Quite a few conversations are derailed on claims that the Fed is “privately owned”. I’ve taken some time and put something together and am looking forward to see if there are any meaningful responses. Enjoy!
Who owns the Fed? You do, of course!
The Fed was a system created by Congress, which has total authority over it, including the right to alter or eliminate it in any way.
The Fed is not an agency. It’s a “system” consisting of many parts. Some of these parts are agency-ish, but are not called agencies. Agencies belong to the executive. The Fed belongs to Congress and is not, therefore, an agency. As long as Congress owns it, it can’t be.
“But wait! Don’t banks own stock in the Fed?”
Why yes - sort of. Common stock confers ownership. There are other sorts of stock which do not - like preferred stock.
Fed stock is like preferred stock.
First, there is no stock in “the Fed”.
The Fed consists of “agency-like” entities, like the Board of Governors, which members are federally appointed, and who take federal oaths of office.
The Fed also consists of twelve regional banks, which are wholesale banks. They do not make monetary policy. They’re banks.
The stock is in the banks. When a member bank buys stock in the Richmond Fed, it’s ONLY stock in the regional bank in Richmond.
It gives that bank no say over monetary policy.
Do stockholders get any profits? No. Like preferred stockholders, they get a guaranteed 6% dividend on paid-in capital. In other words, no matter how much “profit” the regional bank makes, they get the same 6% of their paid- in capital as a dividend.
Banks are also subject to assessments, or cash calls.
Banks cannot trade their stock. They can only sell it back to the regional bank at the same price they bought it.
Banks cannot buy more or less stock. The Fed tells them, based on their size, how much capital they must pay in to be Fed member banks. No matter how much they are assessed, they have one vote. One share, one vote. Your local bank, if a Fed member, has exactly the same number of votes as Citibank - one.
All profits made by regional banks (less operating costs and the 6% dividend) are surrendered to the Board of Governors, who surrenders them to Treasury (the Fed’s books are available on their website).
But doesn’t the Fed print money and charge is interest on it? No.
The Fed prints no money. Currency is printed by the Treasury, who “loans” it to the Board of governors (those profits turned over to Treasury are nominally interest on all Federal Reserve Notes on circulation).
The BoG then sells the notes to the regional banks, who sell them to your bank - for one dollar each.
“Printing money” really isn’t monetary policy. Currency is just distributed to respond to your demand at the ATM machine.
“But aren’t Fed employees and expenses not paid by the Federal government”?
Sure they are. Federal monetary operations make money. Every year, the Fed turns its profits over to Congress. That’s the governments money. The Fed’s expenses and payroll are paid with money that would be paid to Congress - in other words, they come out of government’s pockets.
Also, nobody disputes that the Postal Service is federally owned, and its expenses are paid exactly the same way.
So is the Fed privately owned? No.
Not even a little bit. It does function as a “private entity” in very limited circumstances. If a truck owned by a regional bank hits you, you have no case against the government -
Just against the regional bank.
But there are no - count 'en, zero - private owners of the Fed.