The Federal Reserve is a Private Financial Institution - Global Research (2023)

Case sheds light on the Fed's status as a private institution

Below are excerpts from court cases demonstrating the standing of the Federal Reserve System. As you will see, the court ruled that the Federal Reserve Bank was an "independent, privately held and locally controlled corporation" and did not have sufficient "federal government control over 'detailed physical performance' and 'day-to-day operations'" Federal Reserve Banks see it as a federal agency:

Lewis v. United States, 680 F.2d 1239 (1982)

John L. Lewis, Plaintiff/Appellant,
United States of America, Defendant/Appellee.

No. 80-5905
United States Court of Appeals, Ninth Circuit.
Submitted March 2, 1982.
Decision of 19 April 1982.
Revised June 24, 1982.

Plaintiff filed a lawsuit claiming jurisdiction under the Federal Tort Claims Act for injuries sustained in a vehicle owned and operated by the Federal Reserve Bank. Judge David W. Williams, J. of the U.S. District Court for the Central District of California rejected the finding that the Federal Reserve Bank is not a federal agency within the meaning of the Act and that the court therefore lacks subject matter jurisdiction. Appeal. Appeals Court Circuit Judge Poole argued that, for the purposes of the Act, the Federal Reserve Bank is not a federal agency but an independent, privately owned and locally controlled corporation.


1. United States

There are no strict criteria for determining whether an entity is a federal agency within the meaning of the Federal Tort Claims Act, but the key factor is whether federal government control exists over the entity's "detailed physical properties" and "day-to-day operations." . . .

2. United States

For purposes of the Federal Tort Claims Act, the Federal Reserve Banks are not federal agencies but independent, privately owned and locally controlled corporations, since direct oversight and control over each bank is exercised by the Board of Directors, the Federal Reserve Bank, Although strictly regulated and locally controlled by its member banks, banks are neither classified as "wholly owned" government corporations nor as "mixed ownership" companies; the Federal Reserve Bank receives no appropriations from Congress, and banks have sue and be sued in their own name. . . .

3. United States

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Under the Federal Tort Claims Act, federal liability is based solely on traditional agency principles, and does not necessarily exist when the tortfeasor is simply working for an entity, such as a Reserve Bank that performs essential activities for the government. . . .

4. Taxation

For purposes of exemption from state taxes, the Reserve Bank is considered a federal agency.

5. National Taxation

The test to determine whether an entity is a federal agency for the purpose of avoiding state or local action or taxation is broad: whether the entity performs essential government functions.


Lafayette L. Blair, Compton, Cal., for plaintiff/appellant.

James R. Sullivan, Asst. us. Atty., Los Angeles, Cal., Defense of Defendant/Appellee; Andrea Sheridan Ordin, U.S. Army; Atty., Los Angeles, Cal., Profile.

Appeal from the U.S. District Court for the Central District of California.

Before Circuit Judges Poole and Boochever and District Judge Soloman. (The Honorable Gus J. Solomon, Senior District Judge for the District of Oregon, assigned seat)

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Circuit Judge Poole:

On July 27, 1979, Appellant John Lewis was struck by a vehicle owned and operated by the Los Angeles Branch of the Federal Reserve Bank of San Francisco. Lewis filed the suit in district court, alleging that under the Federal Tort Act (Federal Tort Act), 28 U.S.C. sect. 1346(b). The United States filed a motion to dismiss on the grounds of lack of subject matter jurisdiction. The district court denied that request, holding that the Federal Reserve Bank is not a federal agency within the meaning of the Act and therefore the court lacks subject matter jurisdiction. We declare.

When enacting the Federal Tort Claims Act, Congress provided limited immunity from U.S. sovereign immunity against certain torts committed by federal employees. . . . Specifically, the act establishes liability for any employee of a federal agency for injuries "caused by negligence or misconduct or omission" while acting in the scope of his or her duties or work. . . . "Federal Agency" is defined as:

executive branch, military branch, independent
U.S. agencies and companies acting
Primarily as a U.S. tool, but not
Including any contractor with the United States.

28 American Code denominations. 2671. Accordingly, the liability of the United States for the negligence of a Federal Reserve Bank employee depends on whether the bank is a federal agency under section 1. 2671.

[1,2] There are no clear criteria for determining whether an entity is a federal agency within the meaning of the Act, but the key factor is the federal government's control over the "detailed physical properties" and "day-to-day operations" of that entity. . . . Other factors considered by the court include whether the entity is an independent corporation . . . , whether the government is involved in the entity's finances . . . , and whether the entity's mission promotes U.S. policy, . . . Examining the organization and functions of the Federal Reserve Bank , and applying relevant factors, we conclude that the Reserve Bank is not a federal agency for the purposes of FTCA, but an independent, privately owned and locally controlled corporation.

