Investing Today for Tomorrow

The blog site was created with the intent to inform and educate the beginner and intermediate investor like yourself and bring you closer to what is known as a sophisticated investor status. To clarify what I mean by a new and intermediate investor you need to know the following: the two investors mentioned are those that just invest in their company’s pension scheme, have investment schemes such as 401(k)’s – 403(b)’s – IRA’s, Super Annuation Plans, annuities, CD’s, Bonds, Mutual Funds, stocks, etc. In a word their investments are in one asset class; in the examples above, they are just in paper assets. They listen to people on the money programs that tell them that diversification is to have stocks in different industries to be diversified. This is not true diversification. True diversification is across all asset classes As we will discuss further in the blog. So get your pencils/pens/paper/PC or tablet ready to take some notes to explore true investing across all four asset classes and why our economy is in the dumper right now for many people and how you can try and not become a victim of it.

Here is the site with further information as to why our economy is in trouble: http://wp.me/p2Ol6G-8

I have read through a part of the Federal Reserve and it was shocking on how we have to pay them a 6% dividend to produce our own money. It is why you see Federal Reserve Note on top of your dollar bills and I have a silver certificate $5 dollar bill and it says Treasury Note. After Kennedy was assassinated it reverted back to saying Federal Reserve Note. Read this except that I have cut and pasted from their website. The 25 member banks are mostly foreign and they have to own, by law, 3% of the 12 member banks of the Federal Reserve. See for yourself below:

Work Cited: https://en.wikipedia.org/wiki/Federal_Reserve_Bank

A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve Act of 1913.[1] The banks are jointly responsible for implementing the monetary policy set forth by the Federal Open Market Committee, and are divided as follows:

Federal Reserve Bank of Boston

Federal Reserve Bank of New York

Federal Reserve Bank of Philadelphia

Federal Reserve Bank of Cleveland

Federal Reserve Bank of Richmond

Federal Reserve Bank of Atlanta

Federal Reserve Bank of Chicago

Federal Reserve Bank of St. Louis

Federal Reserve Bank of Minneapolis

Federal Reserve Bank of Kansas City

Federal Reserve Bank of Dallas

Federal Reserve Bank of San Francisco

Some banks also possess branches, with the whole system being headquartered at the Eccles Building in Washington, D.C.

Contents  [hide]

1History

1.1Legal status

2 Function

3 Finances

4 Banks

   4.1 Assets

5 See also

6 Notes

7 References

8 Sources

9 External links

History[edit]

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The twelve Reserve Banks buildings in 1936

Alexander Hamilton, the first Secretary of Treasury, started a movement in 1780 advocating for the creation of a central bank.[a] The Bank Bill created by Hamilton was a proposal to institute a national bank in order to improve the economic stability of the nation after its independence from Britain. Although the national bank was to be used as a tool for the government, it was to be privately owned. Hamilton wrote several articles providing information regarding his national bank idea where he expressed the validity and “would be” success of the national bank based upon: incentives for the rich to invest, ownerships of bonds and shares, being rooted in fiscal management, and stable monetary system.

In response to this, the First Bank of the United States was established in 1791, its charter signed by George Washington. The First Bank of the United States was headquartered in Philadelphia, but had branches in other major cities. The Bank performed the basic banking functions of accepting deposits, issuing bank notes, making loans and purchasing securities.

When its charter expired 20 years later, the United States was without a central bank for a few years, during which it suffered an unusual inflation.[citation needed] In 1816, James Madison signed the Second Bank of the United States into existence. Then, in 1833, before that bank’s charter expired, President Jackson removed the government funds as part of the Bank War, and the United States went without a central bank for 40 years.

A financial crisis known as the Panic of 1907 was headed off by a private conglomerate (led by J. P. Morgan), who set themselves up as “lenders of last resort” to banks in trouble.[3][4] This effort succeeded in stopping the panic,[3] and led to calls for a Federal agency to do the same thing.[citation needed]

In response to this,[citation needed] the Federal Reserve System was created by the Federal Reserve Act of December 23, 1913, establishing a new central bank intended to serve as a formal “lender of last resort” to banks in times of liquidity crisis—panics where depositors tried to withdraw their money faster than a normal fractional-reserve-based bank could pay it out.

The Federal Reserve Act presented by Congressman Carter Glass and Senator Robert L. Owen incorporated modifications by Woodrow Wilson and allowed for a regional Federal Reserve System, operating under a supervisory board in Washington, D.C. Congress approved the Act, and President Wilson signed it into law on December 23, 1913. The Act, “Provided for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes. The Act provided for a Reserve Bank Organization Committee that would designate no less than eight but no more than twelve cities to be Federal Reserve cities, and would then divide the nation into districts, each district to contain one Federal Reserve City.

The legislation provided for a system that included a number of regional Federal Reserve Banks and a seven-member governing board. All national banks were required to join the system and other banks could join.

On April 2, 1914, the Reserve Bank Organization Committee announced its decision, and twelve Federal Reserve banks were established to cover various districts throughout the country. Those opposed to the establishment of an overwhelmingly powerful New York Fed prevailed in their desire that its scope and influence should be limited. Initially, this bank’s influence was restricted to New York State. Nonetheless, with over $20,000,000 in capital stock, the New York Bank had nearly four times the capitalization of the smallest banks in the system, such as Atlanta and Minneapolis. As a result, it was impossible to prevent the New York Fed from being the largest and most dominant bank in the system.

The Federal Reserve Banks opened for business in November 1914. The New York Fed opened for business under the leadership of Benjamin Strong, Jr. , previously president of the Bankers Trust Company, on November 16, 1914. The initial staff consisted of seven officers and 85 clerks, many on loan from local banks. Mr. Strong recalled the starting days at the Bank in a speech: “It may be said that the Bank’s equipment consisted of little more than a copy of the Federal Reserve Act.” During its first day of operation, the Bank took in $100 million from 211 member banks; made two rediscounts; and received its first shipment of Federal Reserve Notes. Congress created Federal Reserve notes to provide the nation with a flexible supply of currency. The notes were to be issued to Federal Reserve Banks for subsequent transmittal to banking institutions in accordance with the needs of the public.

The U.S. Federal Reserve System or the “Fed” (of which the twelve regional Federal Reserve banks are a part) was created by an Act of Congress in 1913 in a response to a series of economic crises at the turn of the early 20th century.

The Bank’s staff grew rapidly during the early years, necessitating the need for a new home. Land was bought on a city block encompassing Liberty Street, Maiden Lane, William Street and Nassau Street. A public competition was held and the architectural firm of York & Sawyer submitted the winning design reminiscent of the palaces in Florence, Italy. The Bank’s vaults, located 86 feet below street level, were built on Manhattan’s bedrock. In 1924, the Fed moved into its new home. By 1927, the vault contained ten percent of the world’s entire store of monetary gold.[5]

The Fed is an independent financial institution formed within the United States, that works separately from the executive or judicial branches of government. The Federal Reserve System is considered to be an independent agency that exists outside of the cabinet of the executive[6] and its powers are derived directly from Congress. Over the past century, the Fed’s power has expanded from its original roles such as a private response to problems in banking systems[7] and to establishing a more effective supervisory role of banking systems in the United States,[7] to its now current position of being a lender of last resort to banking institutions that require additional credit to stay afloat.

