reply to post by hawkiye
Thanks, but I never claimed the member banks aren't private institutions. Hang in there, I know this is all going over your head. Also, nice job
ignoring my statement about providing sources at the end.
In the last post I mentioned how the 'lowest level' of organization in the Federal Reserve system includes all national-chartered banks as well as
whatever state-chartered ones wish to join. All member banks become shareholders in their district bank, which I'll get to in a second.
These member banks are privately run. Sounds scary, doesn't it? All the Fed banks are owned by a conglomeration of other private banks. Surely the
fact that these regional Fed banks are privately owned by their member banks means that the Fed itself is a private business, right? Let's keep going
and find out.
The next level up is where the lines start to blur. The 'second tier' of the Fed are the regional Federal Reserve Banks and their districts. These
12 banks are located in San Francisco, Minneapolis, Kansas City, Dallas, St. Louis, Atlanta, Cleveland, Richmond, Philadelphia, New York and Boston.
Each of these regional banks forms a district (for example, all member banks on the west coast from Washington to California must report to the San
So what about these regional banks? What privileges and duties do they have that member banks don't? What sort of policy can they set? Are they
public or private?
These district, or regional banks, perform functions such as collecting and destroying tattered and worn-out notes, clearing checks for member banks
in their district, enforcing Fed policy on member banks, and buying and selling government bonds (which is a topic for a whole 'nother post).
As I pointed out above, these regional banks are owned by the member banks of their district. By joining the Federal Reserve System, a member bank
will basically become a shareholder in their district bank.
So is that it? Has Hawkiye been vindicated? Are these regional banks setting sinister fiscal policies and running the country into the ground, all for
a quick buck and far beyond government oversight?
Answer: no, because we're just now getting to the most important level of the Federal Reserve system. I'm talking, of course, about the Board of
Governors; that inconvenient panel that destroys the 'private Fed' argument merely by existing.
The Board of Governors, or just 'the Board,' is a panel of 7 members headquartered in the Fed's Richmond district, in Washington D.C.. Each
member's term lasts 14 years, and terms begin and end at a staggered rate. Much like the courts, the Board is meant to exist outside of mercurial
political and special interest pressure, ergo why their terms last for so many years. Chairmen of the Board are appointed from one of the 7 members on
the panel. Chairmen may serve for 4 years in that capacity before needing to be re-appointed.
Members of the Board are not allowed to hold any position at any bank during their tenure on the Board. Not even Federal Reserve regional banks.
They're not allowed to hold bank stock, either, or otherwise be involved with any sort of private bank.
Now, the Board of Governors are the KEY to the whole Federal Reserve system. They are the only ones in the entire Fed allowed to set monetary policy.
This means they decide how much money to print, they set the Discount Rate (interest rate charged to member banks on loans they get from their
district Fed bank) and make other decisions that affect, well, everyone. Neither the regional banks, nor the member banks, can make decisions like
this; they only carry out the Board's decisions. (The regional banks CAN have a say when it comes to buying or selling government bonds, in the form
of the Federal Open Market Committee, but this is tertiary to the points I'm making.)
And the rub is that the Board of Governors is not privately run. Each member of the Board is nominated by the President, and then confirmed by the
Senate. So, the members aren't allowed to be affiliated with any bank during their service, they're chosen by the President and Congress, and they
also set monetary policy? What am I trying to say here?
What I'm saying is that should be obvious to anyone reading this that the part of the Federal Reserve that is privately owned (the member banks, the
regional banks) has no say in Fed policy. Fed policy is controlled by the government through the Board of Governors. The private banks are generally
toothless; they merely go along and do what they're told.
The Fed may not be a 100% public institution, but it's far from being outside of government or any legal jurisdiction. And all of its policies are
formed by public servants, not private bank ownership.
Running low on characters again, so next post will just be a comprehensive list of sources. Expect it shortly.