in the Economy? Find Out in the St. Louis Fed’s New Museum..................................................................160 Our People St. Louis Board of Directors.....................................................................................................................................................................165 Little Rock Board of Directors.............................................................................................................................................................166 Louisville Board of Directors..................................................................................................................................................................167 Memphis Board of Directors..................................................................................................................................................................168 Bank Management Committee..........................................................................................................................................................169 St. Louis Fed Councils.......................................................................................................................................................................................170 Board and Council Retirees......................................................................................................................................................................172 Bank Officers..................................................................................................................................................................................................................173 This commemorative centennial book also serves as this year’s annual report. Read our financial statements at www.stlouisfed.org/ar. There, you can also find this entire report, plus our centennial video. The number of data series available on FRED, the amount saved through the Go Direct campaign and the officer and council lists of the St. Louis Fed are as of Aug. 31, 2014. 3 4 A Commitment to Serving the Public By James Bullard The 100th anniversary of the founding of the Federal Reserve System PRESIDENT AND CEO provides an opportunity not only for reflection on the past 100 years, but for preparation and anticipation. As we look back, we cannot help but be struck by the wisdom and foresight of the designers of the Federal Reserve. Moreover, history offers many lessons for the leaders of the System. As we look forward to the next 100 years, we can use the lessons of the past to equip us to deal with the challenges of the future. One defining feature of the System and its employees that has not changed over time is a commitment to public service. Regardless of the specific activity, the policies championed and the services provided by the Federal Reserve Bank of St. Louis have been and always will be motivated by a customer focus that serves the public. 5 REGIONAL LEADERSHIP AND REPRESENTATION aspect of the Fed’s design over the past 100 years. The Fed may At the outset, the design of the Fed—the third attempt at not have survived the 2007-09 financial crisis without its Main a U.S. central bank—required careful thinking. The first two Street component, given the amount of backlash against New attempts failed because of political backlash, especially in the York and Washington at the time. case of the Second Bank of the United States, which became Reserve bank district lines were drawn in 1913 and would fodder for Andrew Jackson’s presidential ambitions. He wanted probably be drawn differently today, given that relative shares to shut it down based on the notion that the financial centers of population and economic activity have moved south and on the Eastern Seaboard were benefiting at the expense of the west. For instance, four banks are along the Eastern Seaboard, Midwest and the South. After Jackson allowed the charter of as is the Board of Governors. However, the Fed is able to the Second Bank of the United States to expire, the U.S. had collect economic intelligence from all across the country, not no central bank for more than 70 years. With no lender of just in the cities where the 12 Reserve banks have their main last resort, the free banking era that followed was marked by offices. Many of the Reserve banks have branches in their liquidity crises and a number of widespread financial panics, districts. There are currently 24 in all, from those in Los culminating in the Panic of 1907. Angeles, Seattle and Miami to the St. Louis Fed’s branches in In the wake of that panic, contemporaries pressed for American financial markets to become more stable and more orga- Little Rock, Ark., Louisville, Ky., and Memphis, Tenn. The branches play a key outreach role for the Fed. The nized. They also wanted to ensure that any new central bank St. Louis Fed’s branches, for example, are heavily involved in our had more accountability across the nation. Their solution was a community development and economic education efforts, as central bank with three components—a Washington component well as in making sure the voices of our constituents through- (what is now the Board of Governors), a Wall Street component out the Eighth District are heard. (See the essay “St. Louis Fed (the Federal Reserve Bank of New York) and a Main Street Branch Offices” on page 139 for more details.) component (the 11 other Reserve banks around the country). This decentralized, regional structure has been an important 6 DIVERSE VIEWS AT THE FOMC TABLE The regional representation is central to the effectiveness St. Louis Fed Governors/Presidents of the Federal Open Market Committee (FOMC), our main Rolla Wells 1914-1919 monetary policymaking body. The 19 FOMC participants (the David C. Biggs 1919-1928 William McChesney Martin Sr. 1929-1941 Chester C. Davis 1941-1951 bank presidents) bring different views to monetary policy Delos C. Johns 1951-1962 discussions. Obtaining input from a diverse group results in Harry A. Shuford 1962-1966 Darryl R. Francis 1966-1976 Lawrence K. Roos 1976-1983 Theodore H. Roberts 1983-1984 decisions are made, they rely on input from various people Thomas C. Melzer 1985-1998 both within and outside the Federal Reserve System. Research William Poole 1998-2008 James Bullard 2008-present seven members of the Board of Governors and the 12 Reserve better decisions and, hence, better macroeconomic outcomes. While the 19 FOMC participants are at the table when economists, boards of directors at regional Reserve banks, and business, labor and civic leaders throughout the U.S. provide input that informs monetary policy decision-making. As we know from recent experience, no single person can The head of each Reserve bank was originally called a governor. The Banking Act of 1935 changed the title to president, which is what the person in that position is still called today. that there is no simple formula for how to conduct monetary have all the answers. Over the past several years, central policy and macroprudential regulation in the modern world. bankers in the U.S. and around the world have been faced Traditional approaches must continue to evolve. with dramatic challenges. For instance, encountering the zero Given all the inherent uncertainty and given that traditional lower bound on short-term nominal interest rates presented theories are under scrutiny, monetary policy decision-making new problems in terms of tools and the processes as to how is confronted with major challenges. Nonetheless, the Fed’s monetary policy affects economic activity. Central bankers have decision-making system is well-structured to deal with these struggled to find the appropriate policy response given their challenges. Because of the diversity of views among FOMC countries’ situations. The past few years have demonstrated participants, one can be assured that all aspects of a partic- 7 ular decision are well-examined. In the end, the committee more, while the presidents and the first vice presidents of the typically rallies around decisions and the chair. However, Reserve banks are selected by their respective boards of members do dissent on occasion, sometimes for tactical directors, they must be approved by the Board of Governors. reasons concerning the circumstances around a particular deci- Thus, everyone serving in a top executive role in the Federal sion, and sometimes for more fundamental reasons that the Reserve System has been approved by the Board of Governors. committee’s policy is headed in the wrong direction. While These checks and balances help to keep the Federal Reserve consensus-driven, the FOMC is by its very structure designed System a step away from politics, while still maintaining the to ensure diverse views are brought to the table. right amount of accountability to elected representatives BALANCE OF POWER: WASHINGTON, WALL STREET, MAIN STREET in Washington. The regional structure affects the balance of power within the Federal Reserve System. The seven members of the Board THE FED’S NEXT 100 YEARS Central banks traditionally have been seen as secretive insti- of Governors in Washington are each appointed directly by the tutions that move behind the scenes to design policies that U.S. president and confirmed by the Senate. The New York affect the macroeconomy. That was certainly the tradition Fed provides the connection with financial markets, which is a of the Fed throughout much of its first 100 years, although necessary element in order to have a good central bank. The transparency had been increasing gradually. The notion of other 11 Reserve banks around the nation allow input from a secretive central bank changed forever in the wake of the Main Street for important policy decisions. This is a good way 2007-09 financial crisis. Because of the Fed’s central role in to ensure the right mix of input to System decision-makers. stabilizing the financial system during the crisis and the various The Reserve banks were set up according to the Federal Reserve Act of 1913 as individual corporations, and each bank parency in recent years than in previous decades. The public has a board of directors. However, strict rules dictate who can at large and financial markets want to know what decisions are be on these boards of directors, and some of the appoint- being made and how they are made, as well as the rationale. ments are officially done by the Board of Governors. Further- 8 monetary policy responses, the public has sought more trans- Through such transparency, the public can also see that the System is an open, accountable institution that does reflect solutions to problems that remain in the wake of the financial diverse perspectives. Simultaneously, based on the wisdom crisis (such as “too big to fail”). The Fed has to be ready to of the designers of the System, while political accountability respond to the potential crises of the future. We strive to to governmental leaders is desirable, political domination is not. learn from our mistakes to continue to have good results An independent Federal Reserve System is necessary to ensure going forward. the best monetary policy for the nation. Unlike during the 1980s and parts of the 1990s, the Fed Perhaps one of the biggest challenges to the Fed relates to the pace of technological advance. The diffusion of infor- now makes extensive statements about changes in policy and mation technology into financial markets might change the explains the motivation behind them. The chair regularly holds nature of banking completely in the decades ahead. We could press conferences after meetings, and FOMC participants, see person-to-person and electronic payments that do not including me, frequently discuss monetary policy in interviews go through any banking system. The old notions of writing and speeches to the public. This turnaround on the transpar- checks or clearing pieces of paper are going out the door as ency dimension has been a change for the better in central we speak, with unknown consequences. This calls for a deeper banking. Policy is more effective if it is well-understood, and understanding of what money is, how monetary systems work to some extent transparency allows for buy-in from finan- and the Fed’s role in this changing environment. cial markets and the public at large about why the chosen VISION FOR THE ST. LOUIS FED policy is reasonable. I expect continued progress toward The St. Louis Fed has historically been known for espousing more transparency in the coming years. It will be of utmost monetarist monetary policy, or the idea that inflation can be importance as we begin to unwind the extraordinary monetary controlled by controlling the supply of money. While the policy accommodation that we have had in place during the modern St. Louis Fed remains a leading player in monetary recession of 2007-09 and subsequent recovery. policy, based on a strong research staff, we perform many Over the next 100 years, central banking will face many challenges. The Fed continues to play a role in finding other functions that are in service to the Federal Reserve System and the public in general. 9 For instance, as the fiscal agent for the U.S. Treasury, financial landscape is critical to being a useful contributor within the Fed provides operational support to the Treasury. The the Federal Reserve System in the years ahead. We must St. Louis Fed coordinates this activity for the entire Federal have the skills not only to identify opportunities, but to pro- Reserve System. While these services are provided to the vide the leadership to transform opportunities into valuable U.S. Treasury, the general public is the ultimate beneficiary. services for the public. As one concrete example, the St. Louis Fed has managed We now have the first 100 years behind us as an the Treasury’s Go Direct campaign, which encouraged institution. I am confident that for the next 100 years, people to receive their benefit payments electronically the St. Louis Fed and the Federal Reserve System will instead of via paper checks. This campaign saved over continue to provide great service to the nation in the $1.15 billion in taxpayer dollars by the time it concluded. realm of central banking. The St. Louis Fed also plays a leading role in communicating important supervisory and regulatory information. Our online data products continue to evolve and expand; the Federal Reserve Economic Data (FRED) database, in particular, is known worldwide. In addition, the St. Louis Fed is a leader in the provision of economic education resources for students and consumers. In this commemorative book, the Bank’s leadership team dives into these and other examples of innovation done by the Bank. Going forward, the St. Louis Fed must continue to find ways to provide valuable public services to the Federal Reserve System and to the nation within the Fed’s mission. Our ability to continue to identify opportunities in a changing 10 James Bullard President and CEO Serving the Public Good By Sharon D. Fiehler CHAIR, BOARD OF DIRECTORS FEDERAL RESERVE BANK OF ST. LOUIS 2014 marks a full century since the Federal Reserve Bank of St. Louis began serving the Eighth District. With so many changes having taken place in society since 1914, the St. Louis Fed and the Federal Reserve as a whole have evolved to better serve our nation. Since joining the Bank’s board of directors in 2009, I have been fortunate to witness the Bank’s vital contributions in recent years. When I step back and reflect, it is indeed humbling to recognize the magnitude of the work performed by the Federal Reserve, which must balance the interests of Main Street, Wall Street and Washington. The Fed was specifically designed by Congress to carry out its responsibilities without interference from partisan politics. The regional Reserve banks are the voice of Main Street in monetary policy deliberations and other central bank affairs, taking into account business, economic and banking conditions of each district. Reserve bank boards of directors play an integral role in this balance and have done so since the Fed’s founding. 11 Directors represent a diverse range of interests and industries. thinking. Today, the Bank ranks No. 5 among the world’s The inaugural St. Louis Fed board not only represented the central banks in terms of economic research, and Bank banking community, but included LeRoy Percy, a former U.S. President James Bullard is recognized globally for his senator from Mississippi; W.B. Plunkett, president of a grocery scholarship and policy views. That commitment to being in company based in Little Rock, Ark.; and Murray Carleton, the forefront and driving change persists throughout the Bank. president of Ferguson-Carleton Hardware Co. in St. Louis. During my five years on the board, I have seen the Bank’s Today’s board includes leaders from health care and innovative spirit lead to better approaches and programs for pharmacy benefits management, banking, energy, retail, serving the public good. Notable recent examples include: life science and specialty chemicals, and law; they hail from • In 2008, the St. Louis Fed launched its Rapid Response Little Rock, Memphis, Tenn., Texarkana, Texas, and program, which assists bank examiners across the Federal Vandalia, Ill., as well as St. Louis. Reserve System and state banking regulatory agencies by Over the years, the St. Louis Fed has been a leader in keeping them current on emerging policy and financial striving for strong diversity among its staff, and the board market issues. Shortly thereafter, the Bank began its Ask reflects that commitment. In 1977, Virginia Bailey became the Fed program, which helps educate bankers and state the first woman to serve on the board. Today, I am one of banking commissioners on the latest financial and regula- three women serving on the St. Louis Fed’s board; three tory developments. more women serve on our branch boards. • In 2011, the St. Louis Fed opened its Office of Minority It is an honor for me to chair an organization with such strong roots in leadership and innovation. Research has long to support diversity and inclusion. As noted in the essay been at the heart of the St. Louis Fed. Some may recall the “Fostering Diversity in the Workplace, in Contracts and in 1960s and 1970s, when the St. Louis Fed was known as a Educational Outreach” on page 157, at the end of last year, maverick for its views on the role of monetary policy in con- 44 percent of the Bank’s workforce was female and trolling inflation—views that have since become the accepted 12 and Women Inclusion to complement the Bank’s efforts 26 percent belonged to a minority group. • In 2013, the Go Direct campaign, which the St. Louis Fed administered on behalf of the U.S. Treasury, concluded. Started in 2004, the effort encouraged recipients of federal benefit payments to switch to electronic direct deposit from checks for such payments. More than $1.15 billion in taxpayer savings has been realized, with $1 billion more in savings expected over the next 10 years. • In 2013, the Bank established the Center for Household Chairs of the St. Louis Fed Board of Directors Financial Stability. The center focuses on research and William McChesney Martin Sr. 1914-1929 awareness about the importance of the household Rolla Wells 1929-1930 balance sheet in building financially stable families. John S. Wood 1930-1936 William T. Nardin 1937-1945 • So far in 2014, the St. Louis Fed added 54,000 data series W.L. Hadley Griffin Russell L. Dearmont 1946-1953 to its acclaimed Federal Reserve Economic Data (FRED) M. Moss Alexander 1954-1956 free public database. Today, FRED has more than 236,000 Pierre B. McBride 1957-1962 Ethan A.H. Shepley 1963 data series. Raymond Rebsamen 1963-1966 I am confident that this commitment to innovating for Frederic M. Peirce 1966-1974 the public good will carry forward into our next 100 years, Edward J. Schnuck 1974-1977 with the St. Louis Fed continuing to shine as a leader in the 1983-1987 Robert L. Virgil Jr. 1988-1989 H. Edwin Trusheim 1990-1992 Robert H. Quenon 1993-1995 John F. McDonnell 1996-1998 Susan S. Elliott 1999-2000 Charles W. Mueller 2001-2003 Walter L. Metcalfe Jr. 2004-2006 Irl F. Engelhardt 2007-2008 Steven H. Lipstein 2009-2011 Ward M. Klein 2012-2013 Sharon D. Fiehler 2014-present Armand C. Stalnaker 1978-1982 Federal Reserve System. Sharon D. Fiehler Chair, board of directors 13 14 Through a series of essays, this section explores the St. Louis Fed’s history, beginning with the founding of the Federal Our History Reserve, our nation’s third attempt at a central bank. The unique structure of the Fed—centralized and decentralized, public and private—is explained in the second essay. The St. Louis Fed’s days as a maverick illustrate how the regional structure of our central bank ensures that all voices are heard at the policymaking table. Other essays in this section delve into the reasons for choosing St. Louis as the site of a Federal Reserve bank and for selecting Little Rock, Ark., Louisville, Ky., and Memphis, Tenn., as locations for branches, and also into the building of our St. Louis offices. 15 Bank runs were not uncommon in the late 1800s and early 1900s when customers found out that banks were running out of currency. The Federal Reserve was created, in part, to deal with such shortages. 16 The Fed Is Born THE IDEA OF A CENTRAL BANK WAS ANATHEMA TO MANY By David Wheelock ECONOMIC HISTORIAN, VICE PRESIDENT, DEPUTY DIRECTOR OF RESEARCH In 1913, both houses of the U.S. Congress passed a bill that was sent to the desk of President Woodrow Wilson. He signed that bill into law Dec. 23 and set in motion the process of creating the Federal Reserve System. The president and the Congress did this in the face of some opposition, but they were propelled by a clear purpose and a strong commitment to confront disorder in the banking system. The Federal Reserve has since served this nation’s economic interests for a century. This year, the Federal Reserve Bank of St. Louis enters its second century in operation. The St. Louis Fed is one of 12 Federal Reserve banks established under the Federal Reserve Act of 1913. The act called for the establishment of at least eight, but not more than 12, Federal Reserve districts, each with its own Federal Reserve bank. The act also called for the establishment of a Federal Reserve Board, comprising government officials and located in Washington, D.C., to provide public oversight of 17 In the early days of the St. Louis Fed, armored trucks, such as this Ford Model T, were used to shuttle cash between the Fed and commercial banks. the System. The act charged a Reserve Bank Organization American and reflects our nation’s long tradition of Committee—consisting of the secretary of the Treasury, balancing local, regional and national interests. the secretary of agriculture and the comptroller of the When Congress was deliberating the Federal Reserve currency—with drawing Federal Reserve district boundaries Act, the idea of a central bank was anathema for most and selecting a city in each district for the headquarters of members of government, the business community and the a Federal Reserve bank. The organization committee drew general public. The central banks of European countries the boundaries of the Eighth Federal Reserve District to were private and secretive, and they served highly concen- include the entire state of Arkansas and portions of Illinois, trated banking systems from national capitals. The Fed’s Indiana, Kentucky, Mississippi, Missouri and Tennessee, and proponents stressed that the Fed would not be a “central selected St. Louis as the location for the District’s Reserve bank,” but rather a confederation of regional Reserve banks bank. The Federal Reserve Bank of St. Louis received its that served their local community banks and citizens. charter May 18, 1914, and, along with the other 11 Reserve Like all legislation, the Federal Reserve Act was a political banks, opened for business Nov. 16, 1914. balancing act, in this case between the interests of com- The Fed’s principal responsibilities include the conduct of monetary policy, the supervision and regulation of key portions of the banking and payment systems, the provision mercial banks and the general public, of large banks and small banks, and of Wall Street and Main Street. First and foremost, the Federal Reserve was created to of fiscal agency services for the U.S. Treasury, and the provision of payment services for depository institutions. monetary system that caused relatively frequent crises, The structure of the Federal Reserve System is uniquely 18 overcome some observed defects of the U.S. banking and known as banking panics. Panics were widely blamed on 19 The establishment of the Federal Reserve System, commemorated in this photo of representatives of all the Reserve banks prior to their openings, marked a major turning point in the country’s efforts to overcome defects in the U.S. banking and monetary system that caused relatively frequent crises, known as banking panics. The four members of the St. Louis contingent are in the eighth column from the left (symbolizing the Bank serving the Eighth Federal Reserve District). the “inelastic,” or inflexible, supply of U.S. currency, which at the time consisted primarily of notes issued by national banks, and gold and silver coins minted by the U.S. government. Reformers also decried the concentration of the nation’s bank reserves in a small number of banks in New York City and a few other cities, and the investment of those reserves in loans to stock market speculators. The Federal Reserve Act created a new currency—the Federal Reserve note—and a means by which banks could quickly obtain additional currency from the Fed to satisfy any change in the demand for cash. The act also sought to end the geographic concentration of the nation’s bank reserves and their diversion to the stock market. The Federal Reserve Act called for the System’s member banks, which included all banks with a federal charter, to hold their required reserves as balances with Federal Reserve banks. Previously, national banks could hold a portion of their 20 21 required reserves in the form of correspondent balances invested in short-term loans to stock market investors. Crit- with other national banks located in New York City, ics argued that this arrangement made the banking system Chicago and St. Louis, which were designated as central vulnerable to Wall Street panics and drained the country’s reserve cities under Civil War-era banking acts. financial resources away from productive uses nationwide. New York City banks held, by far, the largest volume of correspondent balances, and many of those balances were Bank runs on individual banks, as happened at this one in New York City, could cause depositors at other institutions to become worried about their own money. If that fear causes subsequent bank runs, a banking panic is born. 22 Congress established a regional system of Fed banks and districts to reduce the concentration of bank reserves in New York City and other money centers and to encourage the productive use of the nation’s banking resources throughout the country. Whereas banking reformers expressly did not want to create a central bank dominated by large banks, let alone by Wall Street, there was also little support for a central bank that was merely an arm of the Treasury Department or under the direct control of politicians. Reformers understood that the power to print money was too great a temptation for governments to use to finance expenditures, which would invariably lead to inflation. The result was a compromise. Under the Federal Reserve Act, the Federal Reserve banks are organized as private corporations. The stock of each bank is owned by its member banks. The members elect six of the bank’s nine directors, who in turn select the bank’s chief executive and chief operating officers. The Federal Reserve Board, however, is a government entity whose governors are appointed by the president of the United States and confirmed by the U.S. Senate. Under the Federal Reserve Act, the Board is charged with establishing regulations under which the Reserve banks operate, appointing three directors of each Reserve bank, approving the appointments of Reserve 23 bank chief officers and providing general supervision of structure set up by Congress has stood the test of time and the Federal Reserve banks. The Federal Reserve Act was, continues to serve the nation well. thus, a carefully crafted law that sought to balance public This book commemorates the 100-year history of the and private interests, as well as to ensure a System that is Federal Reserve Bank of St. Louis and the Federal Reserve responsive to all geographic regions of the country. System. We illustrate in these pages how the unique Over the years, there has been some rebalancing. In structure of the Federal Reserve System has served the the wake of the Great Depression, Congress enacted the nation well in the past and continues to be a strength of Banking Act of 1935, which reduced the autonomy of the the System. We focus on contributions of the St. Louis Fed individual Reserve banks and gave more authority to the to show how the Federal Reserve and the nation benefit Federal Reserve Board (which was then renamed the Board from the System’s structure: Like the other 11 Reserve of Governors of the Federal Reserve System). The extent banks, the St. L0uis Fed is responsive to local and national to which the Fed’s structure contributed to the failures of banking and economic conditions, fosters innovation, brings the Great Depression remains debated, but the rebalancing diverse views to bear in policymaking, and enables two-way of authority within the Fed reflected a general desire for communication between policymakers and the public. a larger federal government response to the Depression. In the 1970s, the St. Louis Fed became known as the Nonetheless, Congress retained a substantial role for the Federal Reserve banks, both in determining monetary monetary policy. Our essay “Lessons from a Maverick” on policy and in carrying out the supervisory and operating page 27 describes the debates within the System about the functions of the System. To a great extent, the regional 24 maverick Reserve bank for its monetarist views about causes of inflation and the appropriate role of monetary The St. Louis Fed moved into this building on the southeast corner of Broadway and Olive Street in late 1915. The building (no longer there) had been called the National Bank of Commerce and was renamed the Federal Reserve Bank of St. Louis while the Bank was in occupancy. policy in the economy. The St. Louis Fed lost the battle in the 1970s, but eventually won the war when the Fed, under Chairman Paul Volcker, brought inflation under control and accepted responsibility for maintaining price stability. The episode illustrates how the Fed’s unusual structure promotes a competition of ideas that ensures that different perspectives are heard at the policymaking table. The other essays in this book are both historical and current. We describe the selection of St. Louis as the home of one of the 12 Federal Reserve banks and the selection of Little Rock, Ark., Louisville, Ky., and Memphis, Tenn., as locations of our branch offices. We also develop our theme by describing the work of our Bank’s functional areas and the important roles of our St. Louis and branch office boards of directors and advisory boards. 