Federal Reserve System

central banking system of the United States

The Federal Reserve System is the central banking system of the United States. Created in 1913, its unique organizational structure combines both governmental and commercial institutions under public regulation and oversight.


  • We don't know what would have happened had [Federal Reserve Governor Benjamin] Strong lived; but what we do know is that the central bank of the world's economically most important nation in 1929 was essentially leaderless and lacking in expertise. This situation led to decisions, or nondecisions, which might well not have occurred under either better leadership or a more centralized institutional structure. Associated with these decisions, we observe a massive collapse of money, prices, and output. … Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton [Friedman] and Anna [Schwartz]: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again. [1]
    • Ben Bernanke, "Remarks on Milton Friedman's Nintieth Birthday" (8 November 2002).
  • The Consumer Price Index is 15 times higher than it was when the Federal Reserve was founded in 1913. In the hundred years prior to the advent of the Federal Reserve, prices in America fell by one third.
    • Quote in Liberty A to Z by Harry Browne, The Advocates for Self-Government, (2004), p. 69.
  • When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.
    • Federal Reserve Bank of Boston, Putting It Simply (1984); reported in Peter Cook, Federal reserve, fractional reserve and interest-free government credit explained in question and answer form (1991), p. 57. The earliest use of the statement, "[w]hen the Federal Reserve writes a check, it is creating money" appears to come from the United States Congress, House Banking and Currency Committee, Money Facts: 169 Questions and Answers on Money (1964), p. 9.
  • Neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value.
    • Federal Reserve Bank of Chicago, Modern Money Mechanics (1975).
  • There has been a great reaching out by bankers in the last fifteen or twenty years--and especially since the war--and the Federal Reserve System for a time put into their hands an almost limitless supply of credit. The banker is, as I have noted, by training and because of his position, totally unsuited to the conduct of industry. If, therefore, the controllers of credit have lately acquired this very large power, is it not to be taken as a sign that there is something wrong with the financial system that gives to finance instead of to service the predominant power in industry? It was not the industrial acumen of the bankers that brought them into the management of industry. Everyone will admit that. They were pushed there, willy-nilly, by the system itself. Therefore, I personally want to discover whether we are operating under the best financial system. Now, let me say at once that my objection to bankers has nothing to do with personalities. I am not against bankers as such. We stand very much in need of thoughtful men, skilled in finance. The world cannot go on without banking facilities. We have to have money. We have to have credit. Otherwise the fruits of production could not be exchanged. We have to have capital. Without it there could be no production. But whether we have based our banking and our credit on the right foundation is quite another matter.
  • Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and through its Board of Governors manipulates the credit of the United States.
  • ...Pam Martens is very clear... She points out the reason that the regular newspapers don't report it is the loans violated every element of the Dodd-Frank laws that were supposed to prevent the Fed from making loans to particular banks that were not part of a liquidity crisis. In her article, she makes very clear by pointing out these three banks, Chase Manhattan, Goldman Sachs – which used to be a brokerage firm – and Citibank, that the Federal Reserve laws and the Dodd-Frank Act explicitly prevent the Fed from making loans to particular banks. It can only make loans if there's a general liquidity crisis. And we know that there wasn't at that time, because she lists the banks that borrowed money, and there were very few of them.
  • Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal reserve banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government. It has done this through defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board and through the corrupt practices of the moneyed vultures who control it.
    • Rep. Louis T. McFadden, former Chairman of the Committee on Banking and Currency. Congressional Record 12595-12603 (10 June 1932).
  • The Federal Reserve, as one writer put it, after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.
    • William McChesney Martin, "Address before the New York Group of the Investment Bankers Association of America" (19 October 1955)
  • As soon as Mr. [Franklin] Roosevelt took office, the Federal Reserve began to buy government securities at the rate of ten million dollars a week for 10 weeks, and created one hundred million dollars in new currency, which alleviated the critical famine of money and credit, and the factories started hiring people again.
  • The Federal Reserve Banks, while not part of the government, are the central banking sytem for the Nation.… Holdings of Federal debt by the Federal Reserve Banks do not have the same impact on private credit markets as other debt held by the public. Their holdings of Federal debt arise from their role as the country's central bank.
    • Office of Management and Budget, Budget of the United States Government: Historical Tables (FY 1992), p. 10. [2] Recent budgets omit "…while not part of the government…."
  • I cannot say with what deep emotions of gratitude I feel that I have had a part in completing a work which I believe will be of lasting benefit to the business of the country.
    • Woodrow Wilson, statement on signing the Federal Reserve Act (23 December 1913).