Each Federal Reserve Bank is an independent corporation owned by the commercial banks in its district. Joint-stock commercial banks elect two-thirds of each bank's nine board members. The remaining three directors are appointed by the Federal Reserve Board. The Federal Reserve Board supervises the Reserve Banks, but direct oversight and control of each bank is exercised by its Board of Directors. 12 American Code denominations. 301. Directors make bylaws regulating the manner in which the general business of banks is to be conducted, 12 U.S.C. denominations. 341, and appoint officials to implement and supervise day-to-day banking activities. These activities include collecting and clearing checks, making advances to private and commercial entities, holding reserves for member banks, discounting bills of member banks, and buying and selling securities in the open market. See 12 U.S.C. Divisions. 341-361.

Each bank has the authority to carry out these activities without the daily guidance of the federal government. Thus, for example, interest rates on advances to member banks, individuals, partnerships and corporations are set by each Reserve Bank, and their decisions about buying and selling securities are likewise made independently.

It is clear from the legislative history of the Federal Reserve Act that Congress did not intend to provide direction to the federal government regarding the day-to-day operations of the Reserve Bank:

It is recommended that the government retain sufficient powers
The Reserve Bank enables it to exercise direct powers in the following circumstances
It is necessary to do so, but it will never try to continue
Through its own mechanism, day-to-day operations and banking
A detailed knowledge of local and personal credit is required, and
Identify community funding in any given situation. other
In other words, the Reserve Bank plan preserves the government's
Exercising broader banking functions, while it is left to the
Practical Orientation for Individuals and Private Organizations

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H.R. Report No. 69 Cong. first session. 18-19 (1913).

The fact that the Federal Reserve regulates the Reserve Banks does not make them federal agencies under the Act. In United States v. Orleans, 425 U.S. 807, 96 S.Ct. 1971, 48 L.Ed.2d 390 (1976), the Supreme Court held that a community action agency was not a federal agency or an instrument for the purposes of the Act, even if the agency was Government organized by federal statute and heavily funded by the federal government. Because the agency's day-to-day operations are not overseen by the federal government but by local officials, the court declined to expand federal tort liability for negligence by the agency's employees. Likewise, the Federal Reserve Bank, while heavily regulated, is controlled locally by its member banks. Unlike a typical federal agency, each bank has the authority to hire and fire employees at will. Bank employees do not participate in the civil service retirement system. They're covered by workers' compensation insurance purchased by the bank, not federal employees' compensation laws. Employees traveling for banking business are not subject to federal travel regulations and do not receive government employee discounts on accommodations and services.

None of these banks are classified as "wholly owned" government corporations under 31 U.S.C. sect. 846 is also not a "mixed ownership" corporation under 31 U.S.C. sect. 856, one factor considered was Pearl v. United States, 230 F.2d 243 (10th Cir. 1956), which held that the Civil Air Patrol was not a federal agency under the Act. Much like the Federal Reserve Bank, Civil Air Patrol is a not-for-profit federally chartered corporation designed to serve the public good. But because Congress has limited control over the Civil Air Patrol and the company is not designated as a wholly or mixed government corporation under 31 U.S.C. sects. 846 and 856, the court concluded that the company was a non-governmental independent entity not subject to the Act.

In addition, the Reserve Bank, as a private entity, does not receive any funding from Congress. . . .

Finally, banks have the right to sue and be sued in their own name. 12 American Code denominations. 341. They maintain their own liability insurance and usually handle and process their own claims. In the past, banks have defended infringement claims directly through private attorneys rather than government attorneys. . . , they were never required to resolve infringement claims under 28 U.S.C. administrative proceedings. sect. 2672. Thus, it appears that the waiver of sovereign immunity contained in the Act does not apply to banks that have not historically required or obtained general immunity from judicial process.

[3] For some purposes, the Reserve Bank is properly considered a federal agency. In United States v. Hollingshead, 672 F.2d 751 (9th Cir. 1982), the Court held that an employee of the Federal Reserve Bank responsible for advising the disbursement of federal funds was a "public official" under the Federal Bribery Act. The statute broadly defines a public official to include anyone who acts "for or on behalf of the government." . . . The standard for determining public official status depends on whether there was "substantial federal involvement" in the defendant's activities. United States v. Hollingshead, 672 F.2d at 754. In contrast, federal liability under the FTCA is narrowly based on traditional agency principles and does not necessarily exist when the infringer simply works for one entity, such as the Reserve Bank, that performs essential activities of the government.

