Federal Reserve System


The Federal Reserve System has been the source of conspiracy theories even before the bill was signed into law. One reason for the proliferation and longevity of such conjectures is the lack of available public information to directly address the allegations. This is for a number of reasons:

  • The inner workings of the Federal Reserve remains fairly clandestine. Since the advent of the internet, the FRS and FRBs made publicly available far more information than ever but these can still be research ‘dead ends’ when trying to find answers on some of these topics.
  • The government generally ignores conspiratal allegations.
  • It is not a compelling topic for commercial media outlets from which to generate articles, documentaries, or investigative journalism
  • Many of the unique concepts regarding the Federal Reserve, monetary policy, and related economics defy simple explanations. This lends itself to misinterpretations and misunderstandings.

This article will try to separate fact from fiction, present only verifiable facts, include the good and the bad, and always maintain a healthy skepticism.

Relevent Facts

The Federal Reserve System serves as the central bank for the United States. It is a congressionally-chartered agency like the USPS and NASA. It is organized with a government agency at the top (the Board of Governors), and branches beneath them that resemble corporations and share control with private banks. [2]

The Board of Governors are all appointed for 14-year terms by the president and confirmed by congress. It operates per it's charter and laws set by congress. it is overseen by congress. Board members are forbidden by law to have any economic interest in a private bank. [3]. The Board determines monetary policy and provides high level oversight of the branches.

The 12 branches are organized similar to corporations. Member banks are required to buy shares in their branch. Each bank has one vote. The shares get a standard 6% dividend. They can vote for 6 of their 9 board members. All 'profit' from the Federal Reserve branches are turned over to the Treasury at the end of the year. [4]

The question of 'ownership'

When we use the term 'ownership', we are use the legal term as to what is defined by law, and the rights it converys under the law.

The structure and powers of the Federal Reserve are enumerated in Title 12, chapter 3 of the U.S. Code. [1].

The Board of Governors: A government agency

The Board of Governors is a government agency. There is absolutely no mechanism for private ownership. The governors are appointed by the president and confirmed by congress. Board members are forbidden from any economic interest in a bank or financial institution. [3]

Federal Reserve Branches: Unique legal entities

Federal Reserve Branches are difficult to classify as strictly private or public. They are congressionally chartered corporations whose structure is defined by a set of laws applicable only to them.

How does a Federal Reserve Branch differ from a traditional corporation?

Filing for incorporation

  • A traditional corporation files for incorporation within a specific state.
  • Federal Reserve banks filed with the Office of the Comptroller of Currency, a department of the Treasury. There are no "Articles of Incorporation" filed in any state.


  • In a traditional corporation, shares are voluntarily purchased and sold.
  • In a Federal Reserve bank, shares are compulsary and member banks are required to purchase shares that represent 3% of their assets.
  • In a traditional corporation, individuals can own stock
  • In Federal Reserve banks, only member banks can own stock. There is a provision in the law for individual private ownership of stock up to $25,000; an inquiry to the Fed on this point indicated that no individual owns Fed stock today.
  • In a traditional corporation, shares are bought and sold on the open market.
  • In a Federal Reserve bank, shares can only be bought and sold with the Bank itself.
  • In a traditional corporation, shares provide the owner with a propotional number of votes.
  • In a Federal Reserve bank, shareholders are limited to one vote, regardless of the number of shares they own.
  • In a traditional corporation, shares represent proportional ownership and can be used as collateral in financial transactions.
  • In a Federal Reserve bank, shares do not convey any ownership, implied or otherwise, against bank assets and cannot be used as collateral in financial transaction.
  • In a traditional corporation, shares change in value as the assets and earning potential of the corporation changes.
  • In a Federal Reserve bank, shares values never change.

Board of Directors

  • In a traditional corporation, shareholders elect all the members of the board with no interference from the government.
  • In a Federal Reserve bank, shareholders can vote for 6 of the 9 board members of which must be approved by the Board of Governors. The other 3 are appointed by the Board of Governors.


  • In a traditional corporation, the board of directors determine the dividends to be paid to shareholders.
  • In a Federal Reserve bank, shareholders receive a standard 6% dividend which was written into the original Federal Reserve act passed in 1913.


  • In a traditional corporation, profits (after dividends) add to the value of the corporation as retained earnings.
  • In a Federal Reserve bank, excess profits must be turned over to the Treasury at the end of the year.


  • Unlike traditional corporation, Federal Reserve banks are exempt from state and Federal taxes.

Status of Employees

  • Employees of the Board of Governors (clearly defined as a government agency) are considered Federal employees.
  • Federal Reserve branch employees are not considered 'civil service' and have their own payroll, benefits, and retirement system. This would be in keeping with a general ideal of maintaining a certain independence from the rest of the government, and therefore less susceptable to political influence.

Public or Private? What others say

Court rulings

Branches are private corporations acting as government agents

Courts have consistently ruled that, for the purposes of applying laws, the branches can be considered private corporations that act as agents or instruments for the federal government. This means they can be sued as private corporations in tort law, but their duties may be construed as extensions of the Federal government.

Federal Reserve:

Branches are non-profit corporations

At their web site, the Federal Reserve describes the branches as corporations operated for non-profit purposes [http://federalreserve.gov/generalinfo/faq/faqfrs.htm#5]. The Fed indicates the shers do not constitute ownership as such. The 'non-profit' aspect is only partly true as member banks receive a 6% dividend on their shares.


