Fed earns $77 billion from balance-sheet explosion - The Fed - MarketWatch

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By Steve Goldstein, MarketWatch

WASHINGTON (MarketWatch) — The Federal Reserve and its district banks earned the second-highest amount in its history last year as the central bank profited from increasing its balance sheet to boost the U.S. economy.

The Federal Reserve and its district banks said Tuesday that it earned $77.4 billion, down from $81.7 billion in 2010.

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The bumper earnings allowed the Fed to distribute $75.4 billion to the U.S. Treasury, also the second-highest level ever. Its balance sheet reached $2.92 trillion in 2011, up from $2.43 trillion in 2010.

The Fed said the earnings were derived primarily from $83.6 billion in interest income on securities acquired through open market operations, from Treasury securities, federal agency and government-sponsored enterprise mortgage-backed securities, and GSE debt securities.

Because it effectively pays for those securities out of money it creates from thin air, the so-called quantitative easing programs are extremely profitable. A Federal Reserve official on Tuesday said the central bank doesn’t pay attention to profit when it conducts its operation.

Federal Reserve Chairman Ben Bernanke and other policy makers have said they would stop the programs when the U.S. economy is strong enough, though there’s considerable debate over when that will happen, and Fed officials haven’t ruled out buying more securities.

The Fed repeated that it doesn’t expect to record a loss on any of its emergency loan programs.

On its portfolio of assets, unrealized losses totaled $4.3 billion, which the Fed attributed to “instrument-specific credit risk” on commercial and residential mortgage loans; the Fed earned $428 million on the securities it did sell.

Steve Goldstein is MarketWatch's Washington bureau chief.

via marketwatch.com