[4, 5] For purposes of exemption from state taxes, the Reserve Bank is considered a federal agency. . . . However, the test for determining whether an entity is a federal agency for protection from state or local action or taxation is broad: whether the entity performs essential government functions. . . . The Reserve Bank, which facilitates the country's fiscal policy, clearly performs an important government function.

However, the performance of an important government function is only a single factor and is not conclusive in litigation for tort claims. . . . State taxes have traditionally been considered a greater impediment to an entity's ability to perform federal functions than judicial process; thus, tax exemptions have been widely applied. . . . However, federal tort liability is based on traditional agency principles and thus depends on the principal's ability to control the actions of its agent, not just on whether the entity performs important governmental functions. . . .

Brinks Inc. v. Board of Governors of the Federal Reserve System, 466 F.Supp. 116 (D.D.C. 1979), holding that the Federal Reserve Bank is a sect of the Service Contracts Act (41 U.S.C. 351. Court cited Boston Fed and Minneapolis The Federal Reserve Bank, for example, applied the "significant government function" test and concluded that the term "Federal Government" in the Service Contracts Act must be "freely construed to achieve the humanitarian Individuals under contract provide minimum wage and fringe benefit protection.” ID. 288 Michigan 120, 284 N.W.2d 667.

For the purposes of the Act, this liberal interpretation of the term "federal agency" is unwarranted. Unlike the Brinks case, plaintiffs are not without a forum for seeking redress, as they can file appropriate state tort suits directly against the banks; if successful, their recovery prospects are bright, as these institutions are highly solvent and adequately insured .

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For these reasons, we believe that the Reserve Bank is not a federal agency within the meaning of the Federal Tort Claims Act, and we affirm the district court's decision.


It follows that, in some cases, the Federal Reserve Bank can be considered an "instrument" of the government, but not a "federal agency" because the term carries with it the assumption that the federal government directly oversees what the Fed does in this way. Of course not, as most people who understand the issue know that the Fed is "politically independent".

The only area where people might disagree with the judge's decision is his notion that the Fed furthers the federal government's fiscal policy and thus performs an important government function. While we expect the federal government and the Fed to cooperate with each other, and they may sometimes cooperate, the Fed is never required to do so. As an example, Rep. Wright Patman, chairman of the House Banking Committee, stated in congressional records as far back as the 60s that, depending on the temperament of the Fed chairman, sometimes the Fed will cooperate with the government's fiscal policy, and sometimes it will not Cooperating with the government's fiscal policy is either going in the exact opposite direction, or threatening to do so in order to influence policy.

The common notion that the Federal Reserve is accountable to the government is incorrect because it must report its activities to Congress annually. A report to Congress means little unless the content of the chairman's report can be corroborated by the full record. Since its inception, the Federal Reserve has never conducted a complete independent audit. Time and time again, Congress has asked the Fed to voluntarily submit to a full audit, only to be denied each time.

Anyone who knows the Fed knows that it does keep certain records secret. Rep. Henry Gonzales, the soon-to-be chairman of the House Banking Committee, has repeatedly said publicly that the Fed at one point said it didn't have records for certain requirements, and then found through investigations that it actually did have those records, or at least had them. Had. The Fed chair appears to be able to say whatever he wants to Congress and they will have to accept what he says because it is not always possible to verify what he says.

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Is the Federal Reserve a financial institution? ›

The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system.

Is the Federal Reserve global? ›

The Federal Reserve participates in numerous international standard-setting bodies, including the Committee on Payments and Market Infrastructures, the Financial Stability Board, and the Basel Committee on Banking and Supervision.

What kind of institution is the Federal Reserve? ›

The Federal Reserve, like many other central banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress.

Is the Federal Reserve a private central bank? ›

The Federal Reserve System is considered to be an independent central bank. It is so, however, only in the sense that its decisions do not have to be ratified by the President or anyone else in the executive branch of the government. The entire System is subject to oversight by the U.S. Congress….

What is the Federal Reserve quizlet? ›

Federal Reserve System. The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates.

Is the Federal Reserve a bank or a Board? ›

The Federal Reserve is the central bank of the United States.

Which of the following best describes the Federal Reserve? ›

The answer is A. The U.S Federal Reserve is responsible for the monetary and money supply.

Who funds the Federal Reserve? ›

The Federal Reserve is not funded by congressional appropriations. Its operations are financed primarily from the interest earned on the securities it owns—securities acquired in the course of the Federal Reserve's open market operations.

