The name Paul Moritz Warburg is synonymous with the founding of the Federal Reserve System. Warburg’s impact on American banking is a parallel to his family’s impact on European banking. The epic story of the Warburg family of European bankers can be traced back to the early 1500s when Simon von Cassel settled in the German Westphalia town of Warburg (originally founded by Charlemagne in 778 and was then known as Warburgum) and began the family’s quest for money and financial power. Although the Warburgs excelled in many other occupations throughout Europe, it was this lineage that produced some of the most successful bankers in the world. Blessed with sharp minds and good business sense, the generations of the Warburg clan gained seemingly boundless money and power.

In the eighteenth century the family splintered into two groups. Some went to Altona, Denmark and others to Hamburg, Germany. Despite being relegated to Jewish ghettos and, by law, referred to as “moneylenders” and not bankers, in 1774 a Warburg established the merchant-banking firm of S. G. Warburg. It soon became W. S. Warburg as the family grew and sons and grandsons began to contribute to the family business. In 1807 the Altona Warburgs sold to the Hamburg Warburgs of M. M. Warburg & Co., founded by Moses and Gerson Warburg in 1798.

When Napoleon invaded Germany, Hamburg was captured by the French army in 1804, as was Moses’s brother Gerson. Napoleon himself held Gerson hostage and demanded a ransom from the entire Hamburg Jewish community for his release. However, Gerson’s own brother Moses wouldn’t pay it. Only after prodigious pressure from their community did Moses finally put up the money, which was still a sum much lower than what was expected of him. Despite this lack of loyalty, the two brothers signed a partnership in 1810, and expanded M. M. Warburg together.

The end of the Napoleonic war marked the beginning of economic rebuilding for Germany. When the French withdrew in 1814, Moses and Gerson saw the need for replenishment of the country’s stock of silver currency to boost the German economy.