The organization of the Federal Reserve System began with the hearings held by the Organization Committee. The first hearing was held in New York on January 5, 1914. The purpose of these hearings was to sound business opinion as to the establishment of the reserve districts, having in mind the number of the districts to be established, the boundaries of the districts, and the choice of the cities to be designated as federal reserve cities.

The Organization Committee decided on twelve reserve districts, the maximum permitted by the law. It also laid out the boundaries of the several districts and designated in each of them a federal reserve city. There was naturally some criticism of the committee's choice of reserve cities and of its determination of boundaries, and preparations were made in some cases to carry the objections as soon as possible before the Federal Reserve Board. In an opinion rendered on April 14, 1916, the Attorney General held that the Reserve Board enjoys no power to change the present location of any federal reserve bank, hence no effort has been made to change the selection of reserve cities. There have, however, been readjustments of the boundaries of reserve districts. Northern New Jersey banks and those of Fairfield County, Conn., were added to the district of the New York Federal Reserve Bank. Certain Louisiana parishes were added to the district of the Atlanta bank, while the district of the Chicago bank was enlarged to include the southern part of Wisconsin. The readjustments were made in response to a petition of a majority of the member banks concerned. A map showing the present boundaries of the several districts is reproduced in the Appendix.

Organi-zation committee hearings

The reserve districts

On February 16, 1915, the secretary of the Organization Committee issued a notification that by the 23rd of the month all national banks must signify their intentions with respect to joining the system. By that date 7,465 national banks out of a total 7,493 had signified their intention of joining. They represented over 99% in numbers and 99 3/4% in capital of all the national banks. Eighteen banks indicated an intention not to join, and ten had not been heard from, although these ten subsequently fell into line. The total capital of the national banks thus brought into the system was $1,054,533,554. Thereafter, as new national banks were organized they entered the system automatically.

State banks, on the other hand, have held aloof. In some cases the laws of the states have been held to forbid state banks joining the reserve system, largely because of the requirement that banks shall not subscribe to the stock of corporations. To remove all doubt a good many states adopted special enabling laws. In other states the authorities ruled that there was nothing in state laws to prevent state banks from entering the system if they so chose. At the beginning of 1917, out of a total membership of 7,627 banks, only 38 banks were state institutions, although it must be noted that a considerable number of the additions to the system since its organization represented state banks converted into national banks.1

The minimum capital of $4,000,000 required for the several reserve banks was assured at the outset. There was no opportunity or occasion for popular or for governmental subscriptions. The subscriptions for the several reserve banks were announced by the Organization Committee as follows:

Membership

National banks

State banks

Reserve banks

1 In Sept., 1917, 87 state banks were in the system. It is believed that as a result of the favorable amendments adopted in June, 1917, many more state banks will come into the system.

Since the organization of the system changes have been made through the addition of new members and through the readjustment of the boundaries in several of the districts. Under the law only half of the subscribed capital needs to be paid in. Hence in the following table, covering the capital situation as it appeared in the Reserve Board's weekly statement of June 1, 1917, the figures under capital are for capital paid in.

Although at a conference in October, 1914, a majority of the directors of the reserve banks voted to have the banks begin business on November 30, Secretary of the Treasury McAdoo made an announcement fixing the opening on November 16. Mr. McAdoo stated that he was impelled to this decision "particularly because of the emergency conditions in the South and the confident belief that the prompt opening of the reserve banks will be very helpful to the cotton situation and to general business in all sections of the country." Accordingly, on November 16, the several reserve banks opened their doors for business. The date was hailed by Mr. P. M. Warburg as America's economic "fourth of July."

President Wilson's nominations for the five appointive members of the Federal Reserve Board were Paul M. Warburg of New York, W. P. G. Harding of Birmingham, Ala., W. C. Miller, formerly of Leland Stanford Jr. University, Thomas D. Jones of Chicago, and Charles S. Hamlin, Assistant Secretary of the Treasury. The Senate Banking and Currency Committee reported favorably on Messrs. Hamlin, Harding, and Miller, but deferred action on Messrs. Jones and Warburg. Mr. Warburg's banking affiliations and Mr. Jones's connection with the International Harvester Company were subjected to an investigation by the committee. Mr. Jones's name was subsequently withdrawn by the President at his own request, and Mr. Frederic Delano, of Chicago, was nominated in his stead. In the meantime, the Great War had broken out, so Mr. Warburg and Mr. Delano were hastily confirmed on August 6, 1914. Secretary of the Treasury McAdoo and Comptroller of the Currency Williams were the two ex-officio members. The five appointed members took the oath of office on August 10. Mr. Hamlin was designated as governor and Mr. Delano as vice-governor.