Message number 6281 in "AEN NEWS"
Date: 12-13-93  22:11
From: Glenda Stocks
To:   all
Subj: Is the Federal Reserve NON-PROFIT???


MSGID: 114:1/0@SearchNet ad95f812

PID: GE 1.01+
 * Originally by UUCP, 1:2613/333@fidonet
 * Originally to Glenda Stocks, 1:330/201
 * Originally dated 13 Dec 1993, 9:01

From: William Morris 


Text item: Text_1


Hello ACTers !

I recently decided to ask the FED itself, about it's private ownership. After
a
couple of tries I got to the legal division of the Board of Governors. I told
them that I was looking for something in "clear" language that speaks to the
fact that the Federal Reserve Banks are privately owned. What follows is
their
reply. It came on one legal size sheet with Federal Reserve letterhead.
There
is a seal of The Board of Governors which looks very much like, but is not
identical to the seal of the United States in the upper left corner.  I have
typed the letter word for word except for a numbered notation that I place at
the end of a sentence that I have a question about. The notations look like
this: <<1>> ... <>. After the Federal Reserve's letter I pose several
questions relating to the notated statements.

I have always found it interesting that 9 out of 10 people believe the
Federal
Reserve Banks are part of the federal government (most often the U.S.
Treasury),
and that the idea that the Banks are privately owned is incredible to almost
everyone. Although, it is not stated directly, the letter indicates private
ownership. It also seems to say, again not directly, that the Federal Reserve
Banks "owners" do not make a profit.  What do you think?

QUOTE:

                                Board of Governors
                                       of the
                              FEDERAL RESERVE SYSTEM
                               Washington, D.C. 20551

                            THE FEDERAL RESERVE SYSTEM

        The Federal Reserve is the Nations central bank.  It was created by
an
Act of Congress on December 23, 1913.  The Federal Reserve System consists of
a
seven-member Board of Governors (an independent agency of the federal
government
with headquarters in Washington, D.C.), plus a nationwide network of 12
Federal
Reserve Banks and 25 Reserve Bank branches. <<1>>  The Federal Reserve Banks
were established by congress as an operating arm of the nation's central
banking
system, and they have both public and private elements.

        The Federal Reserve Banks were established by Congress for a public
purpose.  In addition to providing a variety of financial services to the
U.S.
Treasury, financial institutions and the public, the Reserve Banks act as
vital
sources of information about the economy and financial development in all
parts
of the nation.  Key to this activity is the Bank's Board of Directors which
is
made up of nine private citizens who come from many walks of life and add
their
experience and expertise to efficient operations of the Reserve Banks.  Six
of
these Directors are elected to their posts by the member commercial banks
who,
under law, must subscribe to stock in their regional Federal Reserve Bank.
Member commercial banks include all national banks and those state banks who
chose to become members.  Ownership to Reserve Bank stock is in the nature of
an
obligation that goes along with membership and does not carry with it any
characteristics of control or financial interest normally attached to stock
in a
corporation. <<2>>  The amount of stock that member banks are required to
purchase is specified by law.  The stock may not be sold or pledged as
collateral for loans, and dividends are limited by law to 6 percent per year.
<<3>> If a Reserve Bank were liquidated, any funds remaining after the
payment
of bills would revert to the U.S. Treasury.

        Neither the Board nor the Reserve Banks receive appropriations from
Congress.  Therefore, they do not operate with tax revenues but rather pay
expenses out of earnings.  Earnings of the Federal Reserve Banks are derived
primarily from interest received on their holdings of U.S. Government
securities
and on the fees they charge depository institutions for providing services
such
as the processing and clearing of checks. <<4>>  After payment of expenses,
contributions to surplus, and payment of other assessments, all the net
earnings
of the Federal Reserve Banks are aggregated and paid over to the U.S.
Treasury.
In 1992, for example, the Federal Reserve paid $16.8 billion to the U.S.
Treasury. <<5>>

