Federal Reserve makes a profit of USD 45 bn: Report

In a lead story, 'The Washington Post' said the Fed will return about USD 45 billion to the US Treasury for 2009, according to calculations by the daily based on public documents.
Federal Reserve funds itself from its own operations and returns its profits to the Treasury.

"The numbers are good news for the federal budget and a sign that the Fed has been successful, at least so far, in protecting taxpayers as it intervenes in the economy -- though there remains a risk of significant losses in the future if the Fed sells some of its investments or loses money on its stakes in bailed-out firms," The Washington Post said.
The daily said much of the higher earnings came about because of the Fed's aggressive programme of buying bonds, aiming to push interest rates down across the economy and thus stimulate growth.

By the end of 2009, the Fed owned USD 1.8 trillion in US government debt and mortgage-related securities, up from USD 497 billion a year earlier.

The interest income on those investments was a major source of Fed profits -- though that income comes with risks, as the central bank could lose money if it later sells those securities to reduce the money supply, it said.

The Federal Reserve also made money on its emergency loans to banks and other firms and on special programmes to prop up lending, such as one that supports credit cards, auto loans, and other consumer and business lending.

Those programmes impose interest and fees on participants, with the aim of ensuring that the Fed does not lose money, the daily said.

"This shows that central banking is a great business to be in, especially in a crisis," Vincent Reinhart, a resident scholar at the American Enterprise Institute and a former Fed official was quoted as saying.
"You buy assets that have a nice yield, and your cost of funds is very low. The difference is profit," he said.