Crossposted from LiveJournal.

In my previous post, I basically gave a condensed history lesson on fractional-reserve banking, the creation of the Federal Reserve System, and the last gasps of the gold standard as Nixon fully switched the US dollar to a fiat currency. I meant to post a follow-up soon after, but I got sidetracked by Real Life™. But late is better than never, so without further ado...

Next in the series: so, how does the modern Fed work, anyway?

The system as a whole is much bigger than the Federal Reserve itself. For this discussion, the important parts of the system are the Federal Reserve Board of Governors, the 12 Federal Reserve Banks spread throughout the United States (collectively, "the Fed"), roughly 2,000 national commercial banks, and around 900 state commercial banks. (There are almost 5,000 state commercial banks that are FDIC insured but choose not to be members of the Federal Reserve system. Nationally-chartered banks are required by law to own stock in a Federal Reserve Bank, making them part of the system. State-chartered banks can choose to buy stock and join the system, but it's not required. Shares in a Federal Reserve Bank are very bizarre, because they give no voting rights and are illegal to sell back or trade to someone else — but they do pay dividends.)

Read the rest on LiveJournal...