Saturday, February 28, 2009

MO Trivia: The Politics of Fed District Banks

Blogging today from the Kansas City airport, with some Missouri history trivia.

Q: When the 12 Federal Reserve districts were configured in 1914, how did the one state of Missouri get two Federal Reserve district banks (St. Louis and Kansas City), while most states (e.g. Iowa, Florida, Arizona, Washington, Colorado, S. Carolina, Indiana, Wisconsin, etc.) got none (see map above of the 12 Fed districts, click to enlarge)?

A: Good old, good ol' boy politics explains it. Missouri had enormous political influence in the Democratic Wilson (1913-1921) Administration when the Fed was created, and the 12 districts were decided. The Speaker of the House, Champ Clark (D), was from Missouri. Senator James Reed (D), from Kansas City, was a very powerful member of the Senate Banking Committee and was originally opposed to the bill to create the Federal Reserve System. And the Secretary of Agriculture David F. Houston, one of the three members of the Federal Reserve Bank Organization Committee, was from St. Louis. With all of that political clout, Missouri was the only state in the country to get two Fed district banks.


At 2/28/2009 1:29 PM, Anonymous Anonymous said...

Seeing the geography of the 10th District, I'd have guessed that district's bank was in Denver (with maybe OK City as my backup). Very interesting.

At 2/28/2009 2:39 PM, Anonymous Anonymous said...

Great post!

As a coin collector who started back when Federal Reserve districts were individually identified on currency, I have long been aware of the "two banks" and have long considered it odd, but never thought about it long enough to be led to actually research the history.

(Coin collectors' interests often extend to a variety of more-or-less related things, including currency, privately-minted Gold Rush-era coins, tokens, and medals.)

At 2/28/2009 7:30 PM, Anonymous Anonymous said...

You are right that politics of the time reflected Missouri getting to Reserve Banks. But the actual division of the regions and placing of the Reserve Banks also reflected the economic weight of early 20th century. Specifically the Reserve Banks were placed in major railroad junctions of the time to respond to a bank run in a timely manner.

If Congress were to redraw the Fed districts today, Cleveland and Philly Feds would probably never make it to the drawing board and the Western region will definitely have more weight.

For anyone who ever makes it to NYC, I highly recommend visiting the museum of money on the first floor of NY Fed (33 Liberty Street -- 1 block away from NYSE). The famous double eagle coin is on display there. Also, if you call ahead they can give you a tour of the largest gold reserve in the world which is located beneath the subway lines and underneath the main NY Fed building. Yes, it is bigger than Fort Knox in Kentucky, which was featured in the movie Gold Finger. No guide books about NY mentions this gem.

At 2/28/2009 9:15 PM, Anonymous Anonymous said...

Anonymous said:

The famous double eagle coin is on display there.

Point of information for those who might be wondering (e.g. non-US readers):

The 1933 Saint-Gaudens $20 gold coin was considered for many years to have never been officially released and therefore illegal to own, despite a handful having escaped the confines of the Philadelphia Mint at which they were struck.

The Mint had for many years an informal policy of releasing new coins at face value early at face value to well-connected individuals aware of the policy, allowing a few coins to get out prior to official release.

There's an interesting history worth looking up


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