Is it true that the Federal Reserve is not Federal and has no reserves?
Both claims are blatantly false.
On Reserves
Fed literally has power to create new reserves for other banks or for its own spending from nothing. Not only, Fed obviously has reserves which you can easily confirm just by looking at a data (see Fed data on amount of reserves held), but it can never even run out of the reserves (at least as long as it does not run out of electricity, since their creation nowadays involves computers - they are literally created at a keystrokes of keyboard).
On 'Federaleness' of Fed
Fed is a federal government institution. So it is clearly federal.
I think this is based on misunderstanding what fed is because of its unique set up. In most countries central banks had their initial capital underwritten by governments but in the US Fed capital is underwritten by private banks. In fact private commercial banks operating in the US are even obliged to hold stocks of Fed member banks (see explainer here).
However, the ownership of shares in Fed member banks carries no voting rights, banks that own these shares are not allowed to publicly trade them, these shares only entitle them to small dividend (to compensate them for providing capital to Fed) that is well below what the banks could earn if they would take that money and buy some other assets and equities (see here) so it is not very good deal for private banks.
In addition, the Fed leadership is picked up by the U.S. government (as you can see in this explainer):
Within the System, certain responsibilities are shared between the Board of Governors in Washington, D.C., whose members are appointed by the President with the advice and consent of the Senate,
Lastly, all profits that Fed earns have to be forwarded straight back to the U.S. treasury. For example, most recently in 2020 Fed sent all its \$88.5 Billion profits to the U.S. treasury and it does it every year (see here and here).
Summa summarum, even though Fed is built on private capital, it would be absurd to say it is not a federal institution, when:
- Holders of that private capital have no voting rights and say in how Fed is being run
- Federal government picks all top figures of Fed (even though Fed is supposed to be politically independent like U.S. supreme court the same way as justices are picked by president Fed leadership is picked too by president).
- All profits of this institution must go directly to U.S. treasury.
Saying that Fed is not federal institution would be the same as saying, in the following hypothetical, U.S. congress would not be part of federal government if they would meet in some private offices, where lease specifies that landlord cannot evict members of congress and they are all guaranteed some fixed cheap rent for their offices, instead of meeting in the United States Capitol. That would obviously be an absurd statement.
