The Federal Reserve earned $45 billion last year, money that will be returned to the U.S. Treasury. The dollar figure is the highest recorded in the 96-year history of the central bank and the numbers are good news for the federal budget.
It also indicates the Fed has succeeded, thus far, in protecting taxpayers through its unconventional efforts to prop up the economy, reports The Washington Post, which calculated the $45 billion figure based on public documents. The Fed funds itself from its own operations and returns profits to the Treasury. Despite the record earnings the Fed still risks recording large losses in the future should it sell some of its investments or lose money through its stakes in bailed-out firms.
Much of the higher earnings came about because of the Fed's program of buying bonds, aiming to push interest rates down across the economy and stimulate growth. By the end of 2009, the Fed owned $1.8 trillion in U.S. government debt and mortgage-related securities, up from $497 billion a year earlier. The interest income on those investments was a major source of profits - though that income comes with risks, as the central bank could lose money if it later sells those securities to reduce the money supply.
The Fed also made money on its emergency loans to banks and other firms and on special programs to encourage lending, such as one that supports credit cards, auto loans and other consumer and business lending. Those programs impose interest and fees on participants, with the aim of ensuring that the Fed does not lose money.
While the Fed in its most recent financial report had recorded a $3.8 billion decline in the value of loans it made in bailing out the investment bank Bear Stearns and the insurer American International Group, it also logged $4.7 billion in interest payments from those loans. Further losses or gains on the two bailouts are possible as time goes by. The Fed also charges fees for operating the plumbing of the financial system, such as clearing checks and electronic payments between banks.
From its revenue, the Fed deducts operating expenses, such as employee salaries, then returns to the Treasury almost all of the earnings that remain. The largest previous refund to the Treasury was $34.6 billion, in 2007.
