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Fed's reaction to crisis helps deliver record $46.1-billion profit

The agency says the gains come largely from higher earnings on securities it purchased in 2009 as it tried to revive the financial industry. The money has been turned over to the U.S. Treasury.

January 12, 2010|By Jim Puzzanghera

Reporting from Washington — The Federal Reserve today announced it made a record $46.1-billion profit last year, countering concerns that the central bank has put too much taxpayer money at risk in attempts to stabilize the financial industry.

The Fed said it had paid the profit to the U.S. Treasury, marking an increase of $14.4 billion more than what it paid following 2008. The increase was largely due to higher earnings on securities in 2009 that the Fed had purchased as part of its unprecedented intervention in the financial system.

"The significant increase in earnings on securities was primarily due to increased securities holdings as a result of the Federal Reserve's response to the severe economic downturn," the central bank said.

The previous record was $34.6 billion in 2007. But Federal Reserve officials stressed that the goal of the central bank is stabilizing monetary policy, not earning profits. The Fed is funded by its earnings, and profits are turned over to the federal government.

Starting in late 2008, the Fed dramatically increased its involvement in the financial system, purchasing large amounts of securities from the U.S. Treasury and other entities. Among the purchases were mortgage-backed securities backed by housing agencies Fannie Mae and Freddie Mac, which have helped push down mortgage rates. Mortgage-backed securities pay a higher rate than Treasury securities, accounting for the increased profit.

The Fed's 2009 earnings are preliminary, and the central bank could lose money on some of those investments if the values of the securities fell. But Fed officials said they believe all the assets they are holding are safe.

As part of the $46.1-billion profit, the Fed earned $2.6 billion on currency swap arrangements with central banks in 14 countries and other investments in foreign currency. The Fed also earned $700 million from fees for services the Fed provided to banks.

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