The Federal Reserve system is doing its part to cut the budget deficit (at least for now). Treasury will receive $46.1 billion of profits from the Federal Reserve profits for fiscal 2009. That’s about a third higher than the amount remitted for 2008.
According to the Fed’s news release this morning, the following items drove profits:
$46.1 billion in earnings on securities acquired through open market operations (U.S. Treasury securities, government-sponsored enterprise (GSE) debt securities, and federal agency and GSE mortgage-backed securities) [Profits on traditional open market operations plus the new credit easing operations]
$5.5 billion in net earnings from consolidated limited liability companies (LLCs), which were created in response to the financial crisis [Profits on the Maiden Lane partnerships etc.]
$2.9 billion in earnings on loans extended to depository institutions, primary dealers, and others [Profits on the new loan facilities]
[$2.6 billion in] net earnings from currency swap arrangements, which have been established with 14 central banks, and investments denominated in foreign currencies
Additional net earnings of $1.5 billion were derived primarily from fees of $0.7 billion for the provision of priced services to depository institutions
Those $58.6 in gross earnings were slightly offset by the following expenses:
[$3.4 billion for] operating expenses of the twelve Reserve Banks, net of amounts reimbursed by the U.S. Treasury and other entities for services the Reserve Banks provided as fiscal agents
[$2.2 billion in] interest paid to depository institutions on reserve balances [As noted previously, the Fed’s still-new ability to pay interest on reserves is a big deal for monetary policy; this is the cost side]
[$0.9 billion in] Board expenditures, including the cost of new currency
The resulting $52.1 billion in new profits were then distributed as follows: $46.1 billion to the Treasury, $1.4 billion as dividends to member banks, and $4.6 billion retained to “equate surplus with paid-in capital.”
Should we be paying 2-and-20 to Bernanke?
Donald:
The fed’s earnings come mostly from taxpayers paying interest on US government bonds. So now the fed gives some of that interest back to the taxpayers.