The Federal Reserve District Banks Are Owned by Their Member Banks, Not the Government
The 12 Federal Reserve District Banks are owned by the commercial banks that hold membership in the Federal Reserve System. When a bank joins the Federal Reserve, it must buy stock in its regional district bank — this is a legal requirement, not optional. The member banks collectively own the district banks through this stock ownership, and they elect the majority of each district bank's board of directors.
This structure surprises most people because the Federal Reserve System itself is often assumed to be a government agency. It is not. The Federal Reserve is a hybrid: Congress created it by law in 1913, and the federal government appoints some of its leadership, but the district banks are private corporations owned by their member banks. The Board of Governors in Washington, D.C., is a government agency, but the 12 regional district banks operate as private entities.
The distinction matters because it shapes how the Federal Reserve operates and who has a financial stake in its decisions. Member banks own the district banks, collect dividends on their stock, and have a voice in how those banks are run — though that voice is limited by federal law and the Board of Governors' authority.
Key Takeaways
- Member banks own the 12 Federal Reserve District Banks by purchasing required stock when they join the system.
- Member banks elect most of the board of directors at each district bank, though the Board of Governors appoints the president.
- The Federal Reserve District Banks are private corporations, not government agencies, even though Congress created the Federal Reserve System.
- Member banks receive dividends on their Federal Reserve stock, capped by law at 6 percent per year.
- The Board of Governors in Washington is a government agency with authority over the district banks, creating a mixed public-private structure.
How Member Banks Own and Control the District Banks
When a commercial bank becomes a member of the Federal Reserve System, it must purchase stock in its regional district bank equal to 3 percent of the bank's capital and surplus. This is not a choice — membership requires it. The stock cannot be sold or transferred to another party; it stays with the bank as long as the bank remains a member.
The member banks in each district then elect the board of directors for that district bank. Each district bank has nine directors: six are elected by the member banks (three of whom must be bankers, three of whom must represent the public), and three are appointed by the Board of Governors in Washington. The president of each district bank is appointed by the Board of Governors, not elected by member banks.
This structure gives member banks real influence over district bank operations but not complete control. The Board of Governors can override district bank decisions, set policy that all district banks must follow, and appoint the presidents who run day-to-day operations. Member banks have a financial stake and a voice, but they operate within a framework set by federal law and federal appointees.
The Dividends Member Banks Receive
Member banks receive annual dividends on their Federal Reserve stock. By law, these dividends are capped at 6 percent per year — a rate set in 1913 and unchanged since. This cap means that even if a district bank is highly profitable, member banks cannot receive more than 6 percent on their stock investment.
Any earnings above the 6 percent dividend go to the U.S. Treasury. In recent years, the Federal Reserve has sent tens of billions of dollars to the Treasury annually. In 2022, for example, the Federal Reserve remitted approximately $11 billion to the Treasury. This arrangement means that while member banks own the district banks, the public — through the Treasury — captures most of the financial benefit of Federal Reserve operations.
The dividend cap and the requirement to send excess earnings to the Treasury were deliberate choices by Congress. They prevent member banks from profiting excessively from their ownership stake while ensuring that the public benefits from the Federal Reserve's operations.
Why Congress Created This Hybrid Structure
The Federal Reserve was designed as a hybrid public-private system because Congress wanted to combine private banking expertise with public accountability. In 1913, when the Federal Reserve Act was passed, Congress believed that bankers understood banking better than government officials and that private ownership would make the system more efficient and responsive to banking conditions.
At the same time, Congress wanted to ensure that the Federal Reserve served the public interest, not just the interests of member banks. So it created the Board of Governors as a government agency with authority over the district banks, capped the dividends member banks could receive, and required excess earnings to go to the Treasury. This balance — private ownership with public oversight and public benefit — remains the structure today.
The hybrid structure has been controversial at times. Critics argue that member banks have too much influence over monetary policy. Defenders argue that the structure works because the Board of Governors has real authority and because the dividend cap and Treasury remittance ensure that the public benefits financially from the system.
