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More About the FedHistorical Overview - Federal Reserve Bank of Minneapolis
On December 23, 1913, following years of political debate, President Woodrow Wilson signed the Federal Reserve Act into law. The key responsibilities of the Federal Reserve System were to serve as lender-of-last-resort in times of crisis and to provide a national currency that would expand and contract as needed.
The Federal Reserve Act stated that “not less than eight nor more than twelve cities” would be designated as Federal Reserve cities. After district lines were drawn and Reserve cities chosen, each Federal Reserve Bank became a franchised corporation with stockholders, a board of directors, and operating personnel. There were nine directors per Bank—six were elected by district member banks, with three representing the banking community and three the commercial community; three directors, including the chairman, were appointed by the Federal Reserve Board and represented the public.
A Federal Reserve Agent and Governor shared management responsibility at the Federal Reserve Banks. The Agent was responsible to the public, served as a liaison between the Board and the Reserve Bank, and chaired the Bank's Board of Directors. The Governor was responsible for the internal administration of the Bank and chaired the Executive Committee of the Board of Directors.
The Federal Reserve Bank of Minneapolis was incorporated on May 18, 1914, and directors were elected during the summer. On October 1, 1914, the Federal Reserve Board appointed John H. Rich, a successful banker and businessman, to be Minneapolis' Federal Reserve Agent. At their first meeting on October 14-15, 1914, directors adopted by-laws, set up an executive committee, and appointed Theodore Wold chief administrative officer. As Minneapolis' first Governor, Wold assembled and organized the Fed's staff and coordinated work during the Bank's pioneer period as well as during World War I.
At an October 1914 convention in Washington, a decision was made to open the Federal Reserve Banks the following April. Fears of a panic because of World War I moved the opening date up to November 16. Not yet fully staffed, the Minneapolis Fed was temporarily headquartered in the directors' room and a teller's cage at the Minnesota Loan & Trust Company until more adequate quarters could be secured in the Lumber Exchange Building at Fifth and Hennepin. The Bank officially opened on November 16, 1914, with eight employees. Cash was stored in rented vault space in nearby banks. In January 1915, the Bank's 18 employees and officers moved into the New York Life Building at Second Avenue South and Fifth Street. Staff continued to grow over the next two years as the Bank performed a growing number of reserve banking functions.
During World War I, the Minneapolis Federal Reserve Bank expanded rapidly, peaking at 500 employees in 1918. This expansion was due to the Fed's responsibility, as agent for the Treasury Department, to issue war bonds. World War I also resulted in a shift in the predominately male work force. By 1918, women comprised about half of the Bank's staff.
Five years after the Federal Reserve System was established, the Board of Governors authorized 18 branch banks but none for Minneapolis, despite its being one of the largest regions geographically. Norman B. Holter, a Helena businessman and member of the Minneapolis Board of Directors, successfully campaigned to establish a branch in Helena. On February 1, 1921, the Helena branch was opened at the corner of Park and Edward Streets with a staff of 36.
On October 1, 1919, Theodore Wold resigned as Governor and became first vice president of the Northwestern National Bank of Minneapolis. Succeeding him was Roy A. Young, who had come to the Fed in 1917 from Citizens National Bank in Houghton, Michigan, as Wold's assistant. Young, an able administrator, struggled to lead the Fed during the difficult 1920s.
The War years were a time of unparalleled prosperity in the Ninth District. Farmers were able to sell a large volume of products at extremely high prices. Consequently, the price of farmland in the district increased dramatically. Bank deposits doubled, and the number of banks increased by a third.
When European farm production was restored to prewar levels and foreign demand for agricultural products disappeared, prosperity changed to adversity. Prices fell, and faith in the banks plummeted. Runs on banks and panics forced 20 percent of the nation's banks to close between 1921 and 1929. Bank closings in the Ninth District were especially high: 31 percent in Minnesota, 62 percent in North Dakota, and 70 percent in South Dakota and Montana.
During this period, the Minneapolis Fed's building became cramped. Employees were scattered throughout rented quarters in the New York Life Building and two other buildings. A building site at Fifth Street and Marquette was purchased, and Cass Gilbert, of New York, was selected to design a new Bank building. The new building was occupied on February 1, 1925, just a few months after the death of John Rich, who had envisioned the building. Ironically, his successor, John R. Mitchell, who had opposed the original building plans, was the first to occupy the office of Agent in the new building.
In September 1927, Roy Young, Minneapolis' Governor, resigned to become a Governor on the Federal Reserve Board. William B. Geery, who had served as Deputy Governor for seven years at the Minneapolis Fed, took his place.
The farm depression lingered in the Upper Midwest until 1927. Conditions improved, only to be reversed by the stock market crash in October 1929. Between 1929 and 1933 about 10,000 banks failed nationwide. In March 1933, President Roosevelt declared a bank holiday to assess the national monetary situation and develop a remedial plan. The Emergency Banking Act, passed on March 9, gave the executive branch control of the banks and authority to reopen banks in sound condition. Congress passed other banking acts, including the Banking Act of 1935, which changed the organization, structure, and purpose of the Federal Reserve System. It replaced the dual roles of Agent and Governor with a President, to be elected by the Board of Directors and approved by the Board of Governors.