Legal status[edit]

The twelve regional Federal Reserve Banks were established as the operating arms of the nation’s central banking system. They are organized much like private corporations—possibly leading to some confusion about ownership.

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.[8] In Lewis v. United States,[9] 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,[8] 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.

Regarding the structural relationship between the twelve Federal Reserve banks and the various commercial (member) banks, political science professor Michael D. Reagan has written that:[10]

… the “ownership” of the Reserve Banks by the commercial banks is symbolic; they do not exercise the proprietary control associated with the concept of ownership nor share, beyond the statutory dividend, in Reserve Bank “profits.” … Bank ownership and election at the base are therefore devoid of substantive significance, despite the superficial appearance of private bank control that the formal arrangement creates.

My own note: Read between the lines, symbolic double-speak twaddle.

Function[edit]

The Federal Reserve System provides the government with a ready source of loans and serves as the safe depository for federal money. The Federal Reserve is also a low-cost mechanism for transferring funds and is an inexpensive agent for meeting payments on the national debt and government salaries. The Federal Reserve Banks were created as instrumentalities to carry out the policies of the Federal Reserve System.

The Federal Reserve Banks issue shares of stock to member banks. However, owning Federal Reserve Bank stock is quite different from owning stock in a private company. The Federal Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the system. The stock may not be sold or traded or pledged as security for a loan; dividends are, by law, limited to 6% per year.[11]

The dividends paid to member banks are considered partial compensation for the lack of interest paid on member banks’ required reserves held at the Federal Reserve. By law, banks in the United States must maintain fractional reserves, most of which are kept on account at the Federal Reserve. Historically, the Federal Reserve did not pay interest on these funds. The Federal Reserve now has authority, granted by Congress in the Emergency Economic Stabilization Act (EESA) of 2008, to pay interest on these funds.

A major responsibility of The Federal Reserve is to oversee their banking and financial systems. Overseeing the banking and financial systems of a bank is crucial in a society.[12]

Confidence in the soundness of the banking and financial systems is what mobilizes a society’s savings, allows the savings to be channeled into productive investments, and encourages economic growth.

Finances[edit]

Each Federal Reserve Bank funds its own operations, primarily from interest on its loans and on the securities it holds. Expenses and dividends paid are typically a small fraction of a Federal Reserve Bank’s revenue each year.[13] By law the remainder must be transferred to the Board of Governors, which then deposits the full amount to the Treasury as interest on outstanding Federal Reserve Notes.[14]

The Federal Reserve Banks conduct ongoing internal audits of their operations to ensure that their accounts are accurate and comply with the Federal Reserve System’s accounting principles. The banks are also subject to two types of external auditing. Since 1978 the Government Accountability Office (GAO) has conducted regular audits of the banks’ operations. The GAO audits are reported to the public, but they may not review a bank’s monetary policy decisions or disclose them to the public.[15] Since 1999 each bank has also been required to submit to an annual audit by an external accounting firm,[16] which produces a confidential report to the bank and a summary statement for the bank’s annual report. Some members of Congress continue to advocate a more public and intrusive GAO audit of the Federal Reserve System,[17] but Federal Reserve representatives support the existing restrictions to prevent political influence over long-range economic decisions.[18]

Banks[edit]

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The twelve Reserve Banks buildings in 1936

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The Federal Reserve Bank of New York has over $2 trillion in assets.

The Federal Reserve officially identifies Districts by number and Reserve Bank city.[19]

•1st District (A) – Federal Reserve Bank of Boston

•2nd District (B) – Federal Reserve Bank of New York

•3rd District (C) – Federal Reserve Bank of Philadelphia

•4th District (D) – Federal Reserve Bank of Cleveland, with branches in Cincinnati, Ohio and Pittsburgh, Pennsylvania

•5th District (E) – Federal Reserve Bank of Richmond, with branches in Baltimore, Maryland and Charlotte, North Carolina

•6th District (F) – Federal Reserve Bank of Atlanta, with branches in Birmingham, Alabama; Jacksonville, Florida; Miami, Florida; Nashville, Tennessee; and New Orleans, Louisiana

•7th District (G) – Federal Reserve Bank of Chicago, with branches in Detroit, Michigan and West Des Moines, Iowa

•8th District (H) – Federal Reserve Bank of St. Louis, with branches in Little Rock, Arkansas; Louisville, Kentucky; and Memphis, Tennessee

•9th District (I) – Federal Reserve Bank of Minneapolis, with a branch in Helena, Montana

•10th District (J) – Federal Reserve Bank of Kansas City, with branches in Denver, Colorado; Oklahoma City, Oklahoma; and Omaha, Nebraska

•11th District (K) – Federal Reserve Bank of Dallas, with branches in El Paso, Texas; Houston, Texas; and San Antonio, Texas

•12th District (L) – Federal Reserve Bank of San Francisco, with branches in Los Angeles, California; Portland, Oregon; Salt Lake City, Utah; and Seattle, Washington

The New York Federal Reserve district is the largest by asset value. San Francisco, followed by Kansas City and Minneapolis, represent the largest geographical districts. Missouri is the only state to have two Federal Reserve Banks (Kansas City and St. Louis). California, Florida, Missouri, Ohio, Pennsylvania, Tennessee, and Texas are the only states which have two or more Federal Reserve Bank branches seated within their states, with Missouri, Pennsylvania, and Tennessee having branches of two different districts within the same state. In the 12th District, the Seattle Branch serves Alaska, and the San Francisco Bank serves Hawaii. New York, Richmond, and San Francisco are the only banks that oversee non-U.S. state territories. The System serves these territories as follows: the New York Bank serves the Commonwealth of Puerto Rico and the U.S. Virgin Islands; the Richmond Bank serves the District of Columbia; the San Francisco Bank serves American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. The Board of Governors last revised the branch boundaries of the System in February 1996.[19]

Assets[edit]

Federal Reserve Bank

Total assets

(as of 17-Sep-2015)[20]

New York City

US$2.62T

San Francisco

US$ 512B

Richmond

US$ 289B

Atlanta

US$ 244B

Chicago

US$ 175B

Dallas

US$ 154B

Cleveland

US$ 133B

Philadelphia

US$ 120B

Boston

US$ 91B

Kansas City

US$ 61B

St. Louis

US$ 58B

Minneapolis

US$ 32B

All banks

US$4.49T

See also[edit]

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Business and economics portal

Federal Reserve Act

List of regions of the United States#Federal Reserve banks

Federal Reserve Branches

Federal Reserve System

Notes[edit]

a Jump up
^
PBS (2007) “Hamilton had long believed in the need for banks to provide credit and stimulate the economy. As early as 1780, he wrote a letter describing central banks in Europe and wondered, “And why cannot we have an American bank?””[2]

References[edit]

1 Jump up
^
O’Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 417. ISBN 0-13-063085-3.

2 Jump up
^
“American Experience—Alexander Hamilton: Establishing A National Bank”. PBS. May 8, 2007. Retrieved March 6, 2014.

