This myth claims that the 12 Federal Reserve banks are privately owned and therefore want to earn a profit just like any other company.  Of course, the Fed holds the reigns of monetary policy, so naturally they will use it for the benefit of their owners and not the economy at large.  And finally, since the Fed owns lots of government bonds, much of the Fed's profits come at the taxpayers' expense through the interest paid to the Fed on those bonds.  Like many of the other Federal Reserve myths, this one has a small degree of truth to it, but also has a fair amount of misinterpretation and it leaves out a number of crucial details.

 
Oganization of the Federal Reserve System

The Federal Reserve System is sometimes described as a quasi-government agency because it contains elements of both the private sector and of government control.  The System has three organization levels: member banks, Federal Reserve Banks, and the Board of Governors.  Let's examine each briefly.

Member banks are at the bottom of the organization chart.  These are commercial banks and S&Ls who have joined the Federal Reserve System (FRS).  By law, all nationally chartered banks must join, and any state chartered bank has the option to join (12 USCA §282).  By joining the FRS a member bank is becoming a shareholder -- an owner -- in its regional Federal Reserve Bank.  For example, suppose you and I open a new nationally chartered bank in Charlotte, North Carolina.  According to the district map, we see that Charlotte is in the Richmond Federal Reserve district, so our new bank will have to become a member of the Richmond Federal Reserve Bank.  So, the claim that the "Fed is privately owned" is correct -- each Federal Reserve Bank is owned by private for-profit commercial banks and S&Ls (Want to know who the owners are of a particular Federal Reserve Bank?  Click here!).

Why are member banks -- the owners -- at the bottom of the organization chart?  They are at the bottom because unlike the shareholders of a typical corporation such as IBM, member banks have very little power over how their regional Federal Reserve Bank is run.  And they have no control at all over monetary policy.  Shareholders of IBM elect the company's board of directors who in turn choose the firm's CEO, so they have a collective say on the company's operations.  Member banks also get to select 2/3 of their district Federal Reserve Bank's board of directors, but these direc