1. The Federal Reserve Bank of New York has a really, really big balance sheet.
2. The Federal Reserve Bank of New York owes lots and lots of money.
3. The Federal Reserve Bank of New York makes lots and lots of money.
4. The Federal Reserve Bank of New York has grown dramatically in the last decade.
5. The Federal Reserve Bank of New York is apparently very thinly capitalized.
6. To prepare its financial statements, the Federal Reserve makes its own accounting standards.
The Federal Reserve Bank of New York has a really, really big balance sheet
In 2014, the Federal Reserve Bank of New York (FRBNY) reported over $2.7 trillion in total assets. The vast majority of the assets are the FRBNY’s share of the securities pool used for the Fed’s monetary policy operations. In 2014, the FRBNY reported $1.6 trillion in Treasury security assets, as well as $1.1 trillion in “federal agency and government-sponsored enterprise mortgage-backed securities.” Some unique assets include “gold certificates” valued at $4.1 billion, but at “original cost,” and the report notes that “The Treasury may reacquire the gold certificates at any time,” and “The value of the gold for the purposes of backing the gold certificates is set by law at $42 2/9 per fine troy ounce.” (Gold is now selling for over $1000 per ounce.)
The Federal Reserve Bank of New York owes lots and lots of money
In 2014, the FRBNY reported $2.7 trillion in total liabilities. Deposits for banks with accounts at the Fed was the largest single line item among the liabilities. At $1.6 trillion, deposit liabilities ran four times as high as the next highest liability – “Federal Reserve notes outstanding, net.”
Federal Reserve notes are the George Washingtons, Abe Lincolns, Andrew Jacksons, and (if we are lucky) Ben Franklins walking around with us in our wallets. These are actually liabilities for the Fed. Liabilities requiring the Fed to do, what, exactly? A longer story. But the FRBNY reported over $400 billion in Federal Reserve note liabilities in 2014.
The FRBNY’s balance sheet has undergone a radical transformation in the last decade, associated with the Federal Reserve’s dramatic set of policy actions during and after the financial crisis of 2007-2009. One way this shows up is in the ratio of Federal Reserve note liabilities to the FRBNY’s deposit liabilities. Back in 2004, Federal Reserve notes were easily the largest line item among the liabilities; at $301 billion, they were about 30 times as big as the liabilities for deposits by banks at the FRBNY. In recent years, those roles reversed, an important story relating to intra-day risk management issues as well as the Fed’s accounting for the cost recovery provisions of the Monetary Control Act, another longer story.
Depository institutions aren’t the only ones with deposits at the FRBNY. The other major depositor, and one of the reasons that the Fed is called a “central bank,” is that the U.S. Treasury has a large deposit account at the Fed. In 2014, the FRBNY reported over $220 billion in deposits for the U.S. Treasury, up from $6 billion in these government deposits in 2004.
There, citizens and taxpayers, doesn’t that help you feel richer and happier already?
The Federal Reserve Bank of New York makes lots and lots of money
On its income statement for 2014, the FRBNY reported $62 billion in “Net income before providing remittances to the Treasury.” Like all banks, the FRBNY reports both total interest income and total interest expense, leading to net interest income. Unlike all (or most) banks, the FRBNY reports massively higher interest income than interest expense. This is due in important part the fact that the FRBNY issues largely interest-free liabilities like Federal Reserve Notes, and invests in interest-earning assets like Treasury securities.
While the FRBNY makes lots and lots of money, it doesn’t keep it, or distribute (most of it, anyway) to shareholders. Instead, it remits lots and lots of money to its U.S. Treasury customer. Another longer story, relating to questions whether the Federal Reserve financial statements should or shouldn’t be consolidated in the overall Financial Report of the U.S. Government.
We will return to Fun Facts 4-6 tomorrow.