3^ Jump up to:
a b Gordon, John Steele, An Empire Of Wealth, Harper Perennial, 2005 (chapter needed, page number needed).

4 Jump up
^
A Short Banking History of the United States – WSJ

5 Jump up
^
The Founding of the Fed .http://www.newyorkfed.org/aboutthefed/history_article.html

6 Jump up
^
Kollman, Ken, The American Political System, Election 2012 update W.W. Norton & Company, 2012 (The Bureaucracy, p.217).

7^ Jump up to:
a b Moen, J. R., & Tallman, E. W. (2003). New York and the Politics of Central Banks, 1781 to the Federal Reserve Act.

8^ Jump up to:
a b Kennedy C. Scott v. Federal Reserve Bank of Kansas City, et al., 406 F.3d 532 (8th Cir. 2005).

9 Jump up
^
680 F.2d 1239 (9th Cir. 1982).

10 Jump up
^
Michael D. Reagan, “The Political Structure of the Federal Reserve System,” American Political Science Review, Vol. 55 (March 1961), pp. 64-76, as reprinted in Money and Banking: Theory, Analysis, and Policy, p. 153, ed. by S. Mittra (Random House, New York 1970).

11 Jump up
^
“FRB: FAQs: Banking Information”. Federalreserve.gov. 2006-02-12. Archived from the original on June 1, 2010. Retrieved 2010-07-08.

12 Jump up
^
McDonough, William J. “An Independent Central Bank in a Democratic Country: The Federal Reserve Experience.” University of Chicago, Chicago. 22 Apr. 1994.

13 Jump up
^
Annual reports

14 Jump up
^
12 U.S.C. § 289

15 Jump up
^
31 U.S.C. § 714

16 Jump up
^
12 U.S.C. § 269b

17 Jump up
^
Zumbrun, Joshua (2009-07-21). “Bernanke Fights Audit Threat To The Fed”. Forbes. Retrieved 2011-11-23.

18 Jump up
^
“How the Federal Reserve is Audited”. Federal Reserve Bank of New York. April 2008. Retrieved 2011-11-23.

19^ Jump up to:
a b “The Twelve Federal Reserve Districts”. Federal Reserve. The Federal Reserve Board. December 13, 2005. Retrieved 2009-02-18.

20 Jump up
^
“Factors Affecting Reserve Balances/Release Dates/Current release”. federalreserve.gov. Retrieved 2014-12-04.

Sources[edit]

•Page, Walter Hines; Page, Arthur Wilson (May 1914). “The March of Events: The Federal Reserve Districts”. The World’s Work: A History of Our Time. XLIV (1): 10–11. Retrieved 2009-08-04. “The first new piece of machinery for the new currency system is now provided.”

External links[edit]

The Twelve Federal Reserve Districts

Federal Reserve Board Annual Reports

Work Cited:

https://en.wikipedia.org/wiki/Structure_of_the_Federal_Reserve_System

Structure of the Federal Reserve System

From Wikipedia, the free encyclopedia

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Further information: Federal Reserve System

Public finance

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The Federal Reserve System is composed of five parts:[1][2]

1The presidentially appointed Board of Governors (or Federal Reserve Board), an independent federal government agency located in Washington, D.C.

2The Federal Open Market Committee (FOMC), composed of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents, which oversees open market operations, the principal tool of U.S. monetary policy.

3Twelve regional Federal Reserve Banks located in major cities throughout the nation, which divide the nation into twelve Federal Reserve districts. The Federal Reserve Banks act as fiscal agents for the U.S. Treasury, and each has its own nine-member board of directors.

4Numerous other private U.S. member banks, which own required amounts of non-transferable stock in their regional Federal Reserve Banks.

5Various advisory councils.[3]

According to the board of governors of the Federal Reserve, “It is not ‘owned’ by anyone and is ‘not a private, profit-making institution’. Instead, it is an independent entity within the government, having both public purposes and private aspects.”[4] The U.S. Government does not own shares in the Federal Reserve System or its component banks, but does receive all of the system’s annual profits after a statutory dividend of 6% on their capital investment is paid to member banks and a capital account surplus is maintained. The government also exercises some control over the Federal Reserve by appointing and setting the salaries of the system’s highest-level employees.

The division of the responsibilities of a central bank into several separate and independent parts, some private and some public, results in a structure that is considered unique among central banks. It is also unusual in that an entity outside of the central bank – the U.S. Department of the Treasury – creates the currency used.[5]

Contents  [hide]

1 Independent within government

2 Outline

3 Board of Governors

4 Federal Open Market Committee

5 Federal Reserve Banks

5.1 Legal status

5.2 Board of Directors

5.2.1 Class A

5.2.2 Class B

5.2.3 Class C

5.3 President

5.4 List of Federal Reserve Banks

6 Primary dealers

6.1 Current list of primary dealers

7 Member Banks

7.1 List of member banks

8 Advisory committees

9 References

Independent within government[edit]

Further information: Central Bank Independence, List of United States independent agencies, and Independent agencies of the United States government

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Central bank independence versus inflation. This often cited[6] research published by Alesina and Summers (1993)[7] is used to show why it is important for a nation’s central bank (i.e.-monetary authority) to have a high level of independence. This chart shows a clear trend towards a lower inflation rate as the independence of the central bank increases. The generally agreed upon reason independence leads to lower inflation is that politicians have a tendency to create too much money if given the opportunity to do it.[7] The Federal Reserve System in the United States is generally regarded as one of the more independent central banks

The Federal Reserve System is an independent government institution that has private aspects. The System is not a private organization and does not operate for the purpose of making a profit.[8] The stocks of the regional federal reserve banks are owned by the banks operating within that region and which are part of the system.[9] The System derives its authority and public purpose from the Federal Reserve Act passed by Congress in 1913. As an independent institution, the Federal Reserve System has the authority to act on its own without prior approval from Congress or the President.[10] The members of its Board of Governors are appointed for long, staggered terms, limiting the influence of day-to-day political considerations.[11] The Federal Reserve System’s unique structure also provides internal checks and balances, ensuring that its decisions and operations are not dominated by any one part of the system.[11] It also generates revenue independently without need for Congressional funding. Congressional oversight and statutes, which can alter the Fed’s responsibilities and control, allow the government to keep the Federal Reserve System in check. Since the System was designed to be independent while also remaining within the government of the United States, it is often said to be “independent within the government”.[10]

