Banker Preferences, Interbank Connections, and the Enduring Structure of the Federal Reserve System
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.
The authors thank Michael Bordo, Mark Carlson, David Hammes, Tom Garrett, Michael McAvoy, Mary Rodgers and David Weiman for comments, data and other information used in preparing this paper. Views expressed herein do not necessarily represent official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the National Bureau of Economic Research.
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.