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Balance sheet

19 January, 2016 - 11:14

One of the keys to understanding the Federal Reserve is the Federal Reserve balance sheet (or balance statement). In accordance with Section 11 of the Federal Reserve Act, the Board of Governors of the Federal Reserve System publishes once each week the "Consolidated Statement of Condition of All Federal Reserve Banks" showing the condition of each Federal Reserve bank and a consolidated statement for all Federal Reserve banks. The Board of Governors requires that excess earnings of the Reserve Banks be transferred to the Treasury as interest on Federal Reserve notes 1, 2.

Below is the balance sheet as of July 6, 2011 (in billions of dollars):

NOTE: The Fed balance sheet shown in this article has assets, liabilities and net equity that do not add up correctly. The Fed balance sheet is missing the item "Reserve Balances with Federal Reserve Banks" which would make the balance sheet balance.

Gold Stock        11.04 Special Drawing Rights Certificate Acct.        5.20 Treasury Currency Outstanding (Coin)        43.98 Securities Held Outright        2647.94        U.S. Treasury Securities        1623.78             Bills        18.42             Notes and Bonds, nominal        1530.79             Notes and Bonds, inflation-indexed        65.52      
      Inflation Compensation        9.04  
   Federal Agency Debt Securities        115.30    
   Mortgage-Backed Securities        908.85 Repurchase Agreements        0 Loans        12.74 Primary Credit        12 Secondary Credit        0 Seasonal Credit        53        Credit Extended to AIG Inc.        0        Term Asset-Backed Securities Loan Facility        12.67       Other Credit Extended        0 Commercial Paper Funding Facility LLC        0 Net portfolio holdings of Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC        60.32 Preferred Interest in AIG Life-Insurance Subsidiaries        0 Net Holdings of TALF LLC        0.75 Float        -1.05 Central Bank Liquidity Swaps        0 Other Assets        133.56 Total Assets        2914.51
Currency in Circulation        1031.30 Reverse repurchase agreements        68.09 Deposits        91.12        Term Deposits        0        U.S. Treasury, general account        76.56        U.S. Treasury, supplementary financing account        5        Foreign official        0.17        Service Related        2.53    
   Other Deposits        6.85 Funds from AIG, held as agent        0 Other Liabilities        73.06 Total liabilities        1263.73
CAPITAL (AKA Net Equity)
Capital Paid In        26.71 Surplus        25.91 Other Capital        4.16 Total Capital        56.78
MEMO (off-balance-sheet items)
Marketable securities held in custody for foreign official and international accounts        3445.42        U.S. Treasury Securities        2708        Federal Agency Securities        737.31 Securities lent to dealers        30.46        Overnight        30.46  
   Term        0
Figure 3.20 Total combined assets for all 12 Federal Reserve Banks 
Figure 3.21 Total combined liabilities for all 12 Federal Reserve Banks 

Analyzing the Federal Reserve's balance sheet reveals a number of facts:

  • The Fed has over $11 billion in gold stock (certificates), which represents the Fed's financial interest in the statutory-determined value of gold turned over to the U.S. Treasury in accordance with the Gold Reserve Act on January 30, 1934 3. The value reported here is based on a statutory valuation of $42 2/9 per fine troy ounce. As of March 2009, the market value of that gold is around $247.8 billion.
  • The Fed holds more than $1.8 billion in coinage, not as a liability but as an asset. The Treasury Department is actually in charge of creating coins and U.S. Notes. The Fed then buys coinage from the Treasury by increasing the liability assigned to the Treasury's account.
  • The Fed holds at least $534 billion of the national debt. The "securities held outright" value used to directly represent the Fed's share of the national debt, but after the creation of new facilities in the winter of 2007–2008, this number has been reduced and the difference is shown with values from some of the new facilities.
  • The Fed has no assets from overnight repurchase agreements. Repurchase agreements are the primary asset of choice for the Fed in dealing in the open market. Repo assets are bought by creating depository institution liabilities and directed to the bank the primary dealer uses when they sell into the open market.
  • The more than $1 trillion in Federal Reserve Note liabilities represents nearly the total value of all dollar bills in existence; over $176 billion is held by the Fed (not in circulation); and the "net" figure of $863 billion represents the total face value of Federal Reserve Notes in circulation.
  • The $916 billion in deposit liabilities of depository institutions shows that dollar bills are not the only source of government money. Banks can swap deposit liabilities of the Fed for Federal Reserve Notes back and forth as needed to match demand from customers, and the Fed can have the Bureau of Engraving and Printing create the paper bills as needed to match demand from banks for paper money. The amount of money printed has no relation to the growth of the monetary base (M0).
  • The $93.5 billion in Treasury liabilities shows that the Treasury Department does not use private banks but rather uses the Fed directly (the lone exception to this rule is Treasury Tax and Loan because the government worries that pulling too much money out of the private banking system during tax time could be disruptive).
  • The $1.6 billion foreign liability represents the amount of foreign central bank deposits with the Federal Reserve.
  • The $9.7 billion in 'other liabilities and accrued dividends' represents partly the amount of money owed so far in the year to member banks for the 6% dividend on the 3% of their net capital they are required to contribute in exchange for nonvoting stock their regional Reserve Bank in order to become a member. Member banks are also subscribed for an additional 3% of their net capital, which can be called at the Federal Reserve's discretion. All nationally chartered banks must be members of a Federal Reserve Bank, and state-chartered banks have the choice to become members or not.
  • Total capital represents the profit the Fed has earned, which comes mostly from assets they purchase with the deposit and note liabilities they create. Excess capital is then turned over to the Treasury Department and Congress to be included into the Federal Budget as "Miscellaneous Revenue".

In addition, the balance sheet also indicates which assets are held as collateral against Federal Reserve Notes.

Federal Reserve Notes and Collateral
Federal Reserve Notes and Collateral Federal Reserve Notes Outstanding        1128.63        Less: Notes held by F.R. Banks        200.90        Federal Reserve notes to be collateralized        927.73 Collateral held against Federal Reserve notes        927.73        Gold certificate account        11.04        Special drawing rights certificate account        5.20        U.S. Treasury, agency debt, and mortgage-backed securities pledged        911.50    
   Other assets pledged