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.[12][13] This stock “may not be sold, traded, or pledged as security for a loan” and all member banks receive a 6% annual dividend.[10] No stock in any Federal Reserve Bank has ever been sold to the public, to foreigners, or to any non-bank U.S. firm.[14] 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.[15] 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.[16]

Outline[edit]

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Organization of the Federal Reserve System

Whole[17]

•The nation’s central bank

•A regional structure with 12 districts

•Subject to general Congressional authority and oversight

•Operates on its own earnings

Board of Governors

•Seven members serving staggered 14-year terms

•Appointed by the U.S. President and confirmed by the Senate

•Oversees System operations, makes regulatory decisions, and sets reserve requirements

Federal Open Market Committee

•The System’s key monetary policymaking body

•Decisions seek to foster economic growth with price stability by influencing the flow of money and credit

•Composed of the seven members of the Board of Governors and five Reserve Bank presidents, one of whom is the president of the Federal Reserve Bank of New York, the other presidents serve as voting members for one-year terms on a rotating basis.

Federal Reserve Banks;

•12 regional banks with 25 branches

•Each independently incorporated with a nine-member board of directors, with six of them elected by the member banks while the remaining three are designated by the Board of Governors.

•Set discount rate, subject to approval by Board of Governors.

•Monitor economy and financial institutions in their districts and provide financial services to the U.S. government and depository institutions.

Member banks

•Private banks

•Hold stock in their local Federal Reserve Bank

•Elect six of the nine members of Reserve Banks’ boards of directors.

Advisory Committees

•Carry out varied responsibilities

Board of Governors[edit]

Main article: Federal Reserve Board of Governors

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Janet Yellen, chairwoman of the Board of Governors of the Federal Reserve System.

The seven-member Board of Governors is the main governing body of the Federal Reserve System. It is charged with overseeing the 12 District Reserve Banks and with helping implement national monetary policy. Governors are appointed by the President of the United States and confirmed by the Senate for staggered, 14-year terms.[17] By law, the appointments must yield a “fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country”, and as stipulated in the Banking Act of 1935, the Chairman and Vice Chairman of the Board are two of seven members of the Board of Governors who are appointed by the President from among the sitting Governors.[18][19] As an independent federal government agency,[20] the Board of Governors does not receive funding from Congress, and the terms of the seven members of the Board span multiple presidential and congressional terms. Once a member of the Board of Governors is appointed by the president, he or she functions mostly independently. The Board is required to make an annual report of operations to the Speaker of the U.S. House of Representatives.[21] It also supervises and regulates the operations of the Federal Reserve Banks, and the U.S. banking system in general.

Membership is by statute limited in term, and a member that has served for a full 14-year term is not eligible for reappointment.[22] There are numerous occasions where an individual was appointed to serve the remainder of another member’s uncompleted term, and has been reappointed to serve a full 14-year term.[22] Since “upon the expiration of their terms of office, members of the Board shall continue to serve until their successors are appointed and have qualified”,[22] it is possible for a member to serve for significantly longer than a full term of 14 years. The law provides for the removal of a member of the Board by the President “for cause”.[22]

The current members of the Board of Governors are as follows:[23]

Governor

Entered office[24]

Term expires

Janet Yellen

(Chairman)

February 1, 2006

February, 3rd, 2014, January, 31st, 2024 (Chairwoman)

Stanley Fischer

(Vice Chairman)

October 4, 2010

January 31, 2024

October 4, 2014 (as Vice Chairman)

Daniel Tarullo

January 28, 2009

January 31, 2022

Vacant

Jerome H. Powell

May 2012

January 31, 2014

Vacant

Lael Bernard

June, 16th, 2014

January, 31st, 2026

Federal Open Market Committee[edit]

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A meeting of the Federal Open Market Committee at the Eccles Building, Washington, D.C.

Main article: Federal Open Market Committee

The Federal Open Market Committee (FOMC) created under 12 U.S.C. § 263 comprises the seven members of the board of governors and five representatives selected from the regional Federal Reserve Banks. The FOMC is charged under law with overseeing open market operations, the principal tool of national monetary policy. These operations affect the amount of Federal Reserve balances available to depository institutions, thereby influencing overall monetary and credit conditions. The FOMC also directs operations undertaken by the Federal Reserve in foreign exchange markets. The representative from the Second District, New York, is a permanent member, while the rest of the banks rotate at two- and three-year intervals. All the presidents participate in FOMC discussions, contributing to the committee’s assessment of the economy and of policy options, but only the five presidents who are committee members vote on policy decisions. The FOMC, under law, determines its own internal organization and by tradition elects the Chairman of the Board of Governors as its chairman and the president of the Federal Reserve Bank of New York as its vice chairman. Formal meetings typically are held eight times each year in Washington, D.C. Telephone consultations and other meetings are held when needed.[25]

Federal Reserve Banks[edit]

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Map of the twelve Federal Reserve Districts, with the twelve Federal Reserve Banks marked as black squares, and all Branches within each district (24 total) marked as red circles. The Washington DC Headquarters is marked with a star. (Also, a 25th branch in Buffalo, NY had been closed in 2008.)

Main article: Federal Reserve Bank

There are 12 regional Federal Reserve Banks, not to be confused with the “member banks”, with 25 branches, which serve as the operating arms of the system. Each Federal Reserve Bank is subject to oversight by the Board of Governors.[26] Each Federal Reserve Bank has a board of directors, whose members work closely with their Reserve Bank president to provide grassroots economic information and input on management and monetary policy decisions. These boards are drawn from the general public and the banking community and oversee the activities of the organization. They also appoint the presidents of the Reserve Banks, subject to the approval of the Board of Governors. Reserve Bank boards consist of nine members: six serving as representatives of nonbanking enterprises and the public (nonbankers) and three as representatives of banking. Each Federal Reserve branch office has its own board of directors, composed of three to seven members, that provides vital information concerning the regional economy.[17]

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Total assets of each Federal Reserve Bank from 1996 to 2009 (Millions of Dollars)

The Reserve Banks opened for business on November 16, 1914. Federal Reserve Notes were created as part of the legislation to provide a supply of currency. The notes were to be issued to the Reserve Banks for subsequent transmittal to banking institutions. The various components of the Federal Reserve System have differing legal statuses.

Legal status[edit]

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.[20] 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.[17] In Lewis v. United States,[27] 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,[20] 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.

Board of Directors[edit]

The nine member board of directors of each district is made up of three classes, designated as classes A, B, and C. The directors serve a term of three years. The makeup of the boards of directors is outlined in U.S. Code, Title 12, Chapter 3, Subchapter 7:[28]

Class A[edit]

•three members

•chosen by and representative of the stockholding banks.

