Fed's Rising Balance Sheet Generates $76.9 Billion

January 10, 2012, 9:47 PM EST By Craig Torres

Jan. 10 (Bloomberg) -- The Federal Reserve will pay $76.9 billion to the U.S. Treasury as part of an annual dividend it remits after covering its own expenses from interest on its ballooning bond portfolio and other gains.

Total assets on the Fed’s balance sheet stood at a near- record $2.92 trillion on Jan. 4. The central bank expanded its portfolio by purchasing $2.3 trillion in U.S. Treasury debt, mortgage-backed securities and housing agency debt to push down longer-term interest rates once its benchmark lending rate hit zero in December 2008. The Fed expanded its portfolio in two rounds of asset purchases, known as quantitative easing.

Because the Fed funds itself by emitting currency on which it pays no interest, or by paying 0.25 percent on the deposits banks keep at the Fed, the central bank enjoys positive interest income. The yield on the 10-year Treasury note was 1.97 percent at 11:27 a.m. today in New York.

The bigger the Fed’s balance sheet, the more interest income it generates. This year’s dividend to the Treasury will be the second largest after 2010’s $79.3 billion. By comparison, the Fed paid $29.1 billion to the Treasury in 2006, when total assets on its balance sheet stood at $874 billion at the end of that year. The Fed’s balance sheet rose to a record $2.928 trillion on Dec. 28.

Last year, Federal Reserve’s 12 regional banks had $83.6 billion in interest income on securities held in their portfolios. An additional $2.3 billion was earned on sales of U.S. Treasury securities; the Fed reported $152 million in gains from foreign currency and income for services of $479 million. The reserve banks paid $3.8 billion in interest expenses on deposits held at the Fed.

Operating Expenses

The Fed said the reserve banks had operating expenses of $3.4 billion last year. The Fed was also assessed $1.1 billion for the cost of new currency and the expenses of the Federal Reserve Board in Washington, which does not generate interest income because it doesn’t operate as a reserve bank. Board expenses totaled about $470 million, according to a Fed official who spoke on a conference call with reporters.

Some $242 million of the income was also used to fund the operations of the Bureau of Consumer Financial Protection and $40 million funded the Office of Financial Research, two new units created by the Dodd-Frank legislation overhauling financial regulation.

--Editors: Christopher Wellisz, Gail DeGeorge

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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