Federal Reserve Bank Privately Owned

By Heide B. Malhotra, Epoch Times
October 1, 2013 Updated: October 1, 2013    

Many Americans don’t know the history and ownership of the U.S. Federal Reserve Banks (Fed) with the majority of Americans believing that the Fed is a federal government-owned agency. 

The Federal Reserve Bank of New York has published its history, but these historical accounts are complex, several pages long, and not easy to digest. 

The section “What We Do” states, “The Federal Reserve Bank of New York works within the Federal Reserve System and with other public and private sector institutions,” without discussing the Fed’s ownership. 

The Federal Reserve states: “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.”       

Federal Reserve Bank as a Private Corporation

“The Fed is privately owned. Its shareholders are private banks. In fact, 100% of its shareholders are private banks. None of its stock is owned by the government,” according to the Global Research website. 

About 38 percent of U.S. banks are stockholders of the Fed. Every stockholder invests 3 percent of its capital in the Fed, according to FactCheck. 

However, the banks may not trade or sell the stock. Also, the stock cannot be used as collateral when borrowing funds. But, stockholders are paid a 6 percent dividend annually and may elect the board of directors at each of the 12 Federal Reserve Banks. 

Besides the dividend, the Fed also pays interest on reserve balances and excess reserve balances to the banks. The weekly interest rate for reserves and excess balances is determined by the Board of Governors and has been 0.25 percent this year. 

The Fed’s rules on reserve requirements are as complex as any other of its publications. This year, there is no reserve requirement for up to $12.4 million in capital. From $12.4 million to $79.5 million, the reserve requirement is 3 percent; and when capital is over $79.5 million, the requirement is 10 percent. 

Independent of Government Influence

A bank is not a stockholder as understood in the private sector, no matter how much it has invested in the Fed.

“Congress set up the Federal Reserve System to make it autonomous and to isolate it from day-to-day political pressures,” according to the Federal Reserve Bank of San Francisco. 

The Fed is independent of the president or any other executive or legislative government body. It sets monetary policy without input or approval from government entities. 

The Fed’s stockholders are allowed a minority vote for setting short-term interest rates. However, the Federal Open Market Committee (FRB) is solely responsible for setting this rate. 

Congress Authorized to Print Money 

Congress set up the Fed as a private-sector entity. The Fed makes monetary decisions for the United States. Politicians, researchers, and some in the educational sector dispute the legality of such a move.

Article 1, Section 8 of the Constitution states that Congress “may coin money,” which includes issuing paper currency. In order to carry out these powers, Congress created the Federal Reserve System to regulate the nation’s monetary supply. 

However, Section 8 doesn’t give Congress the explicit right to form an entity that is not government, but privately owned. Congress was given the authority to print money, but not to give the printing of the U.S. money supply and setting of monetary policy to a privately owned entity.

“Congress illegally gave the Fed the right to print money (through the Treasury) at no interest to the Fed,” states an article on the ProAmerican website. 

Federal Reserve Bank System

Stockholders are the owners of all 12 regional Fed banks, including the ones in San Francisco, Minneapolis, Kansas City, Dallas, Chicago, Cleveland, New York, and Philadelphia. They all are owned by banks, but control is exercised by the Board of Governors. The president of the United States appoints and the Congress confirms the seven members of the Board of Governors. 

Congress holds oversight over the Fed and can change the Fed’s modus operandi through enacting a new law or revising an existing ruling. 

“Oversight” basically means that Congress gets to see the results when it’s over. The Fed periodically reports to Congress, but the Fed doesn’t ask; it tells. The only real leverage Congress has over the Fed is that it “can alter its responsibilities by statute,” according to the Global Research website. 

Financing the Fed

The Fed is a private-sector entity, has stockholders, and “Congress also created the Federal Reserve System to be self-funding. The Fed earns interest on the interest-bearing government securities it holds in its portfolio and sells financial services to banks,” according to the Federal Reserve Bank of San Francisco. 

The U.S. government doesn’t fund the Fed. The Fed primarily funds itself through interest earnings. For example, interest accounted for approximately $80.5 billion of the estimated $91 billion profit earned during 2012. Earnings have always been significantly greater than expenses. The excess earnings over liabilities are paid into Treasury accounts. 

The Fed paid the U.S. Treasury $34.6 billion during the first six months of this year. At the end of the 2012 fiscal year, the Fed paid $88.9 billion of their estimated 2012 net income to the Treasury. Between 2003 and 2012, the Fed paid $448 billion into Treasury accounts, with payments since 2010 almost doubling prior years’ payments. 

The Fed pays dividends and thus operates more like a private-sector entity. Americans should be told that the Fed is owned by American banks and that it is not a federal government agency. 

Calls for the Fed to be abolished have been heard since its inception. But, none of these calls created a movement that would have even come close to abolishing the Fed.