Reply #49: Part public, part private

[Diane_nyc]

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=125&topic_id=196707&mesg_id=197079">SDuderstadt wrote:

It is NOT part federal and part private. Your claim confirms exactly what I thought about your lack of knowledge about how the Fed works. The reason people make the rather stupid claim that it is "part private" is because they are confusing the ownership of the MEMBER BANKS, which ARE privately held, with the Fed itself which is, again, an independent federal agency and is NOT, in any sense, privately owned.

There's a little bit more to this stuff about "public vs. private."

On the Federal Reserve website's http://www.federalreserveeducation.org/FRED/faq/faq.cfm">Fed FAQ page, select "Federal Reserve System" from the drop-down menu next to “Search by Category.” The answer to the question "What institutions are members of the Federal Reserve System, and what does membership entail?" includes the following:

Member banks must subscribe to stock in their regional Federal Reserve Bank in an amount equal to 6 percent of their capital and surplus, of which 3 percent must be paid in; the remaining 3 percent is subject to call by the Board of Governors. The holding of stock in a Federal Reserve Bank does not carry with it the control and financial interest conveyed to holders of common stock in for-profit organizations. It is merely a legal obligation that goes along with membership, and the stock may not be sold or pledged as collateral for loans. Member banks annually receive a 6 percent dividend on their stock, as specified by law, and vote for some of the directors (so-called class A and class B directors) of their Reserve Bank.

So, in a sense, the member banks "own stock" in their local Federal Reserve Bank, except that they don't have the usual privileges of stockholders beyond receiving a dividend.

As far as I can tell, that "stock ownership," with dividend, seems to be the main semi-factual basis of the hullabaloo about the Fed being a privately owned entity intended to make a profit for the member banks. However, the dividend is miniscule compared to the amount of money that the Fed pays to the Treasury as interest. (See, for example, the http://www.federalreserve.gov/boarddocs/rptcongress/annual06/sec5/c1t02.htm">Fed's 2006 annual report.)