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The Federal Reserve

A History of the Federal Reserve Bank of Atlanta, 1914-1989


Introduction

Origins of the System

The New Bank Meets “The World War”

The Bank Meets Its First Crisis

High Winds from Havana

Droning through the Roaring Twenties

Governor Black Meets Black Friday

The Collapse

The Fed Rebuilt

World War II

The Postwar Period

The Bank in the 1960s

The Making of a Leader

Technological Pioneer

The Most Efficient Bank

The 1980s: New Challenges

Moving Forward with Forrestal

Conclusion

Leaders of the Atlanta Fed

Acknowledgements

The Postwar Period

a lthough Fed economists worried about a repetition of the post-World War I economic turbulence as World War II wound down, the economy heading their way was different from anything they had seen. The war had stoked the fires of industrial production, and the diversion of output to the war effort had postponed a lot of consumption. After 15 years of back-to-back crises, the nation and its central bank were about to taste peacetime prosperity.

Neely’s theories of enlightened management were formally extended to southern agriculture as soon as the war ended. A program to “aid agriculture and thereby improve the economic and social conditions” of southern communities was inaugurated in July 1945. Its purpose was to promote soil conservation, improve pastures, and carry out reforestation. Although the economy of the District depended less on agriculture than it had before the war, agriculture was still important and still plagued by problems. The Atlanta Fed encouraged its agricultural economists to write and speak, wherever they could find an audience, on progressive, scientific agricultural management. Some board members objected that the program seemed to be directed at farmers instead of bankers, and adjustments were made, but over the substantial lifetime of the program it would be directed at both groups.

Economists from the Atlanta Bank regularly spoke at the meetings of agricultural bankers during the 1950s and 1960s. In 1950, for example, the annual report of President McLarin noted, “The agricultural relations program is conducted in close cooperation with the agricultural committees of the State Bankers Associations. One phase of such cooperation is represented by banker-farmer meetings which are sponsored by the State Bankers Associations, the State Agricultural Colleges and the Bank. During the year three such meetings were held in Florida, two in Alabama, three in Mississippi, five in Tennessee, and three in Louisiana. Most of the meetings were held on farms where the results of improved pastures, proper forestry practices, and sound bank credit could be demonstrated.”

Postwar improvements began to affect bank operations as well. The Bank started to use armored cars, rather than the post office, for its currency shipments, thereby saving substantial amounts in expenses. A switching center for the System, opened at the Richmond Bank in 1953, improved communication among the Reserve Banks and branches. A policy change in 1953 allowed unfit currency to be destroyed at District Banks instead of being shipped to Washington, and the Atlanta Fed ordered a shredding machine and installed an incinerator, which by May 1954 was burning 900,000 bills each day. The existing accumulation of 26,653 bundles could be burned within seven weeks, First Vice President Lewis M. Clark estimated. By December 1954 the Bank’s personnel payroll records were placed on a precomputer IBM system.

The processing load increased sharply through the 1950s. Between 1952 and 1956, for example, the Bank saw growth of 64 percent in coin handled. The annual volume of checks processed, after increasing from 58.5 million in 1941 to 142.5 million in 1950, rose more sharply to 198 million by 1952 and then to 266 million by 1957. The handwriting on the wall was clear: Federal Reserve Banks would have to be prodigious check-moving factories. Operations were strained in 1956, Clark reported. The Bank was paying overtime and having trouble recruiting and training enough employees. The few primitive machines that assisted the effort were back-ordered, with delays running a year and a half.

As men returned from the war, the ratio of male to female employees began to shift; women dropped from 79 percent of the work force in 1944 to 62 percent in 1951. In Jacksonville, women had comprised 87 percent of the staff during the war. The number of Sixth District employees, from a wartime high of 1,685 and a postwar low of 800, rose to 1,326 by 1956. In an effort to reduce turnover the Bank studied employment patterns from 1947 through 1954 and found that 25 percent of the 2,136 who had left during that period were 19 years old or younger, and that 80 percent were under 30. The most common causes for departure were accepting another job (397), moving from the city (314), and “maternal reasons” (311).