•member banks are divided into 3 groups based on size—large, medium, and small banks. Each group elects one member of Class A.

Class B[edit]

•three members

•no director of class B shall be an officer, director, or employee of any bank

•represent the public with due but not exclusive consideration to the interests of agriculture, commerce, industry, services, labor, and consumers.

•member banks are divided into three groups based on size—large, medium, and small banks. Each group elects one member of Class B.

Class C[edit]

•three members

•no director of class C shall be an officer, director, employee, or stockholder of any bank

•designated by the Board of Governors of the Federal Reserve System. They shall be elected to represent the public, and with due but not exclusive consideration to the interests of agriculture, commerce, industry, services, labor, and consumers.

•Shall have been for at least two years residents of the district for which they are appointed, one of whom shall be designated by said board as chairman of the board of directors of the Federal reserve bank and as Federal reserve agent.

A list of all of the members of the Reserve Banks’ boards of directors is published by the Federal Reserve.[29]

President[edit]

The Federal Reserve Act provides that the president of a Federal Reserve Bank shall be the chief executive officer of the Bank, appointed by the board of directors of the Bank, with the approval of the Board of Governors of the Federal Reserve System, for a term of five years.[30]

The terms of all the presidents of the twelve District Banks run concurrently, ending on the last day of February every five years. The appointment of a President who takes office after a term has begun ends upon the completion of that term. A president of a Reserve Bank may be reappointed after serving a full term or an incomplete term.[30]

Reserve Bank presidents are subject to mandatory retirement upon becoming 65 years of age. However, presidents initially appointed after age 55 can, at the option of the board of directors, be permitted to serve until attaining ten years of service in the office or age 70, whichever comes first.[30]

List of Federal Reserve Banks[edit]

Main article: Federal Reserve districts

See also: List of Federal Reserve Branches

The Federal Reserve Districts are listed below along with their identifying letter and number. These are used on Federal Reserve Notes to identify the issuing bank for each note. The 25 branches are also listed.[31]

Federal Reserve Bank

Letter

Number

Branches

Website

President

Boston

A1

http://www.bos.frb.org/

Eric S. Rosengren

New York City

B2

Buffalo, New York (closed as of October 31, 2008) [32]

http://www.newyorkfed.org/

William C. Dudley

Philadelphia

C3

http://www.philadelphiafed.org/

Charles I. Plosser

Cleveland

D4

Cincinnati, Ohio

Pittsburgh, Pennsylvania

http://www.clevelandfed.org/

Sandra Pianalto

Richmond

E5

Baltimore, Maryland

Charlotte, North Carolina

http://www.richmondfed.org/

Jeffrey M. Lacker

Atlanta

F6

Birmingham, Alabama

Jacksonville, Florida

Miami, Florida

Nashville, Tennessee

New Orleans, Louisiana

http://www.frbatlanta.org/

Dennis P. Lockhart

Chicago

G7

Detroit, Michigan

Des Moines, Iowa

http://www.chicagofed.org/

Charles L. Evans

St Louis

H8

Little Rock, Arkansas

Louisville, Kentucky

Memphis, Tennessee

http://www.stlouisfed.org/

James B. Bullard

Minneapolis

I9

Helena, Montana

https://www.minneapolisfed.org/

Narayana R. Kocherlakota

Kansas City

J10

Denver, Colorado

Oklahoma City, Oklahoma

Omaha, Nebraska

http://www.kansascityfed.org/

Esther George

Dallas

K11

El Paso, Texas

Houston, Texas

San Antonio, Texas

http://www.dallasfed.org/

Robert Steven Kaplan

San Francisco

L12

Los Angeles, California

Portland, Oregon

Salt Lake City, Utah

Seattle, Washington

http://www.frbsf.org/

John C. Williams

Primary dealers[edit]

A primary dealer is a bank or securities broker-dealer that may trade directly with the Federal Reserve System of the United States.[33] They are required to make bids or offers when the Fed conducts open market operations, provide information to the Fed’s open market trading desk, and to participate actively in U.S. Treasury securities auctions.[34] They consult with both the U.S. Treasury and the Fed about funding the budget deficit and implementing monetary policy. Many former employees of primary dealers work at the Treasury, because of their expertise in the government debt markets, though the Fed avoids a similar revolving door policy.[35][36]

Between them, these dealers purchase the vast majority of the U.S. Treasury securities (T-bills, T-notes, and T-bonds) sold at auction, and resell them to the public. Their activities extend well beyond the Treasury market, for example, according to the Wall Street Journal Europe (2/9/06 p. 20), all of the top ten dealers in the foreign exchange market are also primary dealers, and between them account for almost 73% of forex trading volume. Arguably, this group’s members are the most influential and powerful non-governmental institutions in world financial markets.

The primary dealers form a worldwide network that distributes new U.S. government debt. For example, Daiwa Securities and Mizuho Securities distribute the debt to Japanese buyers. BNP Paribas, Barclays, Deutsche Bank, and RBS Greenwich Capital (a division of the Royal Bank of Scotland) distribute the debt to European buyers. Goldman Sachs, and Citigroup account for many American buyers. Nevertheless, most of these firms compete internationally and in all major financial centers.

Current list of primary dealers[edit]

As of July 1, 2014, according to the Federal Reserve Bank of New York, the list of primary dealers includes:[37]

Bank of Nova Scotia, New York Agency

BMO Capital Markets Corp.

BNP Paribas Securities Corp.

Barclays Capital Inc.

Cantor Fitzgerald & Co.

Citigroup Global Markets Inc.

Credit Suisse Securities (USA) LLC

Daiwa Capital Markets America Inc.

Deutsche Bank Securities Inc.

Goldman, Sachs & Co.

HSBC Securities (USA) Inc.

Jefferies LLC

J.P. Morgan Securities LLC

Merrill Lynch, Pierce, Fenner & Smith Incorporated

Mizuho Securities USA Inc.

Morgan Stanley & Co. LLC

Nomura Securities International, Inc.

RBC Capital Markets, LLC

RBS Securities Inc.

SG Americas Securities, LLC

TD Securities (USA) LLC

UBS Securities LLC.

The Primary Dealers List is available at the Federal Reserve Bank of New York website. Changes are available at Changes to Primary Dealers List.

Member Banks[edit]

Each member bank is a private bank (e.g., a privately owned corporation) that holds stock in one of the twelve regional Federal Reserve banks. The amount of stock each member bank must buy is set to be equal to 3% of its combined capital and surplus of stock in the Reserve Bank within its region of the Federal Reserve System.[12][13] All of the commercial banks in the United States can be divided into three types according to which governmental body charters them and whether or not they are members of the Federal Reserve System:[38]

Type Definition

national banks

Those chartered by the federal government (through the Office of the Comptroller of the Currency in the Department of the Treasury); by law, they are members of the Federal Reserve System

state member banks

Those chartered by the states who are members of the Federal Reserve System.

state nonmember banks

Those chartered by the states who are not members of the Federal Reserve System.