What are Federal Reserve banks called? ›

What Are the Federal Reserve Banks? The Federal Reserve Banks, the Board of Governors, and Federal Open Market Committee (FOMC) are the three parts of the Federal Reserve System. The 12 regional Reserve Banks are the operating arms of the Fed and work to ensure a sound financial system and healthy economy.

Are all banks Federal Reserve banks? ›

National banks must be members of the Federal Reserve System; however, they are regulated by the Office of the Comptroller of the Currency (OCC). The Federal Reserve supervises and regulates many large banking institutions because it is the federal regulator for bank holding companies (BHCs).

Who is the Fed accountable to? ›

The Fed is an independent government agency but accountable to the public and Congress. The chair and Board of Governor's staff testify before Congress and submit a Monetary Policy Report twice a year. Independently audited financial statements and FOMC meeting minutes are public.

Does the Federal Reserve pay taxes? ›

(c) Exemption From Taxation.

Federal reserve banks, including the capital stock and surplus therein, and the income derived therefrom shall be exempt from Federal, State, and local taxation, except taxes upon real estate.

Is the Federal Reserve public? ›

The Federal Reserve System is not "owned" by anyone. The Federal Reserve was created in 1913 by the Federal Reserve Act to serve as the nation's central bank. The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress.

Is there a global central bank? ›

Since its founding, the Federal Reserve has evolved into the most powerful central bank of the world and serves a leading role in global central banking. As early as the 1920s, it was recognized as a pioneer in global monetary affairs.

How much does the Federal Reserve own? ›

U.S. Reserve Assets (Table 3.12)
2Gold stock111,041
3Special drawing rights2 3163,629
4Reserve position in International Monetary Fund2 535,832
2 more rows

What is the Federal Reserve known for? ›

The U.S. central banking system—the Federal Reserve, or the Fed—is the most powerful economic institution in the United States, perhaps the world. Its core responsibilities include setting interest rates, managing the money supply, and regulating financial markets.

Why is it called Federal Reserve? ›

Federal funds

The purpose of keeping funds at a Federal Reserve Bank is to have a mechanism for private banks to lend funds to one another. This market for funds plays an important role in the Federal Reserve System as it is what inspired the name of the system and it is what is used as the basis for monetary policy.

Which of the following is not true about the functions of the Federal Reserve? ›

The correct answer is option b) Advising Congress on fiscal policy.

What is the Federal Reserve made up of? ›

The Federal Reserve is a federal sys- tem composed of a central, governmen- tal agency—the Board of Governors— and 12 regional Federal Reserve Banks. The Board of Governors, located in Washington, D.C., is made up of seven members appointed by the President of the United States and supported by a staff of about 2,100.

How does the Federal Reserve create money? ›

So, how does the Federal Reserve “create” money? In simple terms, the Fed creates dollars by exchanging cash for bonds. Treasuries and other types of fixed income instruments are held on the Federal Reserve balance sheet, and cash is placed on the balance sheet of major banks.

What is the main purpose of the Federal Reserve quizlet? ›

What is the purpose of the federal reserve? It works to strengthen and stabilize the nations monetary system.

Where does Federal Reserve money go? ›

The Federal Reserve does not “make” money exactly, in that it doesn't print money — that's the Treasury Department's job. But it does serve as a bank for other banks and government agencies, allowing them to open accounts to hold their reserves, take out loans, issue government securities, and take other actions.

Does the Fed print money? ›

Printing money is the job of the Federal Reserve, but only figuratively speaking. When the Fed decides to stimulate the economy by pouring more money into the system, it electronically transfers additional credits to the deposits of its member banks.

Where does money come from? ›

Most of the money in our economy is created by banks, in the form of bank deposits – the numbers that appear in your account. Banks create new money whenever they make loans. 97% of the money in the economy today exists as bank deposits, whilst just 3% is physical cash.

What banks are not part of the Federal Reserve System? ›

Nonmember banks are financial institutions that are not members of the Federal Reserve System. They can be community banks, credit unions, or industrial banks. National banks are required to join the Fed, while state banks can join if they meet certain requirements.

Does the president control the Federal Reserve? ›

The president is responsible for all of the Reserve Bank's activities, including monetary policy, bank supervision and regulation, and payments services. In addition, the president serves on the Federal Reserve's chief monetary policymaking body, the Federal Open Market Committee (FOMC).

What are the three responsibilities of the Federal Reserve System? ›

How the Fed Helps the Economy. The Federal Reserve acts as the U.S. central bank, and in that role performs three primary functions: maintaining an effective, reliable payment system; supervising and regulating bank operations; and establishing monetary policies.