Malcolm Bryan moves up
In September 1946 First Vice President Malcolm Bryan had resigned to accept an executive position with Atlanta’s Trust Company Bank. The move surprised the Atlanta Fed staff, who were used to seeing Bryan

Malcolm Bryan
Malcolm Bryan, the Bank's first economist and its president from 1951 to 1965.

in conference with Neely and to hearing great things about their prized economist. There was a sense, in many quarters, that he was the future of the Bank. When he left, some people concluded that McLarin finally had succeeded in getting rid of Bryan, with whom he had clashed frequently over the management of the Bank. Others at the Atlanta Fed thought Neely wanted Bryan to get some commercial banking experience so that he would be better received by member banks if he were some day to become president. Trust Company officials recall that they recruited Bryan to fill an executive void, noting that both the bank’s chairman and its president had died shortly before Bryan was hired. They acknowledge, however, that the cerebral economist who had never worked for a commercial bank was not in the running for one of these top two slots. Another factor may have persuaded Bryan to leave. His great interest was monetary policy, and the peg had short-circuited monetary policy. There was, in 1946, little for him to do in the field he loved most.

Neely and Bryan stayed in touch after Bryan’s move; Bryan would come by the Bank occasionally, and the staff there regarded him as not completely out of the picture. Lewis M. Clark was named first vice president. He was a courtly Mississippian who had risen through the ranks at the Bank since 1918 and had managed the New Orleans branch for several years. Clark was promoted with the stipulation that he was not being designated McLarin’s successor. Under Neely’s supervision, McLarin and Clark managed the Bank during the immediate postwar period.

In the same month that the Fed and the Treasury Department negotiated an end to the peg and restored monetary control to the Fed (March 1951), Bryan returned as the new president of the Federal Reserve Bank of Atlanta. His return was made possible by the decision a month earlier of President McLarin to take early retirement at age 61, a decision McLarin reached with the help of Frank Neely, Federal Reserve Board Chairman Thomas McCabe, and a $37,359 appropriation from the Atlanta board to give him full retirement benefits. Bryan’s hour, they decided, had come. Thus ended the presidency of McLarin, the self-trained Reserve Bank operations pro who, almost by accident, became the Bank’s president during its frantic, operations-dominated World War II growth period.

Bryan gave the Bank a world-class economist at its head at a time when the System was consciously perfecting its monetary policy tools. Bryan had been included in the Treasury delegation that went to Bretton Woods, New Hampshire, in June 1944 for the international summit meeting which created the International Monetary Fund (IMF) and the World Bank, pioneering agencies for the global economy that would follow a global conflict. When U.S. monetary policy was employed again in earnest after the removal of the peg in the early 1950s, Bryan joined Chairman Martin and another governor on an FOMC subcommittee that in 1952 set the tone for future open market operations. They recommended that System intervention in the market be kept to a minimum to reduce uncertainty among market participants and that transactions be confined to short-term issues.

Through the generally prosperous 1950s and early 1960s Bryan was one of the economic doctors who watched the thermometer dip during a couple of mild recessions and rise with a couple of inflationary fevers; he helped to prescribe the raising or lowering of the discount rate a fraction of a percentage point or the buying or selling of government securities to adjust reserves. Chairman Martin repeatedly called Bryan “unique” and later concluded that “no one had made a greater contribution to the FOMC in the years of his tenure than Malcolm Bryan and . . . only one or two have come anywhere near equalling it.”

Bryan also testified before a number of congressional committees, which were suspicious that the Fed had accumulated too much power. During the traumatic Depression and war years, the sense of crisis had silenced quibbles about the concentration of economic power in a truly central bank, but prosperity was encouraging populists like Texas Congressman Wright Patman, chairman of the House Banking Committee, to challenge the Fed. With his economic sophistication and impressive lecturing skills, Bryan became a popular spokesman on behalf of the Federal Reserve System, traveling to the nation’s capital to confront Patman in the hearing room.

Two events in 1953 made the Bank more cognizant of its own history. In January J.A. McCrary died, and in December Frank Neely retired. McCray was the last of his breed anywhere in the Federal Reserve System: an original 1914 director who had served continuously for nearly 40 years. He was never a leader at the Bank, but he had been an active director, a participant in the 1926 Cuban expedition, the perennial chairman of the building committee, and a supporter of various governors, presidents, and chairmen. McCray coveted his board post, friends recall, and fought for reelection several times in earlier years, before he eventually came to “own” the seat as a patriarch’s privilege. The System, since 1936, wanted rotation among directors of District Banks, but no one could convince bankers of the Sixth District to stop reelecting J.A. McCrary.