All nationally chartered banks hold stock in one of the Federal Reserve banks. State-chartered banks may choose to be members (and hold stock in a regional Federal Reserve bank), upon meeting certain standards.

Holding stock in a Federal Reserve bank is not, however, like owning publicly traded stock. The stock cannot be sold or traded. Member banks receive a fixed, 6% dividend annually on their stock, and they do not directly control the applicable Federal Reserve bank as a result of owning this stock. They do, however, elect six of the nine members of Reserve banks’ boards of directors.[17] Federal statute provides (in part): “Every national bank in any State shall, upon commencing business or within ninety days after admission into the Union of the State in which it is located, become a member bank of the Federal Reserve System by subscribing and paying for stock in the Federal Reserve bank of its district in accordance with the provisions of this chapter and shall thereupon be an insured bank under the Federal Deposit Insurance Act [. . . .]”[39]

Other banks may elect to become member banks. According to the Federal Reserve Bank of Boston:

Any state-chartered bank (mutual or stock-formed) may become a member of the Federal Reserve System. The twelve regional Reserve Banks supervise state member banks as part of the Federal Reserve System’s mandate to assure strength and stability in the nation’s domestic markets and banking system. Reserve Bank supervision is carried out in partnership with the state regulators, assuring a consistent and unified regulatory environment. Regional and community banking organizations constitute the largest number of banking organizations supervised by the Federal Reserve System.

— [40]

For example, as of October 2006 the member banks in New Hampshire included Community Guaranty Savings Bank, The Lancaster National Bank, The Pemigewasset National Bank of Plymouth, and other banks.[41] In California, member banks, as of September 2006, included Bank of America California, National Association, The Bank of New York Trust Company, National Association, Barclays Global Investors, National Association, and many other banks.[42]

List of member banks[edit]

The majority of U.S. banks are not members of the Federal Reserve System.

pastedGraphic_14.png

Federal Deposit Insurance Corporation (FDIC)-insured banks. national banks (N) and state members (SM) are members of the Federal Reserve System while the rest of the FDIC-insured banks are not members.

Each charter type is defined as follows:[43]

•N = commercial bank, national (federal) charter and Fed member, supervised by the Office of the Comptroller of the Currency (OCC) – Dept of Treasury

•SM = commercial bank, state charter and Fed member, supervised by the Federal Reserve (FRB)

•NM = commercial bank, state charter and Fed nonmember, supervised by the FDIC

•OI = insured U.S. branch of a foreign chartered institution (IBA)

•SA = savings associations, state or federal charter, supervised by the Office of Thrift Supervision (OTS)

•SB = savings banks, state charter, supervised by the FDIC

While the OI, SA, and SB categories are not members of the system, they are sometimes treated as if they were members under certain circumstances.[44]

A list of all member banks can be found at the website of the Federal Deposit Insurance Corporation (FDIC). Most commercial banks in the United States are not members of the Federal Reserve System, but the total value of all the banking assets of member banks is substantially larger than the total value of the banking assets of nonmembers.[43]

Advisory committees[edit]

The Federal Reserve System uses advisory committees in carrying out its varied responsibilities. Three of these committees advise the Board of Governors directly:[45]

Federal Advisory Council

Consumer Advisory Council

Thrift Institutions Advisory Council

Of these advisory committees, perhaps the most important are the committees (one for each Reserve Bank) that advise the Banks on matters of agriculture, small business, and labor. Biannually, the Board solicits the views of each of these committees by mail.

References[edit]

Notes

1 Jump up
^
BoG 2005, pp. v

2 Jump up
^
Federal Reserve Online

3 Jump up
^
Advisory Councils – http://www.federalreserve.gov/aboutthefed/advisorydefault.htm

4 Jump up
^
Federal Reserve website – http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5

5 Jump up
^
“Coins and Currency”. US Dept of Treasury website. Retrieved 8 July 2010.

6 Jump up
^
Modern Macroeconomics in Practice: How Theory Is Shaping Monetary Policy Patrick J. Kehoe, V. V. Chari. Federal Reserve Bank of Minneapolis. January 2006.

7^ Jump up to:
a b Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence (1993). Alesina and Summers.

8 Jump up
^
BoG 2005, pp. 11[dead link]

9 Jump up
^
Board of Governors of the Federal Reserve System website – “Although they are set up like private corporations and member banks hold their stock, the Federal Reserve Banks owe their existence to an act of Congress and have a mandate to serve the public”. [1]

10^ Jump up to:
a b c FRB: FAQs: Federal Reserve System

11^ Jump up to:
a b Federal Reserve: Structure and Functions

12^ Jump up to:
a b “Section 2.3 Subscription to Stock by National Banks”, Federal Reserve Act, Board of Governors of the Federal Reserve System, December 14, 2010, retrieved February 6, 2011.

13^ Jump up to:
a b “Section 5.1 Amount of Shares; Increase and Decrease of Capital; Surrender and Cancellation of Stock”, Federal Reserve Act, Board of Governors of the Federal Reserve System, December 14, 2010, retrieved February 6, 2011.

14 Jump up
^
Woodward, G. Thomas (1996-07-31). “Money and the Federal Reserve System: Myth and Reality – CRS Report for Congress, No. 96-672 E”. Congressional Research Service Library of Congress. Retrieved 2008-11-23.

15 Jump up
^
“FRB Press Release October 6, 2008”. Retrieved July 13, 2010.

16 Jump up
^
Appelbaum, Binyamin (March 22, 2011). “Fed Had Profit From Investments of $82 Billion Last Year”. The New York Times. Retrieved March 22, 2011.

17^ Jump up to:
a b c d e The Federal Reserve, Monetary Policy and the Economy—Everyday Economics—FRB Dallas

18 Jump up
^
See 12 U.S.C. § 241

19 Jump up
^
Federal Reserve (January 16, 2009). “Board of Governors FAQ”. Federal Reserve. Retrieved 2009-01-16.

20^ Jump up to:
a b c Kennedy C. Scott v. Federal Reserve Bank of Kansas City, et al., 406 F.3d 532 (8th Cir. 2005).

21 Jump up
^
12 U.S.C. § 247.

22^ Jump up to:
a b c d See 12 U.S.C. § 242.

23 Jump up
^
“FRB: Board Members”. Federalreserve.gov. 2011-07-20. Retrieved 2011-08-29.

24 Jump up
^
“Membership of the Board of Governors of the Federal Reserve System, 1914–Present”. Federalreserve.gov. 2011-08-12. Retrieved 2011-08-29.

