Wednesday, March 23, 2011

Fed net income surged to $81B due to securities they brought to counter the financial crisis

The Federal Reserve‘s net income surged 53% to $81.74 billion last year from 2009 mainly due to higher earnings from securities the central bank bought to counter the financial crisis, according to final audited results released Tuesday.

Almost all of that income — $79.27 billion — will be sent back to the U.S. Treasury. The record transfer marks a 68% increase from the $47.43 billion the Fed sent back to Treasury in 2009. The figures were slightly higher than preliminary results published in January.

To fight the financial crisis, the Fed bought securities whose value had collapsed due to fear and uncertainty in markets and set up emergency lending programs for banks and firms, thus boosting its balance sheet. The central bank came under attack for taking too many risk with taxpayers money and putting itself in a position to suffer losses.

However, so far the Fed’s crisis-lending programs have brought profits. The 2010 income rise was mainly a result of $24 billion in interest earnings from the $1.0 trillion mortgage-backed securities and agency bonds it bought to help stabilize the housing market. As of last week, the Fed held a similar amount of such securities

(See a chart of the Fed’s balance sheet)

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