source: http://www.globalresearch.ca/index.php?context=viewArticle&code=BRO20081008&articleId=10489
By Ellen Brown, webofdebt.com
“Some people think of the Federal Reserve Banks as an agency of the United States government. They are a private monopoly preying on these Americans for their own and the benefit of their foreign clients; domestic and foreign speculators and crooks; and wealthy and predatory moneylenders.”
– The Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s
The Federal Reserve (or Federal Reserve) was given sweeping new powers last year. In March 2008, the New York Fed made the unprecedented move to advance funds for JPMorgan Chase to buy investment bank Bear Stearns for pennies. The deal has been particularly controversial because JPMorgan Chief Executive Jamie Dimon sits on the New York Fed board and was involved in the weekend's secret talks. 1 In September 2008, the Federal Reserve did the unprecedented thing when it bought the largest insurance company in the world. The Federal Reserve announced on Sept. 16 that it would lend $85 billion to American International Group (AIG) for a nearly 80% stake in the giant insurer. The Associated Press called it a "government takeover," but it was no ordinary nationalization. Unlike the U.S. Treasury, which took over Fannie and Freddie last week, the Fed is not a government-owned agency. Also unprecedented is how the deal was financed. The Associated Press reports:
“For the first time ever, the Treasury Department said it would begin selling bonds for the Fed to help the central bank meet its unprecedented borrowing needs.”2
This is extraordinary. Why does the Treasury issue U.S. government bonds (ordebts) to fund the Federal Reserve, itself a "lender of last resort" for banks and the federal government? Yahoo Finance reported on September 17:
"At the request of the Fed, the Treasury Department is establishing a temporary funding program. The program will auction off Treasury bills to raise cash for the Fed's use. The program is designed to help the Fed manage its balance sheet after working to enhance its liquidity facility in previous quarters surface. "
Typically, the Fed swaps green pieces of paper called Federal Reserve Notes for pink pieces called U.S. bonds (IOUs from the federal government) in order to provide Congress with dollars it cannot raise through taxes. It now appears that the government is not issuing bonds for its own use, but for the Fed! Perhaps the plan is to swap them directly for the banks' unreliable derivatives collateral, rather than actually selling them to outside buyers. According to Wikipedia (which translates Fedspeak into clearer terms than the Federal Reserve's own website):
"The Term Securities Lending Facility is a 28-day facility that will provide general collateral on Treasury securities to primary dealers at the Federal Reserve Bank of New York in exchange for other program-eligible collateral. It is designed to facilitate the Liquidity in funding markets, and thereby facilitating the functioning of financial markets more generally...this resource allows dealers to convert illiquid debt into readily tradable U.S. government securities."
"Swapping illiquid debt for easily tradable U.S. government securities" meant the government got banks' toxic derivative debt, and the banks got triple A securities from the government. Unlike risky derivative debt, Commonwealth securities are considered "risk-free" when determining capital requirements, allowing banks to improve their capital positions so they can make new loans. (See E. Brown, "Bailout Bedlam," webofdebt.com/articles, Oct. 2, 2008.)
In the latest power play on October 3, 2008, the Fed gained the ability to pay interest to its member banks on bank reserves held at the Fed. Reuters reported on October 3:
"The U.S. Federal Reserve got a key tactical tool from the $700 billion financial rescue plan signed into law on Friday that will help it direct money into parched credit markets." In the 451-page bill There is a provision that allows the Federal Reserve to pay the Reserve Bank interest on deposits with the Central Bank.”3
If the Fed money ends up coming from taxpayers, it means that we, the taxpayers, are paying the banks interest on the banks' own reserves - reserves that are kept for their own private profit. These increasingly contentious encroachments on public purses require a careful look at central bank programs themselves. Who owns the Fed, who actually controls it, where does it get its money from, and whose interests does it serve?
Not private nor for profit?
The Fed's website insists it is not a private company, not for profit and not funded by Congress. But is it true? Founded in 1913, the Fed was the "lender of last resort" that backed bank runs after a particularly severe banking panic in 1907. The Fed's mission is to keep the private banking system intact; that means keeping intact the system's most valuable asset, its monopoly on creating the nation's money supply. With the exception of coins, every dollar in circulation is now privately created as a liability to the Federal Reserve or the banking system it leads. 4 The Fed's website tries to gloss over its role as the primary defender and protector of this private banking club, but let's take a closer look. The site states:
*"The twelve regional Federal Reserve Banks established by Congress to serve as the operating arm of the nation's central banking system are organized much like private corporations—potentially leading to some confusion about "ownership." For example, Reserve Banks issue shares to member banks ...however, owning shares in a Reserve Bank is very different from owning shares in a private company. The Reserve Bank is not for profit and by law owning a certain number of shares is a condition of membership in the system. Shares may not be sold, traded or pledged as loans Guaranteed; by law the dividend is 6% per annum."