25 Jump up
^
BoG 2005, pp. 11–12

26 Jump up
^
See generally 12 U.S.C. § 248.

27 Jump up
^
680 F.2d 1239 (9th Cir. 1982).

28 Jump up
^
US CODE: Title 12,SUBCHAPTER VII—DIRECTORS OF FEDERAL RESERVE BANKS; RESERVE AGENTS AND ASSISTANTS

29 Jump up
^
FRB: Directors of Federal Reserve Banks and Branches

30^ Jump up to:
a b c FRB: Federal Reserve Bank presidents

31 Jump up
^
BoG 2005, pp. 7

32 Jump up
^
New York Fed Announces Closing of Buffalo Branch, Effective October 31 – Federal Reserve Bank of New York

33 Jump up
^
Federal Reserve Bank of New York:Primary Dealers. Retrieved April 27, 2007.

34 Jump up
^
Reserve Bank of New York:Primary Dealer Policies. Retrieved March 12, 2008.[dead link]

35 Jump up
^
http://www.opensecrets.org/revolving/search_result.asp?agency=Federal+Reserve+System&id=EIFRS

36 Jump up
^
http://www.opensecrets.org/revolving/search_result.asp?agency=Treasury+%28executive+offices%29&id=EATRE01

37 Jump up
^
“Primary Dealers List”. New York Fed. February 11, 2014. Retrieved 2014-07-03.

38 Jump up
^
BoG 2005, pp. 12

39 Jump up
^
12 U.S.C. § 222

40 Jump up
^
FRBB: Federal Reserve Membership

41 Jump up
^
http://www.bos.frb.org/bankinfo/members/100604.pdf

42 Jump up
^
http://www.frbsf.org/banking/institutions2006/nat_bk3Q06.pdf

43^ Jump up to:
a b http://www4.fdic.gov/IDASP/index.asp Cookies must be enabled to use this interactive website. Choose the “Find Institutions” section. Then leave all of the fields with the default value then choose “find”. Wait a few moments to be prompted to “save as”. It will be a 3.4MB .csv file that will be downloaded. This file can be viewed with a spreadsheet such as openoffice.org or microsoft excel. This is a list of all banks that are insured by the FDIC, which means that every member bank of the Federal Reserve System is listed here along with non-members who are FDIC-insured. Commercial banks that are not insured by the FDIC are not included. This is a comprehensive list with many categories describing the characteristics of each bank such as the total assets, bank holding company, charter type, location of headquarters, federal reserve district, and several others. Archived April 9, 2010, at the Wayback Machine.

44 Jump up
^
US CODE: Title 12,1468. Transactions with affiliates; extensions of credit to executive officers, directors, and principal shareholders

45 Jump up
^
BoG 2005, pp. 13

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Cornell University Law School: https://www.law.cornell.edu/cfr/text/12/225.143

12 CFR 225.143 – Policy statement on nonvoting equity investments by bank

holding companies.

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§ 225.143 Policy statement on nonvoting equity investments by bank holding companies.

(a)Introduction.

(1) In recent months, a number of bank holding companies have made substantial equity investments in a bank or bank holding company (the “acquiree”) located in states other than the home state of the investing company through acquisition of preferred stock or nonvoting common shares of the acquiree. Because of the evident interest in these types of investments and because they raise substantial questions under the Bank Holding Company Act (the “Act”), the Board believes it is appropriate to provide guidance regarding the consistency of such arrangements with the Act.

(2) This statement sets out the Board’s concerns with these investments, the considerations the Board will take into account in determining whether the investments are consistent with the Act, and the general scope of arrangements to be avoided by bank holding companies. The Board recognizes that the complexity of legitimate business arrangements precludes rigid rules designed to cover all situations and that decisions regarding the existence or absence of control in any particular case must take into account the effect of the combination of provisions and covenants in the agreement as a whole and the particular facts and circumstances of each case. Nevertheless, the Board believes that the factors outlined in this statement provide a framework for guiding bank holding companies in complying with the requirements of the Act.

(b)Statutory and regulatory provisions.

(1) Under section 3(a) of the Act, a bank holding company may not acquire direct or indirect ownership or control of more than 5 per cent of the voting shares of a bank without the Board’s prior approval. (12 U.S.C. 1842(a)(3)). In addition, this section of the Act provides that a bank holding company may not, without the Board’s prior approval, acquire control of a bank: That is, in the words of the statute, “for any action to be taken that causes a bank to become a subsidiary of a bank holding company.” (12 U.S.C. 1842(a)(2)). Under the Act, a bank is a subsidiary of a bank holding company if:

(i) The company directly or indirectly owns, controls, or holds with power to vote 25 per cent or more of the voting shares of the bank;

(ii) The company controls in any manner the election of a majority of the board of directors of the bank; or

(iii) The Board determines, after notice and opportunity for hearing, that the company has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the bank. (12 U.S.C. 1841(d)).

(2) In intrastate situations, the Board may approve bank holding company acquisitions of additional banking subsidiaries. However, where the acquiree is located outside the home state of the investing bank holding company, section 3(d) of the Act prevents the Board from approving any application that will permit a bank holding company to “acquire, directly or indirectly, any voting shares of, interest in, or all or substantially all of the assets of any additional bank.” (12 U.S.C. 1842(d)(1)).

(c)Review of agreements.

(1) In apparent expectation of statutory changes that might make interstate banking permissible, bank holding companies have sought to make substantial equity investments in other bank holding companies across state lines, but without obtaining more than 5 per cent of the voting shares or control of the acquiree. These investments involve a combination of the following arrangements:

(i) Options on, warrants for, or rights to convert nonvoting shares into substantial blocks of voting securities of the acquiree bank holding company or its subsidiary bank(s);

(ii) Merger or asset acquisition agreements with the out-of-state bank or bank holding company that are to be consummated in the event interstate banking is permitted;

(iii) Provisions that limit or restrict major policies, operations or decisions of the acquiree; and

(iv) Provisions that make acquisition of the acquiree or its subsidiary bank(s) by a third party either impossible or economically impracticable.

The various warrants, options, and rights are not exercisable by the investing bank holding company unless interstate banking is permitted, but may be transferred by the investor either immediately or after the passage of a period of time or upon the occurrence of certain events.

(2) After a careful review of a number of these agreements, the Board believes that investments in nonvoting stock, absent other arrangements, can be consistent with the Act. Some of the agreements reviewed appear consistent with the Act since they are limited to investments of relatively moderate size in nonvoting equity that may become voting equity only if interstate banking is authorized.

(3) However, other agreements reviewed by the Board raise substantial problems of consistency with the control provisions of the Act because the investors, uncertain whether or when interstate banking may be authorized, have evidently sought to assure the soundness of their investments, prevent takeovers by others, and allow for sale of their options, warrants, or rights to a person of the investor’s choice in the event a third party obtains control of the acquiree or the investor otherwise becomes dissatisfied with its investment. Since the Act precludes the investors from protecting their investments through ownership or use of voting shares or other exercise of control, the investors have substituted contractual agreements for rights normally achieved through voting shares.

