Federal Reserve Primer

The United States Federal Reserve System turned 95 on December 23, 2008. It has never been more active and visible - marching out a parade of stunningly ambitious initiatives in the last few months. Yet illiquidity persists. Despite widespread news coverage, most of us find the Fed a little mysterious. What is the Federal Reserve System, how does it work and does it have the power to restore the financial system?

Composition & Structure

After a particularly acute series of bank failures in 1907, a group of influential financiers sought to implement a centralized banking system in the US. "In late 1910, a secret meeting of those advocating a central bank met in Jekyll Island, Georgia, to draft a bill for a central bank... Most of the work was [Paul] Warburg's, a German-born investment banker; he wanted to disguise the idea of a central bank by having decentralized regional banks," reports Ronald Wells in his book The Federal Reserve System; A History. The attendees put forward a proposal for one centralized bank with 15 regional banks. After many compromises the legislation was formally proposed.