*[The Federal Reserve] is considered an independent central bank because its decisions do not have to be approved by the president or anyone else in the executive or legislative branch of government, it does not receive appropriations from Congress, and the terms of its board of directors span multiple presidents and congressional terms. "
* "The Federal Reserve receives its revenue primarily from interest on U.S. government securities it acquires through open market operations. … After paying its fees, the Federal Reserve transfers the remainder of its income to the U.S. Treasury."5
So let's recap:
1. The Federal Reserve 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.
2. The fact that the Fed does not receive "appropriations" from Congress basically means that it receives funds from Congress through participation in "open market operations" without congressional approval.
Here's how it works: When the government runs short of money, the Treasury Department issues bonds and delivers them to bond dealers, who auction them off. When the Fed wants to "expand the money supply" (create money), it steps in and buys bonds from these dealers who hold newly issued dollars acquired by the Fed and write them into accounts on computer screens. These operations are called "open market operations" because the Fed buys bonds from bond dealers in the "open market." These bonds then become "reserves" that banking institutions use to back their loans. In another technique known as "fractional reserve" lending, the same reserve is lent out multiple times, further expanding the money supply, with each loan generating interest for the bank. It was this process of creating money that prompted House Banking and Currency Committee Chairman Wright Patman in the 1960s to refer to the Federal Reserve as "a money machine through and through." He wrote:
“When the Fed writes checks on government bonds, it does exactly what any bank does, it creates money, it creates money purely and simply by writing checks.”
3. The Fed generates profits for its shareholders.
The bond interest it earns on newly issued Fed notes pays for the Fed's operating expenses and guarantees a 6% return to its bankers shareholders. A profit of just 6% per year may not be considered profitable in the high-class financial circles of Wall Street, but most businesses that manage to pay all their expenses and guarantee a 6% return to shareholders are considered "for-profit" companies.
In addition to this guaranteed 6%, banks now earn interest on the taxpayer's "reserves". The base reserve requirement set by the Federal Reserve is 10%. The New York Fed's website explains that this 10% held in "reserves" can be spread out to 10 times the total loan amount as money is redeposited and re-borrowed throughout the banking system; that is, 10,000 The dollar reserve becomes a $100,000 loan. Federal Reserve Statistical Release H.8 pegged total “bank credit loans and leases” at $7,049 billion as of September 24, 2008. Ten percent of that is $700 billion. That means we, the taxpayers, are paying banks at least $700 billion a year in interest -- so the banks can keep reserves to accrue ten times the total amount of loans in interest.
Banks earn these returns from the taxpayer because the bank's interests are protected by the privilege of a fully independent private central bank, even if those interests may be opposed to the taxpayer's - for example, when the bank takes advantage of its special status as a private currency Creators funded a speculative derivatives scheme that threatened to collapse the U.S. economy. Among other special benefits, banks and other financial institutions (but not other companies) can borrow at the low federal funds rate of about 2%. They can then turn around and put that money into a 30-year Treasury bond paying 4.5% and immediately earn 2.5% from the taxpayer simply because they are the bank of choice. A long list of banks (but not other companies) are also now protected from short selling that could send prices of other stocks tumbling.
Is it time to change the regulations?
According to the Fed website, Congress' control over the Fed is limited to:
"[T]he Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can change its responsibilities by statute."
As we've learned by watching the business news, "oversight" basically means Congress gets to see the results when it's over. The Fed regularly reports to Congress, but the Fed doesn't ask; it tells us. The only real leverage Congress has over the Fed is that it "can change its mandate by regulation." Now is the time for Congress to exercise that leverage and make the Federal Reserve a truly federal institution, serving the people through elected representatives. If the Fed can ask for AIG stock in exchange for $85 billion in loans to big insurance companies, we can also ask for Fed stock in exchange for the trillions or so we will provide to help the private banking system out of its folly.
If the Fed were indeed a federal agency, the government could issue U.S. fiat currency directly, thereby avoiding unnecessary interest-bearing debt to private intermediaries who themselves create money out of thin air. Additional Benefits for Taxpayers. A truly "federal" Fed could lend the entire confidence and credit of America to state and local governments interest-free, cut the cost of infrastructure in half, and restore the thriving local economies of previous decades.
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In her latest book, The Web of Debt, she translates these skills into an analysis of the Federal Reserve and the "Money Trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can take it back. Her eleven books include the bestselling Nature's Pharmacy and Forbidden Medicine co-authored with Dr. Lynne Walker. Her websites are www.webofdebt.com and www.ellenbrown.com.
FAQs
Who owns the Fed? The Federal Reserve is private. its shareholders are private banks? ›
Federal Reserve Banks' stock is owned by banks, never by individuals. Federal law requires national banks to be members of
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 the Federal Reserve a public company? ›So is the Fed private or public? The answer is both. While the Board of Governors is an independent government agency, the Federal Reserve Banks are set up like private corporations. Member banks hold stock in the Federal Reserve Banks and earn dividends.