25 The Federal Reserve Bank of St. Louis bucked the System in the 1960s and ‘70s, arguing that Fed policies and excessive growth of the money supply were to blame for higher inflation. When the Bank, led then by President Darryl Francis (pictured), couldn’t convince the rest of the Federal Open Market Committee, it took its case to the public, leading to the St. Louis Fed’s being labeled a maverick. Business Week reported on the “family dispute” in 1967. The St. Louis Fed’s reasoning eventually became widely embraced. 26 Lessons from a Maverick HOW THE ST. LOUIS FED HELPED SHAPE THE NATION’S MONETARY POLICY By David Wheelock ECONOMIC HISTORIAN, VICE PRESIDENT, DEPUTY DIRECTOR OF RESEARCH Today, the Federal Reserve is best known for monetary policy. However, monetary policy was not on the radar when the Fed was established. The idea of managing interest rates, credit conditions or the money supply to smooth the business cycle or control inflation was an idea that came later and developed slowly. On the heels of the Panic of 1907, financial stability was the main goal. The Fed’s founders believed that a geographically decentralized organization, composed of regional Reserve banks and branches, would be more responsive to differences in banking conditions across the nation and, thereby, contribute better to financial stability. Accordingly, the Federal Reserve Act of 1913 established a system of Federal Reserve districts, each with its own Reserve bank, rather than a central bank located solely in the nation’s capital or largest financial center. Although the Federal Reserve System was not set up with monetary policy in mind, the Fed’s decentralized structure has 27 All national banks (those with a charter issued by the federal government) were required to join the Federal Reserve System. Membership was optional (and still is) for state banks. At this early location of the St. Louis Fed, business was conducted in person and, in some cases, over the telephone, such as the “candlestick” phone in the lower right. distinct benefits for the conduct of monetary policy. Such a the System’s founders establish a central bank with a geo- structure: 1) contributes to the Fed’s political independence; graphically decentralized structure? What were the origins 2) promotes a greater diversity of views in policy deliber- of Federal Reserve monetary policy? Why was the Banking ations; and 3) ensures that the concerns and conditions Act of 1935 so significant? of different parts of the country are recognized in making policy. This structure allows greater freedom to develop and promote alternative ideas—and get them heard at the policy table—than does a more “top-down” central bank. The history of the Federal Reserve Bank of St. Louis illus- A CENTRAL BANK THAT ISN’T: WHY THE FED HAS ITS STRUCTURE The Fed was established mainly to correct defects in the U.S. banking and monetary system that reformers viewed as contributing to financial instability. Those trates how the Fed’s structure provides a channel through defects included: 1) a national currency whose supply was which different points of view can be expressed in policy relatively fixed and did not adjust to changes in demand; deliberations. In the 1960s and 1970s, the St. Louis Fed 2) the concentration of the nation’s bank reserves in a few became known as the maverick Reserve bank for its strong major financial centers, especially New York City; and and public advocacy of a policy different from what the 3) the investment of those reserves in short-term loans to System was pursuing at the time. Although the St. Louis stock market speculators. Fed lost many battles on this issue, its policy views eventually were widely adopted within the System. Before getting into details of this episode in Fed history, it’s important to understand what came before. Why did 28 To address the first defect, the Fed’s founders created a new currency—Federal Reserve notes—and a system to ensure that the supply of currency would adjust to changes in demand. 29 Research Director Homer Jones (top photo, in middle) and President Darryl Francis (below) were at the helm of the St. Louis Fed when it gained the reputation in the 1960s and 1970s as being a monetary policy maverick. The second and third defects were addressed by establishing a system composed of distinct regional districts, each with its own Reserve bank, and requiring commercial banks that joined the Federal Reserve System to hold reserve balances with their local Federal Reserve bank. Although many banks also kept some deposits in New York City and other major cities, the geographic concentration of the nation’s bank reserves and the banking system’s exposure to the stock market were reduced. The Federal Reserve Act required all national banks (i.e., commercial banks with a charter issued by the federal government) to join the System. Membership was made optional for state banks that met certain criteria and agreed to Fed supervision and regulation. A member bank could obtain Federal Reserve notes or additional reserve deposits by borrowing from its Federal Reserve bank. The Fed’s lending facility became known as the “discount window,” and the interest rate it charged on loans, the “discount rate.” 1 30 The Federal Reserve Act called for the establishment of price stability and maximum employment. The founders at least eight and as many as 12 Federal Reserve districts, expected the Reserve banks to set their discount rates at each with its own Reserve bank. (See the accompanying levels that would enable member banks to satisfy their cus- essay “A Foregone Conclusion” on page 53.) The Fed’s tomers’ demands for currency and short-term agricultural founders believed that a geographically decentralized struc- and business loans. First and foremost, however, Reserve ture would make the Fed more responsive to banking and banks were expected to protect their own reserve positions. economic conditions in the nation’s different regions and, Reserve banks were required to hold gold reserves worth thereby, more effective at protecting the banking system at least 40 percent of their outstanding note issues and 35 and public from banking crises. Each Reserve bank was percent of their deposit liabilities. A Reserve bank could given its own board of directors, the right to set its own increase its reserve ratio by raising its discount rate. Doing discount rate (subject to Federal Reserve Board approval) so would discourage member banks from borrowing at and considerable latitude to administer its own discount the Reserve bank’s discount window, thereby reducing the window and carry out its other operations. Reserve bank’s note and deposit liabilities relative to its gold reserves. Of course, if a Reserve bank set its discount rate MONETARY POLICY: THE EARLY YEARS The Fed’s founders did not conceive of monetary policy in the modern sense of taking actions to influence interest rates, credit conditions or the growth of the money supply to achieve broad macroeconomic policy goals, such as too high, then it would neither fulfill its mission of accommodating the currency and credit needs of its district, nor generate income to cover the bank’s expenses.2 Almost as an afterthought, the Federal Reserve Act authorized Reserve banks to purchase government securities 31 32 In the Money department at the Louisville Branch of the St. Louis Fed in 1947, employees worked in what amounted to a cage—typical for those handling cash at any Fed office. in the open market. In modern times, such open market operations in government securities have been the principal means by which the Fed conducts monetary policy. However, it was not until the 1920s that the Reserve banks began to coordinate their open market operations with one another or to use them to achieve macroeconomic policy objectives, such as price stability and stable economic growth—that is, to conduct monetary policy.3 The Fed’s first attempts at macroeconomic stabilization were apparently successful. In their classic study, A Monetary History of the United States, 1867-1960, economists Milton Friedman and Anna J. Schwartz contended that under the leadership of New York Fed Gov. Benjamin Strong, the Fed pursued policies that moderated the business cycle and maintained price stability. 4 Friedman and Schwartz argued that the Fed’s decentralized structure necessitated a forceful leader like Strong to formulate a coherent monetary policy. Strong’s death in 1928 robbed the System of a forceful leader; the loss, Friedman and Schwartz contended, 33 William McChesney Martin Sr. (left) served as the first chairman of the St. Louis Fed’s board of directors until 1929, when he became its governor (CEO). His son, William McChesney Martin Jr. (right), was the longest-tenured chairman of the Federal Reserve System, serving from 1951 to 1970. caused policy to disintegrate under the weight of petty governor of the Board in 1933, thought so. Eccles argued jealousies, parochialism and infighting among the individual that the Board should have the sole responsibility for mone- Reserve banks and between the Reserve banks and the tary policy and advocated legislation to reduce or eliminate Board. The consequence was disastrous, as the System failed the role of the Reserve banks in monetary policymaking. to respond to banking panics or to prevent a sharp economic Congress did not go as far as Eccles desired, but the Bank- contraction during the Great Depression of the 1930s. ing Act of 1935 shifted the balance of power in monetary From this perspective, a lesson of the Great Depression would seem to be that decision-making authority should be policymaking away from the Reserve banks to the Board.5 Not all histories view the Fed’s decentralized structure or concentrated within a single, small group whose members share common goals and understanding of policy. Marriner Friedman and Schwartz. Economist and Fed historian Allan Eccles, whom President Franklin Roosevelt appointed to be 34 the death of Benjamin Strong as being as significant as did Meltzer, for example, argued that Strong’s policy framework was flawed because it relied on potentially misleading or third year. All 12 presidents (or their representatives) indicators of monetary conditions, such as nominal attend and participate in the deliberations of every FOMC interest rates (as opposed to interest rates adjusted for meeting; each president has the opportunity to present his expected inflation). Strong’s successor at the New York or her views to the committee regardless of whether he or Fed, George Harrison, usually advocated a more vigorous she currently is a voting member of the committee. response to the Depression than did the other Reserve At various times, Congress has considered eliminating bank governors, including William McChesney Martin Sr. the role of Federal Reserve bank presidents in setting mon- of the St. Louis Fed. However, Meltzer contended that the etary policy or limiting the presidents to an advisory role. principal reason for the Fed’s policy mistakes in the 1930s However, such proposals have never won much support, stemmed from a lack of understanding about policy, rather perhaps because there are clear benefits from the service of than the Fed’s structure.6 Reserve bank presidents as voting FOMC members, rather than as just advisers. THE BANKING ACT OF 1935 The Banking Act of 1935 created the modern form of the One benefit is that the participation of Reserve bank presidents in monetary policymaking contributes to the Federal Open Market Committee (FOMC), which is the Fed’s political independence. That is because the appoint- Fed’s principal monetary policymaking committee. The vot- ment process of Reserve bank presidents is more insulated ing members of the FOMC are the seven members of the from politics than is the appointment of Federal Reserve Fed’s Board of Governors and five Reserve bank presidents. governors. Whereas members of the Board are appointed The chair of the Board also chairs the FOMC, and the presi- by the president of the United States and confirmed by dent of the Federal Reserve Bank of New York serves as the the Senate, Reserve bank presidents are appointed by FOMC’s vice chair. Of the other 11 Reserve bank presidents, their respective Reserve bank boards of directors with four serve at a time as voting members of the FOMC on the approval of the Board of Governors in Washington, a rotating basis, with each president voting every second D.C.7 Many studies have found that political independence 35 Prior to research by the St. Louis Fed showing otherwise, the FOMC (shown here in the mid-1960s) largely discarded the idea that monetary policy was either a cause of or a cure for inflation. enhances central bank performance and that countries with independent central banks tend to have better-performing economies than do countries with less-independent central banks.8 Some observers contend that a second benefit of having Reserve bank presidents in a policymaking role is that the opportunity to vote enables the Fed to attract more-talented individuals to serve as Reserve bank presidents than if presidents served merely as advisers to the Board. When asked in congressional hearings for his opinion about a proposed change in the Federal Reserve Act that would make all Reserve bank presidents nonvoting members of the FOMC, Cleveland Fed President and former St. Louis Fed Research Director Jerry Jordan testified: “Making the presidents [of Federal Reserve banks] nonvoting members … would alter the Federal Reserve substantially and in a very harmful way. It would not be a job I would want—it would destroy the system.” 9 36 37 Top: The St. Louis Fed’s board of directors gathered in its boardroom in 1964 to mark the 50th anniversary of the Fed. Bottom: Marriner Eccles, who served as Fed chairman from 1934 through 1948, argued that the Federal Reserve Board should have the sole responsibility for monetary policy. He advocated legislation to reduce or eliminate the role of the Reserve banks in monetary policymaking. More broadly, the participation of Reserve bank presi- independent policy analysis and research. Reserve bank dents on the FOMC contributes to monetary policymaking economists report only to their respective bank presidents in the United States by ensuring a greater diversity of views and not to members of the Board of Governors or its staff. in policy deliberations. Over time, the Fed’s structure This arrangement helps ensure a hearing for diverse ensured that the differences in banking and economic con- views and limits “groupthink” in policy analysis and at ditions across the nation were recognized in policy deliber- FOMC meetings. ations. Almost from the System’s beginning, the Reserve banks invested in gathering and reporting information about banking and economic conditions in their districts THE GREAT INFLATION The history of the St. Louis Fed, particularly in the 1960s for use in monetary policymaking, as well as in banking and 1970s, illustrates well how Federal Reserve bank presi- supervision and other operations of the bank. To this day, dents and their research staffs can contribute to monetary Federal Reserve bank directors, advisory council members policy deliberations. and other local contacts continue to provide important The Fed essentially had no monetary policy from the mid- information about district conditions for use in policymak- 1930s through World War II and for a few years thereafter. ing. (See the essay “Structure and Governance” on page 125 In fact, it played little role in fostering the expansion that for more on the role of Reserve bank directors.) pulled the U.S. economy out of the Great Depression. In addition to bringing information about economic Monetary growth drove the economic recovery, but that conditions in their districts to the policy table, Reserve bank presidents are supported by economic research teams with 38 growth mainly reflected gold inflows from abroad rather than actions by the Fed.10 During World War II, the Fed 39 FIGURE 1 annual rate since 1947, when wartime price controls had just been lifted. The rising and highly variable rate of inflation in the 1970s and soon thereafter and the economic instability that accompanied it were widely blamed, both within the Fed and by outside observers, on shocks to energy prices associated with the Arab oil embargo in 1973 and the Iranian Revolution in 1979, the granting of wage increases in excess acted to peg the market yields on short-term government of productivity growth, monopolistic price setting by firms securities and enforce a ceiling on Treasury bond yields. and federal government budget deficits. For example, Fed The policy continued until March 1951, when, in the face of Gov. Sherman Maisel claimed that the rising rate of inflation rising inflation, the Fed struck an agreement with the Trea- of the late 1960s and early 1970s was caused by “govern- sury Department that freed the Fed to pursue an indepen- ment deficits; … speculative investment in plant, equipment dent monetary policy.11 and labor by business corporations; … use of economic Following this agreement, inflation declined and remained low and stable through the 1950s and early 1960s. power to raise wages and profits; … but most significant were the government deficits.” 12 Then, it began to rise in waves, with peaks in 1970, 1974 and 1980, as shown in Figure 1. Each peak came early in a reces- ing to Burns, “A dominant source of the problem appears to sion and followed deliberate actions by the Fed to tighten have been the lack of discipline in government finances.” 13 policy. In each successive cycle, however, the inflation nadir Burns also blamed inflation on “excessive” wage increases: and subsequent peak were higher than those associated “Government efforts to achieve price stability continue to with the previous cycle. In 1980, the consumer price index be thwarted by the continuance of wage increases substan- (CPI) inflation rate briefly exceeded 14 percent—its highest 40 Fed Chairman Arthur Burns held a similar view. Accord- tially in excess of productivity gains. … The inflation that we are still experiencing is no longer due to excess demand. were not held by Darryl Francis, the president of the It rests rather on the upward push of costs—mainly, sharply St. Louis Fed from 1966 to 1976. Citing the research of rising wage rates.” He argued, moreover, that “monetary his staff economists, as well as of Milton Friedman, Karl and fiscal tools are inadequate for dealing with sources of Brunner and other academic economists, Francis blamed price inflation such as are plaguing us now—that is, pres- inflation on the Fed’s monetary policies: “When we talk sures on costs arising from excessive wage increases.” 14 about the ‘problem of inflation,’ I think it is safe to say that the fundamental cause is excessive money growth.” Fur- THE MAVERICK RESERVE BANK The views of Maisel and Burns about the causes of infla- ther, Francis argued that “the cure [for inflation] is to slow down the rate of money expansion.” 15 tion were widely held at the time, both within the Fed and Burns and most other members of the FOMC largely among academic and business economists. However, they discarded the idea that monetary policy was either a cause St. Louis Fed President Darryl Francis (left) chats with Frederic M. Peirce, chairman of the Bank’s board of directors, in 1966. 41 When St. Louis Fed President Darryl Francis (left) and Research Director Homer Jones (right) couldn’t convince the Fed’s leadership in Washington that monetary policy was causing the waves of inflation that started in the late 1960s, the two men took their case to the public. The Board of Governors was not pleased. One governor said: “It is a weakness for a regional bank to concentrate on national matters. ... We have a fine staff in Washington.” 42 of or a cure for rampant inflation. At an FOMC meeting price controls: “The adoption of administrative controls in June 8, 1971, Burns argued: “Monetary policy could do very attempting to hold down inflation, or to shorten the period little to arrest an inflation that rested so heavily on wage- of adjustment, would impose a great cost on the private cost pressures. ... A much higher rate of unemployment enterprise economy. Serious inefficiencies would develop produced by monetary policy would not moderate such in the operations of the market system” (FOMC, Mem- pressures appreciably.” Burns then said that he intended to orandum of Discussion, Dec. 15, 1970, p. 74). In Francis’ continue to press the Nixon administration hard for an effec- view, “a freeze or other control programs could not be tive incomes policy (FOMC, Memorandum of Discussion, June expected to effectively restrain inflation unless accompa- 8, 1971, p. 51). Burns advocated government control of wages nied by sound monetary actions” (FOMC, Memorandum and prices, rather than monetary policy, to contain inflation. of Discussion, Oct. 19, 1971, p. 36). According to Burns, “The persistence of rapid advances of For Francis, “sound monetary actions” meant maintain- wages and prices in the United States and other countries, ing a moderate, stable growth of the money stock. This even during periods of recession, has led me to conclude put Francis at odds with Burns and several other FOMC that governmental power to restrain directly the advance of members. According to Jordan, the former St. Louis Fed prices and money incomes constitutes a necessary addition research director who went on to become the president to our arsenal of economic weapons.” 16 of the Cleveland Fed, “No one was paying attention to As previously stated, the St. Louis Fed’s Francis held a any kind of quantitative measures, and the ideas that different view. At an FOMC meeting in December 1967, [St. Louis Fed Research Director] Homer Jones and Darryl Francis noted some downsides of wage and price controls: Francis supported at this Bank of looking at aggregates, “[They] raised problems of resource allocation; they interfered looking at bank reserves, looking into money supply, was with freedom; and they were difficult to administer” (FOMC, just out of tune with what everybody else was saying.” 17 Memorandum of Discussion, Dec. 12, 1967, pp. 54-55). At a subsequent meeting, he again argued against wage and Burns explicitly argued against a focus on the money supply, saying at an FOMC meeting in 1971 that “the 43 heavy emphasis that many people were placing on the St. Louis Fed staff economist, and a memo by Robert behavior of M1 [a measure of the money stock] involved Rasche, a visiting scholar at the St. Louis Fed and a future an excessively simplified view of monetary policy” (FOMC, director of research at the Bank (appointed in 1999).19 Memorandum of Discussion, Feb. 9, 1971, p. 87). Further, Francis’ immediate predecessors as presidents of the Burns argued that the Fed could not reliably control the St. Louis Fed—Delos Johns and Harry Shuford—had also growth of the money stock even if it desired to do so: “All argued for the use of monetary aggregates in the conduct we can control over such brief periods [as short as three and description of monetary policy. Of the three, however, months] is the growth of member bank reserves; but a Francis was the most vocal critic of System policy; he also given growth of reserves may be accompanied by any of served as president when inflation was rising and highly a wide range of growth rates of … the money supply.” 18 variable. During Francis’ tenure, the St. Louis Fed became Francis again held a different view, which he made known in public forums as well as in FOMC meetings and known as a maverick for its outspoken criticism of Fed policies and for its advocacy of an alternative approach.20 correspondence with Burns and other FOMC members. The St. Louis Fed’s very public criticism of the Fed’s For example, in a letter to Burns (Figure 2), Francis chal- policies was often not welcomed by the Board and other lenged claims made at a recent FOMC meeting that Reserve banks. A few governors expressed the view that the growth of monetary aggregates was impossible to Reserve banks should stick to reporting on local economic predict or to control: “Damn it all, Arthur, we here [at the conditions and not criticize System policy. One governor Federal Reserve Bank of St. Louis] could and did predict said, for example: “It is a weakness for a regional bank to just such an outcome! Furthermore, there is a control concentrate on national matters. … We have a fine mechanism which will assure much better results than staff in Washington.” 21 we have achieved in the past by our reliance on short term At times, pressure on the Reserve banks to support Sys- interest rates [to conduct policy].” To bolster his case, Francis included with his letter an article by Albert Burger, a 44 tem policy was intense. According to Lawrence Roos, who succeeded Francis as president of the St. Louis Fed in 1976, other Reserve banks would sometimes express support for St. Louis in private, but were unwilling to disagree with Burns and other members of the Board at FOMC meetings or in public. “I think some of them were concerned about their own Reserve bank budgets,” Roos said. “They wanted to be on the right side of the chairman and the Board. … [T]here was politics in the Open Market [Committee].” 22 Francis and his immediate predecessors were undoubtedly influenced by Homer Jones, the St. Louis Fed’s director of research from 1958 to 1971. Jones had been a teacher and later a student of Milton Friedman, the University of Chicago economist who championed “monetarism” in both scholarly journal articles and popular writings and speeches. Friedman coined the phrase, “Inflation is always and everywhere a monetary phenomenon.” Further, he and other monetarists argued that fluctuations in money supply growth had historically been an important source of macroeconomic instability. Consequently, Friedman and other monetarists advocated monetary policies geared toward maintaining a FIGURE 2 modest, stable rate of growth of monetary aggregates. Under Jones, the St. Louis Fed developed an interna- St. Louis Fed President Darryl Francis did not shy away from challenging Fed Chairman Arthur Burns and others on the FOMC at the time. Francis had faith in his researchers, whose data showed that the growth of the money supply led to a growth in inflation and, tional reputation for economic research and monetarist historically, to macroeconomic instability. 45 Top: Leonall Andersen, standing next to Homer Jones in 1971, co-authored a famous and influential paper titled “Monetary and Fiscal Actions: A Test of Their Relative Importance in Economic Stabilization.” St. Louis Fed President Darryl Francis used this paper and subsequent research to promote a monetary policy based on controlling the growth of monetary aggregates. Bottom: At a meeting of Mississippi bankers in 1947—19 years before he served as St. Louis’ Fed president— Darryl Francis referred to conditions on farms in Lee County. 46 policy views. Former staff economists at the St. Louis Fed ing public opinion outside the System and bringing pressure remember Jones as a hard-driving economist who insisted upon the Federal Reserve, and Homer Jones decided that on precise arguments and strong empirical support for we would do this through publications.” 23 Accordingly, any claim. According to Jordan: “Homer drove everyone Jones marshaled his staff to conduct research for publica- absolutely crazy. I think part of his method was to really tion in the Bank’s Review and other professional journals. make us angry. He was a total agnostic as far as both theory Jones also introduced a series of publications that reported and empirical evidence. He would needle everyone and analyzed monetary growth rate trends and other to, ‘Prove it to me. Where’s your theory? Say it better. macroeconomic data. As noted by Gilbert, the roots of Where’s your evidence?’ ” the Bank’s online data and information services, such as Francis was similar, according to Jordan: “Darryl was the Federal Reserve Economic Data (FRED), “go back to the Harry Truman of the Federal Reserve System. He lived what leadership of Homer Jones.” (See the essay “The History was meant by the ‘Show Me’ state philosophy. He really of FRED” on page 149.) believed, ‘Well, OK, let’s shine some light on it, and let’s see,’ Economic research played an important role in sup- and he would stand his ground. He didn’t need a sign on his porting Francis and other St. Louis Fed presidents in their desk that says, ‘The buck stops here.’ Everybody knew that monetary policy positions. The most famous and influen- with Darryl, and he wasn’t willing to be intimidated though tial paper was written by Jordan and fellow St. Louis Fed the pressures were at times very considerable—especially researcher Leonall Andersen, titled “Monetary and Fiscal after Arthur Burns became chairman of the Board of Gover- Actions: A Test of Their Relative Importance in Economic nors—to stop what we were doing at this Bank.” Stabilization.” In that 1968 St. Louis Fed Review article, the Like Francis, Jones felt strongly that monetary policy had authors reported empirical evidence that the growth of gone awry. According to R. Alton Gilbert, another St. Louis the money stock had a larger, more predictable and faster Fed staff economist at the time, Jones’ “view was that the impact on the growth of nominal gross national product only way we could change it [i.e., policy] … [was by] influenc- (GNP) than did fiscal policy actions. Francis used the 47 Andersen and Jordan results and subsequent research to innovated by bringing cutting-edge monetary policy and promote a monetary policy based on controlling the growth macroeconomic research to policymaking. Eventually, that of monetary aggregates. At FOMC meetings, he frequently innovation was copied by other Reserve banks and by the referred to his staff’s forecasts of output and inflation under Board. According to Jordan: “Our focus in St. Louis was … alternative money stock growth assumptions.24 on trying to be useful to the president in the decisions he Homer Jones retired in 1971, and Darryl Francis retired in had to make. … That was rare in the Reserve banks and 1976. Although they were not able to persuade the FOMC probably nonexistent at the Board of Governors. … I’m to change course during their tenures, the Fed’s organi- sure that we were sending our president off much better zational form ensured that their views were heard, both prepared to engage in the important decisions that had to publicly and in policy deliberations. Pressure was brought be voted on than just about anybody else.” to bear on the Fed to reduce inflation, and eventually the The other Reserve banks then sought to emulate the Fed did accept responsibility for inflation. Under Chairman St. Louis approach. Jordan said, “I think because of the com- Paul Volcker, the Fed finally adopted policies to control petition among peers, over the subsequent years, the other money stock growth and to lower inflation. The Fed never Reserve bank presidents … wanted to build up a staff that embraced monetary targeting wholeheartedly, but did was able to help prepare them to also sit at the table and come to recognize the importance of maintaining a credible engage in a serious way as a policymaker.” commitment to price stability. The legacy of the maverick Reserve bank thus demon- The Great Inflation era of the 1970s illustrates how the strates that the Fed’s decentralized structure, though estab- Fed’s structure and FOMC composition promote open and lished 100 years ago, remains vital and continues to benefit frank discussion of policy views and ultimately can lead to the Federal Reserve System and the nation. better policymaking. Further, this episode in Fed history illustrates how the System’s organization encourages innovation within the Reserve banks. The St. Louis Fed 48 ENDNOTES 1. When the Fed was established, most short-term bank loans were made on a discount basis, the discount being the difference between the amount borrowed 15. See Francis, pp. 6-7. 16. “Some Problems of Central Banking.” Address before the 1973 International Monetary Conference, June 6, 1973 (reprinted in Burns, p. 156). and the amount repaid on a loan. Hence, the act of acquiring currency or reserves 17. Interview with Jerry Jordan, St. Louis Fed, April 11, 2012. from the Fed was known as “rediscounting” because the Fed paid out less currency 18. “Monetary Targets and Credit Allocation.” Testimony before the Subcommittee (or reserves) to the member bank than the face value of the loans presented at the on Domestic Monetary Policy, U.S. House Banking, Currency, and Housing discount window. When the rediscounted loans approached maturity, the Reserve bank would return them to the member bank for collection, and upon maturity the bank’s reserve account with the Fed would be charged for the full amount of the original loan. An amendment to the Federal Reserve Act in 1916 permitted Reserve Committee, Feb. 6, 1975. 19. Letter from Darryl R. Francis to Arthur F. Burns, January 14, 1972. Box D7, Folder St. Louis Fed (2). Gerald R. Ford Library. banks to make direct loans, known as “advances,” to member banks; these loans 20. See, for example, “Maverick in the Fed System,” Business Week, Nov. 18, 1967, pp. 128-34. were secured by the same types of loans that banks could rediscount with the Fed. 21. Ibid. For more on the distinction between rediscounts and advances and for a history of the Fed’s lending functions, see Hackley. 2. The Fed has never received a congressional appropriation and has always depended on its income to cover expenses and pay dividends to its member banks. In the early days, earnings were a big concern, but over time, Fed officials understood that maximizing revenue or profits was not an appropriate criterion for conducting 22. Oral history interview of Lawrence Roos conducted by Richmond Fed economist Robert L. Hetzel, June 30, 1994. 23. Interview with R. Alton Gilbert. Federal Reserve Bank of St. Louis, Sept. 9, 2011. 24. See Hafer and Wheelock (1991) for more on the monetarist-oriented research and policy advocacy at the St. Louis Fed from the 1960s through the early 1980s. policy. See Meltzer (p. 78) for a discussion about the Fed’s concern over earnings during the System’s first years. REFERENCES 3. The Fed’s “discovery” of open market operations and development of a monetary Andersen, Leonall C.; and Jordan, Jerry L. “Monetary and Fiscal Actions: A Test of Their policy in the 1920s is discussed in Chandler, Friedman and Schwartz, Meltzer and Relative Importance in Economic Stabilization.” Federal Reserve Bank of St. Louis references therein. 4. Before 1936, the chief executive officers of the Federal Reserve banks held the title Review, November 1968, Vol. 50, No. 11, pp. 11-24. Burns, Arthur F. Reflections of an Economic Policy Maker: Speeches and Congressional of “governor,” as did the chairman of the Federal Reserve Board. (Other members Statements, 1969-1978. Washington, D.C.: American Enterprise Institute for Public of the Board were simply referred to as “members” of the Board.) The Banking Act Policy Research, 1978. of 1935 designated all members of the Board as governors (and changed the name of the Board to the Board of Governors) and changed the title of the chief executive officers of the Reserve banks to “president.” 5. See Meltzer (pp. 467-86) on Eccles’ views and the legislative history of the Banking Act of 1935. 6. See also Wheelock (1991, 1992) and references therein for more information about the Fed’s policy goals and strategy during the 1920s and early 1930s. 7. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Federal Reserve Act to remove Class A directors of Reserve banks from the process of appointing Reserve bank presidents and first vice presidents. At present, those officers are appointed by the Class B and C directors with the approval of the Board of Governors (Section 4 of the Federal Reserve Act [12 USC 341]). 8. See Waller for more on the rationale for central bank independence and how the Fed’s structure contributes to its political independence. 9. H.R. 28, the Federal Reserve Accountability Act of 1993, Hearing before the Committee on Banking, Finance, and Urban Affairs, House of Representatives, Oct. 19, 1993, p. 35. 10. See Friedman and Schwartz (Chapter 9) and Romer. 11. See Meltzer (Chapter 7) for a discussion of policy and events leading to this agreement. 12. See Maisel (p. 12). 13. “The Current Recession in Perspective.” Remarks before the annual meeting of the Society of American Business Writers, Washington, D.C., May 6, 1975 (reprinted in Burns, 1978). 14. “The Basis for Lasting Prosperity.” Address to Pepperdine College Great Issues Series, Los Angeles, Dec. 7, 1970 (reprinted in Burns, pp. 112-13). Chandler, Lester V. Benjamin Strong: Central Banker. Washington, D.C.: Brookings Institution, 1958. Francis, Darryl. “Inflation, Recession—What’s a Policymaker to Do?” Federal Reserve Bank of St. Louis Review, November 1974, Vol. 56, No. 11, pp. 3-7. Friedman, Milton; and Schwartz, Anna J. A Monetary History of the United States, 1867-1960. Princeton: Princeton University Press, 1963. Hackley, Howard H. Lending Functions of the Federal Reserve System: A History. Washington, D.C.: Board of Governors of the Federal Reserve System, 1973. Hafer, R.W.; and Wheelock, David C. “The Rise and Fall of a Policy Rule: Monetarism at the St. Louis Fed, 1968-1986.” Federal Reserve Bank of St. Louis Review, January/ February 2001, Vol. 83, No. 1, pp. 1-24. Maisel, Sherman. Managing the Dollar. New York: W.W. Norton & Co., 1973. Meltzer, Allan H. A History of the Federal Reserve, Volume 1, 1914-1951. Chicago: University of Chicago Press, 2003. Romer, Christina. “What Ended the Great Depression?” The Journal of Economic History, December 1992, Vol. 52, No. 4, pp. 757-87. Waller, Christopher J. Independence+Accountability: Why the Fed Is a Well-Designed Central Bank. Federal Reserve Bank of St. Louis Annual Report, 2009. Wheelock, David C. The Strategy and Consistency of Federal Reserve Monetary Policy, 19241933. Cambridge: Cambridge University Press, 1991. Wheelock, David C. “Monetary Policy In the Great Depression: What the Fed Did and Why.” Federal Reserve Bank of St. Louis Review, March/April 1992, Vol. 74, No. 2, pp. 3-28. 49 Employees at the Louisville Branch showed up in force in the early 1940s during a savings bond drive to benefit the war effort. The sign on the side of the teller cage (left) reads, “The enemy is listening.” 50 51 In the Currency Sorting division in 1924, employees wearing aprons counted, sorted and bundled bills. 52 A Foregone Conclusion HOW AND WHY ST. LOUIS WAS CHOSEN FOR A FEDERAL RESERVE BANK By David Wheelock ECONOMIC HISTORIAN, VICE PRESIDENT, DEPUTY DIRECTOR OF RESEARCH The selection of St. Louis for a Federal Reserve bank seems to have been, in the words of historian James Neal Primm, a “foregone conclusion.” 1 In announcing its decisions on April 2, 1914, the Reserve Bank Organization Committee (RBOC) made clear that St. Louis, along with New York City, Chicago, Philadelphia, Boston and Cleveland, were obvious choices: “In population these are the six largest cities in the United States; their geographical situation and all other considerations fully justified their selection.” 2 In the competition for Reserve banks, St. Louis had several advantages. It was the nation’s fourth-largest city, with a population of 687,029. Only New York City (4,766,883), Chicago (2,185,283) and Philadelphia (1,549,008) were larger.3 St. Louis was also a regional banking and commercial center, as well as a transportation hub. Its banks provided financial services, and its businesses sold and distributed manufactured goods throughout the Midwest, South and Southwest. St. Louis was a manufacturing powerhouse, one 53 Fifth and Olive streets in downtown St. Louis in 1910. When it was awarded a Reserve bank in 1914, St. Louis was the nation’s fourth-largest city. One of the numerous options for downtown shoppers was Boyd’s. with a diverse base. The city was the largest shoe distributor in the nation, the second-largest millinery market, the foremost producer of tobacco products and home to the nation’s largest brewery. 4 Good railroad connections were an important consideration for the location of a Reserve bank because they ensured rapid delivery of currency and checks between the Reserve bank and the commercial banks in its district, as well as between the Reserve bank and other Reserve banks. With 26 trunk lines linking over 64,000 miles of rail and a prime location at the confluence of the Mississippi and Missouri rivers, St. Louis’ transportation infrastructure made the city a strong choice for the location of a Federal Reserve bank.5 St. Louis was one of only three cities designated as a “central reserve city” in the national banking system—the structure and rules governing commercial banks with federal charters under the national banking acts of the 1860s. New York City and Chicago were the other two. The designation recognized and contributed to St. Louis’ importance as a banking center by enabling national banks 54 55 Missouri History Museum, St. Louis Among the reasons for selecting St. Louis as a Reserve bank city was its status as a banking center, commercial powerhouse and transportation hub. Around the time of its selection, the city was also still basking in the glow as host of the 1904 World’s Fair (top). throughout the country to satisfy a portion of their legal reserve requirements by holding deposits in national banks in St. Louis. Being at the top of the reserve pyramid, national banks in St. Louis and the other central reserve cities were required to hold their legal reserves solely in the form of gold. St. Louis was home to 44 banks and trust companies in 1914, including seven national banks. Its national banks ranked fifth behind those in New York City, Chicago, Philadelphia and Boston in terms of correspondent deposits.6 Although less than 20 percent of the amount held by New York City banks, the correspondent balances held by St. Louis’ national banks far exceeded those held by banks in several other cities chosen for Federal Reserve banks.7 Data on state-chartered banks and trust companies were not available to the RBOC for all states. So, in evaluating proposals for the location of Reserve banks, the committee focused primarily on the size and prominence of a city’s national banks. Among all U.S. cities, St. Louis ranked seventh in terms of national bank capital, deposits and loans. The 56 seven national banks in St. Louis had combined capital of tee held hearings in Boston, Washington, D.C., and Chicago $29 million, deposits for individuals and firms of $62 million, before meeting in St. Louis on Jan. 21-22, 1914. 10 and loans of $102 million.8 The RBOC consisted of Secretary of the Treasury William G. McAdoo, Secretary of Agriculture David Houston and RESERVE BANK ORGANIZATION COMMITTEE HEARINGS Six cities may have been obvious choices for Reserve Comptroller of the Currency John Skelton Williams. At the time, Houston was on leave from Washington University in banks, but the RBOC was charged with naming at least eight St. Louis, where he was chancellor. In St. Louis, the RBOC cities for Reserve banks and setting the boundaries for all heard testimony from several nationally prominent residents, Federal Reserve districts. The RBOC evaluated proposals including David R. Francis, a former St. Louis mayor, Missouri from 37 cities seeking Federal Reserve banks, including governor and U.S. secretary of the interior; Rolla Wells, also St. Louis, Louisville, Ky., and Memphis, Tenn., and held hear- a former St. Louis mayor and treasurer of Wilson’s 1912 pres- ings in 18 cities, including St. Louis, where they interviewed idential campaign; Robert Brookings, a leading businessman local bankers, businessmen and civic leaders. The committee and benefactor of Washington University; Festus Wade, pres- also relied heavily on a survey of national banks in which ident of Mercantile Trust Co. and head of the St. Louis Clear- the banks were asked to name their preferred location for a ing House Association; Frank O. Watts, president of Third Reserve bank that would serve their region. 9 National Bank and chairman of the St. Louis Clearing House The RBOC held its first hearing Jan. 5-7, 1914, in New York Association’s RBOC presentation committee; A.L. Shapleigh, City, less than two weeks after President Woodrow Wilson president of a leading national hardware company and signed the Federal Reserve Act. Subsequently, the commit- president of the St. Louis Businessmen’s League; and several 57 58 FIGURE 1 This map, one of the documents submitted to the Reserve Bank Organization Committee in support of locating a Reserve bank in St. Louis, shows retail trade territory of St. Louis, Chicago, Kansas City, Denver, Minneapolis-St. Paul and Memphis. other leading bankers and businessmen from St. Louis and nearby states.11 In their testimony before the RBOC, officials of the St. Louis clearinghouse presented letters they had solicited from bankers and businessmen across the Midwest, South and Southwest to support their bid for a large St. Louis-based Federal Reserve district. Many of the letters were effusive in their support of St. Louis’ bid for a Reserve bank, such as one submitted by the officers of the Lumbermen’s Exchange of St. Louis: Whereas: St. Louis is the Gateway to the Great Southwest, having connections, through its railroads, with a region that is fertile in nature’s products and in manufacturing industries which are in their infancy, which will from year to year be developed, and will out-rival all regions in fertility and productiveness: Whereas: St. Louis be the Gateway to this wonderful region, all commerce must and will move through St. Louis and: Whereas: St. Louis is a Gateway between the North and the South, and lying as it does in the center of the greatest country 59 on earth, St. Louis excels all other cities as a point of center for the establishment of a Great Regional Bank and; Whereas: St. Louis is situated in the midst of and is without doubt the greatest manufacturing center in the United States, Whereas: Within ten hours ride of St. Louis is located a population of over thirty million people, who trade through and in St. Louis, therefore: Be it resolved: By the Board of Directors that the Lumbermen’s having the largest Shoe, Beer, Vehicle, Implement, Tobacco Exchange of St. Louis respectfully urges the Organization Com- and Stove manufacturing plants in the world. The Dry Goods mittee … to establish a Great Regional Bank in St. Louis.12 display is greater than any City in the United States, and as a The Implement, Vehicle and Hardware Association of Lumber center St. Louis is without doubt the greatest in the Country and; St. Louis Fed’s 25th anniversary celebration in 1939. Pictured (from left) are Fed Gov. Matthew Szymczak, Fed Chairman Marriner Eccles, St. Louis Fed President William McChesney Martin Sr. and St. Louis Fed Chairman William Nardin. 60 St. Louis was another of the many organizations offering strong support, writing: St. Louis and Chicago already are the leading financial and mercantile centers west of the Atlantic Seaboard, and the two great centers of the enormous intermountain territory— Chicago in the north and northwest and St. Louis in the south and southwest. … We, as an Association, put ourselves on record as urging the selection of St. Louis for the location of one of the regional reserve banks.13 At the time that St. Louis was vying for a Reserve The St. Louis Association of Credit Men was no less clear bank, the city stood out in many areas of business, in its support: including the brewing of Saint Louis, Missouri is the logical and natural location for beer. The Anheuser-Busch brewery, then and now, the regional bank by its rank in population, its great facilities was a landmark on the south side of the city. The as a railroad center, its rank as a manufacturing center and brewhouse, shown in 1926, was built in 1892. distributor of merchandise, … stability and financial strength, its volume of annual clearings and by reason of its importance districts—the minimum specified in the Federal Reserve in trade movements from contiguous territory, the states of Act—and proposed a large territory encompassing much of Missouri, Oklahoma, Texas, Mississippi, Arkansas, Louisiana, the Midwest, South and Southwest United States for a district Tennessee, Kentucky, Kansas, Nebraska, Southern Indiana based in St. Louis. and Southern Illinois.14 St. Louis boosters wanted a large territory for a Federal In his testimony to the RBOC, Frank O. Watts, the clearinghouse association’s lead advocate, indicated that the territory Reserve district headquartered in St. Louis. The clearinghouse his group desired for a St. Louis-based district was similar to association may have viewed the location of a Reserve bank in the territory represented in a map submitted by E.C. Simmons, St. Louis as a certainty. Perhaps for that reason, the associa- chairman of Simmons Hardware Co. (shown in Figure 1 on tion recommended the creation of just eight Federal Reserve pages 58-59). According to Simmons, the shaded region 61 labeled “St. Louis Zone” represented the “legitimate bounds” of the region served predominantly by St. Louis manufacturers and wholesalers. The map also shows areas where other cities, including Chicago, Denver, Kansas City and Memphis, had significant business ties. The map clearly was intended to convince the RBOC that the commercial territories of Chicago and St. Louis were of roughly equal size and largely distinct—Chicago in the Upper Midwest and St. Louis in the Midsouth and Southwest. Simmons’ map represented the commercial territories of Denver, Kansas City and Memphis as being much smaller, with those of Kansas City and Memphis—two cities also vying for Federal Reserve banks—appearing as local submarkets within the larger St. Louis zone and, therefore, perhaps less worthy candidates for Reserve banks. Shapleigh, president of another St. Louis hardware distributor, also pushed for a large St. Louis-based Federal Reserve district. In his testimony before the RBOC, Shapleigh argued: 62 63 Top: Employees clocked into work in 1924. Bottom: In the Currency Canceling and Cutting division in 1923, employees halved unwanted bills lengthwise and bundled them for shipping. With the transportation facilities offered from Saint Louis and large, St. Louis-based Federal Reserve district noted that the with the immense stock of goods kept here … this district has territory they recommended was economically diverse, with looked upon Saint Louis not only as its financial central reserve different types of agriculture and a strong manufacturing base. city, but its merchandise central reserve city. A by-word in the For example, Jackson Johnson, president of International Shoe trade is “Saint Louis has the Goods.” The channels of trade follow Co., argued the following: the channels of transportation. The channels of banking follow You would like to balance the borrowers with the lenders as the channels of trade. These channels for this district all lead to nearly as possible, and to that end we should have to take not and from Saint Louis.15 only the manufacturing sections but the grain section along with Proponents of a large Federal Reserve district based in the cotton section. In the last few years, [the region] west of the St. Louis stressed the advantages of the proposed territory’s [Mississippi] River has produced from forty-five to fifty per cent economic diversity. A key objective of the authors of the Fed- of the cotton crop. If St. Louis covers Texas, Louisiana, Arkansas eral Reserve Act was to facilitate the movement of funds from and Oklahoma they will then have in their territory half of regions of the country that had surplus funds to those where all the cotton crops looking to this center [i.e., St. Louis] to be money and credit were in short supply. Reformers observed financed. Now to balance that I think that we should take that interest rates rose, credit supply tightened and banking along with Missouri, say, Kansas and a portion of Nebraska crises occurred most often at those times of the year when and southern Illinois.16 the demands for money and credit reached seasonal peaks. A Mississippi banker expressed a similar concern. Although Some of the seasonal variation in money and credit demand reflected the seasonal nature of agriculture. Proponents of a 64 located closer to Memphis, R.I. Peebles, cashier of the Bank of Boyle, Miss., wrote, “St. Louis can better serve us than Memphis 65 because Memphis feels the burden of making a cotton crop just like we do and is so dependent on the cotton growing industry that their funds are low at the time our funds are low.”17 In other words, at the times of the year when banks in Mississippi needed help satisfying their customers’ demand for loans, which were closely tied to the planting, harvesting and marketing of the cotton crop, Memphis banks faced similar demands and, thus, were of less help than St. Louis banks. St. Louis was not the only city where local interests sought support for their cause from bankers and businessmen in nearby states. Many bankers and businessmen were contacted for support by more than one city. For example, the St. Louis clearinghouse sought letters of support from bankers and firms in western Kentucky and Tennessee who were also being courted by Louisville, Memphis and Nashville, Tenn., to support their own bids for Reserve banks. Most bankers in Kentucky and Tennessee expressed a preference for being members of a Reserve bank in their own states, but many wrote or testified FIGURE 2 Before it was decided which cities would be named headquarters for Federal Reserve districts, communities in the running solicited letters of support from commercial banks and others. St. Louis backers were happy to see that some bankers who were being courted by Chicago or elsewhere would cross out the suggested city and pencil in St. Louis, as did this employee at the that St. Louis was their second choice. For example, Thomas W. Long, the cashier of the First National Bank of Hopkinsville, Ky., testified to the RBOC: “Louisville is our first preference in the establishment of a regional [Reserve] Bank. … Next to Louisville Exchange Bank of Milton, Ill., in early 1914. our choice is St. Louis, beyond any possible question. … 66 [T]he majority of the national bankers in eastern Kentucky have which had been sent to them by the Chicago clearinghouse accounts in St. Louis. It would be very much to the advantage requesting support for Chicago’s bid, with the name of our community if we could not get in the Louisville district to “Chicago, Illinois” scratched out and replaced with “St. Louis, come to St. Louis.” 18 Missouri.” (An example is shown in Figure 2 on page 66.) In its St. Louis hearings, the RBOC focused much of its Others expressed their preference for membership in a attention on the boundaries between possible St. Louis- and St. Louis district in testimony before the RBOC. For example, Chicago-based districts and possible St. Louis- and Kansas David S. Lansden, a director of the Alexander County National City-based districts. Chicago bankers proposed a territory Bank of Cairo, Ill., testified, “We believe Cairo and … all of that encompassed nearly all of Illinois and the northern tier Southern Illinois should be in the St. Louis district.” 20 J.M. Winters, of counties in Missouri, as well as several states in the Upper president of Quincy National Bank in Illinois, testified, “We Midwest and Great Plains. St. Louis’ supporters argued, desire to be attached to the St. Louis district, believing that however, that all of Missouri and the southern half of Illinois, our interests are materially with that city.” 21 Noting that including Springfield, would be served better by a Federal Quincy banks regularly lend to customers in Missouri and Reserve district headquartered in St. Louis. When asked by the have developed business to the south and west, Winters RBOC why Springfield should be located in a St. Louis-based stated: “We have cultivated the West and Southwest for our district, Francis, the former governor of Missouri, claimed, investments and we believe it is very important to us that we “The social relations between Springfield and St. Louis … are be in the same district. … We feel that if we were cut off from closer than they are between Springfield and Chicago. South- this West and Southwest district, it would be almost a calamity to ern Illinois is settled very largely by Kentuckians and Virginians, us.” 22 St. Louis’ bid received less support from Springfield-area and people from the South generally.” 19 bankers, however, and ultimately the RBOC placed Springfield Many bankers in southern Illinois did prefer St. Louis and in a Chicago-headquartered district while placing Quincy and expressed their sentiments in letters and testimony to the most of Southern Illinois in the Eighth Federal Reserve District, RBOC. Several southern Illinois bankers returned a form letter, based in St. Louis. 67 68 FIGURE 3 Top left: This map, one of the documents submitted to the Reserve Bank Organization Committee in support of locating a Reserve bank in Kansas City, shows eight Reserve bank districts, with much of the southern half of the U.S. handled by the three cities of Kansas City, St. Louis, and either Washington, D.C., or Baltimore. Top right: This map, presented in support of a Reserve bank in Montgomery, Ala., shows eight Reserve bank cities, including Denver and Louisville, Ky. Bottom left: This map, presented in support of a Reserve bank location in New York, shows 10 Reserve bank districts. Among other places, banks would have been based in Denver, Cincinnati and Baltimore. Bottom right: This map, presented in support of a Reserve bank in Chicago, shows eight Reserve bank districts, including a massive Chicago district that would encompass all or part of 14 states. The RBOC was also interested in how far west a St. Louis district should extend. St. Louis firms did extensive business in the Southwest, particularly in Texas and Oklahoma, but Texas bankers sought a Reserve bank headquartered in their state. Kansas City bankers also desired a Reserve bank and proposed a district that included some of the territory sought by St. Louis, including all of Oklahoma and parts of Missouri, Arkansas and Texas. A proposal for eight Federal Reserve districts submitted by Kansas City interests is shown in Figure 3 in the top left. At the RBOC hearings in St. Louis, Treasury Secretary McAdoo noted, “Assuming that a Reserve Bank were established in Kansas City, and another was established in St. Louis, the division of the territory would be, as between Kansas City and St. Louis, very difficult.” In his testimony, Francis argued that western Texas and all of Oklahoma should be in a St. Louis district. Further, in response to a question from Secretary of Agriculture David Houston about placing western Missouri and Kansas in a separate district, 69 Long gone is the Transit department’s Country Check division, but in 1923, there was plenty of work at the adding machines (left) and in sorting and stamping (right). The Transit department handled checks and cash items. 