Topic:FINANCIAL INSTITUTIONS; FEDERAL RESERVE BANK; BANKS AND BANKING;
Location:BANKS;
Scope:Program Description; Federal laws/regulations;
The Connecticut General Assembly
OFFICE OF LEGISLATIVE RESEARCH
September 25, 1995 95-R-1200
TO:
FROM: Helga Niesz, Principal Analyst
RE: Federal Reserve Banks
You asked whether Federal Reserve Banks are government agencies or privately owned and whether private individuals can own stock in them.
SUMMARY
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. It also lets state banks become members and purchase stock. But these stockholding members do not have the same rights as stockholders in a private corporation. Under federal law, the Federal Reserve Banks' actions and policies are mainly controlled by the Federal Reserve System's Board of Governors, which is an independent U.S. government agency.
FUNCTIONS
The Federal Reserve System is the United States' central banking system, created by the Federal Reserve Act in 1913. It is administered by the Board of Governors of the Federal Reserve System, which has seven members appointed by the U.S. President and confirmed by the Senate for 14-year terms. The Board is an independent agency of the U.S. Government, reporting directly to Congress. It supervises the 12 Federal Reserve Banks and their 25 branches throughout the country. Also part of the system are federally chartered national banks (which federal law requires to become stockholding members of the Federal Reserve Bank in their district). State chartered banks can choose to become members by meeting the requirements for membership.
The Federal Reserve banks are primarily “banks for banks.” Their dealings are generally restricted to banks and the government, with the exception of open market operations and, in unusual emergency situations, direct loans to individuals, partnerships, and corporations. The Reserve Banks are the principal medium through which the Federal Reserve Board exercises its monetary and credit policies and general supervisory powers. They also serve as depositories for other banks' required reserves and clearing balances.
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. Only one-half of this subscription, 3%, is actually paid in. The stock has a par value of $100, is of one class, cannot be transferred, and pays a fixed cumulative dividend of 6%. The bank keeps this stock only as long as it is a member of the system, and its holdings rise and fall with changes in its own capital and surplus. The Federal Reserve Banks' residual earnings are not paid to its stockholders, but are used to build up its surplus to equal its subscribed capital and after that earnings are paid to the U. S. Treasury. The stockholders do not have the powers and privileges that belong to stockholders of private corporations (12 U.S.C.A. § 221).
STRUCTURE
Each Federal Reserve Bank has its own board of nine directors. Under the law, member banks in each district elect three Class A directors, who represent the member banks and are usually bankers, and three Class B directors, who are engaged in non-lending pursuits. The Federal Reserve Board of Governors appoints three Class C directors for each Federal Reserve Bank; one of these is appointed chairman and the other deputy chairman. The Class B and C directors cannot be bankers, and the Class C directors cannot own any bank stock. The Reserve Bank's own board of directors, with the Board of Governors' approval, appoints the Bank's chief executive officer, known as the President, and a first vice president for terms of five years. The locations of the twelve Federal Reserve Banks are Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco (Munn's Encyclopedia of Banking and Finance).
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FAQs
The Reserve Banks are decentralized by design and are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
Where are the 12 federal reserve banks? ›
The Reserve Banks are decentralized by design and are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
What is considered a Federal Reserve Bank? ›
A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve Act of 1913.
Who runs the Federal Reserve bank? ›
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.
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.
Are federal reserve banks privately owned? ›
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.
Where are the 24 branches of the Federal Reserve? ›
Federal Reserve Banks
- 01-Boston.
- 02-New York.
- 03-Philadelphia.
- 04-Cleveland.
- 05-Richmond.
- 06-Atlanta.
- 07-Chicago.
- 08-St. Louis.
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.
What banks are not part of the Federal Reserve system? ›
State-chartered banks may ultimately decide to refrain from membership under the Fed because regulation can be less onerous based on state laws and under the Federal Deposit Insurance Corporation (FDIC), which oversees non-member banks. Other examples of non-member banks include the Bank of the West and GMC Bank.
How do banks get money from the Federal Reserve? ›
Commercial banks borrow from the Federal Reserve System (FRS) to meet reserve requirements or to address a temporary funding problem. The Fed provides loans through the discount window with a discount rate, the interest rate that applies when the Federal Reserve lends to 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 and to own a specified amount of the stock of the Reserve Bank in the Federal Reserve district where they are located.
Who are the 7 members who run the Federal Reserve? ›
Current members
| Current governor | Party | Term expires |
|---|
| Jay Powell (Chair) | Republican | January 31, 2028 (as Governor) |
| Philip Jefferson (Vice Chair) | Democratic | September 7, 2027 (as Vice Chair) |
| January 31, 2036 (as Governor) |
| Michael Barr (Vice Chair for Supervision) | Democratic | July 13, 2026 (as Vice Chair for Supervision) |
6 more rowsU.S. presidents don't have authority over the Fed, but they do have certain powers that can impact the future of the Fed and its decisions.
Is the Federal Reserve accountable to anyone? ›
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 anyone profit from the Federal Reserve? ›
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.
Does the government get money from the Federal Reserve? ›
The federal government also collects revenue from estate and gift taxes, customs duties, earnings from the Federal Reserve System, and various fees and charges. In total, these sources generated 5.0 percent of federal revenue in 2022.
Who owns the 12 Federal Reserve 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 and to own a specified amount of the stock of the Reserve Bank in the Federal Reserve district where they are located.
How many Federal Reserves banks are in the US? ›
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.
Why are there 12 Federal Reserve Banks and how are they divided? ›
In establishing the Federal Reserve System, the United States was divided geographically into 12 Districts, each with a separately incorporated Reserve Bank. District boundaries were based on prevailing trade regions that existed in 1913 and related economic considerations.
