Federal Reserve a Private Bank
The Federal Reserve is an independent agency of the United States government, with both public and private aspects. Its three key groups—the Board of Governors, the Federal Reserve Banks (or “Reserve Banks”), and the Federal Open Market Committee—collaborate to make decisions that help promote financial stability in the United States.
The Board of Governors is the governing body of the Federal Reserve System and is comprised of seven members, or “governors,” nominated by the President and confirmed by the Senate. The governors are responsible for guiding monetary policy action, analyzing domestic and international economic and financial conditions, and leading committees that study current issues, such as consumer banking laws and electronic commerce. The Fed’s unique operational independence is the result of a series of legislation, including the Banking Act of 1935 and the Humphrey-Hawkins Act of 1978. The Banking Act of 1935 established the Federal Reserve as a separate legal entity and removed the Treasury Secretary and the Comptroller of the Currency from its governing board, while the Humphrey-Hawkins act set members’ terms at 14 years.
Each regional Federal Reserve Bank is owned by its member private banks. The individual boards of directors, which are modeled after the boards of directors of private corporations, oversee their Reserve Bank’s administration and governance, conduct audits, and develop broad strategic goals and directions. These boards also appoint the chief executive officer, or “President,” of each Reserve Bank and establish the Bank’s interest rate-setting targets.
Is Federal Reserve a Private Bank?
In addition to the private ownership of the regional Federal Reserve Banks, the Federal Reserve System is supported by public funding and receives a significant portion of its income from interest on U.S. Treasury notes it holds and fees for services that it provides to the financial community, such as clearinghouse operations. In addition, the Dodd-Frank Act of 2010 added a third official mandate to the Federal Reserve—to monitor and regulate the global financial system.
Despite its complex structure and public-private ownership, the Federal Reserve is distinct from other federal agencies in that its monetary policies do not have to be approved by legislators or elected officials. Its independence is further enhanced by its statutory independence in making financial decisions and the fact that it is not funded directly by Congress. Nevertheless, the Federal Reserve is held accountable to Congress through its reporting requirements and is meant to operate free from short-term political influence.
As a result, the Federal Reserve is viewed as an entity that has both public and private attributes, even though its decisions affect the economy and the well-being of American citizens. This blending of public and private elements makes the Federal Reserve a unique institution in the world of finance. The Federal Reserve’s Board of Governors and the Federal Open Market Committee set monetary policy that impacts millions of Americans every day. Its role in financial regulation has expanded with the Dodd-Frank Act, and it’s a critical partner in the fight against fraud.