70 At the Little Rock Branch in about 1940, employees in the Money department took inventory of stacks of bundled bills and bags of coins. possibly headquartered in Kansas City, Francis replied, “Well, I request of Kansas City bankers, the Joplin clearinghouse signed should dislike to see Missouri divided in any way.” 23 a statement supporting Kansas City’s bid for a Reserve bank: McAdoo asked Frank O. Watts his view of a suggestion “that The Kansas City boys … are a little quicker on the trigger than the regional bank should be established in Kansas City with the the St. Louis boys. … I personally rather want to join the asso- branch in St. Louis.” Watts replied, “I think they [i.e., Kansas City ciation in St. Louis … but the clearinghouse passed a resolution and St. Louis] serve rather different territories; and in the favoring Kansas City. … [W]hen you go out to Kansas City, you language of a certain distinguished Admiral, ‘there is glory will find the busiest live wires out there you ever saw; they are enough for us all.’” 24 certainly on their job, and Kansas City is full of that sort. We Bankers in western Missouri, Oklahoma and Texas were call it “pep.” The nicest lot of fellows you ever met, and if Kansas divided in their preferences. A.H. Waite, president of Joplin City was not out there, I think you would have no trouble about National Bank in Missouri, testified that he personally favored determining the location of a Federal Reserve Bank for St. Louis, having his city in a St. Louis-based district, but that at the but, naturally, they are ambitious.25 71 Some bankers in western Missouri and Oklahoma As my Joplin friend said, the Kansas City people are very testified that they would be satisfied being placed in either a St. Louis- or a Kansas City-based Federal Reserve district. at the St. Louis Fed. Early on, as in this 1930s photo, a tube operator was on duty full time, taking the canisters that arrived with a “whoosh” at the central hub and then inserting them into the destination’s tube. The system remained in operation until 2009. 72 the Committee [RBOC] would locate two banks in Missouri. … Okla., testified: of documents and other papers with the conditions, and it is a question in our minds whether vice president of the Exchange National Bank of Tulsa, from one department to another them. Since that time we have become a little more familiar Reserve bank in Texas. For example, O.H. Leonard, a The pneumatic tube system are very fond of them; they came to Tulsa and we endorsed However, they strongly opposed being tied to a Federal enabled fast and easy delivery quick on the trigger. They are a very nice bunch of fellows; we [I]f you expect to locate a bank in Texas, we do not want to be attached to that, because we have no business relations with City district. … The only thing we want to guard against is Texas, neither do we have any business relations with Denver, being put in a southern district. The period of the year that we Colorado. The only business relations we have where we would need money they need money in the south.” 27 like to be attached to would be either Kansas City or St. Louis.26 L.W. Duncan, cashier of the First National Bank of Musk- After visiting St. Louis on Jan. 21-22, 1914, the RBOC traveled to Kansas City, where it held hearings Jan. 23. The ogee, Okla., and representative of bankers in his region, testi- RBOC then visited Lincoln, Neb., and Denver. The committee fied similarly: “We want to be in either St. Louis or the Kansas then visited several other cities before concluding hearings in Cleveland, on Feb. 17. RBOC SURVEY OF BANKER PREFERENCES Besides the hearings, the RBOC relied heavily on the results of its survey of national banks to guide the selection of Reserve bank cities and district boundaries. The survey asked bank executives to identify their top three choices for the location of the Reserve bank to which they desired to be connected, as well as to recommend at least eight, but no more than 12, cities nationally for Reserve banks. Responding to the survey were 6,724 bank leaders, each naming at least one city as his or her bank’s preferred location for a Reserve bank. Fifty-nine cities, including St. Louis, Louisville and Memphis, were the first choice of at least one respondent. No respondents listed Little Rock as their first choice, but one listed the city as its second choice. 73 Top: In the Clearinghouse division in 1923, employees sorted and stamped checks. Middle: In the Transfer and Check Exchange department in 1923, young men sorted and bagged bundled items for transfer. The bag on the left was headed for the Federal Reserve Bank of Kansas City. Bottom: At the currency counter in the Little Rock Branch in the 1940s-50s, an employee inserted bills into the counting machine. St. Louis was the first choice of 307 survey respondents and the second choice of 583 respondents. The city’s total of 890 first- and second-choice votes was exceeded only by New York City and Chicago. Figure 4 on page 75 shows the relative number of votes each city received, with the size of a city’s dot being proportional to the number of first- and second-place votes it received. The 12 cities chosen for Reserve banks are marked with green dots. Figure 5 on page 75 shows the relative number of times each city was named when voters were asked to recommend at least eight, but no more than 12, cities nationally for the location of Reserve banks. Only New York City, Chicago and San Francisco were recommended more often by respondents than St. Louis.28 The RBOC survey of national banks was clearly important in the committee’s selection of Reserve bank cities and their respective districts. The RBOC felt compelled to explain why, for example, it put a Reserve bank in Richmond, Va., but not Baltimore, in Atlanta but not New Orleans, and in Kansas City but not Denver, Lincoln or Omaha, Neb. Regarding the last decision, the committee explained that its survey of bankers had played a major role in the decision: Careful consideration was given to the claims of Omaha, Lincoln, Denver, and Kansas City, which conflicted in this region. … [Banks in] the greater part 74 St. Louis: A Popular Choice for a Federal Reserve Bank of New Mexico asked for Kansas City. Western Texas, Kansas, and Nebraska [banks] unanimously protested against going to Denver. Kansas [banks] desired Kansas City; Nebraska [banks] preferred Omaha or Lincoln; and Texas [banks] wanted either a Texas city or Kansas City or St. Louis. … With Montana, Idaho, Arizona, Texas, Kansas, and Nebraska [banks] in opposition, it was clearly impossible to make a district with Denver as the location of a bank. … It seemed impossible to serve FIGURE 4 the great section from Kansas City to the mountains in any other way than by creating a district with Kansas City as the headquarters.29 A few cities protested when they were not selected for a Federal Reserve bank. A committee of bankers and other The Federal Reserve Act of 1913 created a Reserve Bank Organization Committee to draw the boundaries of the districts (between eight and 12 of them) and then to pick a headquarters city for each district. Besides holding hearings around the country, the committee surveyed national banks to gauge their preferences for Reserve bank cities. More than 6,700 national banks responded. The relative total number of first- and second-choice votes is reflected in the dot size above. Cities chosen by the committee for a Reserve bank are shown in green; other cities receiving votes are shown in blue. St. Louis came in third in the voting, after New York City and Chicago. SOURCE: U.S. Reserve Bank Organization Committee, first-choice vote for Reserve bank cities, July 29, 1914. See http://fraser.stlouisfed.org/publication/?pid=604. citizens of Baltimore submitted a formal request to the Federal Reserve Board to designate Baltimore, rather than Richmond, as the location of a Reserve bank for the Fifth Federal Reserve District.30 The appeal was denied, but a branch of the Richmond Bank was opened in Baltimore. Although St. Louis was among the 12 cities chosen for a Federal Reserve bank, the RBOC assigned much of the territory sought by St. Louis boosters to other districts, notably the Eleventh District headquartered in Dallas and the Tenth District headquartered in Kansas City. Still, when it was formed, FIGURE 5 When those taking the survey were asked to recommend between eight and 12 cities for Reserve banks, St. Louis placed fourth, after New York City, Chicago and San Francisco. Again, the dot size indicates the total number of times a city was recommended. The winning cities are shown in green. SOURCE: U.S. Reserve Bank Organization Committee, location of Reserve districts in the U.S., May 28, 1914, pp. 356-57. See http://fraser.stlouisfed.org/publication/?pid=606. 75 The St. Louis Fed’s first board of directors, in the 1920s. the St. Louis-based Eighth District was the sixth-largest in Walker Hill and Oscar Fenley as Class A directors; and Murray terms of land area and the third-largest in terms of population, Carleton, W.B. Plunkett and LeRoy Percy as Class B directors. after the Second (New York) and Seventh (Chicago) districts. On Sept. 30, 1914, the Federal Reserve Board announced the States in the Midwest and South historically had relatively appointment of three Class C directors: William McChesney fewer national banks than other states, however; consequently, Martin Sr., who was named Federal Reserve agent and the Eighth District ranked only 10th in terms of national bank chairman of the board of directors; W.W. Smith, who was capital and deposits.31 named deputy Federal Reserve agent and vice chairman; and John W. Boehne. FROM SELECTION TO OPENING AND BEYOND Once it had designated 12 cities for Federal Reserve banks, The board of directors met for the first time Oct. 28 in the boardroom of the Mississippi Valley Trust Co. of St. Louis. One the RBOC began a process that led to the incorporation of of the board’s first acts was to appoint Rolla Wells as governor, the Reserve banks and the election of their boards of directors. William W. Hoxton as deputy governor and C.E. French as On May 18, 1914, representatives of five national banks cashier of the Federal Reserve Bank of St. Louis. designated by the RBOC met at the offices of the St. Louis All 12 Federal Reserve banks opened for business on Nov. 16, clearinghouse to sign the organization certificate of the Federal Reserve Bank of St. Louis. The RBOC then sent ballots rary quarters on the fourth floor of the newly built Boatmen’s to all national banks in the Eighth District to elect a board of Bank building, at the corner of Olive Street and Broadway in directors for the St. Louis Reserve Bank. On Aug. 10, 1914, downtown St. Louis. On opening day, the Bank’s staff con- the RBOC announced the election of Frank O. Watts, 76 1914. The Federal Reserve Bank of St. Louis occupied tempo- sisted of six officers and 17 other employees. On that day, the 77 78 Security forces stood guard in 1937 at the vault at the Little Rock Branch of the St. Louis Fed. Bank established a discount window and set its discount rate at 6 percent. The Bank made its first loan, in the sum of $1 million, on Nov. 18. The Bank began to provide clearing services a few days later. By Dec. 4, the Bank was offering to collect checks and drafts drawn on any Federal Reserve bank and on all Eighth District member banks. Besides lending to member banks through its discount window and providing clearing services, another important function of the Federal Reserve was to supply currency to its member banks. The Federal Reserve Bank of St. Louis made its first delivery of currency to a member bank Dec. 1, 1914.32 The Federal Reserve Bank of St. Louis moved to new, though still temporary, quarters in 1915, and eventually to its present location, at the northeast corner of Broadway and Locust Street, in 1925. Full-service branch offices were also opened in Louisville, Memphis and Little Rock in 1917, 1918 and 1919, respectively. 79 Figuring prominently among the criteria for choosing the This 1896 photo shows the by rail or, locally, by armored truck. In those days, a city’s size, locations of Reserve banks and branches in 1914 were the business connections and transportation networks were crucial size of a city’s banks and its commercial and transportation for a Reserve bank to serve its district banks. With nationwide networks. In 1914, federal law prohibited interstate branch branch banking and rapid electronic communications, such banking, and many states disallowed any branching within infrastructure is no longer as important for the location of a their state borders. Paper checks, bank drafts and cash moved Reserve bank. Electronic payments sent over the Internet have intersection of Broadway and Locust Street in downtown St. Louis. The St. Louis Fed was built in 1923-25 on the corner occupied in this photo by the light-colored building on the left, called the Singer Building. largely replaced paper checks, for example. Still, many of the benefits of a structurally decentralized Federal Reserve System remain as important today as they were in 1914. The structure remains important, for example, in the gathering of economic information for use in monetary policymaking, as well as in communicating policy actions to the public. A local presence also facilitates and enhances banking supervision, community outreach and economic education, to name just a few of the responsibilities and services a Reserve bank provides within its district. The Fed’s decentralized structure also ensures that diverse views are heard in monetary policy deliberations. Over the years, the Federal Reserve Bank of St. Louis has continued to provide payment services and discount loans for its member banks and other depository institutions, while seeing its responsibilities grow to include important roles in monetary policymaking, banking supervision, the provision of services to the U.S. Treasury and community outreach. 80 ENDNOTES 1. See Primm. This commemoration of the Bank’s 75th anniversary includes a discussion of the problems of the U.S. banking and monetary systems that Congress sought to overcome by establishing the Federal Reserve System. The book also includes background on the selection of St. Louis as the location for a Federal Reserve bank. See www.stlouisfed.org/foregone/ index.cfm. 2. See United States. Reserve Bank Organization Committee. Decision of the Reserve Bank 13. Ibid. 14. Ibid. 15. See United States. Reserve Bank Organization Committee. Federal Reserve District Divisions and Location of Federal Reserve Banks and Head Offices—Saint Louis, Missouri, p. 1,618. See http://fraser.stlouisfed.org/publication-series/?id=595. Organization Committee, April 2, 1914 (With Statement of the Committee in Relation Thereto, 16. Ibid, pp. 1,667-68. April 10, 1914), p. 24. See http://fraser.stlouisfed.org/publication-series/?id=603. 17. R.I. Peebles, cashier, The Bank of Boyle, Miss., to Mr. F.O. Watts, Jan. 17, 1914. United States. 3. The population data are from the census of 1910. The three cities later chosen for branches of the Federal Reserve Bank of St. Louis—Little Rock, Louisville and Memphis—had populations of 45,941, 223,928 and 131,105, respectively. 4. See Smith. 5. Rail line miles figure stated in A.L. Shapleigh’s testimony before the RBOC. See Reserve Bank Organization Committee, 1914, Box 2653, Folder 2: #34, Miscellaneous States. See http://fraser.stlouisfed.org/docs/historical/nara/nara_rg082_e02_b2653_02.pdf. 18. See United States. Reserve Bank Organization Committee. Federal Reserve District Divisions and Location of Federal Reserve Banks and Head Offices—Saint Louis, Missouri, pp. 1,730-31. See http://fraser.stlouisfed.org/publication-series/?id=595. United States. Reserve Bank Organization Committee. Federal Reserve District Divisions 19. Ibid., p. 1,646. and Location of Federal Reserve Banks and Head Offices—Saint Louis, Missouri, p. 1,615. 20. Ibid., p. 1,765. See http://fraser.stlouisfed.org/publication-series/?id=595. 6. Correspondent deposits, sometimes referred to as interbank deposits, are deposits held on account for other banks. Correspondent banks often provide services, especially payment 21. Ibid., p. 1,781. 22. Ibid., p. 1,783. services, for their respondent banks. National banks in St. Louis held a combined $90 million 23. Ibid., p. 1,647. of deposits for other banks. New York City national banks held by far the largest amount of 24. Ibid., p. 1,606. correspondent deposits, with $742 million, and Chicago national banks held $279 million. See United States, Reserve Bank Organization Committee. Decision of the Reserve Bank Organi- 25. Ibid., pp. 1,709-10. zation Committee, April 2, 1914 (With Statement of the Committee in Relation Thereto, April 10, 26. Ibid., p. 1,715. 1914), Table D, p. 15. See http://fraser.stlouisfed.org/publication-series/?id=603. 27. Ibid., p. 1,736. 7. For example, national banks in Kansas City ($55 million), Dallas ($6 million) and Atlanta 28. The number of first-, second- and third-place votes and recommendations for the locations of ($4 million) held substantially less correspondent balances than did St. Louis’ national banks. Federal Reserve banks is summarized in United States. Reserve Bank Organization National banks in Louisville and Memphis held $12 million and $2 million of correspondent Committee, First Choice Vote for Reserve Bank Cities, July 29, 1914. See http://fraser.stlouisfed. deposits, respectively. org/publication/?pid=604. See also United States. Reserve Bank Organization Committee. 8. New York City ranked first in national bank capital, deposits and loans. Its 35 national banks had combined capital of $249 million, deposits of $772 million and loans of $1.1 billion. For comparison, Louisville had eight national banks, with combined capital of $8 million, deposits of $20 million and loans of $28 million. Memphis had three national banks, with combined capital of $2 million, deposits of $7.5 million and loans of $7 million. See United States, Reserve Bank Organization Committee. Decision of the Reserve Bank Organization Committee, April 2, 1914 (With Statement of the Committee in Relation Thereto, April 10, 1914), Table E, p. 15. See http://fraser.stlouisfed.org/publication-series/?id=603. 9. The Federal Reserve Act required all national banks, i.e., all commercial banks with a federal charter, to join the Federal Reserve System. Membership was made optional for statechartered banks that met minimum capital requirements. State-chartered member banks were further required to comply with reserve and capital requirements applied to national banks and to submit to examination and regulations prescribed by the Federal Reserve Board. 10. For the locations of all RBOC hearings and a list of witnesses heard and exhibits presented at each location, see United States. Reserve Bank Organization Committee. Index of Witnesses and Exhibits for the Hearings before the Reserve Bank Organization Committee. See http://fraser.stlouisfed.org/publication-series/?id=599. 11. For a complete list of witnesses and transcripts of the hearings, see United States. Reserve Bank Organization Committee. Hearings Before the Reserve Bank Organization Committee— St. Louis, Missouri. See http://fraser.stlouisfed.org/publication/?pid=595. 12. See United States. Reserve Bank Organization Committee. 1912-1914, Box 2653, Folder 1: #33 Missouri Cities Al to W, from Records of the Federal Reserve System. See http://fraser.stlouisfed.org/docs/historical/nara/nara_rg082_e02_b2653_01.pdf. Location of Reserve Districts in the United States, May 28, 1914, pp. 356–57. See http://fraser.stlouisfed.org/publication/?pid=606. 29. See United States. Reserve Bank Organization Committee. Decision of the Reserve Bank Organization Committee, April 2, 1914 (With Statement of the Committee in Relation Thereto, April 10, 1914), p. 22. See http://fraser.stlouisfed.org/publication-series/?id=603. 30. See United States. Reserve Bank Organization Committee, 1914, Box 2661, Folder 1: #95, Brief on Behalf of the Citizens of Baltimore Before the Federal Reserve Board. See http://fraser.stlouisfed.org/docs/historical/nara/nara_rg082_e02_b2661_01.pdf. 31. As of March 4, 1914, the District’s 458 national banks had $83 million of capital and $379 million of deposits. By comparison, the Tenth District had 836 national banks with $93 million of capital and $521 million of deposits. See United States. Reserve Bank Organization Committee. Decision of the Reserve Bank Organization Committee, April 2, 1914 (With Statement of the Committee in Relation Thereto, April 10, 1914), Table A, p. 10. See http://fraser.stlouisfed.org/publication-series/?id=603. 32. The information in the preceding two paragraphs is from the Annual Report of the Federal Reserve Bank of St. Louis for the year ended Dec. 31, 1915. See http://fraser.stlouisfed.org/docs/ historical/frbsl_history/annualreports/1915_frbstl_annualreport.pdf. REFERENCES Primm, James Neal. A Foregone Conclusion: The Founding of the Federal Reserve Bank of St. Louis. St. Louis: Federal Reserve Bank of St. Louis, 1989. Smith, Eugene. Annual Statement of the Trade and Commerce of St. Louis, for the Year 1913, Reported to the Merchants’ Exchange of St. Louis. St. Louis: R.P. Studley & Co., 1914, p. 30. 81 The St. Louis Fed has always been located in downtown St. Louis (second building from the left). Fans of the St. Louis Cardinals baseball team swarmed the streets after the team won the World Series in 1926. 82 Reaching Our Constituents TO BETTER SERVE THE EIGHTH DISTRICT, THE ST. LOUIS FED ESTABLISHED THREE BRANCHES Today, Louisville, Ky., Memphis, Tenn., and Little Rock, Ark.—the St. Louis Fed’s branch city locations—are known for their leader- ship in such areas as logistics and shipping, health care and medical research, music and other entertainment. A hundred years ago, they were better known for gristmills, cotton exchanges and lumber. By David Wheelock ECONOMIC HISTORIAN, VICE PRESIDENT, DEPUTY DIRECTOR OF RESEARCH Then, and now, these three cities were the economic powerhouses of their regions. They were also banking centers; in fact, two of the three were in the running for a Federal Reserve bank. The branches in all three cities started operations soon after the Federal Reserve Bank of St. Louis opened for business in 1914: Louisville opened its doors in 1917, Memphis in 1918 and Little Rock in 1919. (For a look at what the branches are doing today, see the essay “St. Louis Fed Branch Offices” on page 139.) What follows is a little history on why these cities were chosen as branches. 83 Employees of the Louisville Branch posed with their flood emergency equipment in 1937. During “the big flood of 1937,” the Branch closed for business, but 20 employees stayed on the premises for five days, without going home, to manage the emergency and to clean. Louisville, Ky. The growth of Louisville’s manufacturing sector was also explosive. Between 1899 and 1909, the real (inflation- HISTORY AND ECONOMY adjusted) value of manufactured product in Louisville rose The population, industrial base and banking industry of 25 percent. Although growth subsequently slowed, the Louisville all grew rapidly in the years following the Civil total employment and output of the city’s manufacturing War, especially toward the end of the 19th century and firms exceeded those of all other Kentucky cities in 1914. the beginning of the 20th century. The city’s population In that year, Louisville firms produced 46 percent of the increased by more than five times between 1890 and 1914, state’s industrial output. The city’s leading industries from 43,194 to 235,114. This expansive growth spurred busiincluded distilled liquor, railroad repair, ground flour and ness and residential development within the city: apartment grains, metals and machinery, and printing and publishing.2 buildings, skyscrapers and the trappings of modern life.1 BANKING As in much of the nation, banking was volatile in The Louisville Branch of the St. Louis Fed was located in this building at the corner of Fifth and Market streets Louisville during the 19th century, which saw numerous bank failures and general banking instability. Despite these difficulties, the city was a leading regional banking center. in the 1920s. Louisville boasted the first national bank south of the Ohio River, and its bank clearinghouse was established immediately following the Civil War. 84 85 86 Top: When the Louisville Branch moved into new quarters in 1958, Gov. J.L. Robertson of the Federal Reserve Board came to cut the ribbon. He was flanked by Louisville employees from the Check Collection department. Today, the Branch occupies leased space in downtown Louisville. Bottom: Oftentimes, “outreach” is a literal endeavor for the St. Louis Fed. In 1947, bankers and others visited the farm of J.I. Lester near Princeton, Ky. Among those in attendance was an economist from the St. Louis Fed who gave a talk on pastures. In the years that followed, Louisville’s banking industry lesser, the independent to the dependent, to reverse the continued to expand. By 1889, 22 banks, including natural order of things, to violate precedent, and therefore 10 national banks, were located within the city’s limits. it is not seriously to be considered.” 5 Louisville’s banks provided much of the capital that was The RBOC did not choose Louisville for a Reserve used to develop the city’s industrial base and burgeoning bank. Instead, the city and the western portion of Ken- livestock industry, as well as to finance the construction of tucky were placed in the Eighth Federal Reserve District, railroads and bridges.3 When the Reserve Bank Organiza- headquartered in St. Louis. In 1916, Louisville’s represen- tion Committee (RBOC) surveyed national banks for their tatives petitioned the Federal Reserve Board for a branch preferred locations for Federal Reserve banks, 73 percent of office of the St. Louis Fed, arguing that large amounts of banks in Kentucky selected Louisville as their first choice. 4 bank deposits were being diverted away from their city to Louisville was among 37 U.S. cities to petition the RBOC St. Louis, thereby degrading the integrity and strength of to be chosen as the headquarters of a Federal Reserve banks in Louisville. Importantly, Louisville bankers argued district. The city’s boosters argued that Louisville’s location that a local branch was needed to properly administer and and industrial and commercial prominence made it well- discount the whiskey and tobacco paper, which was in situated to serve the interests of both its region and the widespread use throughout the region.6 nation. In its argument before the committee, Louisville left A few St. Louis bankers opposed the establishment no room for concession: “We have not seriously considered of a Fed branch in Louisville. Louisville’s regional Louisville being attached to some other reserve city. To importance and national prominence, however, made it attach it to Atlanta would be to attach the greater to the nearly inevitable that a branch would be opened in the city. 87 In November 1939, prices were being recorded at the Memphis Cotton Exchange before closing time. At the turn of the 19th century, cotton was king in the area. The exchange was founded in 1873, and by 1913, Memphis had the largest inland cotton market in the world. On Dec. 3, 1917, the first branch of the Federal Reserve Bank of St. Louis was opened in Louisville. Two years later, the Branch had 53 employees and served 95 member banks.7 Memphis, Tenn. HISTORY AND ECONOMY Located on the fourth Chickasaw Bluff along the Mississippi River, Memphis has served as a hub for commerce and trade regionally, nationally and internationally throughout most of its history. Like Louisville, Memphis developed rapidly in the late 19th century, diversifying its economy and investing heavily in infrastructure improvements.8 The city’s population grew rapidly, from 33,592 in 1880 to 64,495 in 1890 to 102,320 in 1900. By 1914, Memphis’ population was estimated to be 143,231, making it the largest city in the state of Tennessee.9 At the turn of the 20th century, the cotton trade was the dominant business in Memphis. Founded in 1873 in response to the formation of cotton exchanges in New York City and New Orleans, the Memphis Cotton Exchange 88 89 grew to international importance.10 According to the passed, there were 27 banks operating in Memphis, includ- Annual Statement of Trade and Commerce of Memphis, in ing three national banks.14 1913 the city had the largest inland cotton market in the Memphis was also one of 37 U.S. cities that petitioned world, with receipts for some 1 million bales of cotton. In the RBOC for a Reserve bank. Memphis saw itself as that year, Memphis also reportedly had the world’s largest having the amenities to meet the region’s economic hardwood lumber market.11 needs: within 300 miles of 13 states, a well-developed In addition to its cotton and lumber markets, Memphis mail service, access to the Mississippi River for transporta- had a developing manufacturing sector. Between 1909 and tion and trade, and 17 rail lines connecting it to the rest 1914, the city’s manufacturing output grew by 29 percent, of the country.15 led primarily by the production of oil and cottonseed Whereas Memphis was the largest city in Tennessee and products, tobacco goods and food preparations.12 In 1914, ranked first in manufacturing output, the city was not the the industrial output of Memphis exceeded that of all first choice for the location of a Reserve bank among many other Tennessee cities. Tennessee bankers. In the RBOC survey of national banks about their preferred location for a Reserve bank, Memphis BANKING received fewer first- and second-place votes than did Memphis’ first bank opened in 1834. Like many cities, Memphis faced episodic banking instability throughout the Ultimately, the RBOC placed Memphis, along with the 19th century. A nationwide banking panic in 1873, which western part of Tennessee, in the Eighth Federal Reserve coincided with a yellow fever epidemic in the South, nearly District, headquartered in St. Louis. The St. Louis Fed brought down all of Memphis’ banks. However, not a single soon opened a seasonal office in Memphis to provide Memphis bank failed when another panic struck in 1893. discount window loans and other services to area member Memphis’ banks were heavily involved in the financing of banks during the cotton season. The Memphis office was cotton agriculture, but also helped to finance the city’s upgraded to a full-service branch in 1918. By the end of economic diversification and growth at the turn of the 20th 1919, the Memphis Branch had 68 employees and served century.13 In 1913, the year the Federal Reserve Act was 90 Chattanooga and Nashville—sister cities in Tennessee. 