profits from the federal reserve system go to banks.
profits from the federal reserve system go to banks.
where do profits from the federal reserve system go?
banks
the federal reserve banks have an intermediate legal status, with some features of private corporations and some features of public federal agencies. the united states has an interest in the federal reserve banks as tax-exempt federally created instrumentalities whose profits belong to the federal government, but this interest is not proprietary. each member bank (commercial banks in the federal reserve district) owns a nonnegotiable share of stock in its regional federal reserve bank. however, holding federal reserve bank stock is unlike owning stock in a publicly traded company. the charter of each federal reserve bank is established by law and cannot be altered by the member banks. federal reserve bank stock cannot be sold or traded, and member banks do not control the federal reserve bank as a result of owning this stock. they do, however, elect six of the nine members of the federal reserve banks' boards of directors. in "lewis v. united states", the united states court of appeals for the ninth circuit stated that: "the reserve banks are not federal instrumentalities for purposes of the ftca [the federal tort claims act], but are independent, privately owned and locally controlled corporations." the opinion went on to say, however, that: "the reserve banks have properly been held to be federal instrumentalities for some purposes." another relevant decision is "scott v. federal reserve bank of kansas city", in which the distinction is made between federal reserve banks, which are federally created instrumentalities, and the board of governors, which is a federal agency.
structure of the federal reserve system
the twelve federal reserve banks provide the financial means to operate the federal reserve system. each reserve bank is organized much like a private corporation so that it can provide the necessary revenue to cover operational expenses and implement the demands of the board. a member bank is a privately owned bank that must buy an amount equal to 3% of its combined capital and surplus of stock in the reserve bank within its region of the federal reserve system. this stock "may not be sold, traded, or pledged as security for a loan" and all member banks receive a 6% annual dividend. no stock in any federal reserve bank has ever been sold to the public, to foreigners, or to any non-bank u.s. firm. these member banks must maintain fractional reserves either as vault currency or on account at its reserve bank. as of october 2008, the federal reserve has paid interest to banks' holdings in reserve banks' accounts. the dividends paid by the federal reserve banks to member banks are considered partial compensation for the lack of interest paid on the required reserves. all profit after expenses is returned to the u.s. treasury or contributed to the surplus capital of the federal reserve banks. since shares in ownership of the federal reserve banks are redeemable only at par, the nominal "owners" do not benefit from this surplus capital. in 2010, the federal reserve system contributed $79 billion to the u.s. treasury.
structure of the federal reserve system