Frank Neely steps down
It wasn’t easy to convince Frank Neely, as his 70th birthday approached, that it was time for him to retire, but in 1953 the Board in Washington let him know. Nothing since the retirement of Max Wellborn in 1927 had created such a strong sense that an epoch was ending. Neely had come in with Marriner Eccles, the Roosevelt Board, and the reorganized System at a time when the country was bogged down in the extended Depression. He had seen the Federal Reserve Bank of Atlanta through what could be called the most intensely active period of its history. The District’s bankers and business leaders turned out in force to pay tribute to Neely, although only one governor represented Washington at the December 11 ceremony. The job of describing Neely’s historic contributions fell to Bryan, whose knowledgeable assessment emphasized Neely’s groundbreaking work in fostering research and developing formal personnel policies.

Bryan also noted how seriously Neely had taken the job and how tough a taskmaster he had been. “I will be a long time recovering from the stacks of material and covering memos in green ink saying, ‘Bryan, read this and tell me what is in it!’ . . . [I]t took me a long time to discover . . . that [he] had already read the material and knew very well what was in it and merely wanted to improve my mind by making certain that I read it,” he said.

Bryan naturally dwelt upon the contribution of the Atlanta Bank’s research department, started at a time when only the Board of Governors and the New York Fed engaged in professional-caliber research. What Neely initiated in Atlanta was imitated quickly in other Districts, Bryan said. “Indeed, this matter developed so rapidly and so well that a former Chairman of the Board of Governors once said to me, partly in irritation but mostly in good humor, ‘I went along with Frank Neely on this business of improving the research department, but it has gotten out of hand. I never expected him to get good enough to have independent opinions.’ Be that as it may, if the regional Reserve Banks now go to the System Conferences with an array of factual and not merely intuitive judgments of economic, monetary, and fiscal affairs, Frank Neely is due a lot of the credit for the imagination that inspired and the energy that enforced the development.”

About Neely’s contribution to the Bank’s personnel program, Bryan said, “At your insistence and admonition the personnel function which had, before your time, been scarcely more than the casual business of hiring people as they walked in, was thoroughly reorganized, separated from unrelated functions, and given leadership and understanding. This was in the nick of time because, if it had not been done, the war coming on and finally breaking in full force, we would hardly have functioned at all. Let me note that here again you left a mark on the System. . . .”

His mark on the Bank was decisive. He had set high standards. He had anticipated changes and made sure the Bank was ready. Moreover, he had used the Bank and its resources as a tool for an economic revival of the South that he helped to engineer. The Bank, at his insistence, had been aggressively and intelligently managed.

Growing room
If Neely had engineered the building of some key departments within the Bank, circumstances blocked him from directing its physical reconstruction. Business continued to be conducted in buildings that were products of the Bank’s first wave of construction in the early 1920s. Shortages of materials and labor ruled out any construction during the war, although overcrowding became acute. Activity and staff size at the Bank dipped briefly after the war but rebounded quickly. Shortly before the war ended, under Neely’s prodding, the Bank began to lay the groundwork for its second major building campaign. In 1945 it paid $75,000 for a small building adjacent to its New Orleans branch. However, the Board of Governors, fearful of runaway postwar inflation, held off approval for new buildings, lest the Fed’s own construction programs contribute to stimulating a suspect economy. Delays dragged the rebuilding program into the 1960s, but planning or carrying out some kind of construction occupied Bank leaders from the day World War II ended until February 1966.

Sixth District offices fell into an order of priority, depending on how desperately new quarters were needed. Jacksonville was at the top of the list because growth in Florida had been particularly robust. A new facility would be needed there, and the Atlanta board voted in 1948 to build a five-story building downtown, at 515 Julia Street, on a site acquired two years earlier. The Board of Governors approved the plan for Jacksonville in January 1948, but construction of the $2.3 million facility did not begin until October 1950. After delays in getting materials, the building was completed in 1952. At the October 17 dedication ceremonies Chairman William McChesney Martin told Sixth District dignitaries that the Federal Reserve System was becoming the bulwark of the free enterprise system, holding the line against inflation. No group of supermen, he said, could make sounder decisions than an orderly market.

