The Federal Reserve is having the most profitable year on record as its $2.87 trillion balance sheet generates a windfall of interest income.
The central bank has earned $69.4 billion in the first three quarters of 2012, up from $58.2 billion in the same period last year, according to quarterly financial reports released by the Fed Thursday in Washington.
The Fed earns profits from its asset holdings, which include $1.65 trillion of Treasury securities and $900.6 billion of mortgage-backed securities. Those assets were mostly acquired through two rounds of large-scale asset purchases, known as QE. The Fed pays its operating expenses from these funds and turns most of what’s left over to the Treasury.
The central bank in August began publishing new unaudited quarterly reports aimed at providing “greater transparency by communicating financial information on a more frequent basis and in greater detail.” The data was previously disclosed on an annual basis when the Fed releases its audited financial statements.
The Fed’s balance sheet began growing after its Sept. 13 decision to undertake $40 billion a month of mortgage-bond purchases until the labor market improves “substantially.”
The central bank earns profits from the ability to create currency which has no interest expense and bank deposits, on which the Fed pays interest of 0.25 percent. It also purchases mortgage bonds and Treasuries which have a higher yield than 0.25 percent.
The yield on the 10-year Treasury was 1.63 percent in New York Thursday morning, little changed from Wednesday. The national average on a 30-year fixed rate mortgage was 3.32 percent in the week ended today, up from the all-time low of 3.31 percent, according to an index from Freddie Mac.
The Fed has sent $67.7 billion to the Treasury so far this year, an increase from $57.5 billion in the same period last year. The central bank doesn’t require an appropriation from Congress to fund its operations because of the self-funding that results from the interest income.
Funding from the Fed’s balance sheet to two entities created by the 2010 Dodd-Frank financial regulatory overhaul increased. The Fed sent $42 million to the Office of Financial Research, up from $11 million in the same period last year. Funding for the Bureau of Consumer Financial Protection increased to $249 million from $147 million in the same period last year.
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