Don’t we already have a national public bank in the Federal Reserve, with a network of regional Fed banks around the country?

 How would a publicly-owned central bank differ from this? How would a publicly-owned state bank differ?

Ownership and control of the Federal Reserve System is a mixture of private ownership with some federal oversight. The Federal Reserve Act is designed primarily to serve private banking interests. A publicly-owned state bank would be 100% owned by the state government, without private shareholders. Its profits would be entirely assets of the state, and its mandate would be to serve the state.

The Federal Reserve System is composed of twelve district banks that, combined, play distinct roles as a central bank and bankers’ bank.

As the central bank of the U.S. government, the Federal Reserve is the government’s banker, buying and selling U.S. Treasury bonds through “Open Market Operations,” and regulating the national money supply. The Federal Open Market Committee (FOMC) formulates and implements national monetary policy by setting the short- and long-term interest rates for government securities. The FOMC has twelve members, seven selected from the Fed’s Board of Governors, and five rotating among the presidents of the Federal Reserve Banks, with the President of the New York Fed serving continuously.

The larger role of the Federal Reserve, however, is as a banker’s bank serving private banking interests, supporting the liquidity, standards and safety needs of its member banks. Member banks of the Federal Reserve must subscribe to its stock in an amount of 6% of each bank’s capital and surplus, of which only 3% is actually paid in, and the second 3% is subject to call by the Federal Reserve. The profits of the Federal Reserve Bank are split between a statutory 6% dividend to the member national banks and the U.S. Treasury. In 2010, the Federal Reserve Bank paid $78.4 billion to the U.S. Treasury.

Fed Chairman Ben Bernanke has declared that extending credit to state and local governments is beyond his legal mandate. For states to have viable credit systems like those underwriting Wall Street and the federal government, they need to set up their own state-owned banks.

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