Who prints money in the US? ›

The Bureau of Engraving and Printing produces United States currency notes, operates as the nation's central bank, and serves to ensure that adequate amounts of currency and coin are in circulation.

Who owns the 12 banks of the Federal Reserve? ›

Federal Reserve Banks' stock is owned by banks, never by individuals. Federal law requires national banks to be members of the Federal Reserve System and to own a specified amount of the stock of the Reserve Bank in the Federal Reserve district where they are located.

Who is controlling the Fed funds rate? ›

The Federal Open Markets Committee (FOMC) sets the federal funds rate—also known as the federal funds target rate or the fed funds rate—to guide overnight lending among U.S. banks. It's set as a range between an upper and lower limit. The federal funds rate is currently 5.00% to 5.25%.

Can I buy Federal Reserve stock? ›

Federal Reserve Bank stock cannot be sold or traded, and member banks do not control the Federal Reserve Bank as a result of owning this stock. They do, however, elect six of the nine members of the Federal Reserve Banks' boards of directors.

Are Federal Reserve Federal employees? ›

Are Federal Reserve employees considered federal government employees and receive government benefits? No. Federal Reserve Bank employees are not government employees; however, Board of Governors employees are considered government employees.

Has Federal Reserve been audited? ›

The Board of Governors, the Federal Reserve Banks, and the limited liability companies (LLCs) are all subject to several levels of audit and review. The Reserve Banks' and LLCs' financial statements are audited annually by an independent public accounting firm retained by the Board of Governors.

Which banks are financial institutions? ›

The major categories of financial institutions are central banks, retail and commercial banks, internet banks, credit unions, savings and loan (S&L) associations, investment banks and companies, brokerage firms, insurance companies, and mortgage companies.

How many financial institutions are in the US? ›

There are 4,236 FDIC-insured commercial banking institutions in the U.S. as of 2021 but 72,166 commercial bank branches.

Is the Federal Reserve a nonprofit? ›

The Federal Reserve is a nonprofit entity. After its expenses are paid, any remaining profits are paid to the Department of the Treasury. The Department of the Treasury then uses that money to fund government spending.

What are the 4 types of financial institutions? ›

They are commercial banks, thrifts (which include savings and loan associations and savings banks) and credit unions.

What is considered a financial institution? ›

The definition of a financial institution typically describes an establishment that completes and facilitates monetary transactions, such as loans, mortgages, and deposits. Financial institutions are a place where consumers can effectively manage earnings and develop financial footing.

What are examples of financial institutions? ›

Types of financial institutions include:
  • Banks.
  • Credit unions.
  • Community development financial institutions.
  • Utilities.
  • Government lenders.
  • Specialized lenders.

Who controls Federal Reserve? ›

The Board of Governors--located in Washington, D.C.--is the governing body of the Federal Reserve System. It is run by seven members, or "governors," who are nominated by the President of the United States and confirmed in their positions by the U.S. Senate.

What is the largest financial institutions in the world? ›

With $5.5 trillion in assets, Industrial and Commercial Bank of China Limited is the largest bank in the world, as measured by total assets. Given its size and dominance, it's no surprise that ICBC China has earned high marks for financial stability and profitability.

What is the largest financial institution in America? ›

JPMorgan Chase

What is the biggest finance institution? ›

Largest Finance Companies Research Summary

The largest finance company in the U.S. is Berkshire Hathaway, with a revenue of $302.089 billion. As of 2022, the U.S. finance & insurance industry has a market size of $5.4 trillion.

Does the Federal Reserve print money? ›

Each year, the Federal Reserve Board projects the likely demand for new currency, and places an order with the Department of the Treasury's Bureau of Engraving and Printing, which produces U.S. currency and charges the Board for the cost of production. The 2022 currency operating budget is $1,060.0 million.

How much money does the Federal Reserve have? ›

As shown in figure 1, total assets on the Federal Reserve's balance sheet rose roughly $490 billion over the past two quarters, to stand at nearly $8.9 trillion or 37 percent of gross domestic product (GDP) as of March 30, 2022.


1. Working as a financial analyst at the Federal Reserve Board
(Federal Reserve)
2. Why was the Federal Reserve Founded?
(Bloomberg Television)
3. Chairman Bernanke's College Lecture Series, The Federal Reserve and the Financial Crisis, Part 3
(Federal Reserve)
4. Chapter 13: The Federal Reserve System
(Bentley University EC391: Monetary Economics)
5. House hearing on San Francisco Federal Reserve in the wake of recent bank failures — 5/24/23
(CNBC Television)
6. Chairman Bernanke's College Lecture Series: The Federal Reserve and the Financial Crisis, Part 1
(Federal Reserve)


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