John Mitchell died in 1933 and John N. Peyton became the Minneapolis Federal Reserve Agent. At six feet four inches and about 240 pounds, Peyton was a forceful and commanding figure, and it was clear at the Bank that he was in charge. Geery, Governor of the Bank at that time, depended heavily on his subordinates. When the executive responsibilities of the Bank were consolidated into one position, Peyton was named President, and Geery became Chairman and Federal Reserve Agent.
The United States was ushered into World War II on December 7, 1941, with the bombing of Pearl Harbor. To finance the War, the Treasury Department issued securities that were sold to the public. As the Treasury's fiscal agent, the Federal Reserve Banks experienced a considerable increase in paperwork. By 1943, the number of employees at the Minneapolis Fed had soared to over 900.
The 1940s also marked a major change in the check collection process. In the early years, check clearing was a manual operation. In 1947, mechanical check sorters were introduced. These IBM Proof Machines automatically placed checks in appropriate compartments and computed totals. John Peyton retired on June 30, 1952, and was succeeded by Oliver Powell, who had served as First Vice President of the Bank and as a member of the Board of Governors. Powell was interested in monetary economics, and he depended heavily on his First Vice President to supervise Bank operations. Powell resigned for health reasons in 1957 and was replaced by Frederick L. Deming, First Vice President of the Federal Reserve Bank of St. Louis. During his eight years as President, Deming established a close relationship with the Board of Governors. During the Deming years, eight floors were added to the Bank building, which allowed the Bank to consolidate all its operations under one roof.
In 1965, Deming resigned to become U.S. Undersecretary of the Treasury for Monetary Affairs. Hugh D. Galusha, Jr., a lawyer and Certified Public Accountant from Helena, Montana, was appointed President. He served until 1971 when he died during a snowmobile trip to Yellowstone National Park. Emphasizing the Bank's regional responsibility, Galusha held economic roundtables for Bank officers, staff, and representatives from the business community. He helped get legislation passed that required Minnesota banks to pay their checks at par. Planning for the Bank building at 250 Marquette, designed by Gunnar Birkerts and Associates, began during Galusha's presidency.
Bruce K. MacLaury became President in 1971. He was previously with the Treasury as Deputy Undersecretary for Monetary Affairs and with the Federal Reserve Bank of New York. During his presidency, the major responsibilities for the operations of the Bank were in the hands of the first vice president. MacLaury's view of the president's role was monetary policy and serving as spokesperson for the Federal Reserve as well as a funnel from the community back to Washington. He resigned in 1977 to accept a position as president of The Brookings Institution in Washington, D.C.
MacLaury was succeeded by Mark H. Willes, First Vice President of the Philadelphia Fed. An economist, he attempted to further this Bank's research agenda both within the System and with the public. He was quite vocal and many times cast dissenting votes on the Open Market Committee when he disagreed with System policy. Willes accepted an executive position at General Mills in 1980 and was replaced by E. Gerald Corrigan, who came from the New York Federal Reserve Bank.
During Corrigan's tenure, a major change in the nation's banking system occurred with the passage in 1980 of the Depository Institutions Deregulation and Monetary Control Act. To comply with this act, the Fed had to price its financial services, establish reserve requirements for all eligible financial institutions, and offer financial services to all depository institutions.
Corrigan assumed the presidency of the New York Federal Reserve Bank in 1985, and Gary Stern was named president of the Minneapolis Fed. Stern became the longest-serving Federal Reserve Bank of Minneapolis president, from 1985 until his retirement in 2009. During his tenure, Stern was chairman of the Federal Reserve System’s Financial Services Policy Committee and oversaw substantial changes to the Federal Reserve’s role in the nation’s payment system as new technologies dictated greater efficiencies for financial institutions and consumers alike. He took an active role in promoting awareness of the Minneapolis Fed through enhanced publications and district dialogues with community leaders. He will likely be best remembered for his work on the too-big-to-fail issue, both for his recognition of the problem and for his advocacy for change.
Since its inception in 1914, the Federal Reserve System has evolved from a passive institution designed primarily to prevent bank panics into an active promoter of overall monetary stability as well as a multi-faceted player in the financial services industry. As Seymour S. Cook, the first cashier of the Bank, said in a speech nearly ten years after the opening of the Fed:
“What the future may have in store, no man can foretell, yet it is safe to assume that if men of equal ability, earnestness and loyalty continue to be selected as members of the Federal Reserve Board and as directors and officers of the Federal Reserve Banks and their branches; and that if wisdom and statesmanship are manifested in the halls of Congress, the Federal Reserve System will continue to serve the people of the United States and their government with the same efficiency and adaptability to changing conditions as it has done in the past.”