42 member banks.16 This building at Jefferson Avenue and Third Street (seen here in 1943) housed the Memphis Branch from 1929 to 1972. 91 Little Rock, Ark. HISTORY AND ECONOMY Because of its location along the Arkansas River and close proximity to the center of the state, Little Rock was well-situated as the Arkansas state capital and as the state’s economic leader. In 1914, Little Rock was the only Arkansas city with more than 50,000 residents, accounting for 3 percent of the state’s population.17 Little Rock grew rapidly during the early 20th century, doubling in size between 1890 and 1914, including 17 percent between 1909 and 1914. Construction activity was brisk: The city’s first skyscraper (1907), the Arkansas Capitol (1899-1914) and the municipal airport (1917) were all constructed during these first two decades.18 Though small in stature, Little Rock was a city on the rise. The leading industries of Little Rock in the early 20th century were lumber, cottonseed, and printing and publishing. Lumber production and allied products employed 39 percent of the Little Rock manufacturing labor force and comprised 28 percent of the city’s total manufacturing output.19 92 BANKING According to University of Arkansas historian John Dominick, Arkansas state banks were chartered at an “alarming rate” in the late 19th and early 20th centuries. The number of banks increased from 83 in 1891 to a peak of 425 in 1914. This haphazard growth brought with it a series of bank failures, which, in Dominick’s estimation, stable foundation from which the banking industry occurred primarily as a result of an oversaturated market, could flourish. 20 low capital requirements and poor bank management. While clearly the most important city in Arkansas, Little State legislators saw a need for more regulation. In 1913, Rock was not seen as a national center for banking and they passed legislation establishing a state bank depart- finance. In the RBOC’s survey of national banks about ment to regulate bank operations and institute a more their preferences for the locations of Reserve banks, Little Employees of the Transit department paused from their work handling checks and cash items at the Little Rock Branch in 1940. 93 Rock received no first-choice votes, one second-choice quartered in St. Louis. In 1918, the Federal Reserve vote and just two third-choice votes. The majority of the Board granted a petition to establish a branch of the state’s national banks listed St. Louis or Kansas City as Federal Reserve Bank of St. Louis in Little Rock. The their first choice. 21 Little Rock Branch opened Jan. 6, 1919. By the end The RBOC placed Little Rock, along with the entire state of Arkansas, in the Eighth Federal Reserve District, head- In 1958, bags of coins were taken into the vault of the Louisville branch and stored in cubicles. 94 of the year, the Branch had 38 employees and served 57 area member banks.22 ENDNOTES 12. See Webb. 1. See Yater, pp. xxii-xxiii. 13. See James and Young, pp. 579-83. 2. Preceding two paragraphs are from Sandmeyer, “Kentucky.” 14. Memphis Merchants Exchange, p. 38. However, the RBOC’s Location of Reserve 3. See McCabe, pp. 59-60. 4. See United States. Reserve Bank Organization Committee, 1914, Location of Reserve Districts in the United States, p. 353. 5. See United States. Reserve Bank Organization Committee, 1914, Box 2654, Folder 1: Arguments in Behalf of Louisville as a Federal Reserve City, p. 9. 6. See Federal Reserve System Board of Governors, pp. 8-10. 7. See annual reports of the Federal Reserve Bank of St. Louis from 1917 through 1919 at http://fraser.stlouisfed.org/publication/?pid=149. Districts in the United States (Table F) reports that there were 22 banks in Memphis. 15. See United States. Reserve Bank Organization Committee, 1914. Location of Reserve Districts in the United States, pp. 205-08. 16. See annual reports of the Federal Reserve Bank of St. Louis from 1917 through 1919 at http://fraser.stlouisfed.org/publication/?pid=149. 17. Compiled from “Cities Having 50,000 or More Inhabitants in 1914: Population at Each Census, 1850 to 1910, with Estimates for July 1, 1914,” in Statistical Abstract of the United States of 1914 (U.S. Bureau of Foreign and Domestic Commerce), Table 29, pp. 42-43. 8. See James and Young, p. 213. 18. See Bell. 9. Compiled from “Area, Natural Resources, and Population,” in Statistical Abstract 19. See Sandmeyer, “Arkansas.” Table 31. of the United States of 1914 (U.S. Bureau of Foreign and Domestic Commerce), Table 29, pp. 42-43. 10. See Wrenn. 11. See Memphis Merchants Exchange, pp. 22-23. 20. See Dominick. 21. See United States. Reserve Bank Organization Committee, 1914. Location of Reserve Districts in the United States, p. 351. 22. See annual reports of the Federal Reserve Bank of St. Louis from 1917 through 1919 at http://fraser.stlouisfed.org/publication/?pid=149. REFERENCES Bell, James W. “Little Rock (Pulaski County),” in The Encyclopedia of Arkansas History and Culture, 2013. See www.encyclopediaofarkansas.net/encyclopedia/ entry-detail.aspx?entryID=970. Dominick, John. “Banking,” in The Encycopedia of Arkansas History and Culture, 2009. See www.encyclopediaofarkansas.net/encyclopedia/entry-detail.aspx?entryID=5000. Federal Reserve System Board of Governors. 1916, Hearing Before the Federal Reserve Board on Behalf of the City of Louisville, Petitioning for a Branch Federal Reserve Bank of the St. Louis Reserve District. See http://fraser.stlouisfed.org/publication-series/?id=488. James, A.R.; and Young, J.P. Standard History of Memphis: From a Study of the Original Sources (Knoxville: H.W. Crew & Co., 1912). This history of the city of Memphis provides the reader with not only the historical development of this major southern city, but also a glimpse into the way Memphians regarded themselves in view of both their history and future in the early 20th century. McCabe, James. R. “Banking.” In The Encyclopedia of Louisville, ed. John E. Kleber (Lexington: The University Press of Kentucky, 2001), pp. 59-63. Memphis Merchants Exchange. Annual Statement of Trade and Commerce of Memphis, Tennessee, for the Year Nineteen Hundred and Twelve. Memphis: Memphis Merchants Exchange, 1913. Available in google.com/books by searching the title. Sandmeyer, Henry W. “Arkansas,” in U.S. Census of Manufactures, 1914: Vol. II, Reports by States with Statistics for Principal Cities and Metropolitan Districts. Washington, D.C.: Government Printing Office, 1918, pp. 777-817. Sandmeyer, Henry W. “Kentucky,” in U.S. Census of Manufactures, 1914: Vol. II, Reports by States with Statistics for Principal Cities and Metropolitan Districts. Washington, D.C.: Government Printing Office, 1918, pp. 473-97. United States. Reserve Bank Organization Committee, 1914, Box 2654, Folder 1: Arguments in Behalf of Louisville as a Federal Reserve City, from Records of the Federal Reserve System. See http://fraser.stlouisfed.org/docs/historical/nara/ nara_rg082_e02_b2654_04.pdf. United States. Reserve Bank Organization Committee, 1914, Location of Reserve Districts in the United States. See http://fraser.stlouisfed.org/publication/?pid=606. Webb, Martin T. “Tennessee,” in U.S. Census of Manufactures, 1914: Vol. II, Reports by States with Statistics for Principal Cities and Metropolitan Districts. Washington, D.C.: Government Printing Office, 1918, pp. 777-817. Wrenn, Lynette Boney. “Memphis Cotton Exchange,” in The Tennessee Encyclopedia of History and Culture, version 2.0, 2011. See http://tennesseeencyclopedia.net/ entry.php?rec=893. Yater, George H. “Louisville: A Historical Overview,” in The Encyclopedia of Louisville, ed. John E. Kleber (Lexington: The University Press of Kentucky, 2001), pp. xv-xxxi. 95 96 A Symbol of Strength ON E FEDERA L RE S ERVE BA NK PLA ZA During its first 10 years, the St. Louis Fed lived a nomadic existence. After opening for business Nov. 16, 1914, at the Boatmen’s Bank Building at Olive Street and Broadway (the current Marquette Building), the Bank relocated several times within downtown St. Louis to accommodate growth in staff. Land for the current building at Broadway and Locust Street was bought in 1918, but high construction costs delayed the groundbreaking until 1923. The building was designed by the architectural firm Mauran, Russell and Crowell in a neoclassic style. It was constructed of Bedford, Ind., limestone and Rockville, Minn., granite. Medallions Construction on the St. Louis Fed’s current headquarters at Broadway and Locust Street started in 1923, and the building opened on June 1, 1925. were carved into the stone with the coats of arms of the United States and of each state the Eighth District serves. When the Bank opened the doors of its new building June 1, 1925, it had 219,000 square feet of floor space. The building sits atop the Bank’s vault, which was described in a 1925 internal Bank publication as “near burglar, mob, fire, and explosive proof as science and engineering 97 skills can make them.” The vault’s 44-ton, 30-inch-thick consideration were both a new building, and renovation door remains in use today. and expansion of its long-standing home. The Bank elected Over the years, the St. Louis Fed’s headquarters has to stay in the heart of downtown St. Louis and take on a undergone several renovations. An annex, consisting of major renovation of the entire building. Improvements 25,000 square feet, was added in 1946. In 1949, the Bank included constructing a new attached tower, recladding bought and renovated property adjacent to the Bank—the the former Nugent’s building to provide a cohesive former Nugent’s Department Store. In 1991, the Bank’s exterior appearance while also improving security, lobby, research library and mezzanine floor underwent modernizing the conference and dining facilities, major renovations. renovating all staff work areas to better meet current Following the turn of the 21st century, the Bank undertook an evaluation of its long-term space needs. Under 98 business needs, and enhancing the physical security in the wake of the terrorist attacks of Sept. 11, 2001. The St. Louis Fed was built on top of the vault, which was described in a 1925 Bank publication as “near burglar, mob, fire, and explosive proof as science and engineering skills can make them.” The vault, still in use today, has a door that weighs 44 tons and is 30 inches thick. 99 100 What does the St. Louis Fed actually do? Our key leaders each explain their responsibilities and those Our Work of their staff—from everyday operations to the shortand long-term goals. Here and there, some of the numbers behind this work are highlighted. Programs and services that serve as the face of the St. Louis Fed are highlighted as well. 101 In the 1920s, much of the customer service was provided face to face. For example, tellers were on hand to redeem savings bonds and conduct other financial transactions. Today, service is provided in many high-tech ways, but in-person connections haven’t been forgotten. 102 Premier Service Provider LISTENING, ASSESSING, MAXIMIZING PERFORMANCE By David Sapenaro FIRST VICE PRESIDENT AND CHIEF OPERATING OFFICER As with those of all organizations, the Federal Reserve Bank of St. Louis’ vision, goals and strategies have evolved over the past century to address changing times, key environmental factors and our own aspirations. However, one constant that hasn’t changed (at least in the two decades I have worked at the Bank) is a commitment to provide valued services to our constituents and to be viewed by them as a premier service provider. How do we turn this commitment into real results, rather than just management rhetoric? First, we listen to our customers. All Bank functions, regardless of whom they serve, have mechanisms in place to capture feedback, such as through formal surveys, social media and one-on-one interactions, whether in person or over the phone. For example, close to 550 financial institutions were visited by our Branch regional executives over the past three years as a part of our regional Financial Institution Touch program, which is designed to seek input on local economic conditions and to answer questions about services 103 provided by our Bank. Second, we systematically use that metrics to ensure that we meet or exceed targets, as well as feedback to assess customer satisfaction and to identify to identify and resolve problems in a timely manner. And needs that could lead to new products and services. An fourth, we assess our performance against external bench- example comes from a survey of users of Federal Reserve marks to provide additional insight into potential opportuni- Economic Data (FRED), our signature online economic data- ties to strengthen the value of our services. base. They wanted enhanced graphing functionality, and Following these processes isn’t complicated or obscure. we delivered one-step graph downloading, mouse-sensitive plot displays and other interactive capabilities. Third, we Hodgenville, Ky., in 1947 and spoke on cost and return of soil improvement in front of an audience of farmers and bankers. 104 to methodically follow them, refine them and assess their monitor more than 50 quality and constituent-satisfaction the H.P. Smith Farm in making them work and because we are disciplined enough sent a “stretch” for us to achieve. At the executive level, we St. Louis Fed agricultural ness 101 class. But they work because we are committed to closely monitor our performance against targets that repre- economist Don Henry visited They are pretty much straight out of a textbook for a busi- effectiveness. We didn’t achieve 100 percent of our targets VALUE OF CONTRIBUTIONS AND CANNED GOODS DONATED BY EMPLOYEES TO A LOCAL FOOD BANK IN 2013 right out of the gate. We still don’t have it perfect. But $30,394 the journey continues. Although listening to our customers is key to being a premier service provider, equally important are employees AMOUNT DONATED TO THE UNITED WAY BY EMPLOYEES SINCE 1996 $3,492,127 who have a relentless desire to innovate and a positive work environment. We have both. Innovation is the engine that drives ongoing constituent satisfaction. Although the core responsibilities of the Bank have remained largely unchanged over the past • Ask the Fed: This monthly call-in program provides century, how we meet the needs of the people we serve an additional communication channel between Fed has evolved. Listening to and leveraging feedback from officials and leaders of state member banks and bank customers has led to innovative services. Recent exam- holding companies throughout the nation on emerg- ples include: ing and important financial and supervisory topics. • Dialogue with the Fed and its Spanish version, • Go Direct: This education and marketing Diálogo con la Fed: These discussions with Bank campaign, conducted on behalf of the U.S. Treasury, economists and other experts are held periodically was designed to encourage recipients of federal at the Bank and its branches, providing information benefit checks (such as Social Security) to switch on the key economic and financial issues of the day. to electronic payments, such as direct deposit. The sessions are free and open to the public; questions The campaign has resulted in an estimated from the audience are always encouraged so that there $1.15 billion savings for the Treasury and, therefore, is a true dialogue. All discussions are archived in one the American taxpayer. form or another and are available to be viewed at any time on the Bank’s website. • FRED: This is an online database of more than 236,000 time series of economic data from more than 105 60 sources. At no charge, users can download, graph We also believe that a positive culture is the most and track data. FRED and other products in the FRED powerful, long-term employee motivator. As such, no family, such as ALFRED, GeoFRED and FRASER, are organization can be a premier service provider without used worldwide, and their value is recognized exter- a sustained positive culture. We are proud that Bank nally by distinguished economists and columnists. employees have consistently viewed the work environ- • Econ Lowdown: For teachers at all levels, as well ment positively. In a national business and industry as the general public, we’ve got the lowdown on ranking, the Bank’s workforce commitment score the basics of economics, personal finance and the placed in the 93rd percentile among the more than Fed itself. We’ve got videos, podcasts, lesson plans, 900 organizations participating in the survey. As with newsletters and more for teaching in the classroom our process-improvement efforts and our innovative and for teaching yourself. spirit, we are committed to providing an outstanding The final ingredient in our journey to be a premier work environment for our employees—it’s the right service provider is a positive work environment. The Bank’s thing to do for them, and it’s the right thing to do to management believes an organization’s culture must be man- serve our constituents. aged on an ongoing basis, because it can either be an asset or The Bank has received several awards over the past a detriment to achieving organizational excellence. The Bank makes ongoing investments in personal learning for employ- operations. Among other honors, we received the ees; examples include individual development plans, lunch ‘n’ Missouri Quality Award and were named one of the learn sessions and similar educational programs, on-site train- St. Louis Regional Chamber’s “Top 50 Businesses.” We ing on timely topics, and tuition reimbursement programs. view these awards as indicators that we are on the right The work environment is also enhanced through employee track when it comes to being a premier service provider. contributions, including volunteers serving on a wide range But this is a journey that has no end, because we are of internal groups, such as the Diversity Council, the Green always pushing ourselves to improve and to exceed our Team, the Activities Committee and the Safety Committee. 106 few years that speak to the quality of our services and constituents’ expectations. A Competition of Ideas ECONOMISTS NEED FREEDOM TO CHALLENGE POLICYMAKERS By Christopher J. Waller SENIOR VICE PRESIDENT AND RESEARCH DIRECTOR The Research division of the Federal Reserve Bank of St. Louis has long been renowned for its cutting-edge research, policy analysis and provision of economic information to the public. This tradition dates back to the 1960s, when Homer Jones was the director of the Bank’s Research division. At that time, the St. Louis Fed took a very contrarian stance on how monetary policy should be conducted and backed that stance with top-flight economic research. Although theoretical arguments are necessary to win the war of ideas, empirical evidence is needed to support those theories. That requires data. Hence, for more than 50 years, the Research division has melded the collection and analysis of relevant data with frontier economic research to support the Bank’s presidents in their monetary policy role. Most of our research is in the academic tradition, in which we encourage economists to identify and pursue good research questions on their own. The objective of academic research is to expand 107 St. Louis Fed President Darryl Francis (at the head of the table) discussed the discount policy and borrowing records of member banks with members of the board of directors in October 1966. the boundaries of knowledge about economics and policy. policy and are willing to critique actions taken by the Federal Thus, for the most part, we encourage our staff economists Open Market Committee, the main policymaking body of the to pursue their own ideas, rather than tell them which Federal Reserve System. To evaluate arguments of academic questions to work on. critics and make use of good ideas and research for policy, the We have found that the best policy advice comes from Fed must have economists who work at the frontier of knowl- economists who work at the frontier of economic thinking. Academic economists are often vocal in their views about 108 edge. Fed economists must be able to explain their own views in a rigorous way, as well as explain why an alternative claim about policy is suspect. A healthy competition of ideas allows the best theories and policies to win in the end. At the St. Louis Fed today, we largely eschew “directed” research. That is, we rarely tell one of our economists to answer a specific question, let alone to do so in a very DOWNLOADS OF PAPERS ON THE IDEAS WEBSITE IN 2013 short period of time. (An example of a directed research ABSTRACT VIEWS OF PAPERS question would be: Why did labor force participation rates ON THE IDEAS WEBSITE IN 2013 drop so much last month? The economist would track current economic data, particularly local conditions, and tell a SERIES ON FRED WEBSITE AT THE END OF 2013 narrative to explain the data movements.) Until the 1960s, however, directed research was the norm throughout the SERIES ADDED TO FRED WEBSITE DURING 2013 Federal Reserve System. That changed in St. Louis under 2,313,990 10,894,266 150,000+ 100,000+ Jones, who believed that research should help guide monetary policy and to do so meant adopting an academic-style research focus. He demanded that the Bank’s economists be at the forefront of economic thinking. Academic research is valuable because the thinking Academic research is rigorously vetted before publication in peer-reviewed journals. It is forged in the fires of debate about economic issues is unrestricted. It is proactive in that and criticism. Academic research also takes the form of it often focuses on interesting issues long before they come program evaluation (economic autopsies) of major eco- to the attention of policymakers. For example, in 2000, few nomic events. It can take years to analyze and understand would have thought that studying the housing market was what happened and what policies or regulations need to be relevant for monetary policy. Eight years later, housing was changed. In this sense, it is timeless. at ground zero. By that point, it was too late to start doing research on the topic. Proactive research was required. In contrast, directed research is time-sensitive and reactive in nature. It often leads to quick and incomplete answers 109 that are not vetted by the economics profession. Consequently, high-quality directed research requires a Directed research is often done in the form of simpler deep understanding of academic research, which usually analysis that involves the gathering and organizing of requires economists who are engaged in academic facts, combined with a clear-cut narrative. This sort of research at a high level. analysis is often satisfactory for answering questions of The key takeaway is that both forms of research— fact or when some information is required in short order, academic and directed—are valuable; they are comple- but such analysis is often not very deep. Furthermore, ments, not substitutes. The research staff at the St. Louis there is usually no post-mortem of the analysis; once the Fed engages primarily in academic research because that issue is off the front page, it is not looked at again. forms the basis for the directed research and policy advice Importantly, the basic information source for most directed research is often the academic literature. Anatol “Ted” Balbach, seen here in 1984, headed the St. Louis Fed’s Research division from 1975 until 1992. During his tenure, the division built on its reputation as a main center for research on the role of money in the setting of monetary policy. 110 that we provide to our president, our board of directors and the general public. Keeping a Watchful Eye BANKING SUPERVISORS TAKE ON NEW CHALLENGES By Julie L. Stackhouse SENIOR VICE PRESIDENT BANKING SUPERVISION AND REGULATION Banking supervision has changed considerably over the past 100 years. While the work of banking supervisors has always been different from the portrayal in Frank Capra’s 1946 film, It’s a Wonderful Life, the process has evolved from a point-in-time examination—during which even the bank’s cash was counted—to a sophisticated approach— whereby part of the examination might be conducted off-site using electronic records from the institution. Perhaps the greatest changes have come in the past five years. As a result of the Dodd-Frank Act, which was signed into law in 2010, the Federal Reserve now supervises and regulates all bank holding companies, savings and loan holding companies, state-chartered banks that are members of the Federal Reserve System, and any nonbank that is designated as a systemically important financial institution by the Financial Stability Oversight Council. Institutions and industries previously outside of the Fed’s purview now must be 111 124 155 106 STATE-CHARTERED BANKS UNDER THE ST. LOUIS FED’S SUPERVISION AT THE END OF 2013 institution, they also look across institutions and business lines to identify risks. For example, supervisors today not only will look at the loan portfolio and compensation ATTENDEES AT THE INAUGURAL COMMUNITY BANKING RESEARCH CONFERENCE IN 2013 practices of an individual institution, but also may conduct a horizontal review of executive compensation or commercial RAPID RESPONSE SESSIONS HELD IN 2013 real estate lending. In today’s dynamic environment, banking supervisors also recognize that risks are not inherent solely in a bank’s loan supervised with the same amount of skill, critical analysis book. There are risks related to the processing of payments and depth of knowledge that is employed in our banking for third-party vendors, risks related to fair lending and risks examination processes. involving cybersecurity, to name a few. Banking supervisors The changes in our financial and regulatory systems can must understand and be able to integrate all sorts of risks, be seen in many attributes, many of which are integral to even those that can emerge from consumer or service opera- the banking supervision function of the Federal Reserve tions or through inadequate infrastructure investments. Bank of St. Louis: The Fed is focused on forward-looking risk analysis and is Banking supervisors strive for a regulatory system that is balanced relative to institutional risk: Banking supervisors as concerned with systemic risk as it is with institutional risk: Supervising a spectrum of institutions—from large and to be able to respond to changing consumer demands complex to small and community-oriented—requires the and changing economic factors to be successful. But the Fed to be adequately prepared to address the challenges of operations of a community bank are not the same as the today and to be able to anticipate, and effectively identify, operations of a large bank. Community banks typically the risks of tomorrow. While examiners continue to review have a traditional risk profile that is easy to understand the financial health and compliance effectiveness of each 112 understand that banks are natural innovators and need and examine. Systemically important financial institutions, on the other hand, are far more complex and subject to bankers only) and Rapid Response program (for examination many additional regulations, including enhanced prudential staff only). These programs, which were largely originated standards under the Dodd-Frank Act, capital stress testing during the financial crisis, allow for important supervisory and liquidity regulation. and regulatory information to be communicated, in nearly Banking supervisors work closely with their regulatory and functional counterparts: In today’s environment, banking Supervising a spectrum of institutions—from large and complex to supervisors must maintain open lines of communication small and community-oriented—requires the Fed to be adequately with other state and federal regulators, banking trade associations and community organizations that operate in prepared to address the challenges of today and to be able to anticipate, and effectively identify, the risks of tomorrow. markets served by these institutions. They must understand the Fed’s traditional role in promoting U.S. financial stability and the risks posed by payment and settlement activities, and they must interact with colleagues in lending and payment risk functions. The Fed ensures that both examiners and financial institutions understand the laws, regulations and industry issues Much has changed about facing them: This responsibility is significant. The DoddFrank Act alone has 848 pages and, by some estimates, banking supervision since these St. Louis Fed examiners were on the job has resulted in more than 400 new rules for the financial in Hot Springs, Ark., services industry. The St. Louis Fed has taken a leadership of an exam might now be in 1958. For example, parts conducted off-site using a role in aiding the banking supervision staff and the financial bank’s electronic records. industry in understanding the expectations contained within laws and regulations through its Ask the Fed program (for 113 real time, to state and federal regulators and financial institu- of our financial system. The challenges of today will not tions. Effective communication is paramount to promoting be the challenges of tomorrow. Banking supervision has financial stability and ensuring the safety and soundness of evolved to keep up with the speed of change and innova- the U.S. banking system. tion in the banking industry. Although this has never been a The Federal Reserve’s centennial commemoration perfect process, the lessons we’ve learned over the past 100 reminds us that the reason we’ve been effective as an years, including during the most recent financial crisis, position organization is that we’ve changed to meet the challenges us for superior effectiveness in the next 100 years. Banking Supervision: The Fed has supervisory and regulatory authority over a variety of The Basics staff works to promote: 1) a safe, sound and stable financial system financial institutions and activities. In general, the Fed’s supervision that supports the growth and stability of the U.S. economy, and 2) a fair and transparent market for consumer financial services. These efforts are accomplished through: • Assessing the safety and soundness of supervised financial institutions • Carrying out consumer compliance supervisory activities to protect consumers and promote a fair and transparent market for the services they need • Processing applications to acquire or merge with other institutions or to change ownership • 114 Ensuring enforcement of laws and regulations Fiscal Agent for the U.S. Treasury DELIVERING INNOVATION AND EFFICIENCY IN FEDERAL FINANCIAL MANAGEMENT By Kathleen O’Neill Paese SENIOR VICE PRESIDENT TREASURY SERVICES In 1915, the 12 Federal Reserve banks were designated as fiscal agents of the United States. Today, the Reserve banks provide support for the U.S. Treasury Department’s accounting, collections, payment and debtmanagement functions. The Federal Reserve System is a trusted partner, helping the Treasury meet its goal of transforming and modernizing federal financial management. The responsibilities for the Fed are great, as it is charged with supporting the essential financial-management services provided by the Treasury and its bureaus to federal agencies and the public. For the fiscal year ending September 2013, the Treasury auctioned more than $7 trillion in marketable securities, collected $3.16 trillion in receipts and issued more than $2.4 trillion in payments. In addition, the Treasury’s Bureau of the Fiscal Service accounts for the nation’s debt to the penny each day. As fiscal agents, the Federal Reserve banks ensure that the systems that facilitate and track this extensive volume of financial transactions are working properly; the banks also ensure that the flow of government funds is efficient, dependable and secure. 