Vehicles drive past the Marriner S. Eccles Federal Reserve building in Washington, DC ( AFP / Stefani Reynolds)

US Federal Reserve is not a privately held 'cartel'

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Social media posts claim the US Federal Reserve is a "cartel" owned by a small group of banks and banking families. This is false; the US central bank is an independent agency created by Congress, the regional Fed banks are public-private entities within the Federal Reserve System, and it is legally required to turn over profits from lending operations to the Treasury.

"The Federal Reserve is a PRIVATE banking cartel disguised as a government system. Its real purpose is to steal wealth from the people," says a February 20, 2022 tweet.

Screenshot of a tweet taken on Feburary 23, 2022

Similar claims appeared here and here on Twitter, on Facebook here and here, in an online article, and on Instagram. They are part of a long-running series of conspiracy theories about banking families, especially the Rothschilds, controlling the global financial system.

The posts misconstrue the role of the Federal Reserve, which is an independent agency created by Congress in 1913 to manage the money supply and help maintain economic stability.

"The Federal Reserve System is not 'owned' by anyone," according to its website. "The Board of Governors in Washington, DC, is an agency of the federal government and reports to and is directly accountable to the Congress."

The Fed website goes on to say that "some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations.... each is separately incorporated and has its own board of directors."

The structure calls for commercial banks to own shares in the regional Fed banks, but "owning Reserve Bank stock is quite different from owning stock in a private company," according to the Fed.

"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. In fact, the Reserve Banks are required by law to transfer net earnings to the US Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund."

Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics who previously held several senior positions at the Fed, noted that commercial banks are required to buy shares in the regional Fed banks but "have no vote over any Fed policy,  have no control whatsoever and don't get any of the Fed's profits."

Gagnon told AFP that the commercial banks may receive interest on their deposits, but that "well over 90 percent" of profits generated from Fed operations goes to the US Treasury.

A statement by the Fed on January 14 noted that the central bank remitted $107.4 billion to the Treasury in 2021 "as required under the Federal Reserve Act," from total net income of $107.8 billion.

Gagnon said that in current times, "every central bank that I know of is completely under its government," although private entities served this purpose in some countries in previous centuries.