Financial Update (First Quarter 2010)

Reserve Banks Return $46 Billion to U.S. Treasury

As it does every year, in 2009 the Federal Reserve System transferred most of its net income to the U.S. Treasury. The 2009 transfer totaled $46.1 billion. This amount represents a $14.4 billion increase over 2008's results, primarily the result of increased earnings on securities holdings during of US treasury building

Securities interest, commercial services generate income
The significant increase in earnings on securities was primarily the result of increased securities holdings as a result of the Federal Reserve's response to the severe economic downturn. The Federal Reserve Banks' 2009 net earnings were derived primarily from three sources: $46.1 billion in earnings on securities acquired through open market operations (U.S. Treasury securities, government-sponsored enterprise [GSE] debt securities, and federal agency and GSE mortgage-backed securities), $5.5 billion in net earnings from consolidated limited liability companies, which were created in response to the financial crisis, and $2.9 billion in earnings on loans extended to depository institutions, primary dealers, and others.

The income that the Reserve Banks generated through fees for providing services such as payments processing for depository institutions contributed an additional $700 million. Additionally, income from reciprocal currency arrangements with other central banks and investments denominated in foreign currencies totaled $2.6 billion in 2009.

Tallying up
The operating expenses of the 12 Reserve Banks ($3.4 billion in 2009) and the expenses of the Board of Governors and the cost of currency ($900 million collectively) were deducted from Reserve Banks' total income. Interest paid to depository institutions on reserve balances and the cost of earnings credits also totaled $2.2 billion.

Federal Reserve Board policy directs each Reserve Bank to transfer its yearly net income to the U.S. Treasury after paying statutory dividends ($1.4 billion in 2009) to Federal Reserve member banks and making adjustments necessary so that surplus equals paid-in capital ($4.6 billion in 2009).

January 28, 2010