115 100 $1.15 BILLION PERCENT ACCURACY IN PAYMENTS TO DEPOSITORY INSTITUTIONS needs, ensuring that the total debt outstanding is within statutory limits. SAVINGS TO TAXPAYERS DUE TO At the same time, we are working to consolidate multiple GO DIRECT CAMPAIGN systems into a single authoritative source for federal governAt the St. Louis Fed, we share the Treasury’s commitment ment accounting information. The applications developed and to innovation and efficiency. The St. Louis Fed’s Treasury operated by St. Louis’ TFM department will provide the Bureau division is composed of four departments: Treasury Financial of the Fiscal Service and federal agencies with the ability to Management (TFM), Treasury Agency Support (TAS), Treasury produce financial reports that are more timely, accurate and Collateral and Cash Management (TCCM) and the Treasury reliable, while reducing the reporting and reconciliation burden Relations and Support Office (TRSO). Through these, the on federal agencies. St. Louis Fed not only provides financial-management systems Building on our proven record of leadership, the St. Louis and operations support to the Treasury, but also performs an Fed’s responsibilities were expanded in 2012 to provide critical important leadership and coordination function for Treasury support for the Treasury’s efforts to reduce the issuance of support activities throughout the Federal Reserve System. improper government payments. This resulted in the for- The St. Louis Fed’s Treasury division has been instrumental mation of a new office within the Treasury division: the TAS in rewriting several of the federal government’s accounting department. The Do Not Pay team in TAS is helping all federal systems. Overhauling these systems is a multiyear endeavor, agencies to confirm that the right recipients receive the right one that is necessary for increasing the accuracy and timely payments for the right reasons at the right times. By incorpo- reporting of federal accounting information. rating robust data analytics into the government’s payment Innovation, likewise, is driving the St. Louis Fed’s efforts to functions, the St. Louis Fed is helping agencies identify and develop state-of-the-art systems for forecasting and investing federal government funds. These systems will enhance the ness intelligence services provided by the Do Not Pay team in Treasury’s ability to produce daily forecasts of its funds held at St. Louis, government agencies are able to strengthen internal the Fed and to determine the government’s borrowing 116 eliminate improper payments. With the data analytics and busi- controls to reduce payment errors, waste, fraud and abuse. In addition to Do Not Pay, TAS provides customer call center support for a broad portfolio of Treasury programs. TAS interacts with federal agencies on the Treasury’s behalf, providing outreach and onboarding services for a range of the Treasury’s An employee of the St. Louis Fed’s financial-management applications and services. Collaboration Treasury support center assists a between the Reserve banks and the Treasury is essential, not customer. only for ensuring the smooth functioning of government financial systems, but also for establishing future plans to enhance and evolve these systems to meet the changing needs of government. In 2013 and early 2014, the Treasury conducted a review In 2001, the St. Louis Fed was selected as the Reserve of all fiscal agent support in the Fed System with a desire to bank responsible for establishing and leading the TRSO. The better align similar functions and improve efficiency and cost TRSO manages the Fed System’s overall relationship with the effectiveness. In April 2014, the Treasury announced that the Treasury—coordinating all System initiatives related to the St. Louis Fed was selected as one of four “core” Reserve banks Treasury—and serves as the central point of contact for policy that will support the Treasury’s cash-management, accounting, issues, new initiatives and problem resolution. The office collateral and enterprise functions. The St. Louis Fed will be monitors most of the fiscal agent support provided by the taking on responsibility for five additional fiscal agent functions 12 Reserve banks. The TRSO serves a unique role among the currently provided by other Reserve banks. Some of the trans- Reserve banks, offering System-wide leadership and coor- ferring functions (such as the Treasury Collateral Monitoring dination of fiscal agent support to the Treasury. The TRSO function and the Bank Management Service) and other current identifies opportunities to improve and streamline existing St. Louis Fed functions (such as all cash management func- Fed System support for the Treasury, along with identifying tions) will fall under the new TCCM department, which was potential new support activities that would help the Treasury established in mid-2014. to achieve its strategic objectives. 117 Hot-button issues, such as the 2013 debt-ceiling goal was to make government transactions more efficient situation and the government shutdown, often and save taxpayer dollars. And again, the TRSO was asked to require the TRSO’s active engagement. The manage a public education campaign to support the switch. TRSO works with each Reserve bank and Treasury The campaign is called Ready.Save.Grow. The move from representatives to assess the operational impact paper to electronic bond sales is expected to save American of policy decisions and to determine appropriate taxpayers approximately $70 million over the first five years actions for keeping the government’s payment of the program. Since being launched, Ready.Save.Grow. has and support systems fully functional in the event developed into a robust education campaign to help people of any type of disruption or crisis. In addition, in recent years, the TRSO has been tapped to save through affordable, safe and convenient Treasury savings options. These include the myRA Treasury retirement account, manage two high-profile public education campaigns on behalf announced by President Barack Obama in his 2014 State of of the Treasury, both with the ultimate goals of increasing effi- the Union address. A key task for the TRSO will be to raise ciencies within the government’s financial systems and saving awareness about and support the implementation of the taxpayer dollars. The Go Direct program began in 2004 to myRA Treasury retirement account. encourage recipients of federal benefit payments to switch to As fiscal agent, the St. Louis Fed’s Treasury division is electronic direct deposit for those payments, thereby reducing committed to providing exceptional support to the Treasury. the Treasury’s issuance of costly paper checks. The Treasury Whether developing new systems, providing support to department estimates that the Go Direct campaign saved agencies and the public, or leading and coordinating $1.15 billion in taxpayer dollars and will save $1 billion more over Reserve bank fiscal agent services, our goal is to help the the next 10 years. By the time the Go Direct campaign con- U.S. Treasury meet its strategic objective to transform cluded in March 2013, the program surpassed the goal to have federal financial management. 96 percent of all federal benefit payments made electronically. In 2012, the Treasury discontinued the sale of paper savings bonds and began selling bonds exclusively online. Again, the 118 Adapting as Payments Evolve REDUCING COSTS WHILE MAXIMIZING SERVICE By Karl W. Ashman SENIOR VICE PRESIDENT ADMINISTRATION AND PAYMENTS The Federal Reserve System plays an integral role in ensuring an efficient and reliable payment system, allowing consumers, businesses and other organizations to be confident in making transactions. The Federal Reserve Bank of St. Louis, in particular, has played a significant role in helping the System respond as consumer payment preferences have shifted over the years. It wasn’t that long ago that checks were the dominant form of payment. As recently as 2007, the St. Louis Fed alone was working around the clock to process approximately 3.5 million checks per day. Across the System, the Fed in the early 2000s had 45 checkprocessing sites. These were split among the 12 Reserve banks and their branches, including the St. Louis Fed and its three branches in Little Rock, Ark., Louisville, Ky., and Memphis, Tenn. One of the challenges of having so many processing sites was that many different methods, software programs and platforms were used. Toward the end of the 20th century, the System embarked 119 SUSPECTED COUNTERFEIT NOTES SENT BY THE ST. LOUIS FED AND ITS BRANCHES TO THE SECRET SERVICE IN 2013 3,402 NOTES UNFIT FOR CIRCULATION SHREDDED BY THE ST. LOUIS FED AND ITS BRANCHES IN 2013 136,324,768 VALUE OF NOTES SHREDDED BY THE ST. LOUIS FED AND ITS BRANCHES IN 2013 $4,213,742,658 on a redesign of its check-processing services. The effort, called Check Modernization, was highly successful. It also occurred as checks were rapidly losing favor as the preferred method of noncash payments by consumers. One study on the Fed payment system shows that the total number of checks processed fell from about 50 billion in 1995 to about 37 billion in 2003. The System began consolidating its 45 check-processing sites in 2003, eventually going with a single processing site—the Federal Reserve Bank of Atlanta—by early 2010. In the Eighth District, check processing for the Little Rock and Louisville branches was consolidated in 2004, the Memphis Branch stopped processing checks in 2008, and the St. Louis Fed processed its last commercial check Feb. 20, 2009. When the branches lost their check-processing responsibilities, many lost the bulk of their operations work. The only such work that was left was providing cash services for commercial banks. But without the check business to pay for support and overhead costs, it was no longer economi- 120 Opening the Bank’s mail in 1923 wasn’t a job for just a couple of people, but for dozens. cally efficient to provide these cash services. The St. Louis Fed pioneered an alternative that has since been adopted in some Fed offices: cash depots. With a cash depot, the Fed contracts with a third party, such as an armored carrier, to act as a secure collection point for Federal Reserve currency deposits. The depot also distributes currency that depository institutions order from the Fed. The work of counting deposits and preparing orders is done by a Fed office in another city, and the Fed pays for the transportation between the Reserve bank office and the depot operator. Establishing cash depots made it possible to continue to provide cash services to financial institutions on a timely basis while cutting the Fed’s costs. In fact, this innovation led to annual savings of $2 million to taxpayers. Today, cash operations continue to be a significant function within the St. Louis Fed. In 2013, the St. Louis Fed and its Memphis Branch received and sent out about 3 billion Federal Reserve currency notes, shredded more 121 than 136 million notes deemed unfit for circulation and The St. Louis Fed continues to examine the future of sent more than 3,000 suspected counterfeit notes to payments in the U.S., recognizing continued shifts in con- the U.S. Secret Service for investigation. sumer preferences and coming up with innovative ways to These changes to the work done by the St. Louis Fed have contributed to the ongoing evolution of its workforce. At one time, most employees worked in operations; today, more and more are skilled in technology and business analysis, in addition to banking and economics. As the “bankers’ bank,” the St. Louis Fed handles billions of pieces of currency a year. In the process, it counts and sorts the money, discards currency that is worn out and hands suspected counterfeit notes over to the Secret Service. 122 ensure stability and efficiency of the payment system. In the days when everybody wrote checks, various Federal Reserve banks— including the St. Louis Fed— processed millions of them every day. And that meant there were check records to store—nine shelves high in this St. Louis Fed storeroom in 1967. 123 Keypunch operators were high tech in 1964. 124 Structure and Governance PROVIDING OVERSIGHT AND A WINDOW TO MAIN STREET By Mary H. Karr SENIOR VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY An earlier section of this commemorative book discussed the political compromises and considerations that led to the creation of the Fed and the placement of one of the 12 Reserve banks in St. Louis. The same consideration—balancing the interests of Main Street, Wall Street and Washington, D.C.—remains as relevant today as it was in the early 20th century, when the Fed was created. That these distinctions remain important to national well-being was evidenced during the financial events of the early part of the current century. Views about the ultimate causes of the financial crisis vary widely, but all acknowledge that its impact was felt differently on Main Street, on Wall Street and in Washington. Even in “normal times,” it is beneficial to the nation to have a decentralized central bank that reflects the needs and interests of the entire country. The Washington part of the Fed—the Board of Governors, an independent agency—oversees the regional Reserve banks, sets supervisory policy for the financial institutions it regulates 125 352 146 REMARKS BY FOMC PARTICIPANTS POSTED ON THE ST. LOUIS FED’S FOMC SPEAK WEBSITE IN 2013 in turn, informs the president’s actions and views on the RULES POSTED FOR COMMENT ON THE ST. LOUIS FED’S FEDERAL BANKING REGULATIONS WEBSITE IN 2013 appropriate stance of monetary policy in the FOMC. Each bank’s board is responsible for the general oversight and leads the Federal Open Market Committee (FOMC), of the bank and its management. Like directors of any cor- the monetary policy arm of the central bank. The Federal poration, the directors review the bank’s strategies, budget, Reserve Bank of New York reflects the views of Wall Street audits and financial performance. Directors also concern and the largest banks, and the other 11 Reserve banks, themselves with succession planning for key positions in located throughout the country, reflect the views of their the bank and with the performance of senior management. districts—or, as we think of it, the Main Streets throughout the nation. In addition, six of the nine directors (the representatives of banks are excluded) play a key role whenever there is a The regional Feds, including the St. Louis Fed, reach out need to appoint the bank’s top two officers—the presi- to their districts in many ways. The most formal and endur- dent, who also carries the title of chief executive officer, ing way is through their boards of directors. and the first vice president, who is also the chief operating Directors play a key role in representing Main Street. At each board meeting, they report on their local economies by collecting information about their own businesses and officer. These six directors appoint these officers, subject to approval from the Board of Governors. Each bank’s board of directors also reviews and recom- industries and reviewing assessments they receive from local contacts. This information can vary from the state of commercial banks within its own district that are eligible to the coal-mining industry throughout the world to the state borrow short-term funds from the bank. The actual of business for a local scrap-metal dealer or jeweler. All rate to be charged is determined by the Board of of this real-time information about the economy is used Governors, but through their recommendations about by the bank’s president and the research staff to develop this rate, the directors can express their views on monetary a more complete view of the state of the economy. This, 126 mends a rate that its bank should charge creditworthy policy and credit conditions. There is a key function of the banks in which the role of the Board of Governors, it functionally reports to Wash- the board members is specifically limited. As previously ington. As a result, the boards of directors of Reserve noted, the Washington part of the central bank regulates all banks do not have a role in the supervision of district bank holding companies and savings and loan holding com- financial institutions. panies, certain financial market utilities, designated system- Reserve bank directors and employees are subject to a ically important nonbank financial companies and all state number of policies that relate to ethical conduct. Central banks that are members of the Federal Reserve System. banks are more credible and better able to accomplish The Board of Governors is also responsible for supervising their primary missions if they are accountable to, but these companies and banks—a role that it has delegated in independent of, the political branch of government. To part to the Reserve banks. Because this duty “belongs” to ensure that Reserve banks are independent of poli- The board of directors (here, circa 1940s) is responsible for oversight of the St. Louis Fed and its management. The directors also serve as a link to Main Street, gathering information on their local economies and sharing it with the Bank’s president for use in discussions on monetary policy. 127 Directors Represent More than Bankers Each of the Federal Reserve banks has a may not be employees or directors of financial nine-member board, as required under the institutions. To further ensure wide representa- Federal Reserve Act. The act sets out details for tion (and complicate this discussion) within the the selection or election of directors to ensure six elected directors, each district’s commercial representation of the public in each district. banks are divided into three groups by size, and Six of the nine directors must not be part of the banking sector. Three directors, called Class C the banks in each group elect one “banker” director and one “public” director. directors, are chosen by the Board of Governors The St. Louis Fed has three branches: Little to represent the public in the district. These three Rock, Ark., Louisville, Ky., and Memphis, Tenn. directors may not be affiliated with (for example, Each has a seven-member board. Three mem- serve as a director or employee) or own stock of a bers of each board are chosen by the Board of financial institution. The chair and deputy chair Governors and must generally meet the same of each bank’s board are chosen from this group qualifications as the Class B directors—that is, of directors by the Board of Governors. they represent the public and may not be affili- Six directors are elected by the national and ated with a financial institution. Four members state member banks in the district. Of the six, of each branch board are chosen by the St. Louis three (Class A directors) represent the district’s Fed’s board of directors and are business and banks and three (Class B directors) represent the community leaders or bankers. public in the district. These latter three directors tics, both directors and officers of the Reserve banks are rules of conduct designed to prevent conflicts of inter- restricted from many political activities. They may vote, est. For example, a banker-director’s supervisory matters donate money and express a personal opinion, but they or applications to engage in a new business that would may not run for political office, serve in the campaign of normally be delegated to the Reserve bank for decision anyone who is, or be active in a political party. are instead referred to staff at the Board of Governors. Reserve bank directors and employees also recognize the importance of integrity and public trust. All are bound by 128 Employees are subject to a detailed code of conduct and are trained to follow it carefully. Accountability Over the past few years, Congress and the general public have been clamoring for the Federal Reserve to be audited. This public outcry is not new: YES, THE FED IS AUDITED, AND IT HAS BEEN SINCE ITS FOUNDING By Michael D. Renfro SENIOR VICE PRESIDENT AND GENERAL AUDITOR Since the Fed’s inception, bills have been introduced in Congress calling for expanded auditing of the Federal Reserve. This demand is probably rooted in the idea that all public entities should be transparent and accountable. The Fed can appear to be neither in the eyes of some people because of the complexity of its monetary policy decisions and its independence from the executive branch. But, in fact, the St. Louis Fed and the other 11 Reserve banks have been subject to auditing ever since the Fed was founded. Here, we’ll explore an abbreviated history of this auditing, with a focus on current activities. The Federal Reserve Act of 1913, which established the Fed, stipulated that the Federal Reserve Board (now called the Board of Governors) should “order an annual audit of each Federal Reserve Bank.” The act was not specific on how this examination should be conducted, so staff of the Board took on the role of “bank examiner” 129 Keeping good records is critical to accountability and transparency. The St. Louis Fed has always done so—even for kitchen and cafeteria supplies back in the 1920s. by conducting audits of each Reserve bank every year. Congress, in one of its challenges to the Board’s auditing This approach had some distinct advantages: The examiners were familiar with Fed operations and, therefore, were Government Accountability Office (GAO) perform an audit very knowledgeable about Fed activities. However, this of the Board, the Federal Open Market Committee and arrangement created an appearance of a lack of indepen- the Federal Reserve banks. Then-Fed Chairman William dence because the auditors, while not employed directly McChesney Martin Jr. explained that the Board had been by the bank being audited, were employees of the Federal audited for years by a Reserve bank audit department on a Reserve Board. 130 approach, proposed in 1954 that what is now known as the rotating basis and recently had contracted with an account- APPROXIMATE NUMBER OF INTERNAL AUDITORS CONDUCTING AUDIT WORK THROUGHOUT THE FEDERAL RESERVE SYSTEM IN 2013 ing firm to conduct an independent audit to remove any doubt about impartiality. In addition, another nationally APPROXIMATE NUMBER OF HOURS OF AUDITING WORK CONDUCTED BY recognized audit firm was hired to accompany the Board examiners on one of their 12 bank audits each year. These INTERNAL AUDITORS ON THE FEDERAL RESERVE SYSTEM IN 2013 300 276,000 arguments were persuasive; the GAO was not granted broad, sweeping audit powers over all aspects of the Fed. Additionally, while not required for nonpublic entities, the However, challenges regarding the Fed’s approach to external audit reviews the internal control environment of auditing were ongoing over the next 40 years. Thus, in each Reserve bank in accordance with the framework set 1996, the Fed hired an external auditor to conduct an inde- up by the Committee of Sponsoring Organizations of the pendent audit of two Reserve banks. This was a pilot pro- Treadway Commission (a non-Fed body that gives guidance gram to determine whether the concept was beneficial and to organizations on internal controls and fraud deterrence). could be applied more broadly to all 12 Reserve banks. The The Fed voluntarily agreed to this review in an effort to be results were primarily favorable; therefore, the Fed opted to fully transparent and in alignment with the banking institu- extend the annual external audits to all Reserve banks. tions that it supervises. Since then, the use of audited financial statements has The Board and all Reserve banks publish their financial expanded to include a combined set of financial statements statements and external audit opinions online or in hard- for all Reserve banks and a full set of footnotes, providing copy annual reports. (Copies of the St. Louis Fed’s financial information about the structure of the Fed and definitions statements are available at www.stlouisfed.org/ar.) In addi- and explanations for all financial statement line items. tion, key aspects of these financial statements are published 131 in an annual report for the entire Federal Reserve System. approximately 300 auditors devoted 276,000 hours to (This report is published, submitted to Congress annually conduct audit work throughout the System. and placed on the Board’s public website.) To further Certainly, the Fed is audited. It is audited often by a vari- transparency efforts, in August 2012, the Fed began pub- ety of groups, both internal and external, and many of the lishing unaudited quarterly financial reports for the Reserve results are published for the consumption of the general banks, a practice required by the Securities and Exchange public. This growing trend toward more transparency has Commission only for companies whose stocks are publicly proved to be extremely helpful in expanding understanding traded on an exchange. of the Fed’s purpose, role and, more recently, the impact on In addition to the annual audits conducted by an external public accounting firm, the Fed is subject to targeted audits by the GAO, the Fed’s own Office of the Fed’s balance sheet resulting from the recent financial crisis and the actions taken by the Fed to address it. Although not listed on the Fed’s balance sheet today, Inspector General, the Treasury’s Office of Compliance and internal auditors who are housed in all Reserve banks. protected and fostered if the Fed is to continue to live The internal auditors also work collectively to coordinate up to the vision and expectations of the authors of the audit coverage of select System operations. In 2013, 132 accountability and transparency are assets to be valued, Federal Reserve Act. Earning the Public’s Trust OPEN AND DIRECT COMMUNICATION IS KEY By Karen L. Branding SENIOR VICE PRESIDENT PUBLIC AFFAIRS Throughout the Federal Reserve’s history, public opinion and dialogue about the institution have ebbed and flowed. When inflation or unemployment is high, the Fed is often in the public eye. During 1991-2001, the period of the longest economic expansion in modern U.S. history, the Fed faced generally little criticism. But the financial crisis of 2007-09 put the Fed in the public spotlight in a way it had not experienced since the deep recession and high inflation of the early 1980s. Today’s 24/7 news cycle and rapid expansion of social media have made the Fed the subject of daily discussion among not only its traditional audiences of bankers and financial media, but also mainstream commentators in online and broadcast media. Congress did not design the Fed to roll over when criticized. The Fed’s independent, decentralized structure ensures that unpopular but necessary policy actions can be made to achieve results for the economy overall. But with independence comes the responsibility for being accountable. Today and throughout history, confidence in the 133 Today and throughout history, confidence in the Fed as an institution is contingent on the public’s trust— trust in the Fed’s competence, dependability and integrity. Open and direct communication from the Fed plays a vital role in earning that trust. Fed as an institution is contingent on the public’s trust— But the priority the Fed puts on transparency goes trust in the Fed’s competence, dependability and integrity. beyond matters of the FOMC. Federal Reserve Bank of Open and direct communication from the Fed plays a vital St. Louis President James Bullard, like his predecessors, role in earning that trust. regularly addresses business and academic audiences. In What had been a gradual movement toward more addition, he gives interviews frequently to financial and transparency on monetary policy since the 1980s was accelerated by former Fed Chairman Ben Bernanke. Under his understanding by the public of our central bank and leadership, the Federal Open Market Committee (FOMC) its monetary policy. He also meets regularly with the effectively modernized Fed communications on monetary congressional delegation from the Eighth Federal Reserve policy, establishing several practices that provide the public District, serving as a nonpolitical resource for economic and a clearer view of the Fed’s actions and the tools it uses. monetary policy analysis. Economists and leaders from our Press conferences after four FOMC meetings now help Bank also speak to industry and banking groups throughout clarify what happened at the meetings and translate the the Eighth District, providing updates on the economy and long-standing technical statements handed out after these gaining insights about the economic conditions on Main meetings. A long-run goal for inflation is now explicitly Street, which, in turn, contribute to the Bank’s thinking on stated. A summary is regularly available of the projections monetary policy. Events like our Dialogue with the Fed that each FOMC participant brings to the FOMC table series connect the general public with Fed experts, who regarding gross domestic product, inflation, unemployment translate today’s financial headlines and help people better and the federal funds rate. 134 business reporters here and abroad, leading to a better understand how the economy works. Digital media are central to a more transparent Fed. REGISTERED ATTENDEES FOR DIALOGUE WITH THE FED IN 2013 The St. Louis Fed launched its first website in 1995; today, our websites receive more than 6 million visitors every year. The Bank entered the social media space with Twit- TWITTER FOLLOWERS AS OF THE END OF 2013 ter in 2010. Many of our Twitter followers today retweet our posts, helping the Bank reach millions of people around the globe each year with news and information FACEBOOK “LIKES” AS OF THE END OF 2013 327 33,310 3,314 about the economy, monetary policy, banking, economic data and other services. In 2013, the St. Louis Fed was The Public Affairs division has long produced a variety of publications for both external audiences and employees. 135 President James Bullard welcomes the opportunity to share his thoughts on the economy and monetary policy with the public, here doing so through a radio interview in 2012. named one of Business Insider’s “106 Finance People Communication technology will keep changing radically. You Have to Follow on Twitter.” And in this, our centen- Paste-ups and typewriters of yesterday’s communications nial year, we launched the Bank’s first public blog shops are a distant memory. Social media have revolu- (www.stlouisfed.org/on-the-economy) and opened the tionized how news and other information are delivered Inside the Economy Museum to further transparency and shared, positioning organizations like the Fed to reach and financial literacy. vast audiences—territory enjoyed once only by businesses Open, timely, transparent communication is also a priority with our employees, keeping them in the know passed personal computers in how Americans access the about Bank news and information, helping build stronger Internet. By 2020, an estimated 50 billion devices will be connections with colleagues and to the Fed’s purpose, and connected to the Internet, enabling ever-greater hypercon- equipping them to be ambassadors of the Fed with their nectivity to other people, information and smart systems. friends and neighbors. 136 through paid advertising. Mobile devices have now sur- By then—just six years from now—the aformentioned St. Louis Fed stats will seem quaint and perhaps even inef- Bryant—the first female vice president in the Federal Reserve fectual. It is unimaginable how the technologies of 2050 System—and her staff were charged by then-Bank President and beyond will evolve the communication function Lawrence Roos with surveying hundreds of people in the within organizations. St. Louis phone book to determine whether the public under- It is said that the past informs the future. In the 1970s, the St. Louis Fed’s vice president over public information, Ruth stood what the Federal Reserve did; she and her staff found that some 95 percent didn’t. Armed with those results, Roos In the 1970s, the St. Louis Fed’s Ruth Bryant (left) was instrumental in a campaign to help educate the public about the Federal Reserve and its actions. Here, Bryant, the first female vice president in the Federal Reserve System, attended a reception at the White House in 1970 as part of the annual convention of the National Association of Bank Women, Inc. to which she had just been elected president. With her are first lady Pat Nixon (center) and outgoing president of the association, Bobbie Taylor. 137 helped convince his fellow 11 Reserve bank presidents that it officers across the Federal Reserve System coordinate on was a priority for the Fed to undertake a more coordinated communications, transparency and accountability. and comprehensive approach to diseminating public infor- As communicators, we must be well-versed in managing mation and reaching out at each Reserve bank, dedicated to helping the public to better understand the central bank and Bank brochure. 138 tion—not only to keep the public informed but also to exists today as a systematic forum where public information 1980s to take photos for a importance of open, straightforward, regular communica- eral Reserve Subcommittee on Public Information, which still The Public Affairs team in the midst of ever-changing media is the fundamental its actions. The task was assigned to the newly formed Fed- took to the streets in the for both change and continuity. At the Fed, the constant earn its trust. St. Louis Fed Branch Offices Reserve System was created that Reserve banks saw the need for additional offices to serve their districts. St. Louis was certainly no exception. The Federal Reserve Bank of St. Louis opened Nov. 16, 1914, and in short order, branches were opened in Louisville, Ky., Memphis, Tenn., and Little Rock, Ark., in 1917, 1918 and 1919, respectively. The roles of the branches have changed over the years. For example, the Memphis Branch was started as a seasonal agency (a limited-service office open only part of the year) to provide discount window loans and other services to area member banks during the cotton season. (See the essay “Reaching Our Constit- Louisville, Ky. © Shutterstock.com/ Katherine Welles BRINGING THE FED CLOSER TO THE COMMUNITY It wasn’t long after the Federal 139 Little Rock, Ark. uents” on page 83 for more on the history of the branches.) nature of the businesses and local economies in the Eighth Today, the Memphis Branch staff is responsible for cash District. Branches allow not only for a more efficient collection services, bank supervision, community development and of information, but also for deeper relationships through staff economic education. involvement in their local economies, producing a breadth and Branches remain important in helping the St. Louis Fed serve its region and fulfill its mission. One of the most depth of information not possible from hundreds of miles away. Branches gather some of this information through their significant contributions of our branches is gathering anec- local boards of directors and the District’s Industry Coun- dotal economic information about their regions. These data cils. Each board is a diverse group of local business leaders help the St. Louis Fed president and our other economists who meet eight times per year. They provide anecdotal to understand local economic conditions. information on a variety of industries, such as banking, Gathering in-depth information for a district covering more retail, health care and telecommunications. Again, this than 180,000 square miles would be a challenging task to accomplish from a single location, especially given the diverse 140 information is passed on to the Bank’s president and other key staff, who consider it in monetary policy deliberations. Industry Councils meet semiannually to keep an open was established in 2009 as a means of discussing issues and line of communication between the Fed and industry conditions with local financial institutions that may not have representatives throughout the District. The District has established contacts with the Fed, may not be member four councils, focusing on agribusiness, health care, real banks or are located too far away for their executives to estate and transportation. Each branch, as well as the main attend Fed events. The branch executives visit each of the office in St. Louis, supports one of the councils: Louisville institutions in their zones at least once every two years. supports the health care council; Memphis, transportation; The Community Development function at the branches is Little Rock, agribusiness; and St. Louis, real estate. The another example where the St. Louis Fed’s deep knowledge council members’ observations complement the data and and strong relationships help local community-based organi- information developed through the Federal Reserve’s Beige zations and financial institutions. The Fed’s community devel- Book, the St. Louis Fed’s Burgundy Books and meetings of opment specialists are out in the communities they serve, the Bank’s boards of directors. identifying and addressing an expansive range of challenges This flow of information is truly an exchange, not just a confronting low- and moderate-income communities. The one-way channel. It helps the public, business leaders and community bankers—the groups representing Main Street— to connect to the branches and, thus, the Fed. In turn, the exchange allows the branches to disseminate economic data and related information from higher levels of the Fed informed decisions about their organizations. The exchange of information takes place on a one-to-one basis, too, as in the Financial Institution Touch (FIT) program carried out by the branches’ executives. The FIT program Memphis, Tenn. © Shutterstock/ Natalia Bratslavsky to key audiences, allowing these audiences to make more 141 relationships they develop also allow for gathering data about Economic Education staff members at each branch use the local community and economic development conditions, and St. Louis Fed’s award-winning education programs to help they allow the specialists to share their expertise and act as local teachers better prepare for classroom instruction on resources for information, technical assistance and regulatory economics and personal finance. guidance to financial institutions, community-based organizations, government entities and others. Key areas of focus include affordable housing, the And finally, the Federal Reserve Bank of St. Louis’ Banking Supervision and Regulation division, under the delegated authority of the Federal Reserve Board, oversees the safety Community Reinvestment Act, community and economic and soundness of Eighth District bank holding companies, development, small-business lending, issues related to thrifts and state member banks. As part of this mission, the credit access in underserved markets, neighborhood Bank conducts on-site examinations with a staff of highly stabilization and household financial stability. In addition, trained examiners who are based out of the St. Louis head- local specialists facilitate productive partnerships, bringing quarters, as well as out of satellite offices in the Little Rock, together various organizations to stimulate ideas and share Louisville and Memphis branches. insights, and serve as catalysts for local community and economic development initiatives. The branches also serve their local communities through All of these “branching out” efforts are aimed at providing Fed services at the grass-roots level throughout the District. These local connections also aim to ensure educational outreach. The education programs administered by the branches are customized for local users. 142 that the many voices of Main Streets across the District are heard by policymakers in St. Louis and Washington. What’s Your Fed Connection? For many people, their connection to the St. Louis Fed has less to do with monetary policy, banking supervision and the payment system and more to do with economic education, community development and the sharing of data and economic research. What follows are snapshots of programs and services that, for many, are the face of the St. Louis Fed. 143 D IALOGU E WITH THE F ED Meeting with the Public and Taking the Discussion beyond Financial Headlines Recognizing people’s increasing interest in developments in today’s economy, the Federal Reserve Bank of St. Louis started a discussion series for the general public in 2011. Titled Dialogue with the Fed: Beyond Today’s Financial Headlines, this series focuses on one important topic at a time. Our economists (or other experts at the St. Louis Fed) address the issue of the day, after which the audience has a chance to pose questions and to otherwise comment. Hundreds of people have attended these free sessions, which have been held at the St. Louis Fed’s main office, as well as in its branch cities. The topics have run the gamut, from the financial crisis of the recent past to virtual currencies of the future. In between, there have been programs on the federal deficit, unemployment, European sovereign debt, fiscal sustainability, family balance sheets, the U.S. payment system and even the St. Louis Fed’s centennial. Occasionally, the dialogues are held in Spanish—Diálogo con la Fed. The St. Louis Fed has long held similar programs for specific audiences—bankers, other business executives, teachers and local government officials, for example—but created the Dialogue With the Fed sessions so that the general public also had access to our experts in an open forum. Many of those who’ve attended these sessions say they leave with a better understanding of what the Federal Reserve does. The dialogues are another opportunity for the public to learn about the economy and the Fed. The programs complement the Bank’s publications, websites, self-teaching courses and social media (Twitter, Facebook, etc.). All of the past Dialogue with the Fed events are available on the Bank’s website. Visit www.stlouisfed.org/dialogue-with-the-fed to view these events or learn about upcoming sessions. 144 Dialogue with the Fed sessions cover a wide range of topics. E CONOMIC EDUCATION Fostering a Stronger Economy through the Classroom Improved education about banking, economics, money and personal finance should foster a stronger economy. The Federal Reserve Bank of St. Louis’ economic education effort, Econ Lowdown, seeks to make a difference by providing K-16 educators and their students with a variety of award-winning materials for use in the classroom. These include lesson plans, online courses, videos, podcasts, interactive whiteboard applications, mobile applications and slides. Econ Lowdown also provides professional development for educators who teach economics and personal finance. These opportunities include conferences, in-service programs, a monthly newsletter, online courses, webinars and workshops. Econ Lowdown is also a self-teaching tool for the general public, providing mini courses and other information in a variety of formats on such topics as establishing credit, paying for college and saving for retirement. This material has been developed by nationally recognized experts and former educators. For example, the head of Econ Lowdown, Assistant Vice President Mary Suiter, worked with the Council for Economic Education to write the National The Economic Education staff provides professional development for educators who teach economics and personal finance. Standards for Financial Literacy, published in 2013. The Bank’s Economic Education team works with several other national, state and local organizations that promote and improve economic education, in addition to the Council for Economic Ecuation. These groups include the National Association of Economic Educators and the Jump$tart Coalition for Personal Financial Literacy. The Econ Lowdown staff also consults with the local education communities in St. Louis and the three Eighth District branch cities: Little Rock, Ark., Louisville, Ky., and 145 Memphis, Tenn. Econ Lowdown has educator leadership development and career planning. advisory boards in all four cities. These boards of The students compete for summer internships at local teachers advise Bank staff on curriculum and the Bank, too. professional development. The St. Louis Fed’s Economic Education depart- All Federal Reserve banks produce educational material on economics and personal finance. The ment, in cooperation with the Bank’s Office of content produced by the St. Louis team makes up Minority and Women Inclusion, also appoints a more than one-third of all content on the Federal student board of directors each year. This board is Reserve System’s economic education website, made up of high school seniors; they visit the Bank www.federalreserveeducation.org. several times during the school year to learn about economics and personal finance and to partake in To see any of the St. Louis Fed’s materials, go to www.stlouisfed.org/education_resources. The Three Most Popular St. Louis Fed Econ Lowdown Courses, Measured by Enrollment Supply and Demand: This course includes three interactive lessons that introduce supply, demand and market equilibrium, using a fictitious chocolate shop to help explain the concepts. GDP and Pizza: This course is designed to help students in civics, economics and social studies classes grasp the various aspects of gross domestic product. It uses an illustration of a pizza to demonstrate the various points. It’s Your Paycheck: Course participants learn about budgeting, about the benefits of saving, about understanding credit reports and about the link between education and income. 146 F RE D AND FA MILY Bringing Data from around the World to Your Desk, Phone or Tablet Federal Reserve Economic Data—or FRED, as it’s known to millions of users around the world—is the St. Louis Fed’s signature online database. FRED is a free, public resource that includes more than 236,000 economic time series from more than 60 regional, national and international sources. Each time series is displayed in a chart on which data are plotted at regular intervals over a certain span of time—such as gross domestic product for every quarter from 1947 to the present. The data cover topics with broad appeal—such as the consumer price index in the U.S.—as well as niche topics—such as total electricity production for China (in gigawatt hours, not seasonally adjusted). A creation of the St. Louis Fed’s Research division, FRED goes beyond simply providing data: It combines data with a mix of tools that helps the user understand, interact with, display and disseminate the numbers. Users can, for example, change the timeline, switch the data from daily to monthly or monthly to annual, and even transform data from levels (such as dollars) to percent change. FRED is popular with economists, market analysts, government researchers, teachers, students and journalists, but anyone can access the service. Many changes have been made in recent years to make FRED easier, faster and more convenient to use than ever: • FRED’s free iPhone, iPad and Android apps are convenient for those who need economic data on the go. • FRED’s toolkit allows users to create custom graphs, share economic data and graphs via email and social media, and receive alerts when their favorite series are updated. Data can even be downloaded automatically via the Excel add-in. • Users can download FRED graphs as publication-quality files, share FRED charts on social media or easily embed graphs into a web page. A FRED widget can also be integrated into web pages so that visitors see a real-time snapshot of a select group of data series. 147 • Users can create a dashboard allowing them example), researchers often need to see what was to assemble a collection of widgets that can be originally reported. Users often access ALFRED to shared, such as time-series FRED graphs, data test economic forecasting models and analyze the tables, data lists and individual observations. decisions made by policymakers with the same • Those who use data-centric programs can automatically retrieve series using FRED’s application programming interface (API). data that they used. Other Databases Available from the St. Louis Fed FRASER (Federal Reserve Archival System for API toolkits exist for programs written in Economic Research) is a digital library of eco- Python, PHP, Java, Ruby and .net. nomic, financial and banking materials covering • FRED easily integrates with researchers’ soft- the economic history of the U.S., from the Amer- ware packages so that users can smoothly ican Revolution to the present. The more than perform sophisticated statistical analysis on 450,000 items include speeches, data and statisti- FRED data. cal publications, government documents, archival More than 2 million people per year from almost collections, photos and maps. The St. Louis Fed’s every country in the world take advantage of what centennial website is hosted on FRASER at FRED has to offer. If you want to join them, start http://fraser.stlouis fed.org/centennial. here: http://research.stlouisfed.org/fred2. Other FRED Tools Available from the St. Louis Fed GeoFRED allows users to map FRED’s data at CASSIDI (Competitive Analysis and Structure Source Instrument for Depository Institutions) is a one-stop shop for information on banking county, state, metropolitan statistical area and competition. CASSIDI helps users find banking international levels. markets and the branch structure for depository ALFRED (ArchivaL Federal Reserve Economic institutions. CASSIDI can also perform “what if” Data) is a database that concentrates on vintage analysis on banking market structures. Map- data. In ALFRED, users can retrieve versions ping options make it easy to view banking mar- of data that were available on specific dates in ket boundaries and view branch locations in the history—whether from a day ago or decades ago. banking market. Although economic data are commonly updated (advance estimate, second estimate and third estimate of each quarter’s gross domestic product, for 148 F RE D AND FA MILY The History of FRED No history of the Federal Reserve Bank of St. Louis would be complete without an entry—or chapter—on its leadership in providing economic data for the masses. From simple beginnings about 20 years ago, Federal Reserve Economic Data, or FRED, has come to be known around the world by people who care about the numbers driving today’s economies. FRED is a descendent of the data publications created by Homer Jones, who was the research director of the St. Louis Fed from 1958 to 1971. Jones was a proponent of making economic data widely available. His goal was to provide information not just to policymakers but to members of the public—information that would allow them to judge for themselves the state of the economy and the outcome of policy. The technology of the time was paper, so the data were printed and sent out via the U.S. postal system. Employees from the 1970s and 1980s have said there was intense pressure to get the main data 1996 publication—the weekly U.S. Financial Data (USFD), still popular today—out on Thursday afternoons. Reporters were constantly calling, asking for the numbers so that they could publish them in the next day’s newspaper. The St. Louis Fed would also get calls from economists, students and college professors, among others.1 These paper data publications translated well to online posting. FRED got its start in 1991 as a free electronic bulletin board (a precursor to the Internet) and offered “free up-to-the-minute economic data via modems connected to personal computers,” 2 providing data from the USFD. The response was described as “staggering” and “overwhelming.” 3 Initially, FRED had 620 users who were given access to 30 data series that could be downloaded at a modem speed of up to 14.4 kilobits per second. 149 computer located in a special Office Computing Services area. The computer provided a window to the Internet, but only for employees who had a business need. Over the next 20 years, FRED evolved quickly. By 2004, FRED had more than 2,900 economic time series and offered data downloads in Excel and text formats. Graphs of the data were also possible. By November 2010, FRED had expanded to more than 24,000 data series, which included more than 21,000 regional data series. Today, FRED has more than 236,000 regional, national and international economic data series, with the data coming from more than 60 reporting agencies around the world. 2004 It operates on a high-speed Ethernet service (with download speeds in the millions of bits per second), Because users were limited to one hour a day, provides sophisticated graphing software, is avail- they were advised to read the instructions in able via apps on smartphones and tablets, can be advance to make the most of their time. Eventu- mapped, is accessible via Excel and is used in class- ally, data series from other St. Louis Fed publica- rooms all over. What began as a simple, printed tions were added, with FRED housing more than data publication has grown into a sophisticated and 300 series in 1993. successful vehicle for sharing important economic The next innovation for FRED was moving to the Internet in 1995. FRED contained 865 data series by then, and the site was accessed an average of 6,000 times per week. At the time, there were only an estimated 12 million people on the Internet. So that at least some employees could experience FRED, the St. Louis Fed granted access to a 150 data with anyone around the world. 1. Interview with employee Pam Hauck, Federal Reserve Bank of St. Louis, June 21, 2012. 2. “Introducing FRED…” Federal Reserve Bank of St. Louis Eighth Note, May/June 1991. 3. Ibid. I DE AS ON T HE WEB Keeping Up with Research from Economists around the World In an effort to disseminate economics research worldwide, the Federal Reserve Bank of St. Louis hosts IDEAS (http://ideas.repec.org/), a website where more than 1.6 million working papers, articles, books and even software components from economists around the world can be browsed and searched by anyone at no charge. Many of these can be downloaded, too. IDEAS uses Research Papers in Economics (RePEc) data, with RePEc being one of the world’s largest open bibliographies of academic material. RePEc (http://repec.org/) is a collaborative effort of hundreds of volunteers in more than 80 countries whose goal is to enhance the dissemination of research in economics and related sciences. RePEc was started to help those interested in economics keep up to date on the latest research, rather than force them to wait for such work to appear in journals, which usually have relatively long vetting and publishing processes. In many cases, the frontier of economic research advances through the publication of working papers, which is why RePEc puts a special focus on these publications. More than 3,800 working paper series submit papers to RePEc. This is not to say that articles in journals are excluded; indeed, submissions come from 2,000 journals. In addition, material comes from more than 1,700 archives (including leading publishers, such as Elsevier and Springer) in more than 80 countries. IDEAS—one of many services that display or enhance RePEc data for public consumption—makes it easy for anyone to see the papers, articles and work from other 151 economists that are part of the giant RePEc data- Lest anyone think that RePEc, IDEAS and the base. Other services specialize in certain parts of like are all work and no play, there’s the IDEAS the data. For example, Economics Departments, Fantasy League. Players log into the fantasy Institutes and Research Centers (EDIRC) lists league using their RePEc Author Service creden- nearly 13,000 such institutions around the world. tials to run a virtual economics department, the EconAcademics.org is a blog aggregator for goal of which is to improve its ranking relative discussion about economics research. RePEc to those of other departments in the league. The Biblio is a hand-selected collection of relevant league is yet another way to learn about econo- articles and papers on a wide variety of econom- mists and their work. ics topics; the information is organized as a tree, IDEAS and other RePEc services can be and the topics narrow as you follow its branches. reached via the IDEAS or RePEc websites. These particular services (and more) are affiliated with the St. Louis Fed’s Research division. Researchers in economics or a related field are invited to register and create their own online profiles via the RePEc Author Service, also hosted by the St. Louis Fed’s Research division. Nearly 40,000 have already done so. After registering, they receive a monthly mailing, detailing the popularity of their works, their ranking and newly found citations. RePEc rankings are computed according to a variety of criteria, including such things as articles published, citation counts and number of downloads. 152 CE NT E R FOR HOUS EHO LD F INA NCIAL S TABIL IT Y Researching How Families Can Strengthen Their Household Balance Sheets The Center for Household Financial Stability is a research initiative launched by the Federal Reserve Bank of St. Louis in May 2013. The center is focused on the rebuilding of the household balance sheets of struggling American families. Its research focuses on three main topics: 1. What is the state of the American balance sheet? What can we say quantitatively about the overall health of the household balance sheet? 2. Why does it matter? What are the economic and social outcomes—at both the household and macro levels— associated with varying levels of savings, assets and net worth? 3. What can be done to improve household balance sheets? What are A public conference held by the Center for Household Financial Stability in 2014. the implications for future research, public policy, community practice, financial institutions and households? A basic premise of the center is that families improve their financial stability through broad-based economic growth, higher net household incomes and, especially, stronger balance sheets. Financially stable families face less economic risk and more economic mobility within and across generations. As financially healthy families spend, save and invest more, the national economy grows, too. The center’s work includes conducting and publishing research on key balance-sheet issues, developing a household balance-sheet index and organizing research and policy conferences and public forums to better understand the balance-sheet issues affecting struggling families and communities. 