The Federal Reserve paid a record $46.1 billion in profits for 2009 to the U.S. Treasury as the central bank earned a record net income of $52.1 billion, up 46.8% year-over-year by exposing taxpayer money to risk in an effort to stabilize the financial system last year.
The payment represents an increase of $14.4 billion from the Treasury’s contribution in 2008 and is the largest since the U.S. central bank was launched in 1914. The increase was largely due to higher earnings on securities that the Fed had purchased as part of its intensive intervention in the financial system last year. Previously, the largest payment to the Treasury was $34.6 billion in 2007.
According to the Fed, much of its income came from the open-market purchase of U.S. Treasury debt, debt of mortgage finance giants Fannie Mae (FNM) and Freddie Mac (FRE), and mortgage bonds and other securities. Mortgage-backed securities pay a higher rate than Treasury securities. In total, it earned $46.1 billion on U.S. Treasuries and debt from government-sponsored enterprises.
The Fed earned another $5.5 billion from limited liability companies that were created during the height of the financial crisis to make loans and take over assets from financial salvages of big institutions like American International Group Inc. (AIG). Additionally, the Fed earned $2.9 billion on loans extended to banks and other financial institutions, $2.6 billion from currency swaps and $1.5 billion mostly from fees.
Though this record profit could alleviate some pressure on the U.S. budget deficit, the Fed still has significant exposure to risky assets. Also, the Fed could lose money on some of those investments if the values of the securities fall.
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