(4) For example, various covenants in certain of the agreements seek to assure the continuing soundness of the investment by substantially limiting the discretion of the acquiree’s management over major policies and decisions, including restrictions on entering into new banking activities without the investor’s approval and requirements for extensive consultations with the investor on financial matters. By their terms, these covenants suggest control by the investing company over the management and policies of the acquiree.

(5) Similarly, certain of the agreements deprive the acquiree bank holding company, by covenant or because of an option, of the right to sell, transfer, or encumber a majority or all of the voting shares of its subsidiary bank(s) with the aim of maintaining the integrity of the investment and preventing takeovers by others. These long-term restrictions on voting shares fall within the presumption in the Board’s Regulation Y that attributes control of shares to any company that enters into any agreement placing long-term restrictions on the rights of a holder of voting securities. (12 CFR 225.2(b)(4)).

(6) Finally, investors wish to reserve the right to sell their options, warrants or rights to a person of their choice to prevent being locked into what may become an unwanted investment. The Board has taken the position that the ability to control the ultimate disposition of voting shares to a person of the investor’s choice and to secure the economic benefits therefrom indicates control of the shares under the Act. 1 Moreover, the ability to transfer rights to large blocks of voting shares, even if nonvoting in the hands of the investing company, may result in such a substantial position of leverage over the management of the acquiree as to involve a structure that inevitably results in control prohibited by the Act.

1See Board letter dated March 18, 1982, to C. A. Cavendes, Sociedad Financiera.

(d)Provisions that avoid control.

(1) In the context of any particular agreement, provisions of the type described above may be acceptable if combined with other provisions that serve to preclude control. The Board believes that such agreements will not be consistent with the Act unless provisions are included that will preserve management’s discretion over the policies and decisions of the acquiree and avoid control of voting shares.

(2) As a first step towards avoiding control, covenants in any agreement should leave management free to conduct banking and permissible nonbanking activities. Another step to avoid control is the right of the acquiree to “call” the equity investment and options or warrants to assure that covenants that may become inhibiting can be avoided by the acquiree. This right makes such investments or agreements more like a loan in which the borrower has a right to escape covenants and avoid the lender’s influence by prepaying the loan.

(3) A measure to avoid problems of control arising through the investor’s control over the ultimate disposition of rights to substantial amounts of voting shares of the acquiree would be a provision granting the acquiree a right of first refusal before warrants, options or other rights may be sold and requiring a public and dispersed distribution of these rights if the right of first refusal is not exercised.

(4) In this connection, the Board believes that agreements that involve rights to less than 25 percent of the voting shares, with a requirement for a dispersed public distribution in the event of sale, have a much greater prospect of achieving consistency with the Act than agreements involving a greater percentage. This guideline is drawn by analogy from the provision in the Act that ownership of 25 percent or more of the voting securities of a bank constitutes control of the bank.

(5) The Board expects that one effect of this guideline would be to hold down the size of the nonvoting equity investment by the investing company relative to the acquiree’s total equity, thus avoiding the potential for control because the investor holds a very large proportion of the acquiree’s total equity. Observance of the 25 percent guideline will also make provisions in agreements providing for a right of first refusal or a public and widely dispersed offering of rights to the acquiree’s shares more practical and realistic.

(6) Finally, certain arrangements should clearly be avoided regardless of other provisions in the agreement that are designed to avoid control. These are:

(i) Agreements that enable the investing bank holding company (or its designee) to direct in any manner the voting of more than 5 per cent of the voting shares of the acquiree;

(ii) Agreements whereby the investing company has the right to direct the acquiree’s use of the proceeds of an equity investment by the investing company to effect certain actions, such as the purchase and redemption of the acquiree’s voting shares; and

(iii) The acquisition of more than 5 per cent of the voting shares of the acquiree that “simultaneously” with their acquisition by the investing company become nonvoting shares, remain nonvoting shares while held by the investor, and revert to voting shares when transferred to a third party.

(e)Review by the Board. This statement does not constitute the exclusive scope of the Board’s concerns, nor are the considerations with respect to control outlined in this statement an exhaustive catalog of permissible or impermissible arrangements. The Board has instructed its staff to review agreements of the kind discussed in this statement and to bring to the Board’s attention those that raise problems of consistency with the Act. In this regard, companies are requested to notify the Board of the terms of such proposed merger or asset acquisition agreements or nonvoting equity investments prior to their execution or consummation.

[47 FR 30966, July 16, 1982]

The 12 Federal reserve banks are owned by the 25 privately held banks at 3% stocks that they cannot sell and are NON-VOTING shares of stock:

http://www.factcheck.org/2008/03/federal-reserve-bank-ownership/

Q: Who owns the Federal Reserve Bank?

A: There are actually 12 different Federal Reserve Banks around the country, and they are owned by big private banks. But the banks don’t necessarily run the show. Nationally, the Federal Reserve System is led by a Board of Governors whose seven members are appointed by the president and confirmed by the Senate.

FULL ANSWER

The stockholders in the 12 regional Federal Reserve Banks are the privately owned banks that fall under the Federal Reserve System. These include all national banks (chartered by the federal government) and those state-chartered banks that wish to join and meet certain requirements. About 38 percent of the nation’s more than 8,000 banks are members of the system, and thus own the Fed banks.

The concept of “ownership” needs some explaining here, however. The member banks must by law invest 3 percent of their capital as stock in the Reserve Banks, and they cannot sell or trade their stock or even use that stock as collateral to borrow money. They do receive dividends of 6 percent per year from the Reserve Banks and get to elect each Reserve Bank’s board of directors.

The private banks also have a voice in regulating the nation’s money supply and setting targets for short-term interest rates, but it’s a minority voice. Those decisions are made by the Federal Open Market Committee, which has a dozen voting members, only five of whom come from the banks. The remaining seven, a voting majority, are the Fed’s Board of Governors who, as mentioned, are appointed by the president.

The Fed is a little defensive about the question of ownership. In its

Frequently Asked Questions section, the Federal Reserve Board says: “The Federal Reserve System is not ‘owned’ by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.” It continues:

Federal Reserve Board: As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as “independent within the government.”

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

— Brooks Jackson

Sources

Board of Governors of the Federal Reserve System. “The Federal Reserve Structure Tour,” undated document accessed 21 March 2008.

Board of Governors of the Federal Reserve System. “Frequently Asked Questions: Who Owns The Federal Reserve,” Web site accessed 21 March 2008.

I hope this opens your eyes as it did mine and let you know who in this world is in control of your’s and my life and how they can ruin all of us and make themselves rulers over us all. Also, do not believe some of the twaddle that it is a government institution. If it was we would not be paying them a 6% dividend ever year to keep them afloat; however, you and I can fail and live impoverished live and have to work 2 jobs just to survive, or you will have to get married or partner up with someone just to live and share expenses. You can see it today with apartment prices in major cities, such as Manhattan.

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