Bankers participated with policymakers in the co-creation of the Federal Reserve Act. Leading bankers helped write the Aldrich Bill, but after the 1912 elections, bankers had to contend with Glass-Owen legislation, produced by a Democratic White House and Congress. While scholars have written about “bankers” as a cohesive group or about “big banker” influence over the Federal Reserve Act, what has received less attention is the remarkable amount of in-fighting among bankers over policy positions.
Some scholars have noted that bankers split by geographical region—among New York “money trusters,” Midwestern city banks, and country bankers. However, they also diverged according to bank type. The American Bankers Association’s (ABA’s) organizational configuration exacerbated this conflict. Independent divisions—that represented national banks, state banks, trust companies, and savings banks—frequently pursued policies at odds with one another. Numerically greater state banks enjoyed more favorable regulatory conditions than did national banks. Thus, national banks—in a bid to compete more effectively and over the objections of their market rivals—lobbied policymakers to include provisions in the Federal Reserve Act that would grant them some of the operational powers that state banks, trusts, and savings banks had.
Tracing these skirmishes is important for connecting politics and policy to market structure. They’re also significant for understanding some of the final features of Federal Reserve legislation. The architects of the Aldrich Plan had given bankers a good deal of power to shape their legislation. Democrats working on Glass-Owen legislation also met with bankers but, given their agrarian and populist factions, they were less solicitous of banker concerns. That bankers assumed so many conflicting positions only gave Democrats more latitude to shape the bill according to party preferences.
The final legislation left the fragmented financial structure largely intact. Moreover—despite reformer intentions—the pyramiding of reserves persisted, correspondent relations thrived, and New York banks continued to dominate the sector.