Nashville was next, building committee chairman McCrary said in 1954. Banks in the Nashville zone, largely as a result of the Depression, had declined from 397 in 1923 to 195 in 1958, of which 68 were Fed members. Activity had expanded, however, and the Nashville staff had grown from 21 in 1919 to 190 in 1945, then dropped to 155 in 1958. From a modest 2.6 million checks processed in the branch’s first year of operations, volume had risen to 28 million annually by 1958. High land prices in Nashville made the Bank reluctant to buy, but in the summer of 1952 the Bank bought property on the northwest corner of the intersection of Union Street and Eighth Avenue, and plans for a new building were approved in September 1954. A $2.8 million bid was accepted in 1956, and construction began in 1957. The building was dedicated on December 12, 1958.

Birmingham Branch
The Atlanta Fed's Birmingham branch, after the building addition in the late 1950s.

Birmingham was overcrowded as well, but it enjoyed a particularly prized location close to the city’s major banks and connected to the post office by a tunnel. When property adjoining the Bank finally became available in Spring 1952, the Bank snapped it up and approved plans for a six-story addition in 1953, then scaled back the plans to five stories when the Washington Board balked at the cost. Construction began in 1955 and was completed in October 1958.

A records center for the District was established in 1954 in Auburn, Alabama. There duplicate records were stored in a secure facility to provide backup if something catastrophic were to happen in Atlanta.

Bringing the head office up to snuff would take a particularly long time. A new building was ruled out as too costly, so planning focused on enlarging the existing building. Meanwhile, the Bank expanded across Spring Street into rented space in the Silvey Building, and certain activities, often fiscal agency work on behalf of the U.S. Treasury Department or certain government agencies, were transferred to rented quarters. In 1951 the Atlanta board tried to buy the Silvey Building for $275,000. When the owner would not sell, property east of the Bank was purchased for $300,000. When the Silvey Building finally was acquired several years later for $300,000, the board approved plans for a bridge building to link the Silvey and main Bank buildings, and for a parking lot on the land east of the Bank. In 1954, however, the architects changed course and proposed to build a six-story addition on the east lot. This plan was approved, and preparations began for the construction. The Washington Board decided in 1955 to postpone construction in Atlanta, however, and that project did not begin to inch forward again until 1957. Plans were revised and approved in Atlanta at the end of that year. A construction contract finally was signed in October 1959, and construction began in December. Two years later the new east building was ready to be occupied, and much of the work of the Bank was shifted from the west wing to the east wing so that the renovation of the old building could proceed. It wasn’t to be so simple.

Bronze Eagle
A 16-foot wide, 3,300-pound cast bronze eagle is lowered into place at the Atlanta headquarters in 1964.

Razing the flagship on Marietta Street
In February 1962 what Bryan called “an unexpected bombshell” went off. All that remained to conclude the building plans for Atlanta was the fairly superficial renovation of the old building, now the Bank’s west wing. But the contractor and architect came to Bryan in February with bad news. The old building was unfit to renovate. Old structural drawings “contained a good deal of fiction,” Bryan had to tell the board. Footings, beams, columns, and structural members were not as described, and some simply did not exist. The current contractor was calling the old concrete work shoddy at best. Renovation was shut down while additional architects and engineers, some of them from the Board in Washington, inspected the old building. Core samples from the columns were not reassuring. It would not be feasible to reinforce the structure of the building, the experts concluded. It would have to be torn down and rebuilt from scratch.

One plan would have attempted to reconstruct the old building in its original form, but that had architectural drawbacks. The Bank chose instead to build a new, fully modern building to match the east wing. The only parts of the old building that would remain, in the plan architect Henry Toombs presented in May 1962, would be five of the sixteen marble columns that decorated the front of the old building. These would be arranged outside the entrance to the new building. An esthetic debate followed Toombs’ presentation. Several directors objected to combining traditional columns with a modern building, but Toombs and Bryan managed to persuade doubtful directors that they would like the result when they saw it.

The Bank negotiated new contracts with its builders, and the demolition of the old building began in June 1962. “I need not conceal from you that these developments are deeply disappointing,” Bryan told the board. “They are going to change a building program that we thought was extraordinarily modest to one that is going to be a good deal more expensive.” Chairman Jackson W. (Jack) Tarver, editor of the Atlanta Constitution, noted Bryan’s deep concern and tried to reassure him that the problem could not have been anticipated. To a motion authorizing Bryan to move forward with new plans, Tarver added a vote of confidence in Bryan.

Atlanta Fed
The head office of the Federal Reserve Bank of Atlanta after its renovation in the early 1960s.

