Here is what seems to be happening.

Sep.25, 2008 in Market Outlook

Each member bank in the Federal Reserve District is required to have 3% of their assets as Federal Reserve Stock. They can’t sell it or buy more of it.

But, if you buy a bank you are in effect buying their assets and thus, increase your holding in Federal Reserve Stock by whatever the gain in assets are.

If there are 1,000 member banks and each is worth a million, each would have 1/1,000th of the shares of stock for that District Fed bank. If there were only one bank it would have 100% and effectively be the Federal Reserve Bank as it would appoint 6 of the Federal Reserve Bank’s board of directors for that district.

You can see that if the largest banks are buying the smaller, but large banks, they are dramatically increasing their power in each Federal Reserve District. Since the Board of Governors that Bernanke is Chairman over only appoints 3 board members, you can see how much power it gives the biggest banks to take out their competitors.

This will give them the inside track on what the Fed is doing because the Fed does it through the Federal Reserve Banks. That means through the board of director in each Federal Reserve Bank and if they are controlled by the large banks, they will have the inside information for their own banks to profit by.

This, of course, was the beauty of the crafting of the Federal Reserve Act on Jekyll Island in 1913. It creates the illusion of government oversight while still giving the largest banks actual knowledge and control of the Federal Reserve Bank daily operations. The Board of Governors does not run the Federal Reserve Banks. They are only an oversight arm of the Act.

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