Federal Reserve Banks Earn Income,
Return Vast Majority to U.S. Treasury
Many people know that Federal Reserve Banks are not part of
the U.S. government, but what most dont realize is that Reserve
Banks earn income that is returned to the U.S. Treasury each
year. In fact, since the Federal Reserve System began operations
in 1914, Reserve Banks have returned approximately 95 percent
of their net income to the Treasury.
Interest and fees
Federal Reserve Banks derive their income primarily from the
interest earned on U.S. government securities that the Fed
has acquired to conduct monetary policy. The Fed also receives
income from the fees Reserve Banks charge financial institutions
for processing payments, such as checks, fund transfers, and
automated clearinghouse transactions. In addition, Reserve
Banks derive income from earnings on foreign currencies and
earnings from loans as well as from other sources.
In January the Fed announced that the Reserve Banks paid $21.997 billion of their $22.981 billion net income to the U.S. Treasury (see the table). The income not paid to the U.S. Treasury funded the operating expenses of the 12 Reserve Banks and the Feds Board of Governors in Washington, D.C.
Earning its income
By earning its own income, the Federal Reserve does not receive
appropriations from the U.S Congress. Why is that arrangement
important? To answer this question, one must go back to the
founding of the Fed in 1913.
The Federal Reserve was established as an independent central bank, so its
decisions do not have to be ratified by the president or Congress.
The entire Federal Reserve System, however, was created by
Congress and is subject to its oversight. To maintain its
independence, the Fed was created with public and private
aspects. The Federal Reserves Board of Governors is
a government agency, but the 12 Reserve Banks were set up
to operate independently.
Through this structure and the way the Reserve Banks receive
their funding, monetary policymakers can independently make
decisions that are in the best interest of the nations
economy in the long term versus being swayed by any short-term
Reserve Net Income
and Payments to U.S. Treasury
(millions of dollars)
|Source: Federal Reserve Board of Governors
press releases and annual reports
Cover | Next