In July 1964, a year before he retired, Bryan finally saw the completion of the new Atlanta headquarters building. The delays and changes of plans had raised the price tag from $5.6 million in 1961 to $8.5 million. The dedication was delayed until October 9, pending the arrival from Italy of a 16-foot, 3,300-pound cast bronze eagle which was to be mounted on top of a 48-foot marble column at the entrance of the new building. The eagle had been shipped from Rome—where American sculptor Elbert Weinberg designed it and supervised the foundry work—to Jacksonville, then hauled by truck to Atlanta. On August 27, a large crane lowered it into position while three men on high scaffolding secured it to the top of the column. It was, Bryan said, the largest bronze eagle in the United States. At the ceremony were Chairman Martin from Washington and former Atlanta Chairman Frank Neely, then 84.

New address in New Orleans
Bryan had retired before the Bank’s final major construction project in New Orleans was completed. In 1960 the board approved plans for a new branch building there on a St. Charles Avenue site acquired in 1958 and at that time occupied by the old Sewerage and Water Board Building. That building was razed in 1960 to make way for the new branch building. One potential embarrassment was avoided in 1964 when the Bank enlarged its property by acquiring the adjoining Ciolino Building for $400,000. The Ciolino Building housed “Curley’s Gym and Neutral Corner Lounge,” an unsavory local establishment where prize fighters trained and “many ‘winos’ ” found “a ready source of supply,” according to the New Orleans branch manager at that time. Curley’s new landlord, the Federal Reserve Bank of Atlanta, gave him notice to move, and, after stalling until after Mardi Gras week in 1965, Curley moved out. The Ciolino building also was demolished, and the New Orleans branch came to occupy a larger site. The $4.9-million, four-story structure was finished in February 1966 after nearly two and a half years of construction.

The liveliest part of the New Orleans branch story—and the one financial bright spot in the District’s building campaign—was the spirited auction that developed between two rival groups over the building on Common and Carondelet Streets that the Fed branch was vacating. The Atlanta Fed originally estimated the value of the land at $800,000 and the cost of demolishing the building at $200,000. When the auction gavel finally fell, though, the building had gone to local builder Louis J. Roussel for $2,450,000.

The unsolved membership problem
The expansion of the Atlanta Fed’s staff, the volume of operations, and its physical plant was not accompanied by a growth in membership. Although nonpar banking was finally in retreat, even in the Sixth District, membership held steady at around 30 percent of the District’s banks. The number of member banks had been rising slowly—from 351 in 1949 to 392 in 1957—but that did not satisfy Atlanta Fed directors, who in January 1957 pressed Bryan for an explanation. Bryan worked up a report, “Problems of System Membership in the Sixth Federal Reserve District,” which reviewed the history of the membership issue. Directors urged action at the February meeting, but a skeptical Bryan told them that everything had been tried, without success, and that the problem could be solved only with a significant change in the incentives for membership, which would require an act of Congress.

A March report from the Board of Governors, however, added to the concern of Atlanta directors. It indicated “that the bank relations and public information programs varied substantially from bank to bank, with possibly New York and Atlanta at either extreme.” New York, it was noted, had six employees who did nothing but call on District banks. In Atlanta, bank visits had resumed after the war but declined from 1,563 in 1949 to less than 500 a year after 1954. Bryan defended his policy of limited visiting. He preferred to show the value of the Atlanta Fed by using speakers from the research department. He noted that officers had made 174 speeches to 16,176 people in 1956, and he reminded directors that only Atlanta had an agriculture program. The board, unconvinced, set up a committee to investigate a reactivated bank calling campaign.

The Atlanta Fed continued its particular mission to provide credit to its region, even though central bank lending had changed considerably since the days of Max Wellborn. Although the Sixth District contained only about 5 percent of the country’s banking resources in 1958, the Federal Reserve Bank of Atlanta funded 15 percent of the borrowings by member banks. In response to criticism from a Federal Reserve Board examiner that the Bank’s credit policy was too liberal, Bryan expounded a position that kept alive the Atlanta tradition: he would do everything possible to keep open a member bank that was reasonably well run. He had no intention of making it seem immoral to use the discount window. If a Reserve Bank did not lend, member banks could be forced to sell securities at a loss at a time when they should be building capital, he explained to the Atlanta board in 1957.

Nevertheless, the balance sheets of all the Reserve Banks after the Depression make it clear that loans to member banks were dwarfed by government securities holdings. Of the entire System’s 1959 earnings of $886 million, only $28 million (3 percent) came from discounts to members. And that $28 million did not represent a slow year; it was up from only $7 million the year before.

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