Is the Federal Reserve really federal?

Bloomberg news provides an overview of the Federal Reserve system:

The Federal Reserve, consisting of seven governors in Washington and 12 regional banks, was established in 1913 and charged by Congress with ensuring low inflation, maximum employment and a stable financial system.

Because "Federal Reserve" sounds like a federal name, and the Fed's chairman frequently testifies before Congress and appears on news shows, most Americans reasonably assume that the Federal Reserve and its member banks are all federal.

On the other hand, some people claim that the federal reserve system is not federal at all, and is entirely owned by the member banks which it regulates. For example, Congressman Dennis Kucinich said recently "the Federal Reserve is no more federal than Federal Express".

The Fed itself maintains that:

While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.

This is problematic because:

The New York Fed is one of 12 regional Federal Reserve banks and the one charged with monitoring capital markets. It is also managing $1.7 trillion [now up to at least $1.9 trillion] of emergency lending programs [and accepting collateral from the banks in return].


The Federal Reserve Bank of New York ... runs most of the lending programs. Most documents relevant to [a freedom of information lawsuit filed by Bloomberg news] are at the New York Fed, which isn’t subject to FOIA law, according to the central bank. The Board of Governors has 231 pages of documents, to which it is denying access under an exemption for trade secrets.

(The lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan)).

In fact, the New York Fed bank is by far the most powerful of the Fed regional banks, and the one through which the lion's shares of actions taken by the Federal Reserve occur. The New York Fed is also the regulator for the financial giants headquartered in New York.

As Bloomberg notes:

The Federal Reserve Board of Governors receives daily reports on bailout loans to financial institutions and won’t make the information public, the central bank said ...

Indeed, top Federal Reserve officials are even refusing to provide information to Congress.

For example, in a recent appearance before the Senate, the following exchange occured between Fed Chairman Ben Bernanke and Senator Bernie Senators:

Senator Sanders: "Will you tell the American people to whom you lent $2.2 trillion of their dollars?"

Chairman Bernanke: "No"

Similarly, Fed Vice Chair Donald Kohn refused to answer congressman Alan Grayson's questions about where the trillions in bailout money are going.

In a letter written today, and co-signed by by several prominent economists, Congressman Grayson says:

The Federal Reserve has refused multiple inquiries from both the House and the Senate to disclose who is receiving trillions of dollars from the central banking system. The Federal Reserve has redacted the central terms of the no-bid contracts it has issued to Wall Street firms like Blackrock and PIMCO, without disclosure required of the Treasury, and is participating in new and exotic programs like the trillion-dollar TALF to leverage the Treasury’s balance sheet. With discussions of allocating even more power to the Federal Reserve as the ‘systemic risk regulator’ of the credit markets, more oversight over the central bank’s operations is clearly necessary.

Congressman Ron Paul's Federal Reserve Transparency Act, which currently has 165 cosponsors, seeks to force the Fed to act in a more transparent fashion.

The bottom line is that - whether or not the Fed as a whole is federal or private - the entire Federal Reserve system, including the regional banks such as the New York Fed bank through which most of the Fed's actions take place, should be subject to congressional and public oversight.


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