Historical Overview - Federal Reserve Bank of Minneapolis
The Federal Reserve Bank of Minneapolis was incorporated on May 18, 1914, one of 12 district banks established after the signing of the Federal Reserve Act by President Woodrow Wilson on Dec. 23, 1913. Bank directors were elected during the summer.
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. This same structure holds true today.
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. On Oct. 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 Oct. 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. Learn more about Rich, Wold and other Minneapolis Fed leaders.
At an October 1914 convention in Washington, a decision was made to open the Federal Reserve Banks the following April. However, fears of a financial panic with the onset of World War I moved the opening date up to Nov. 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 Co. until more adequate quarters could be secured in the Lumber Exchange Building at Fifth and Hennepin. The Bank officially opened on Nov.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 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 Feb. 1, 1921, the Helena branch was opened at the corner of Park and Edward Streets with a staff of 36. (See more on the history of the Helena Branch.)
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 first permanent building dedicated to Minneapolis Fed operations. Gilbert also designed the Minnesota State Capitol in St. Paul. See more about this Minneapolis Fed building and others.
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.
The United States was ushered into World War II on Dec. 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.
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.
Substantial changes to the Federal Reserve’s role in the nation’s payment system continue as new technologies dictate greater efficiencies for financial institutions and consumers alike.
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 10 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.”