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The Federal Reserve Building in Washington, D.C.
The Fed is Privately Owned
The consequences of the Fed being privately owned are extensive, but we should first establish beyond any doubt that this is, in fact, the case. The best, most-convincing way to do this, aside from analyzing every minute aspect of the Fed's operations, is to cite a 1982 Supreme Court ruling (Lewis v. United States, 680 F.2d 1239). A case was referred to the Supreme Court after repeated appeals by John L. Lewis who alleged, among other things, that when he was injured by a vehicle that was owned and operator by the Federal Reserve Bank of Los Angeles, he was injured by a vehicle under the control of an agency of the government.
Lewis lost with this final appeal. The Supreme Court rightfully recognized the true status of the Fed. This is seen in their ruling:
Federal reserve banks are not federal instrumentalities for purposes of a Federal Tort Claims Act, but are independent, privately owned and locally controlled corporations in light of fact that direct supervision and control of each bank is exercised by board of directors, federal reserve banks, though heavily regulated, are locally controlled by their member banks, banks are listed neither as "wholly owned" government corporations nor as "mixed ownership" corporations; federal reserve banks receive no appropriated funds from Congress and the banks are empowered to sue and be sued in their own names.
-Thomas Jefferson, 1816.
More Insight
This case also offers further and much more detailed insight into how the Fed operates and exactly how little control the federal government actually retains.
Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank's nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board. The Federal Reserve Board regulates the Reserve Banks, but direct supervision and control of each Bank is exercised by its board of directors. 12 U.S.C. Sect. 301. The directors enact by-laws regulating the manner of conducting general Bank business, 12 U.S.C. Sect. 341, and appoint officers to implement and supervise daily Bank activities. These activites include collecting and clearing checks, making advances to private and commercial entities, holding reserves for member banks, discounting the notes of member banks, and buying and selling securities on the open market. See 12 U.S.C. Sub-Sect. 341-361.
Each Bank is statutorily empowered to conduct these activites without day to day direction from the federal government. Thus, for example, the interest rates on advances to member banks, individuals, partnerships, and corporations are set by each Reserve Bank and their decisions regarding the purchase and sale of securities are likewise independently made.
Historical Insight
The Court even took the time to look at how the Fed was originally intended to be controlled. This control, however, never occured though it is still in the people's interests.
It is evident from the legislative history of the Federal Reserve Act that Congress did not intend to give the federal government direction over the daily operation of the Reserve Banks:
It is proposed that the Government shall retain sufficient power over the reserve banks to enable it to exercise a direct authority when necessary to do so, but that it shall in no way attempt to carry on through its own mechanism the routine operations and banking which require detailed knowledge of local and individual credit and which determine the funds of the community in any given instance. In other words, the reserve-bank plan retains to the Government power over the exercise of the broader banking functions, while it leaves to individuals and privately owned institutions the actual direction of routine.
H.R. Report No. 69 Cong. 1st Sess. 18-19 (1913).
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