Bailout

Fed profitability datapoint of the day

By Felix Salmon

At the end of 2010, the Federal Reserve system had $2.423 trillion in assets and $2.367 trillion in liabilities, which means that the simplest measure of its total equity — assets minus liabilities — comes to $56.6 billion. The Fed also managed to earn net income of $80.9 billion in 2010. Which means that its return on assets was incredibly high at 3.3%, while its return on equity was an astonishing 143%.

I think it’s fair to say that no bank in the history of the world has ever had income of anywhere near $80 billion in one year: that’s over $700 per US household. Somehow, the Fed is making roughly $60 per household per month, and remitting that money straight to the Treasury. Of course, its cost of funds is ridiculously low, and in any event the Fed can simply print new money any time it wants. But still, $80 billion is enormous — more than four times the Fed’s profit in 2004, for instance. And it’s a useful reminder of just how massive the Fed’s balance sheet has become — and also of how monetary policy can make a serious dent in the funding-need side of fiscal policy.

Full post as published by Macroprudential on January 10, 2011 (boomark / email).