The Difference Between the Board of Governors and the District Banks
The Board of Governors in Washington, D.C., is a federal agency. Its seven members are appointed by the President and confirmed by the Senate. The Board sets monetary policy, supervises member banks, and has authority over the 12 district banks. It is a government entity, and its decisions are subject to federal law and congressional oversight.
The 12 Federal Reserve District Banks are private corporations owned by member banks. Each operates in a geographic region (the Federal Reserve Bank of New York covers New York and parts of New Jersey and Connecticut, for example). The district banks carry out the monetary policy set by the Board of Governors, supervise banks in their regions, and handle banking services for the U.S. government.
This split — government agency in Washington, private corporations in the regions — means that the Federal Reserve System is neither purely public nor purely private. The Board of Governors is accountable to Congress and the President. The district banks are accountable to their member banks and to the Board of Governors, but not directly to Congress or the President.
What Member Bank Ownership Does and Does Not Control
Member bank ownership of the district banks gives them a voice in hiring district bank boards and receiving dividends, but it does not give them control over monetary policy. The Board of Governors sets interest rates, decides when to buy or sell securities, and determines how much money to inject into or remove from the economy. Member banks cannot override these decisions, even collectively.
Member banks also cannot use their ownership to direct the Federal Reserve to favor their interests over the public interest. The Board of Governors has authority to prevent this, and federal law prohibits the Federal Reserve from making decisions based on the financial benefit to member banks. In practice, the Federal Reserve's decisions affect member banks significantly — low interest rates help banks' borrowers but reduce the interest banks earn on their reserves — but member banks cannot dictate policy.
What member bank ownership does control is the composition of the district bank boards. Member banks elect the bankers and public representatives who sit on these boards. These board members have input on district bank operations, hiring, and regional banking issues, but they do not set monetary policy or override the Board of Governors.
How This Ownership Structure Affects You
The fact that member banks own the district banks does not directly affect how you interact with the Federal Reserve. You do not hold an account at a Federal Reserve Bank — those are for banks and the government. You hold accounts at commercial banks, which may or may not be members of the Federal Reserve System.
The ownership structure does affect monetary policy indirectly. Because member banks have a voice in district bank governance, they have some influence over how district banks operate and what issues they prioritize. This influence is limited by the Board of Governors' authority, but it exists. Some economists argue this creates a conflict of interest — that member banks might push for policies that benefit banks rather than the broader economy. Others argue the Board of Governors' authority is strong enough to prevent this.
The dividend cap and Treasury remittance mean that the public benefits financially from the Federal Reserve's operations. The excess earnings that go to the Treasury help fund government operations. This arrangement ensures that the Federal Reserve's profitability benefits the public, not just the member banks that own it.
Frequently Asked Questions
Does the federal government own the Federal Reserve?
The federal government does not own the Federal Reserve District Banks. Congress created the Federal Reserve System by law, and the Board of Governors is a government agency, but the 12 district banks are private corporations owned by member banks. The government appoints some district bank board members and has authority over policy, but it does not own the district banks.
Can member banks sell their Federal Reserve stock?
No. Federal Reserve stock cannot be sold or transferred. When a bank joins the Federal Reserve, it must buy stock equal to 3 percent of its capital and surplus. That stock stays with the bank as long as it remains a member. If the bank leaves the Federal Reserve, it can redeem the stock at par value, but it cannot sell it to another party.
Do member banks profit from owning the Federal Reserve?
Member banks receive dividends capped at 6 percent per year on their Federal Reserve stock. This is a modest return. Any earnings above the 6 percent dividend go to the U.S. Treasury, so the public captures most of the financial benefit of Federal Reserve operations. Member banks benefit from ownership, but the structure ensures the public benefits more.
How many banks own the Federal Reserve?
Approximately 4,000 commercial banks are members of the Federal Reserve System and own the 12 district banks collectively. Not all banks are members — some state-chartered banks and most community banks choose not to join. Member banks range from the largest banks in the country to smaller regional institutions.
Can the President or Congress change who owns the Federal Reserve?
Congress could change the ownership structure by passing new legislation, but it would require an act of Congress. The President cannot change it unilaterally. The current structure has been in place since 1913, and while it has been modified several times, the basic principle of member bank ownership has remained.