        The financial accounts of the Board of Governors are audited each
year
by an independent firm of certified public accountants.  In addition,
Congress
has authorized the U.S. General Accounting Office to conduct audits of the
Federal Reserve.  Also, each Reserve Bank has a General Auditor who reports
to
the Bank's Board of Directors regarding audit activities, and the Board of
Governors, in exercising supervision of the Reserve Banks, conducts an annual
examination of each Bank. <<6>>

        The U.S. Congress has ultimate authority over the Federal Reserve and
oversees the activities of the Federal Reserve through appropriate
committees.
The Board of Governors is required by law to report to Congress annually on
the
Federal Reserve's activities.  With respect to monetary policy, the Federal
Reserve is required by statute to report to Congress twice a year on its
plans
and objectives.  Members of the Board, particularly the Chairman, are
frequently
requested by Congressional Committees to testify on financial and economic
issues.

                                ######

END QUOTE:


Below are several questions I have as to how to interpret this letter.  Any
light you can shed on these or any other questions you may see will be
greatly
appreciated.

<<1>>
The Federal Reserve System consists of a seven-member Board of Governors (an
independent agency of the federal government with headquarters in Washington,
D.C.), plus a nationwide network of 12 Federal Reserve Banks and 25 Reserve
Bank
branches.

Questions:

a) How are the Board of Governors selected?
b) How long are their terms?
c) Legally speaking what is "an independent agency of the federal
government"?

<<2>>
Ownership to Reserve Bank stock is in the nature of an obligation that goes
along with membership and does not carry with it any characteristics of
control
or financial interest normally attached to stock in a corporation.

Questions:

a) This sounds like a very "unprofitable" type of stock. Is there some other
   means by which title 12 allows the Federal Reserve Bank owners to profit?
b) What is meant by "Ownership to Reserve Bank stock is in the nature of an
   obligation..."?

<<3>>
The amount of stock that member banks are required to purchase is specified
by
law.  The stock may not be sold or pledged as collateral for loans, and
dividends are limited by law to 6 percent per year.

Questions:

a) How much stock must a member bank purchase?
b) If the stock cannot be sold, what then, of Bo Gritz's claim that all the
   Federal Reserve stock could be purchased back by the U.S. Treasury for
   the original purchase price?
c) How much does the 6 percent per year amount to?

<<4>>
Earnings of the Federal Reserve Banks are derived primarily from interest
received on their holdings of U.S. Government securities and on the fees they
charge depository institutions for providing services such as the processing
and
clearing of checks.

Questions:

a) Are Federal Reserve Notes considered "U.S. Government securities"?
b) What secondary sources of revenue are there?

<<5>>
After payment of expenses, contributions to surplus, and payment of other
assessments, all the net earnings of the Federal Reserve Banks are aggregated
and paid over to the U.S. Treasury.  In 1992, for example, the Federal
Reserve
paid $16.8 billion to the U.S. Treasury.

Questions:

a) What are "contributions to surplus"?
b) What "other assessments"? Is this apart from expenses?
c) Considering that the interest on the national debt is several hundred
billion
   dollars, isn't $16.8 billion a small amount to be left over after
expenses,
   etc..etc?

<<6>>
The financial accounts of the Board of Governors are audited each year by an
independent firm of certified public accountants.  In addition, Congress has
authorized the U.S. General Accounting Office to conduct audits of the
Federal
Reserve.  Also, each Reserve Bank has a General Auditor who reports to the
Bank's Board of Directors regarding audit activities, and the Board of
Governors, in exercising supervision of the Reserve Banks, conducts an annual
examination of each Bank.

Questions:

a) I have heard several times in various news groups that the Federal Reserve
   Banks do not have to stand audit. This paragraph seems to soundly
controvert
   that idea. I was under the impression that Gonzales's bills, currently
before
   Congress, call for a power of audit over the Federal Reserve System.
   Comments?


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