Yes and no. The Federal Reserve (the Fed) enjoys a unique public/private structure that operates within the government, but is still relatively independent of government to isolate the Fed from day-to-day political pressures in fulfilling its varying roles. As stated in The Federal Reserve System Purposes & Functions:
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….the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government.
History
Prior to the Fed’s formation, the United States experienced a number of economic downturns and financial panics. To help alleviate the problems associated with these swings in the economy, President Woodrow Wilson signed the Federal Reserve Act on December 23, 1913. The act’s opening paragraph outlines its varying functions:
An Act to provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.
Since 1913, legislation has passed to augment some of the act’s original purposes and to clarify the varying roles of the Fed.
Structure
Congress set up the Federal Reserve System to make it autonomous and to isolate it from day-to-day political pressures. For example, the members of the Board of Governors are appointed to serve 14-year terms that do not coincide with presidential terms. Key components of the Federal Reserve System are:
- The Board of Governors—Located in Washington, D.C., Board members are appointed by the U.S. President and confirmed by the U.S. Senate. Board members and staff are civil service employees.
- The 12 regional Reserve Banks—Located around the country, the 12 Federal Reserve Banks are chartered as private corporations. Employees are not civil service.
- The Federal Open Market Committee (FOMC)—Composed of the Federal Reserve Governors and the Federal Reserve Bank presidents, the FOMC is charged with conducting monetary policy.
The 12 Federal Reserve Banks operate like other businesses; each has its own board of directors that selects the Reserve Bank president and first vice president, with approval from the Board of Governors. Each Branch of a Reserve Bank has its own board of directors. A majority of these directors are appointed by the Branch’s Reserve Bank; the others are appointed by the Board of Governors.
Boards of directors of the Reserve Banks and their Branches provide the Federal Reserve System with a wealth of information on economic conditions in every corner of the nation. The information, along with other sources, is used by the FOMC and the Board of Governors when reaching decisions about monetary policy.
Key Responsibilities
While Congress establishes key objectives the Fed must follow, the Fed generally works independently of the federal government to administer its core responsibilities.
Those duties include:
- Conducting monetary policy
- Supervising and regulating banking and financial institutions
- Providing payments services to financial institutions
The 12 Federal Reserve Banks have “independent” research staffs that advise their Reserve Bank presidents on monetary policy and the economy. Each Reserve Bank also has regulatory responsibilities including the supervision and regulation of financial institutions. The Reserve Banks also handle the Federal Reserve System’s business operations—it is in this area that Reserve Banks operate more like private businesses, selling services like electronic funds transfers, check processing, and coin and currency services to financial institutions.
Funding
Congress also created the Federal Reserve System to be self-funding. The Fed earns interest on the interest-bearing government securities it holds in its portfolio and sells financial services to banks. This amount is reported each year in its annual report. The Fed’s earnings typically far exceed its expenses. However, unlike for profit corporations, the Fed distributes any profit (after costs) to the U.S. Treasury. In 2002, the Fed’s operating revenues were $26.7 billion, expenses total $2.2 billion, and $24.5 billion was paid to the treasury as “interest on Federal Reserve Notes.” The graph below displays the flow of the Fed’s annual payments to the U.S. Treasury for the past five years.
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References
Dunne, Gerald T. A Christmas Present for the President: A Short History of the Creation of the Federal Reserve System. Federal Reserve Bank of St. Louis. 1984.
http://app.ny.frb.org/publications/frame1.cfm
Board of Governors of the Federal Reserve System 2002 Annual Report, pp.286-87.
http://www.federalreserve.gov/boarddocs/rptcongress/annual02/default.htm
The Federal Reserve System in Brief, Federal Reserve Bank of San Francisco, August2000
/publications/federalreserve/fedinbrief
The Federal Reserve System Purposes and Functions. Board of Governors of the Federal Reserve System. 1994.
http://www.federalreserve.gov/pf/pf.htm
Making Sense of Money: Personal Financial Education, Federal Reserve Bank of San Francisco 2002 Annual Report, pp. 43-57.