Original hearings and debatesEdit

Several plans and regulatory measures were discussed during the development of the Federal Reserve System. The following quotations do not necessarily refer to the final Federal Reserve Act passed by Congress.

  • By making money artificially scarce interest rates throughout the country can be arbitrarily raised and the bank tax on all business and cost of living increased for the profit of the banks owning these regional central banks, and without the slightest benefit to the people. These 12 corporations together cover the whole country and monopolize and use for private gain every dollar of the public currency, and all public revenues of the United States.
    • Alfred Owen Crozier, testimony to the Senate Committee on Banking and Currency (23 October 1913), criticizing regional bank control of discount rates.
  • The powers vested in the Federal Reserve Board seem to me highly dangerous especially when there is political control of the Board. I should be sorry to hold stock in a bank subject to such dominations. The [Federal Reserve] bill as it stands seems to me to open the way to a vast inflation of the currency.… I do not like to think that any law can be passed that will make it possible to submerge the gold standard in a flood of irredeemable paper currency.
    • Henry Cabot Lodge Sr., 1913.
  • It is proposed that the Government shall retain sufficient power over the reserve banks to enable it to exercise a direct authority when necessary to do so, but that it shall in no way attempt to carry on through its own mechanism the routine operations and banking which require detailed knowledge of local and individual credit and which determine the funds of the community in any given instance. In other words, the reserve-bank plan retains to the Government power over the exercise of the broader banking functions, while it leaves to individuals and privately owned institutions the actual direction of routine.
    • H.R. Report No. 69, 63 Cong. 1st Sess. 18-19 (1913), as quoted in Lewis v. United States.

Lewis v. United StatesEdit

From Lewis v. United States 680 F. 2d 1239 9th Circuit (1982), involving a man who was hit by a Federal Reserve Bank vehicle and attempted to sue the federal government.

  • Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purposes of the FTCA [Federal Tort Claims Act], but are independent, privately owned and locally controlled corporations.
  • The Federal Reserve Board regulates the Reserve Banks, but direct supervision and control of each Bank is exercised by its board of directors.
  • The Banks are empowered to sue and be sued in their own name…. They carry their own liability insurance and typically process and handle their own claims. In the past, the Banks have defended against tort claims directly, through private counsel, not government attorneys….
  • The Reserve Banks have properly been held to be federal instrumentalities for some purposes…. This court held that a Federal Reserve Bank employee who was responsible for recommending expenditure of federal funds was a "public official" under the Federal Bribery Statute.
  • The Reserve Banks are deemed to be federal instrumentalities for purposes of immunity from state taxation…. The test for determining whether an entity is a federal instrumentality for purposes of protection from state or local action or taxation, however, is very broad: whether the entity performs an important governmental function…. The Reserve Banks, which further the nation's fiscal policy, clearly perform an important governmental function.
  • Brinks Inc. v. Board of Governors of the Federal Reserve System … held that a Federal Reserve Bank is a federal instrumentality for purposes of the Service Contract Act.… Unlike in Brinks, plaintiffs are not without a forum in which to seek a remedy, for they may bring an appropriate state tort claim directly against the Bank; and if successful, their prospects of recovery are bright since the institutions are both highly solvent and amply insured.


  • I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit….
    • Attributed to Woodrow Wilson in many anti-Federal Reserve works, but the quotation is verifiably fake. See Woodrow Wilson for details.

See alsoEdit