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Banker Preferences, Interbank Connections, and the Enduring Structure of the Federal Reserve System

Matthew S. Jaremski, David C. Wheelock

NBER Working Paper No. 21553
Issued in September 2015, Revised in February 2016
NBER Program(s):The Program on the Development of the American Economy

Established by a three person committee in 1914, the structure of the Federal Reserve System has remained essentially unchanged ever since, despite criticism at the time and over ensuing decades. With Congress now considering reforms to the System, this paper examines the original selection of cities for Reserve Banks and branches, and of district boundaries. We show that each aspect of the Fed’s structure reflected the preferences of national banks, including adjustments to district boundaries after 1914. Further, using newly-collected data on interbank connections, we find that banker preferences mirrored established correspondent relationships. The Federal Reserve was thus formed on top of the structure that it was meant to replace.

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Document Object Identifier (DOI): 10.3386/w21553

Published: Matthew Jaremski & David C. Wheelock, 2017. "Banker preferences, interbank connections, and the enduring structure of the Federal Reserve System," Explorations in Economic History, vol 66, pages 21-43.

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