The Federal Reserve Bank of St. Louis celebrates its centennial anniversary this year.
St. Louis was one of 12 Reserve Banks that opened for business on November 16, 1914. They were all part of the Federal Reserve System created when President Woodrow Wilson signed the Federal Reserve Act into law in December 1913.
Banking in the U.S. was chaotic at the time, according to David Wheelock, deputy director of research and a vice president at the Federal Reserve Bank of St. Louis, who has written extensively about the bank's anniversary.
"It was a very chaotic time that was punctuated by occasional banking panics where the failure of a major bank, or even a commercial firm, would touch off runs by depositors on individual banks that would cause the system to freeze up," Wheelock said.
St. Louis was an obvious choice for a location because, along with Chicago and New York City, it was already a central reserve city. That meant banks could legally keep their reserves at other institutions in those cities. Wheelock said transportation also was a key asset for the city.
"A city like St. Louis that was a rail hub had a lot of connection to cities throughout the Midwest, so you had rapid processing and transportation of paper checks as well as paper and currency that helped improve the efficiency and the speed of the American payment system," he said.
One of the more interesting chapters in the St. Louis Fed’s history came in the 1970s when inflation was high and the economy had become stagnant. While the Federal Reserve Board blamed OPEC, labor unions and monopolistic pricing for high inflation, the Federal Reserve Bank of St. Louis argued it was the Fed’s own monetary policy creating the problem.
"The St. Louis Fed went public with that, arguing that in our publications. And our president was out giving speeches, criticizing monetary policy," Wheelock said. "They were dubbed the 'mavericks of the system' because they were out there making unpopular arguments and being critical of what was going on in the system."
That argument was largely vindicated when Paul Volcker became chairman of the Federal Reserve Board in 1979 and tightened money flow by raising the federal fund rate. He’s largely credited with bringing inflation down.
The role of the Federal Reserve Bank has changed since 1914. Wheelock said they no longer process paper checks, although they do still get cash and currency out to member banks. He said now the Reserve Banks are more involved in community outreach, economic education, gathering local economic data and helping make monetary policy.
"Also, by having the decentralized system, we avoid the group think mentality you might run into," he said. "The system is a strength, I think, because it allows independent voices like the mavericks of the 1970s to step up and say 'Maybe we’re not doing the right thing.'"
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