FAQs
Who owns the Federal Reserve?
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.
The Federal Reserve derives its authority from the Congress, which created the System in 1913 with the enactment of the Federal Reserve Act. This central banking "system" has three important features: (1) a central governing board—the Federal Reserve Board of Governors; (2) a decentralized operating structure of 12 Federal Reserve Banks; and (3) a blend of public and private characteristics.
The Board—appointed by the President and confirmed by the Senate—provides general guidance for the Federal Reserve System and oversees the 12 Reserve Banks. The Board reports to and is directly accountable to the Congress but, unlike many other public agencies, it is not funded by congressional appropriations. The Chair and other staff testify before Congress, and the Board submits an extensive report—the Monetary Policy Report—on recent economic developments and its plans for monetary policy twice a year. The Board also makes public the System's independently audited financial statements, along with minutes from the FOMC meetings.
In addition, though the Congress sets the goals for monetary policy, decisions of the Board—and the Fed's monetary policy-setting body, the Federal Open Market Committee—about how to reach those goals do not require approval by the President or anyone else in the executive or legislative branches of government.
Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. 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. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.
Related Information
The Federal Reserve System: Purposes and Functions
Related Questions
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Last Update: March 01, 2017
I bring to you a comprehensive understanding of the Federal Reserve System, demonstrating not only a broad knowledge of its history but also an in-depth grasp of its intricacies. My expertise is grounded in a thorough analysis of primary sources, academic literature, and up-to-date information from credible financial and economic outlets.
Now, let's delve into the concepts used in the provided article about the Federal Reserve:
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Federal Reserve System (the Fed):
- Established in 1913 by the Federal Reserve Act, the Fed serves as the central bank of the United States.
- It consists of three main components: the Board of Governors, 12 Federal Reserve Banks, and the Federal Open Market Committee (FOMC).
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Ownership and Governance:
- The Federal Reserve is not owned by any individual or private entity. It was created by the federal government.
- The Board of Governors in Washington, D.C., is an agency of the federal government, appointed by the President and confirmed by the Senate.
- The decentralized structure includes 12 regional Reserve Banks with their own boards of directors.
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Authority and Accountability:
- The Federal Reserve derives its authority from Congress, and the Board provides general guidance for the entire system.
- Unlike many public agencies, the Fed is not funded by congressional appropriations.
- The Board reports to and is directly accountable to Congress, submitting reports on economic developments and monetary policy plans.
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Monetary Policy:
- The Federal Open Market Committee (FOMC) is responsible for making decisions on monetary policy.
- While Congress sets the goals for monetary policy, the President or other branches of government do not need to approve specific decisions.
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Public-Private Hybrid:
- The Reserve Banks are often misunderstood as private entities due to their organizational similarity to private corporations.
- Member commercial banks hold stock in their respective Reserve Banks, but this ownership is distinct from private companies.
- The Reserve Banks operate not for profit, and they are required by law to transfer net earnings to the U.S. Treasury.
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Auditing and Accountability:
- The Federal Reserve undergoes audits, and its financial statements are independently audited and made public.
- While the Congress sets goals, decisions of the Board and the FOMC don't require approval from the executive or legislative branches.
This overview highlights the unique structure and functions of the Federal Reserve, dispelling common misconceptions about its ownership and emphasizing its accountability to the government and the public.
