Financial Update (First Quarter 2009)

Reserve Banks Return $35 Billion to U.S. Treasury

photo of U.S. Treasury buildingAs it does every year, in 2008 the Federal Reserve System transferred most of its net income to the U.S. Treasury. The 2008 transfer totaled $34.9 billion.

Securities interest, commercial services generate income
These funds came primarily from three sources. The largest portion is interest earned on U.S. government securities the Federal Reserve holds in its portfolio. In 2008, this interest totaled $27.5 billion. Income from loans to depository institutions, primary dealers, and others amounted to $7.2 billion in 2008.

The income that the Reserve Banks generated through fees for providing services such as payments processing for depository institutions contributed an additional $800 million. Another $800 million came mainly from income on securities lending. Additionally, income from reciprocal currency arrangements and investments denominated in foreign currencies totaled $4.2 billion in 2008.

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Tallying up
The operating expenses of the 12 Reserve Banks ($2.6 billion in 2008) 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 $900 million. Net additions to income were $4.3 billion, largely from realized gains on sales of U.S. government securities. The remaining income reflects unrealized gains of $1.3 billion on investments denominated in foreign currencies that were revalued to reflect current market exchange rates. After deductions, the Federal Reserve Banks' 2008 net income was about $38.8 billion.

Board policy directs each Reserve Bank to transfer its yearly net income to the U.S. Treasury after paying statutory dividends ($1.2 billion in 2008) to Federal Reserve member banks and making adjustments necessary so that surplus equals paid-in capital ($2.7 billion in 2008).

January 29, 2009