America

The Federal Reserve Becomes Most Profitable Bank In History

The Financial Times reports the financial crisis has helped the U.S. Federal Reserve become the most profitable bank in history.

According to the the Fed, it turned an $80.9 billion profit in 2010. $76.2 billion of it came from securities the Fed bought during the financial crisis. The bank sent $78.4 billion of that profit to the U.S. Treasury.

The Financial Times explains that the Fed sends most of its profit to the Treasury instead of recapitalizing itself. And there's always the possibility these profits won't hold up in the future:

It is possible that the Fed’s profits could turn to losses in future years if rising inflation forced it to tighten monetary policy rapidly. In that case, it would have to pay much more interest on its liabilities and might suffer capital losses if it had to sell securities rather than let them mature.

But a Fed official said that he could not see circumstances in which the Treasury would have to recapitalise the Fed. If a regional Fed bank did suffer losses, then it would be allowed to halt future payments to the Treasury until it had recovered them, and it could create an accounting asset to reflect the suspension of payments that would keep its capital positive.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

Support comes from: