A sweeping economic panic spread across the United States in 1907, the most severe bank panic to besiege the nation in nearly half a century. Runs on the banks were rampant because depositors were deeply concerned about the solvency of their banks. Investors were ruined overnight, and matters continued to grow worse for the next few years. Change was imperative; Congress realized that something had to be done.  A small group of men in positions of power within the banking industry and government agreed to meet, without public awareness, to outline a plan for reform. Rhode Island Senator Nelson Aldrich; House of Morgan banker, Henry Davison; Assistant Secretary of the Treasury and scholar, A. Piatt Andrew; Bankers’ Trust President, Benjamin Strong; Kuhn, Loeb and Company banker and banking theorist, Paul Warburg; and National City Bank President, Frank Vanderlip, left New Jersey by rail in a private train car on their trip southward in mid-November, 1910. Their destination: the Jekyll Island Club, located on a barrier island where they could enjoy the utmost privacy off season.  Their purpose: to devise a plan to restructure banking in America.   

The stories of these individuals and their contributions to the creation of the Federal Reserve System and centralized banking have appeared in consecutive issues of Club News. (See links below.) The following is an account of their meeting on Jekyll Island and the apparent consequences.

Perhaps no one in Hoboken, New Jersey, took great notice of the men boarding Nelson Aldrich’s private train car that November night one hundred years ago. It is possible passers-by wouldn’t have heard the individuals address each other by their first names, nor taken notice of the fact that the first names heard were not altogether correct.  If a person had been watching them from a distance, he might have noticed several very well dressed men, all in their early 40’s except one, boarding without much comment or fanfare... precisely as the group would have desired.   

Hardly had the train pulled out of the station on its way to Brunswick, Georgia, when the work of these powerful financiers and leaders began. Each in his way had prepared for this project for years. Most represented the largest banking interests in the country, and all of them were in agreement that the United States should have centralized banking. They all were convinced that a system of financial reserve should be created which could be utilized to prevent future runs on existing banks.

However, sweeping political controversies had flared over the question of a centralized bank since the First Bank of the United States opened for business in Philadelphia in 1791. Political parties had split and men had fought duels over the question. Secretary of the Treasury Alexander Hamilton, a man of financial brilliance and chief advocate of this national central bank at the time, saw it as a necessary and proper means to create funds to support the military, collect taxes, establish a mint, and regulate trade. At President Washington’s request, Hamilton presented an opinion paper in which he defended the creation of a central bank. This Hamilton did in no fewer than 15,000 words. Washington signed the “bank bill” into law in 1791. The national bank remained controversial, and its 20-year charter was allowed to expire in 1811. Renewal of the charter was introduced to Congress in 1816, and again its charter was allowed to expire during Andrew Jackson’s administration. The controversy continued.

It was after the Civil War, after numerous severe economic upheavals, and after the bank panic of 1907 that the matter of a central bank and a monetary banking reserve would be considered again. Most European countries had established central banks by this time, and the year following the 1907 panic, the U.S. Congress was motivated to establish the Monetary Banking Commission to study possible reform at home. That Commission and a growing number of powerful members of the U.S. banking establishment concluded that a central bank and reserve were the direction to go.  Mainly because the American public was suspicious of bankers’ motivations and highly skeptical of a plan that put the national economy in the hands of relatively few people, little action was taken.

By 1910, Nelson Aldrich, who had been the chairman of the National Monetary Commission, made the arrangements for a hand-picked group of six bankers, financial theorists and leaders to accompany him to Jekyll Island where they could work undisturbed, and practically unnoticed, until their project was completed. For approximately two weeks they met for long days of discussion and planning. Because it was off-season, the Club was opened especially for them. Only a few, highly trusted staff members were engaged to serve them. While here, the six created a plan for a system of monetary reserve and central banking that would protect the future banking interests of the country. Their plan, created in secrecy, would become the Aldrich Plan and eventually the basis for the Federal Reserve System that is in place today.

The Federal Reserve Act (38 Stat.251), effective December 23, 1913, is the act of Congress that established the Federal Reserve as an independent agency and granted it the authority to issue legal tender.  Signed into law by President Woodrow Wilson, the Federal Reserve was to serve as the national central bank, execute federal monetary policy, transfer funds, handle government deposits and debt issues, supervise and regulate banks, and act as a lender of last resort. The plan called for a National Reserve Association with 15 regional district branches and 46 geographically dispersed directors primarily from the banking profession. 

Through the century since the 1910 meeting at the Jekyll Island Club, the Federal Reserve continues to exist and continues to inspire controversy. It is in the news every day; books and books continue to be written about it. And, regional offices of the Federal Reserve continue to meet on Jekyll Island from time to time, including the meeting this year, November 4th to 6th, in celebration of this 100th anniversary. 

Stories of the individuals who met on Jekyll Island in 1910 may be reviewed in earlier issues of the Club News: Nelson Aldrich, A. Piatt Andrew, Henry Davison, Benjamin Strong, Frank Vanderlip, and Paul Warburg.