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. This paper examines the original selection of cities for Reserve Banks and branches, and placement 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 largely meant to replace.