/publications/federalreserve/annual/index.html
Stevens, Edward. 1996. “The Founders Intentions: Sources of the Payment Services Franchise of the Federal Reserve Banks.” Financial Services Working Paper. http://www.clev.frb.org/research/fsrg/fsrg03.pdf
FAQs
There is a common misconception that the Federal Reserve System is privately owned; while its Board of Governors is a government agency, the regional Federal Reserve Banks are set up like private corporations.
Is the Federal Reserve a private corporation? ›
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.
Who legally 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.
Who runs the San Francisco Fed? ›
Mary C. Daly
Daly assumed leadership of the San Francisco Fed in October 2018, building on a distinguished career at the Bank that began in 1996.
Is the Federal Reserve an independent company? ›
Many people are surprised to learn that the central bank of the United States, the Federal Reserve ("the Fed," for short), operates for the most part independently of the federal government. But the Fed is also a quasi-governmental agency with a board of governors selected by the President and approved by Congress.
Are federal reserve employees government employees? ›
No. Federal Reserve Bank employees are not government employees; however, Board of Governors employees are considered government employees. Each Reserve Bank determines its own benefits and human resources policies, and employees are paid as part of the expenses of their employing Bank.
Where does the Federal Reserve get its money? ›
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 Federal Reserve controlled by President? ›
The Fed has a mandate to keep inflation low and labor markets healthy. Presidents have the ability to influence the Fed through their appointments, but that authority can be limited because of the checks and balances built into the central-bank system.
Who created the Federal Reserve? ›
December 23, 1913. President Woodrow Wilson signed the Federal Reserve Act in December 1913, culminating three years of discussion and debate over the development of a central bank.
What assets does the Federal Reserve own? ›
These assets include: holdings of Treasury, agency, and mortgage-backed securities; discount window lending; lending to other institutions; assets of limited liability companies (LLCs) that have been consolidated onto the Federal Reserve's balance sheet, and foreign currency holdings associated with reciprocal currency ...
The Federal Reserve Bank of San Francisco had assets of $495.5 billion and operating expenses of $746 million as of December 31, 2019. During 2019, the Federal Reserve System's earnings totaled approximately $55.5 billion.
What does the Federal Reserve of San Francisco do? ›
The Federal Reserve Bank of San Francisco is part of the Federal System, which is charged with the following tasks: Use the tools of monetary policy to promote maximum employment, stable prices, and to manage long-term interest rates in the economy.
How many people work at the Federal Reserve bank of San Francisco? ›
Federal Reserve Bank of San Francisco has 2,000 employees. 38% of Federal Reserve Bank of San Francisco employees are women, while 62% are men. The most common ethnicity at Federal Reserve Bank of San Francisco is White (58%).
What is the controversy with the Federal Reserve? ›
Critics have questioned its effectiveness in managing inflation, regulating the banking system, and stabilizing the economy. Notable critics include Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz, who argued that the Fed's policies exacerbated the Great Depression.
What would happen if the Federal Reserve did not exist? ›
What would happen if we get rid of the Federal Reserve? Then the largest commercial banks in the country would effectively be in charge of the money supply of the United States. That was the status quo before the Fed was created. That turned out to be a really bad idea.
Does the Federal Reserve ever get audited? ›
The Board of Governors, the Federal Reserve Banks, and the limited liability companies (LLCs) are all subject to several levels of audit and review. The Reserve Banks' and LLCs' financial statements are audited annually by an independent public accounting firm retained by the Board of Governors.
What type of organization is the Federal Reserve? ›
The Federal Reserve System has multiple parts that together serve as the central bank of the United States. This system has three main entities: the Board of Governors, the Reserve Banks, and the Federal Open Market Committee (FOMC).
Is the Federal Reserve a nonprofit? ›
The Federal Reserve is a nonprofit entity. After its expenses are paid, any remaining profits are paid to the Department of the Treasury. The Department of the Treasury then uses that money to fund government spending.
Are central banks privately owned? ›
While state-owned central banks now predominate, some central banks still have forms of private sector shareholding. These include central banks in the United States, Japan and Switzerland.
What is the privately owned publicly controlled central bank of the United States? ›
The 12 Federal Reserve Banks are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.