  • A report from the Congressional Research Service (1996) declares the banks as 'private institutions' along with many of the caveats listed above.
  • Congressman Ron Paul has consistently called the Federal Reserve a 'private bank' but does not distinquish the Board of Governors government agency from the branch banks.


[http://en.wikipedia.org/wiki/Federal_Reserve_System] At one time, wikipedia declared the branch banks as 'nominally owned' by the member banks. As of this writing, it declares the banks as acting as fiscal agents for the U.S. Treasury.


[http://www.factcheck.org/askfactcheck/who_owns_the_federal_reserve_bank.html] says the branches are 'owned by big private banks. But the banks don't necessarily run the show. "


Hoovers says the Federal Reserve system is a Government agency, and describes the branches as "Private- Member-owned Banking Authority"

Conspiracy claims

Claim: The Federal Reserve System is a private bank

False As a system, it is a supervised by the Board of Governors (a government agency) and overseen by Congress. However, the branches share control and ownership with member banks.

Claim: "It is owned by the Bank of England (or the Rothschilds or Rockefellers)"

False There is no structure anything resembling ownership except for the participation shares owned by member banks.

Claim: "All profit goes to private entities (such as banks, families, or individuals)"

False Beyond a standard 6% dividend paid to member banks, all other profit is turned over to the U.S Treasury at the end of the year.

Claim: The Federal Reserve owns all U.S. Debt

False The Federal Reserve owns about 17% of the U.S. Debt. This is used as collateral for U.S. dollars. Since the money supply continually grows, this debt never really has to be paid back. When the bonds do mature, the Fed replaces them with new bond purchases.

Claim: All Income Tax goes to the Federal Reserve

False This is based on three false assumptions:

  1. that interest on the deficit equals or exceeds Income Tax revenues
  2. that only income tax is used to pay the interest
  3. that the Federal Reserve owns all the debt

All the above are false

Claim: The Federal Reserve has never been audited

False By law, the Federal Reserve and all it's banks are audited at least once a year.

Claim: There is no gold backing Federal Reserve Notes ==

False There is a relatively small amount of gold among the collateral used to back Federal Reserve notes. Out of $800B in currency, $11B of the collateral in gold (more accurately it is in Gold Certificates; the actual gold is held by the Treasury)

Claim: John F Kennedy signed executive order 11110 that would have put the Federal Reserve out of business; and was subsequently assassiated

Though there are some elements of truth, the basic presumption is not true.

True … Kennedy was assassinated (contrary to rumors of him living in Argentina with Hitler and Elvis)

True … that Kennedy signed Executive Order 11110 which delegated authority to the Treasury Secretary to print silver certificates at will (ref: [http://en.wikipedia.org/wiki/Executive_order_11110] ).

False … that this would put the Federal Reserve out of business.

One only needs to examanine the claims to realize how silly the theory is. Given all the Fed duties and responsibilities, to claim that issuing silver certificates would nullify all the Fed duties is preposterous. Ever since it's inception, the Federal Reserve has worked with whatever the currency of the realm. Federal Reserve notes circulated along side silver certificates, gold certificates, and coins. From a day-to-day operations side, it really makes no difference. History showed that the government was trying to get away from the silver standard. Silver prices were rising to the point where a silver dollar would have more than a dollars worth of silver. This executive order was seen as giving the Treasury Secretary more flexibility to do that.

There was not enough silver to replace all the currency in circulation with silver certificates.

Kennedy scholars have concluded this theory a hoax.

In this link (http://www.devvy.com/patriot4_20021117.html ), there is a story on a Ron Paul aide doing research to 'prove' the story only to come up empty.




Claim: Woodrow Wilsonwas quoted expressing strong regrets about the signing the Federal Reserve into law

I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.

False This alleged quote was derived from portions of the book The New Freedom published in 1913. This book was a compilation of speeches from 1911 and did not refer to the Federal Reserve.

www.salon.com article

New Freedom

Claim: The Federal Reserve has never been audited

False The Federal Reserve, including all its branches are audited at least once a year.

You can find some the examples here:

… and the law that authorizes the GAO to audit the Federal Reserve

Other research on this topic:

External Links

3rd party Articles

Wikipedia Article

How the Fed works (How Stuff Works)

What is the Federal Reserve? (This Nation)

Federal Reserve Act of 1913 (answers.com)

Edward Flaherty

Federal Reserve Links

Federal Reserve Board of Governors web site

A Federal Reserve site for educators

Federal Reserve publications

FAQS (Federal Reserve)

Index to Federal Reserve sources

FAQs (Federal Reserve Banko Richmond)

Reports to Congress (Federal Reserve)

Federal Reserve History (Federal Reserve Education)

Understanding the Fed (Federal Reserve Bank of Dallas)

Banking History (Board of Governors)

Board of Governors

FRS Office of the Inspector General

Overview of the Federal Reserve System

Other government links

Money and the Federal Reserve System: Myth and Reality (Congressional Research Service - Library of Congress)

Structure and functions of the Federal Reserve (Congressional Research Service - Library of Congress)

'Claim' references

Is the FRS public or private (American Monetary Institute)

Legal References

U.S. Code TITLE 12 > CHAPTER 3 — FEDERAL RESERVE SYSTEM (Cornell Law library)



U.S. Code TITLE 12 > CHAPTER 3 — SUBCHAPTER II Requirement of independent audits

Scott vs Federal Reserve Bank of Kansas City

Constitutional References

Article 1, section 8: "To coin Money, regulate the Value thereof..."

Article 1, section 10: No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts..."

"The Constitution never does mention paper money..."

"...even though paper money is not expressly permitted by the Constitution..."


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