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….
How many banks own the Federal Reserve? ›Structure and Function. The 12 Federal Reserve Banks and their 24 Branches are the operating arms of the Federal Reserve System. Each Reserve Bank operates within its own particular geographic area, or district, of the United States.
Can you buy stock in the Federal Reserve? ›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.
Is the Federal Reserve independent from the president? ›The Fed is independent in the sense that monetary policy and related decisions are made autonomously and are not subject to approval by the federal government. However, its governors are appointed by the President and must be confirmed by Congress.
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).
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.
Federal Reserve Banks have been described as “instrumentalities of the United States government, neither wholly nor partially owned by the government.” Reserve Bank employees are not civil service employees, and the Fed continues to operate when the government shuts down.
Who prints U.S. money? ›
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.
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.
What is the difference between Federal Reserve and central bank? ›The Federal Reserve System (sometimes called "The Fed") is the central bank of the United States. As the St. Louis Fed's overview "In Plain English" explains it, A "central bank" is the name given to a country's primary monetary authority.
Who owns the most stock in the Federal Reserve bank? ›STOCK OWNERSHIP
There are no individual stockholders. The stock is all owned by member banks, which are required to subscribe to the stock of the Federal Reserve Bank in their district in an amount equal to 6% of the member bank's capital and surplus.
The New York Federal Reserve district is the largest by asset value.
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.
Where does the Fed get its money from? ›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.
Can you store money in a Federal Reserve? ›The Federal Reserve Banks provide financial services to banks and governmental entities only. Individuals cannot, by law, have accounts at the Federal Reserve.
Can you order cash from the Federal Reserve? ›Ordering Options
Institutions may order cash via the FedLine Web® Solution, which is designed to be secure and reliable. For more information about FedCash Services processing and operations, visit the FedCash pages or consult your local FedCash Services contact.
The law says that the president can remove a member of the Federal Reserve's Board of Governors, which includes Jay Powell — quote — "for cause." And most legal scholars thinks that means the president can't do it just because he doesn't agree with the Fed chairman about policy.
Has Biden appointed anyone to the Federal Reserve? ›
Today, President Biden announced his nomination of Dr. Philip Jefferson for Vice Chair and Dr. Adriana Kugler to serve as a Member on the Board of Governors of the Federal Reserve System.
What percentage of all U.S. banks are members of the Fed? ›More than one-third of U.S. commercial banks are members of the Federal Reserve System. National banks must be members; state chartered banks may join by meeting certain requirements.
Who is the Federal Reserve 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.
How protected is the Federal Reserve? ›The Fed is the custodian of the valuable reserves and has the responsibility of guarding it for account holders, such as the U.S. government and central banks. The gold is stored in compartments locked with a padlock, two combination locks, and an auditor's seal.
What backs the money supply in the United States? ›Government backs the money supply.
In the United States, the money supply is backed up by the government, which guarantees to keep the value of the money supply relatively stable.
The Fed does not actually print money. This is handled by the Treasury Department's Bureau of Engraving and Printing.
What would happen if there was no Federal Reserve? ›Though there might be short-term bouts of inflation and deflation, in the long run, prices could easily remain stable. There are, of course, caveats. For example, massive borrowing could spark inflation. And the country would also be forced to periodically deal with the relatively unfamiliar territory of deflation.
What does the Federal Reserve not do? ›Remember, they can't set federal funds or prime interest rates, but they can bend them to their will through OMO. The Fed buying back government bonds from banks leaves more money for banks to play with while selling them means banks have to be more cautious about lending out their reserves.
How much is the Federal Reserve pension? ›For example, the Fed's retirement multiplier is 1.3 percent of salary, per year of service, up to the so-called Social Security integration level (where Social Security taxes apply, currently $90,000), plus 1.8 percent per year for any salary above that level.
Do Federal Reserve employees get Social Security benefits? ›The FRS provides a DB benefit, and covered employees also participate in Social Security.
Why does the Fed pay interest to banks? ›
Paying interest to banks allows the Fed to direct the federal funds rate in accordance with its monetary policy goals. For instance, the federal funds rate target may be lower when the Fed wants to increase liquidity in the banking system and the larger economy.
What is the largest bill in U.S. currency? ›American paper currency comes in seven denominations: $1, $2, $5, $10, $20, $50, and $100. The United States no longer issues bills in larger denominations, such as $500, $1,000, $5,000, and $10,000 bills. But they are still legal tender and may still be in circulation.
Who is on the $2 bill? ›The first use of Thomas Jefferson's portrait on $2 notes was on Series 1869 United States Notes.