153 Key Findings in 2013 • Families that were younger, that had less than a college education and/or that were members of a historically disadvantaged minority group (AfricanAmericans or Hispanics of any race) suffered larger wealth losses in the Great Recession of 2007-09 and have been slower to recover their wealth since the recession than families that were older, had a college education or were white or Asian. • Although the status of American household balance sheets had improved somewhat, the average American family still had not fully recovered the wealth lost during the recession by the end of 2013. The slow recovery of wealth was due primarily to housing, which only began to rise in value at the beginning of 2012. • Today’s seniors—who were born before the end of World War II—fared better than younger people during the recent recession. Seniors were more resilient going into the recession, as they had more liquid assets, more stock-market wealth and much less debt than younger people did. • Between 2005 and 2013, student loan debt per capita in the U.S. grew by 176 percent to $3,407. On average, the increases in student debt since 2005 were larger in Eighth District states than in the nation. Also Available from the Center for Household Financial Stability • In the Balance: A research brief offering new perspectives on timely balance-sheet issues • News from the Center for Household Financial Stability: A periodic newsletter about the center’s publications, events and news To sign up for the center’s publications and for news about research and events, see www.stlouisfed.org/hfs. 154 COMMU NIT Y D EVELO PMENT Opening Doors for Low- and Moderate-Income Communities Promoting community and economic development in lowand moderate-income (LMI) areas, as well as promoting fair and equal access to credit for LMI families, is the mission of the Federal Reserve’s Community Development offices. The Federal Reserve Bank of St. Louis’ Community Development staff provides financial institutions, nonprofit organizations and others with information on the Community Reinvestment Act (CRA), on community and economic development, on household balance sheets and on issues related to credit access. The staff also facilitates partnerships between lenders and their communities in the Eighth District to advance issues pertaining to community development finance, neighborhood stabilization and household financial stability. In its outreach efforts, the staff provides information about the availability of public and Bringing people together to help underserved communities. private community development resources; it also promotes an understanding of the rights and responsibilities of individuals, communities and institutions regarding federal laws on such topics as community reinvestment and mortgage disclosure. The key law is the CRA, passed by Congress in 1977. The law requires federal financial regulatory agencies, such as the Fed, to encourage regulated financial institutions to help meet the credit needs of their local communities, including LMI neighborhoods. In 1981, each of the 12 Federal Reserve banks established a Community Development office to fulfill that mandate. From its headquarters in St. Louis and branch offices in Little Rock, Ark., Louisville, Ky., and Memphis, Tenn., the Eighth District Community Development department publishes research, analysis and other information in various publications, including: Bridges, the Community Development Outlook Survey, the Housing Market Conditions Report, News from the Center 155 for Household Financial Stability, In the Balance and events each year. One of the highlights is the periodic research reports. Exploring Innovation program, which uses events Bridges is a quarterly review of community and and webinars to raise awareness of innovations in economic development issues, projects and regu- the field and to search for new ways to improve latory changes. The publication is aimed at prac- life in LMI areas. titioners from community-based organizations, Leaders from organizations throughout the Dis- financial institutions’ CRA officers, academics and trict serve on the Bank’s Community Development government officials. Advisory Council. The executives are experts in The annual Community Development Outlook community and economic development and rep- Survey monitors the economic factors affecting resent nonprofit organizations, financial institu- LMI people and communities in the Eighth District. tions, universities, governments and foundations. The Housing Market Conditions Report is a quar- The council was created to keep the St. Louis Fed’s terly overview of housing market conditions in president and Community Development staff the U.S. as a whole as well as in each of the seven informed about community development issues states and the four major metropolitan areas of the and to suggest ways the Bank might support local Eighth District. development efforts. News from the Center for Household Financial Stability is a periodic newsletter noting key research, publications and events at the center. The center was established in 2013 within the St. Louis Fed’s Community Development department. The center focuses on the household balance sheets of struggling American families. (See the essay “Center for Household Financial Stability” on page 153.) In the Balance consists of research briefs related to new perspectives on timely household balance-sheet issues. The staff convenes those working in the field of community development at several in-person 156 O F FICE OF MINORIT Y A ND WOMEN IN C LUS IO N Fostering Diversity in the Workplace, in Contracts and in Educational Outreach The Federal Reserve Bank of St. Louis is committed to building an inclusive workplace, where our differences—in gender, race, age and ethnicity, as well as in cultural traditions, religion, life experiences, education, sexual orientation and socioeconomic backgrounds—are recognized as our strength. We make better decisions and recommendations when these reflect a variety of perspectives. Diversity allows each of us to bring our perspectives to the table when generating ideas and solving problems, and encourages an environment in which innovation and excellence thrive. The Bank assumed additional responsibilities mandated by Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). As required by the DoddFrank Act, the Bank established the Office of Minority and Women St. Louis Fed summer intern orientation session in 2014. Inclusion (OMWI) and continues its efforts to ensure the inclusion of minorities, women, and minority- and women-owned businesses in activities of the Bank, with emphasis on workforce and procurement diversity. The OMWI remains committed to developing strategies that will enhance diversity and inclusion within all the Bank’s business activities. As a complement to the existing diversity and inclusion efforts of the Bank, the OMWI will continue to coordinate strategic development of policies and procedures around workplace diversity, supplier diversity and financial literacy. Employment The Bank emphasizes building diversity at all levels of the organization, beginning at the top. Recognizing that the Bank’s board of directors should represent the community it 157 serves, the Bank makes every attempt to have diverse program provides developmental opportunities by members. Of the nine members of the St. Louis matching employees with diverse backgrounds, skills board of directors, 33 percent are female and an and experiences. Mentors, including executives up additional 33 percent are minority (one Hispanic- to senior vice presidents, are paired with other Bank American male, one African-American male and employees for a year or more. A main goal of the one Asian-American male). On Dec. 31, 2013, of the program is to provide developmental guidance to a Bank’s 1,032 employees, 44 percent were women diverse pool of Bank employees. and 26 percent belonged to a minority group. Strengthening the diversity of the leadership pipeline continues to be a priority for the Bank. One initiative aimed at bringing in entry-level talent as potential future leaders is our intern program. Through the Bank’s ongoing partnerships with community-based organizations and our active participation in Historically Black College and University (HBCU) recruitment fairs, the 2013 College Internship Program included 27 interns: 16 were minorities and 15 were women, including 10 from HBCUs and two from INROADS, an Procurement The Bank has made considerable progress in enhancing the ability of minority business enterprises (MBEs) and women business enterprises (WBEs) to provide the Bank with goods and services. For the second year in a row, the Bank’s minority- and women-owned business spending increased over the prior year, rising from 12.0 percent to 20.1 percent. The Bank’s successes include: • to MBEs and WBEs through community organization devoted to developing and placing organizations and partnerships, talented underserved youth in business and indus- such as the Women’s Business try and preparing them for future corporate and Development Center community leadership. During 2013, four interns were hired as full-time employees. Of them, two Expanding sourcing opportunities • Increasing the Bank’s presence and are women, three are minorities and two gradu- outreach efforts through participation in ated from HBCUs. local and national conferences In addition, the Bank’s focus on employee devel- • Remaining active with local supplier opment remains strong, as building organizational capacity and effectiveness are critical factors in Minority Business Council and the Mid- accomplishing our vision. The Bank’s mentoring 158 diversity councils, such as the St. Louis South Minority Business Council • Hosting a Value of Certification event for women- and minority-owned businesses Financial Literacy The Bank continues its long-standing reputation as a leader in developing financial literacy programs. According to the most recent data available from the National Center for Education Statistics, approximately 20 percent, or 209, of the high schools within the Eighth District are innercity, majority-minority and girls high schools (OMWI-defined). The total combined enrollment includes 145,518 students, 70 percent of whom are African-American, 5 percent Hispanic and 1 percent Asian. By providing free, high-quality professional development to the educators in these schools, participating in local, regional and Minority- and women-owned businesses learn how to become certified as Fed suppliers in 2013. national conferences, and offering highly customizable options for student engagement, the Bank continues to have a positive impact on OMWIdefined high schools within the Eighth District. The St. Louis Fed continues to increase the number of publications, podcasts and brochures that are translated into Spanish. Lesson plans such as In Plain English and It’s Your Paycheck help increase financial literacy education with Spanish-speaking populations in the District and beyond. 159 INSIDE T HE ECONOMY MUSE UM What’s Your Role in the Economy? Find Out in the St. Louis Fed’s New Museum Increased openness, transparency and financial literacy are chief goals of the Federal Reserve, particularly since the financial crisis of 2007-09. As the Federal Reserve Bank of St. Louis closes out its centennial year, it is opening the new Inside the Economy Museum, located inside the St. Louis Fed’s headquarters at Broadway and Locust Street in downtown St. Louis. The museum immerses visitors in an engaging, interactive experience designed to help them better understand how the economy works and their role in it. Students and adults alike are engaged in a hands-on journey through exhibits that explore: • The global economy • Inflation • Consumer markets • Unemployment • Bartering and trading • • Money circulation • Scarcity • Banking • Opportunity cost The history and role of the Federal Reserve Exhibits are brought to life through interactive displays, games, sculptures and videos. A multipurpose classroom is available to groups for discussions and teaching. The Inside the Economy Museum is yet another vehicle used by the St. Louis Fed to promote economic education and financial literacy. The museum makes for a unique stop for St. Louis tourists and an ideal field trip for students in middle-school and above. Teachers will find that their students’ eyes are opened to vital concepts that will benefit them for the rest of their lives. Walk-in visitors are welcome at the museum, as are groups that make arrangements ahead of time. Admission is free. Visitors usually spend 45 minutes to an hour in the museum. Learn more at www.stlouisfed.org/economymuseum. 160 Exhibits in the Inside the Economy Museum provide an interactive learning experience on topics ranging from banking to inflation. 161 162 As at any big company, our employees perform a wide variety of work. We have economists and electricians, Our People educators and event planners. We have auditors and programmers, librarians and lawyers. Employees process cash, manage risk, gather statistics, examine banks, provide security, build websites, publish periodicals, staff call-in centers, maintain buildings and keep our computers running. And that’s just the start of the list. But our people aren’t just the employees of the Bank. Dozens more give of their time to serve as directors on boards or as advisers on various councils. They, too, believe in the mission of the Fed and the importance of representing Main Street in the monetary policymaking decisions that affect us all. 163 Members of the board of directors pose on the steps of the St. Louis Fed in the 1920s. 164 St. Louis Board of Directors 2014 Sharon D. Fiehler, Chair George Paz, Deputy Chair William E. Chappel Gregory M. Duckett Executive Vice President Chairman and CEO President and CEO Senior Vice President and Peabody Energy (Ret.) Express Scripts First National Bank Corporate Counsel St. Louis St. Louis Vandalia, Ill. Baptist Memorial Health Care Corp. Memphis, Tenn. Sonja Yates Hubbard D. Bryan Jordan Cal McCastlain Rakesh Sachdev Susan S. Stephenson CEO Chairman, President and CEO Partner President and CEO Co-Chairman and President E-Z Mart Stores Inc. First Horizon National Corp. Dover Dixon Horne PLLC Sigma-Aldrich Corp. Independent Bank Texarkana, Texas Memphis, Tenn. Little Rock, Ark. St. Louis Memphis, Tenn. 165 Little Rock Board of Directors 2014 Robert Hopkins Michael A. Cook Ronald B. Jackson President and CEO Senior Vice President and Community Chairman Little Rock Branch Deltic Timber Corp. Assistant Treasurer Simmons First National Bank El Dorado, Ark. Wal-Mart Stores Inc. of Pine Bluff Bentonville, Ark. Russellville, Ark. Robert Martinez Mark White John T. Womack Owner President and CEO Chairman and CEO Rancho La Esperanza Arkansas Blue Cross and Blue Shield Arvest Bank–Central Arkansas De Queen, Ark. 166 Ray C. Dillon, Chairman Regional Executive Little Rock, Ark. Little Rock, Ark. Louisville Board of Directors 2014 Gerald R. Martin, Chairman Malcolm Bryant David P. Heintzman Maria Hampton Managing Member President Chairman and CEO Regional Executive River Hill Capital LLC The Malcolm Bryant Corp. S.Y. Bancorp Inc. Louisville Branch Louisville, Ky. Owensboro, Ky. Louisville, Ky. Jon A. Lawson Susan E. Parsons Randy W. Schumaker Kevin Shurn President, CEO and Chairman Chief Financial Officer, President President and Owner Bank of Ohio County Secretary and Treasurer Logan Aluminum Superior Maintenance Co. Beaver Dam, Ky. Koch Enterprises Inc. Russellville, Ky. Elizabethtown, Ky. Evansville, Ind. 167 Memphis Board of Directors 2014 Martha Perine Beard Charlie E. Thomas III, Chairman J. Brice Fletcher Roy Molitor Ford Jr. Regional Executive Regional Director-External/Legislative Affairs Chairman Vice Chairman and CEO Memphis Branch AT&T Tennessee First National Bank Commercial Bank and Trust Co. Memphis, Tenn. of Eastern Arkansas Memphis, Tenn. Forrest City, Ark. Carolyn Chism Hardy Lawrence C. Long President Partner Chairman and President Chism Hardy Investments LLC Room to Room Inc. St. Rest Planting Co. Security Bancorp of Tennessee Inc. Collierville, Tenn. 168 Lisa McDaniel Hawkins President and CEO Clyde Warren Nunn Tupelo, Miss. Indianola, Miss. Halls, Tenn. Bank Management Committee 2014 James Bullard David A. Sapenaro Karl W. Ashman Karen L. Branding President and CEO First Vice President and Senior Vice President Senior Vice President Chief Operating Officer Administration and Payments Public Affairs Cletus C. Coughlin Mary H. Karr Kathleen O’Neill Paese Julie L. Stackhouse Senior Vice President and Senior Vice President, Senior Vice President Senior Vice President Senior Vice President Banking Supervision, Credit, and Director of Research Policy Adviser to the President General Counsel and Corporate Secretary Treasury Services Christopher J. Waller Community Development and Learning Innovation 169 Industry Councils 2014 Council members represent a wide range of Eighth District industries and businesses and periodically report on economic conditions to help inform monetary policy deliberations. AGRIBUSINESS COUNCIL HEALTH CARE COUNCIL Meredith B. Allen President and CEO Staple Cotton Cooperative Association Greenwood, Miss. Calvin Anderson Chief of Staff and Senior Vice President of Corporate Affairs BlueCross BlueShield of Tennessee Memphis, Tenn. John Rodgers Brashier Vice President Consolidated Catfish Producers LLC Isola, Miss. Cynthia Edwards Deputy Secretary Arkansas Agriculture Department Little Rock, Ark. Sam J. Fiorello Chief Operating Officer and Senior Vice President Donald Danforth Plant Science Center St. Louis Edward O. Fryar Jr. CEO and Founder Ozark Mountain Poultry Rogers, Ark. Keith Glover President and CEO Producers Rice Mill Inc. Stuttgart, Ark. Wayne Hunt President H&R Agri-Power Hopkinsville, Ky. Tania Seger Vice President, Finance U.S. Commercial Row Crops, Monsanto Co. St. Louis Lyle B. Waller II Owner L.B. Waller and Co. Morganfield, Ky. Steven J. Bares President and Executive Director Memphis Bioworks Foundation Memphis, Tenn. Glenn Burney Plant Manager Baxter Heathcare Inc. Mountain Home, Ark. Mike Castellano CEO Esse Health St. Louis E. Phillip Scherer III President Commercial Kentucky Inc. Louisville, Ky. Anthony Zipple President and CEO Seven Counties Services Inc. Louisville, Ky. TRANSPORTATION COUNCIL REAL ESTATE COUNCIL Mark A. Bentley Principal, Managing Director Central Arkansas Colliers International Little Rock, Ark. Martin Edwards Jr. President Edwards Management Inc., Realtors Memphis, Tenn. Reginald W. Coopwood President and CEO Regional One Health Memphis, Tenn. Janet Horlacher Principal and Executive Vice President Janet McAfee Inc. St. Louis Cynthia Crone Insurance Deputy Commissioner and Director Arkansas Health Connector Division, Arkansas Insurance Department Little Rock, Ark. Larry K. Jensen President and CEO Commercial Advisors LLC Memphis, Tenn. June McAllister Fowler Vice President, Corporate and Public Communications BJC HealthCare St. Louis Susan L. Lang CEO HooPayz St. Louis LaQuandra S. Nesbitt Director Louisville Metro Department of Public Health and Wellness Louisville, Ky. Robert “Bo” Ryall President and CEO Arkansas Hospital Association Little Rock, Ark. 170 Stephen A. Williams President and CEO Norton Healthcare Louisville, Ky. Chuck Kavanaugh Executive Vice President Building Industry Association of Greater Louisville Louisville, Ky. Gregory J. Kozicz President and CEO Alberici Corp. St. Louis Chuck Quick IBERIABANK Mortgage Little Rock, Ark. Lynn B. Schenck Managing Director Jones Lang LaSalle St. Louis Bob Blocker Senior Vice President of Sales and Customer Service American Commercial Lines Jeffersonville, Ind. Michael D. Garriga Executive Director of State Government Affairs BNSF Railway Memphis, Tenn. Thomas Gerstle CEO Road & Rail Services Inc. Louisville, Ky. Rhonda Hamm-Niebruegge Director of Airports Lambert St. Louis International Airport St. Louis Richard McClure President UniGroup Inc. St. Louis Judy R. McReynolds President and CEO ArcBest Corp. Fort Smith, Ark. Mitch Nichols Senior Vice President of Transportation and Engineering UPS Airlines Louisville, Ky. John F. Pickering President Cass Information Systems Inc. Bridgeton, Mo. Paul Wellhausen Executive Vice President SCF Lewis and Clark Granite City, Ill. Community Depository Institutions Advisory Council 2014 The members meet twice a year to advise the St. Louis Fed’s president on the credit, banking and economic conditions facing their institutions and communities. The council’s chair also meets twice a year in Washington, D.C., with the Federal Reserve chair and governors. Glenn D. Barks, Chairman President and CEO First Community Credit Union Chesterfield, Mo. H. David Hale Chairman, President and CEO First Capital Bank of Kentucky Louisville, Ky. Dennis McIntosh President and CEO Ozarks Federal Savings and Loan Farmington, Mo. Mark A. Schroeder Chairman and CEO German American Bancorp Jasper, Ind. Kirk P. Bailey CEO Magna Bank Memphis, Tenn. John D. Haynes Sr. President and CEO Farmers & Merchants Bank Baldwyn, Miss. Larry W. Myers President and CEO First Savings Bank Clarksville, Ind. Steve Stafford President and CEO First National Bank in Green Forest Green Forest, Ark. Carolyn “Betsy” Flynn President and CEO Community Financial Services Bank Benton, Ky. Greg Ikemire President and CEO Peoples State Bank Newton, Ill. Frank M. Padak President, CEO and Treasurer Scott Credit Union Collinsville, Ill. Larry T. Wilson President and CEO First Arkansas Bank & Trust Jacksonville, Ark. Community Development Advisory Council 2014 The council keeps the St. Louis Fed’s president and staff informed about community development in the Eighth District and suggests ways for the Bank to support local development efforts. John Bucy Executive Director Northwest Tennessee Development District Martin, Tenn. Terrance Clark Co-Founder Thrive Helena, Ark. Rex Duncan Director, Community Development and Outreach Southern Illinois University Carbondale, Ill. Tamika Edwards Director of Public Policy Southern Bankcorp Community Partners Little Rock, Ark. Brian Fogle President and CEO Community Foundation of the Ozarks Springfield, Mo. Rita Green Assistant Professor of Consumer Economics Mississippi State University Mississippi State, Miss. David C. Howard Jr. Vice President of Equity Federation of Appalachian Housing Enterprises Inc. (FAHE) Berea, Ky. Ben Joergens Assistant Vice President and Financial Empowerment Officer Old National Bank Evansville, Ind. Joe Neri President IFF Chicago Federal Advisory Council Member 2014 Eric Robertson President Community LIFT and River City Capital Investment Corp. Memphis, Tenn. Keith Sanders Executive Director The Lawrence and Augusta Hager Educational Foundation Owensboro, Ky. Sarina Strack Senior Vice President and Director of Compliance Midwest BankCentre St. Louis Elizabeth Trotter Senior Vice President and CRA Director IBERIABANK Lafayette, La. The council is com- posed of one representative from each of the 12 Federal Reserve districts. Members confer with the Fed’s Board of Governors at least four times a year on economic and banking developments Keith Turbett First Vice President and Community Development Manager, Memphis and Nashville Regions SunTrust Bank Memphis, Tenn. Cary Tyson Assistant Director Arkansas Historic Preservation Program Little Rock, Ark. Johanna Wharton Executive Vice President Grace Hill Settlement House St. Louis Deborah Williams CEO HANDS Inc. Bowling Green, Ky. Ronald J. Kruszewski Chairman, President and CEO Stifel Financial Corp. St. Louis and make recommendations on Fed System activities. 171 Thank You Thank you to the St. Louis Fed’s recent board and council retirees. From the Boards of Directors St. Louis Robert G. Jones Ward M. Klein Little Rock Mary Ann Greenwood Kaleybra Mitchell Morehead Mark D. Ross Louisville Gary A. Ransdell Memphis Charles S. Blatteis Mark P. Fowler From the Community Development Advisory Council Joe W. Barker Whitney Bishop George Hartsfield Edgardo Mansilla Paulette Meikle Ines Polonius Royce A. Sutton From the Community Depository Institutions Advisory Council Gary E. Metzger Gordon Waller Vance Witt From the Industry Councils Agribusiness Timothy J. Gallagher Bert Greenwalt Leonard J. Guarraia Richard M. Jameson John C. King III Health Care Jeffrey B. Bringardner Paul K. Halverson Rich A. Lechleiter Dixie L. Platt 172 Real Estate Joseph D. Hegger J. Scott Jagoe Jack McCray William M. Mitchell Mary R. Singer Transportation Charles L. Ewing Sr. Dennis B. Oakley David L. Summitt Board of Directors, St. Louis, 1978 173 Bank Officers James Bullard William T. Gavin Jane Anne Batjer Catherine A. Kusmer James L. Warren President and CEO Vice President Assistant Vice President Assistant Vice President Assistant Vice President David A. Sapenaro Susan F. Gerker Diane E. Berry Maurice D. Mahone Vice President Assistant Vice President Assistant Vice President Yi Wen First Vice President and Chief Operating Officer Anna M. Hart Heidi L. Beyer Jackie S. Martin Vice President Assistant Vice President Karl W. Ashman Senior Vice President Karen L. Branding Senior Vice President Cletus C. Coughlin Senior Vice President and Policy Adviser to the President Mary H. Karr Senior Vice President, General Counsel and Secretary Roy A. Hendin Cassie R. Blackwell Vice President Assistant Vice President James L. Huang Dennis W. Blase Vice President Assistant Vice President Debra E. Johnson Ray Boshara Vice President Assistant Vice President Vicki L. Kosydor Adam L. Brown Vice President Assistant Vice President Kathleen O’Neill Paese Michael J. Mueller Winchell S. Carroll Senior Vice President Vice President Assistant Vice President Michael D. Renfro James A. Price William D. Dupor Senior Vice President and General Auditor Vice President Assistant Vice President Julie L. Stackhouse Senior Vice President Christopher J. Waller Senior Vice President and Director of Research David Andolfatto Vice President Jonathan C. Basden Vice President Timothy A. Bosch Vice President Timothy C. Brown Vice President Marilyn K. Corona Vice President Susan K. Curry Vice President Kathy A. Freeman Vice President and Director of Office of Minority and Women Inclusion 174 B. Ravikumar William R. Emmons Vice President Assistant Vice President Katrina L. Stierholz William M. Francis Vice President Assistant Vice President Matthew W. Torbett James W. Fuchs Vice President Assistant Vice President Assistant Vice President Michael W. McCracken Assistant Vice President Raymond McIntyre Assistant Vice President Christopher J. Neely Assistant Vice President Arthur A. North II Assistant Vice President Shawn W. Oberreiter Assistant Vice President Glen M. Owens Assistant Vice President Jennifer L. Robinson Assistant Vice President Craig E. Schaefer Assistant Vice President Abby L. Schafers Assistant Vice President Kathy A. Schildknecht Assistant Vice President Carl D. White II Assistant Vice President Ranada Y. Williams Assistant Vice President Christian M. Zimmermann Assistant Vice President Terri A. Aly Information Technology Officer Subhayu Bandyopadhyay Research Officer Alexander Baur Treasury Officer Christopher D. Chalfant Learning Technology Officer Jill Dorries Government Relations Officer Jeromey L. Farmer Treasury Officer Carlos Garriga Research Officer Scott M. Trilling Joseph A. Gambino Assistant Vice President Kevin L. Henry Vice President Assistant Vice President Philip G. Schlueter Supervisory Officer David C. Wheelock Patricia M. Goessling Vice President Assistant Vice President Marcela Manjarrez Stephen P. Greene Vice President Assistant Vice President Steven D. Williamson Karen L. Harper Vice President Assistant Vice President Maria G. Hampton Timothy R. Heckler Regional Executive Assistant Vice President Robert A. Hopkins Cathryn L. Hohl Regional Executive Assistant Vice President Martha L. Perine Beard Terri L. Kirchhofer Regional Executive Assistant Vice President Assistant Vice President Scott B. Smith Assistant Vice President Yvonne S. Sparks Assistant Vice President Kristina L.C. Stierholz Assistant Vice President Rebecca M. Stoltz Kevin L. Kliesen Research Officer Alexander Monge-Naranjo Research Officer Michael Thomas Owyang Research Officer Kevin J. Shannon Treasury Officer Assistant Vice President Mary C. Suiter Assistant Vice President Donald J. Trankler Assistant Vice President Amy B. Simpkins Treasury Officer Dean A. Woolcott Information Technology Officer The Eighth Federal Reserve District ILLINOIS INDIANA MISSOURI KENTUCKY TENNESSEE MISSISSIPPI ARKANSAS Little Rock Louisville Memphis St. Louis Federal Reserve Bank of St. Louis One Federal Reserve Bank Plaza Broadway and Locust Street St. Louis, MO 63102 314-444-8444 Little Rock Branch Stephens Building 111 Center St., Suite 1000 Little Rock, AR 72201 501-324-8205 Louisville Branch National City Tower 101 S. Fifth St., Suite 1920 Louisville, KY 40202 502-568-9200 Memphis Branch 200 N. Main St. Memphis, TN 38103 901-579-2404 175 Credits Senior Vice President of Public Affairs Creative Director Karen L. Branding Brian Ebert Executive Editor Designer and Photographer Marcela Manjarrez Kathie Lauher Managing Editor Historical Photo Research Julia S. Maues Kathy Cosgrove Project Manager Contributing Writers RC Balaban Kristie Engemann Laura Girresch Editor Al Stamborski Peter B. McCrory Amy B. Simpkins Katrina L. Stierholz CENTER FOR HOUSEHOLD FINANCIAL STABILITY™ and the CENTER FOR HOUSEHOLD FINANCIAL STABILITY™ logo, and INSIDE THE ECONOMY™ are trademarks of the Federal Reserve Bank of St. Louis. Ask the Fed®, Rapid Response®, the 8-H logo, CASSIDI® and the CASSIDI® logo, Econ Lowdown® and the “ECONLOWDOWN CLICK.TEACH.ENGAGE” logo, the Federal Reserve Bank of St. Louis logo, GEOFRED® and the GEOFRED® logo, ALFRED® and the ALFRED® logo, FRASER® and the FRASER® logo, FRED THE FRUGAL EAGLE®, and FRED® and the FRED® logo are registered trademarks of the Federal Reserve Bank of St. Louis. 176