The Federal Reserve is primarily attributing a year-over-year dip in total net income recorded collectively by the nation’s Reserve Banks to a drop in certain interest income tied to securities combined with an uptick in certain security-related interest expenses on securities. The Reserve Banks have seen a drop in net income in each of the last four years.
The Federal Reserve Banks recently provided $54.9 billion in total payments to the Treasury Department, according to preliminary unaudited results from 2019 Reserve Bank financial statements. The official audited statements are expected to be published in March with adjustments as necessary.
The Fed published a chart depicting the steady decline in total payments from the Fed to Treasury since 2015 when the Fed paid $97.7 billion in profits plus a $19.3 billion capital surplus. The Fed provided $91.5 billion in 2016, followed by $80.6 billion in 2017 and $65.3 billion (including a $3.2 billion capital surplus) in 2018.
Estimated net income for the Reserve Banks for 2019 is $55.5 billion – down $7.6 billion from 2018. The Fed explained that the decline likely correlates to the loss of $9.5 billion in interest income on securities acquired through open market operations and a $1.5 billion increase in interest expense on securities sold under agreement to repurchase. Partially offsetting those factors was a $3.5 billion drop in interest expense associated with reserve balances held by depository institutions, according to the Fed.
The Fed primarily derived net income for 2019 from $102.8 billion in interest income on securities acquired through open market operations – Treasury securities, federal agency and government-sponsored enterprise (GSE) mortgage-backed securities and GSE debt securities.
The Reserve Banks’ interest expense of $35 billion primarily is associated with reserve balances held by depository institutions, the Fed stated. The Reserve Banks’ incurred $6 billion in interest expense on securities sold under agreement to repurchase.
The Reserve Banks ran up a total of $4.5 billion in operating expenses in 2019, which were reimbursed by Treasury and other entities for services the Reserve Banks provided as fiscal agents.
Additionally, the Reserve Banks were assessed $837 million for the costs related to producing, issuing, and retiring currency, $814 million for board expenditures and $519 million to fund the operations of the Consumer Financial Protection Bureau (CFPB). Additional earnings were derived from income from services of $444 million. Statutory dividends totaled $714 million in 2019.