Amanda Z

Central Bank Ownership

Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s,
said:"some people think that the Federal Reserve Banks are United States Government
institutions. They are private monopolies which prey upon the people of these United
States for the benefit of themselves and their foreign customers; foreign and domestic
speculators and swindlers; and rich and predatory money lenders." This quotation leads
us a question regarding the ownership of the Federal Reserve Bank. Even thought the
Federal Reserve Bank website states that it is not for private, not for profit, and not
funded by Congress, the financial system structure indicates that the funding and
operation is more like private. As we know, Federal Reserve Bank is an independent
agent that ratifies its monetary policy without the approval of the United State President
and anyone else in the executive or legislative branch of government. However, it is
within a government system because it derives its authority from the United State
Congress to ensure the monetary policy as official in the banking system. The Federal
Reserve is subject to oversight by Congress in order to ensure the proper regulation and
compliance according to the law, and Congress periodically reviews and audits the
framework of the Federal Reserve in its economic and financial policy. As a result, the
Federal Reserve is more likely to describe as “independent within the government.”

There are twelve regional Federal Reserve Banks around the nation established by
Congress as the branches of the national central banking system, which is more likely
administrated by private sector. The financial structure of the ownership is a little bit
confusing because the Fed issues the stock to its members, who purchase and own the
share of the Fed. However, the stock issued by the Fed is not like other stocks issued by
private corporation because the law prohibits the members to trade and sell their Fed
stock.

However, the Fed is more like a hybrid, part of corporation and part of government, part
of private and part of government. As we discuss above, the ownership is the form of
holding Fed’s stocks by private banks, who can be large and small investors. The stocks
they own are not for trading as securities in free market because the law doesn’t permit
the trade among private sector. In addition, the banks, who invest in Federal Reserve,
receive one vote disregarding the amount of stocks they purchased and own. Every bank
owns one vote in the Federal Reserve, but the votes are not given for any monetary policy
making. The monetary policy is administrated by the chairman and board of director, not
by any one of the banks, who are actually holding the shares of Fed’s stock. Indeed, the
board of directors and chairman of the Federal Reserve System are appointed by the
President, and they are not elected by the banks that are holding the shares of the Central
Bank.

There are some unprecedented events that lead tax payers to think the Fed is actually a
instrument for those Wall Street investors to raise funds for investment. The Associate
Pres reports: “The Treasury Department, for the first time in its history, said it would
begin selling bonds for the Federal Reserve in an effort to help the central bank deal with
its unprecedented borrowing needs.” Looking at the deal that JP Morgan Chase
purchased the failure bank Bear Stearns in low price in March, 2008, the Fed provided
funding after Jamie Dimon, CEO of JP Morgan, sat on the board of the New York Fed
and negotiated the deal, which is controversial for other investors. Besides that, Fed
signed some secret deals and provided zero interest to some Wall Street institutions.
Some Congress men demanded the Fed to disclose the name of the institutions, who
actually received the loan in Economic Recession. American International Group (AIG)
was the one of them to receive an $85 billion loan recently.

The ownership of Federal Reserve Bank is a little bit vague because its shareholders are
100% private banks, none of them are government owned, and the Congress oversights
its framework periodically. After the discussion of the ownership of Fed, the ownership
of Bank of England is another hot topic for those people who are interested. Most people
thought Bank of England privately owned by the family of Rothschild because the
Rothschilds have served on the Bank’s Court of Director over couple years. Indeed, the
Bank of England is the central bank of the United Kingdom was established as a
corporation structure by Royal Charter under the Bank of England Act 1694. William
Paterson, a Scotsman, set up the Bank of England originally and was a lender to the
Government. The bank was given authority to issue notes and coins as a solo bank by the
Bank Charter Act in 1844. According to the historical time line on its website, the bank
was nationalized as government took over the ownership in March 1, 1946. The bank was
given independence to administrate Monetary Policy in 1977 as Central Bank of United
Kingdom. The Bank of England is similar to the Federal Reserve Bank in United States
because it is owned by private sector in its life time and its monetary policy is ensured by
the governing legislation within the government legislation system. Even though the
Bank of England is an independent agent within the governing legislation system and
owned by private sector, it is required to submit its report and accounts to Parliament
through the Chancellor of the Exchequer.

Beside the Bank of England, other European countries, who issue and circulate the Euro
currency, established a European System of Central Banks (ESCB), the Treaty
establishing the European Community and the Status of the ESCB. The ESCB will
conduct all the tasks involved in the single currency, Euro. The term “’Eurosystem” is
formed and introduced to the euro area that the Euro Central Bank protects and benefits
its members via its monetary policy as a whole. The Eurosystem is a sub-set of the ESCB
to adopt the monetary policy applied only to the euro area countries. The Euro Bank
involved its 16 country members introduce the Eurosystem instead of a central banking
system because of the infrastructure, expertise and excellent operational capabilities.
Basically, the Euro Bank is composed by its members’ national central banking system to
adapt and regulate the banking system.

Japan is the second largest economy in the world after the United States, and it has the
second highest leading capital GDP on the world as well. The Liberal Democratic Party
(LDP) has dominated and administrated the economic and banking system in Japanese
monetary policy. The Bank of Japan strongly connects to the governing legislation in
Japan because it is administrated by Congress and Cabinet. The Prime Minister has direct
authority to nominate a chief governor for the Central Bank. According to the Times,
Central bank policies will continue to be carried out by Masaaki Shirakawa, who was
approved by parliament as a deputy BoJ governor and who will temporarily take over for
FuKui. The Prime Ministre Yauo Fukuda has major influence to choose a new bank chief
in 2008. The bank is closely monitored by the legislator by the vote of House and
Congress in Japan.

Work Cites

Anonymous.

Oxford
Economic
Country
Briefings.:

Japan
Oxford:Feb
18,
2010.

p.
1‐11
(11
pp.)

Masters, Coco. “Row Ends Over Japan’s Central Bank.” Times Apr 08, 2008: 13. Print.
Shadow, Gray. “Who owns the Federal Reserve Bank.” Review. 20 Feb. 2009. Web. Mar.
28, 2010.

Pettinger, T. “Ownership of the Bank of England.” Review. Friday, Nov 28, 2008. Web.
Mar 28, 2010.