by P.J. DiNuzzo March 21, 2013
The Fed's Surprising Profitability
In 2008, the Federal Reserve famously purchased a lot of subprime bank loans that have been described, in the banking industry,
as "toxic waste"–in an effort to clean up the balance sheets of large lending institutions. Since then, the Fed has been an active buyer of Treasury securities and, in its latest (and ongoing) QE3 program, become the single largest buyer of mortgage securities issued by Fannie Mae and Freddie Mac, working hard to drive down their coupon rates.
These dramatic gestures are supposed to help revive the American economy, but what are they costing our nation's reserve bank? The Reuters news service looked at last year's audited results and reports a surprise: the Fed's increasingly complex balance sheet generated $88.9 billion in profits last year. That's far more than the most profitable U.S. companies, like number one Exxon Mobil ($41 billion); number two Chevron ($27 billion), #3 Apple ($26 billion) or Microsoft ($23 billion).
Under Chairman Ben Bernanke, the Fed has gotten in the habit of earning a profit on its operations. In 2011, 2010 and 2009, it took in $77.4 billion, $81.74 billion and $53.42 billion in profits, respectively.
Where does this money go? Does the Fed pay out this largesse to its executives in the form of bonuses, like Goldman Sachs? Fortunately not. The Fed sent $88.4 billion to the U.S. Treasury last year, and gave taxpayers back a comparable percentage of its profits in previous years. The interesting truth is that the most profitable entity in the American economy is run like a nonprofit on behalf of our government.
Sources:
http://www.huffingtonpost.com/2012/03/21/federal-reserve-profit-2011_n_1369354.html
http://www.huffingtonpost.com/2013/03/15/federal-reserve-record-profit_n_2884366.html?utm_hp_ref=business
Sincerely,
P.J. DiNuzzo, CPA, PFS®, MSTx, MBA
President, Founder, and Chief Investment Officer