Is the Fed Private? I don't think so.


#1

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.


#2

"The Federal Reserve System fulfills its public mission as an independent entity within government. It is not “owned” by anyone and is not a private, profit-making institution.

As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve’s activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as “independent within the government” rather than “independent of government.”

The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation’s central banking system, are organized similarly to private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks.

However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, paid to member banks at a maximum rate of 6 percent, determined in part by each member bank’s total assets."

https://www.federalreserve.gov/faqs/about_14986.htm


#3

So then you agree or disagree with the OP? Because your post, as far as I’m concerned, confirms what I posted.

Thanks.


#4

My post was merely an adjunct and clarification…


#5

Agreed. It is public not private. Don’t understand why this is controversial, but I’ve seen the arguments and know that it is.


#6

But we have a nation full of people who think that private businesses open to the public are “public,” so I shouldn’t be surprised.


#7

The Federal Reserve is a Private bank with a Congressional Charter that defines several stipulations that it must meet to maintain that Charter, it is NOT a publicly owned or managed entity.


#8

Nor is it privately owned or managed in any meaningful sense.

It is not publicly controlled entity, but as you rightly point out, it’s operation was publicly defined.

The Fed has no owners, therefore it is unique in it’s classification.

A system of the government given autonomy from political influence.


#9

RET, this organization is the definition of public. Its leaders are appointed by politicians, and it has regulatory power. Congress created it not private citizens looking to make a buck or serve some supposedly noble nonprofit cause. For citizens, changing it or impacting it is possible only through elected officials.

The seven members of the Board of Governors are** appointed by the President and confirmed by the Senate** to serve 14-year terms of office. Members may serve only one full term, but a member who has been appointed to complete an unexpired term may be reappointed to a full term. The President designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman, for four-year terms.

The primary responsibility of the Board members is the formulation of monetary policy.

In addition to monetary policy responsibilities, the Federal Reserve Board has** regulatory and supervisory responsibilities** over banks that are members of the System, bank holding companies, international banking facilities in the United States,

On December 23, 1913, the Federal Reserve System, which serves as the nation’s central bank, was created by an act of Congress.

https://www.federalreserve.gov/pubs/frseries/frseri.htm

Note that its URL is .gov

The Fed is a public government agency. Special status, privileges and rules don’t change this.


#10

Yep and with that goes a lack of accountability.

In my years in Govt, as a Civil Servant, Enlisted Soldier and as an Officer I found myself butting heads often with many people. I had to staff actions across many boundaries and what I found more often that not was those who had the ability to say “no” and stop an action. I am working under deadlines and pressure from those I work for and those who work for me. Suddenly the action you have staffed across the many lines of command gets stopped. Every time it was by someone with big responsibility but zero accountability. Its the way of the Govt. Note how many folks got fired at the IRS, ATF (fast and furious), Benghazi and the list goes on and on and on.

The strongest union in the US is the Govt Workers, want to begin to fix govt, the no more union!


#11

Given that some of the seats on the BoG is populated by the heads of the regional banks, they are in fact accountable in a very unique way to the public. Failures of monetary policy affect the markets. However, it’s easy to blame the Fed for poor policy, but it’s important to remember that fiscal and monetary policy work closely together. Personally, I think we suffer a major failure in fiscal policy leaving the Fed to make up for the shortfall on it’s end. However, interest rates don’t drop below zero and the Fed cannot use it’s money to stimulate demand…Until the Congress uses it’s authority effectively (e.g. by lowering taxes), then demand will suffer and we will continue on stagnating, smothered in private debt…


#12

No, it is the definition of an entity that is contracted via a Charter.

Some are, in accordance with the Charter

Only regarding the area specified in the Charter.

Many private entities exist without the motivation of “making a buck”, this does make them government agencies.

Here you are flat out wrong.
The Federal Reserve was not the first idea we tried as a Nation to manage a common currency, it was just the best idea so far. The motivation was to separate the Government (and its inherent corruption) from the process so faith could be restored in the banking system; the members of the Federal Reserve were motivated to perform this service so that the stability that was created would strengthen the economy and thereby benefit their “for profit” ventures.

It was a case of trusting the management of the currency to non elected and supremely qualified citizens who could prevent the whims of government from destroying the integrity of our currency, these citizens serve without a direct profit motive for the good of the Country (and themselves by extension).

It was this design that elevated the United States currency to a level far more trusted and respected than any other currency in world history, the Charter does force them to do some things that they would not do otherwise and this creates many problems but those can be easily fixed by the citizens demanding responsible spending.

The Federal Reserve can only strongly urge the political class to be responsible, they have no mechanism to demand it other that raising interest rates so high that they collapse the government; this would destroy EVERYTHING so they have chosen to mitigate the damage with low rates and hope we vote smarter at some point.

The Federal Reserve is a noble entity with a stellar record that no entity in the history of currency management can even come close to, without their management our dollar would have collapsed by the 1970’s at the very latest.

If citizens could “change it” it would be government, it is not a government agency.

Congress can only act in accordance with the Charter and the Federal Reserve is also limited by the same Charter, this is a contractual business arrangement not a government agency.

That is because the Federal Reserve is not a bank that is free to do business with the general public, they ONLY manage the currency through member banks and the Congress, the reason for the .gov is because they represent the governments guarantee to citizen depositors in all FDIC insured banks that their money is secure up to a predetermined deposit amount regardless of what happens to the bank they use.

It is no such thing, the Federal Reserve is a private bank with a Congressional Charter to perform specific responsibilities related to our currency.


#13

RET423 wrote: "The Federal Reserve was not the first idea we tried as a Nation to manage a common currency, "

Does anyone know what the term** “Train riding Dollars”** implies? Its a good part of the reason why we have the system we do with the Federal Reserve.

I use this term frequently in doing deals.