Where is most U.S. money printed? ›Since 1862, BEP been entrusted with the mission of manufacturing the nation's currency. All U.S. currency is printed at our facility in Washington, D.C. and at our facility in Fort Worth, Texas.
Who makes the most money at the Federal Reserve? ›| Rank | Job Title | Average Federal Reserve Salary |
|---|---|---|
| 1 | Economist | $151,759 |
| 2 | Security Architect | $146,787 |
| 3 | Bank Examiner | $112,838 |
| 4 | Information Technology Manager | $112,349 |
How much gold does the U.S. have? The U.S. gold reserves have more than 8,000 metric tons of gold, nearly as much gold as the next three countries on the list combined! Explore our world map to see which countries have the largest gold reserves in the world.
How much gold is in the US Federal Reserve? ›| Department of the Treasury Bureau of the Fiscal Service Status Report of U.S. Government Gold Reserve February 28, 2021 | |
|---|---|
| Summary | Fine Troy Ounces |
| Subtotal - Gold Coins | 73,829.500 |
| Total - Federal Reserve Bank-Held Gold | 13,452,810.545 |
| Total - U.S. Government Gold Reserve | 261,498,926.241 |
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 makes the Federal Reserve so powerful? ›It is responsible for managing monetary policy and regulating the financial system. It does this by setting interest rates, influencing the supply of money in the economy, and, in recent years, making trillions of dollars in asset purchases to boost financial markets.
Do all banks belong to the Federal Reserve? ›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 most powerful employee of the Federal Reserve bank today? ›
The chair of the Federal Reserve, Jerome Powell, is responsible for carrying out the directives of the Federal Reserve.
Who owns the gold in the Federal Reserve? ›The New York Fed acts as the guardian and custodian of the gold on behalf of account holders, which include the U.S. government, foreign governments, other central banks, and official international organizations. No individuals or private sector entities are permitted to store gold in the vault.
Who runs the 12 Federal Reserve Banks? ›The Board of Governors, an agency of the federal government that reports to and is directly accountable to Congress, provides general guidance for the System and oversees the 12 Reserve Banks.
Which banks are in trouble? ›| Bank Name | City | State |
|---|---|---|
| First Republic Bank | San Francisco | CA |
| Signature Bank | New York | NY |
| Silicon Valley Bank | Santa Clara | CA |
Missouri is the only state with two Federal Reserve Banks, and it has long been alleged that political influence explains why Reserve Banks were placed in both St. Louis and Kansas City.
What is the #1 bank in America? ›| Rank | Bank name | Headquarters location |
|---|---|---|
| 1 | JPMorgan Chase | New York City |
| 2 | Bank of America | Charlotte |
| 3 | Citigroup | New York City |
| 4 | Wells Fargo | San Francisco |
The claim that numbers on a Social Security card can be used as a routing and account number to make purchases is FALSE, based on our research. The Fed has debunked the claim on numerous occasions. It is not possible for an individual to have a bank account with the Fed.
Who was the first owner of the Federal Reserve? ›The New York Fed opened for business under the leadership of Benjamin Strong, previously president of the Bankers Trust Company, on November 16, 1914. The initial staff consisted of seven officers and 85 clerks, many on loan from local banks.
Are Federal Reserve employees federal employees? ›Myth: Fed employees are considered federal government employees. Federal Reserve Bank employees are not government employees; however, Board of Governors employees are considered government employees.
What is the ownership structure of the Federal bank? ›As of December 2022, the institutional holding at the bank is 70.08%, and the public holding is 29.93%.
Who are the six founders of the Federal Reserve? ›
In November 1910, six men – Nelson Aldrich, A. Piatt Andrew, Henry Davison, Arthur Shelton, Frank Vanderlip and Paul Warburg – met at the Jekyll Island Club, off the coast of Georgia, to write a plan to reform the nation's banking system.
Who controlled money before Federal Reserve? ›Central banking prior to the Federal Reserve
The First Bank of the United States (1791–1811) and the Second Bank of the United States (1817–1836) each had a 20-year charter.
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.
Is the Fed accountable to Congress? ›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.
What is the salary of the president of the Federal Reserve? ›Jerome Powell, the chairman of the Federal Reserve, told investor David Rubenstein that he makes about $190,000 per year.
How much does a senior vice President make at the Federal Reserve? ›The estimated total pay for a Senior Vice President at Federal Reserve Bank of New York is $394,911 per year.
Who owns the largest bank in the US? ›JPMorgan Chase & Co. is an American multinational financial services company headquartered in New York City and incorporated in Delaware. It is the largest bank in the United States and the world's largest bank by market capitalization (as of 2023).
Who owns the most stock in the Federal Reserve? ›STOCK OWNERSHIP
There are no individual stockholders. The stock is all owned by member banks, which are required to subscribe to the stock of the Federal Reserve Bank in their district in an amount equal to 6% of the member bank's capital and surplus.
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.