Fed's Historic Losses: Paying Billions in Interest to Banks
Submitted by MAGA
Posted 2 days ago
The Federal Reserve is posting historic operating losses as it pays out 5.40 percent interest to banks.
According to Federal Reserve data, for the first time in its history, the Fed has been losing money on a consistent monthly basis since September 28, 2022. As of the last reporting date of June 19, 2024, those losses add up to a cumulative $176 billion.
These losses are separate and distinct from the unrealized losses the Fed is experiencing on the debt securities it holds on its balance sheet. The losses shown in the chart are actual cash operating losses that result from the fact that the Fed is earning significantly less interest on its debt securities than the high rates of interest the Fed is paying out to depository banks on their reserves held at the Fed; to mutual funds on its reverse repo operations; and in dividend payments to the banks that are shareowners of the 12 regional Fed banks.
Since July 27 of last year, the Fed has been paying 5.40 percent interest on reserve balances held by banks at the Fed. A significant part of that generous payout has been going to megabanks like JPMorgan Chase and Bank of America. However, these megabanks aren't passing along that generosity to their customers' savings accounts, since those savings accounts continue to pay the preposterously low rate of 0.01 percent interest, despite 11 rate hikes by the Fed since 2022.
A detail that goes missing in mainstream media reports on this generous payout by the Fed is that the Fed and banking system were able to survive for 95 years without the Fed paying any interest on bank reserves. The Fed began paying interest on reserves at a time when the megabanks on Wall Street were in the process of imploding during their self-inflicted financial crisis of 2008 and needed every handout they could conjure up from the Fed.
In addition to paying out 5.40 percent interest on bank reserve balances, the Fed has been paying the hefty rate of 5.30 percent on its reverse repo operations since July 28, 2023. The highest interest rate of all paid by the Fed is the 6 percent dividend that the Fed pays to the member shareholder banks that own the 12 regional Fed banks. If those banks have assets of $10 billion or less, they receive the 6 percent dividend. Shareholder banks with assets larger than $10 billion receive a dividend which is the lesser of 6 percent or the yield on the 10-year Treasury note at the most recent auction prior to the dividend payment.
In January, two researchers, Paul Kupiec and Alex Pollock, put the cash operating losses at the Fed into broader perspective with a detailed report published at the think tank, American Enterprise Institute (AEI). The researchers wrote: "Notwithstanding the claims made by current and former Federal Reserve officials, the Fed’s cash operating losses and unrealized interest rate losses have already changed the way the Fed conducts monetary policy."
The researchers further suggest that the Fed is engaged in a dangerous confidence game: "As long as the public and financial market participants retain confidence in the FRB’s unsecured deposits, FRBs can continue to pay banks billions in interest and dividend payments while operating at a loss, deeply technically insolvent, and with asset shortfalls. Aided by an implicit guarantee, taxpayers will bear the burden of accumulating Federal Reserve losses that are hidden by Federal Reserve accounting policies and not included in reported government deficit statistics."
For how the U. S. taxpayer is on the hook for the Fed’s losses, see our May 2020 report: Taxpayers Are on the Hook for 98 Percent of the Fed’s $6.98 Trillion Balance Sheet. (As of June 19 of this year, the Fed’s balance sheet was $7.3 trillion.)
Sources:
thenewamerican.com
wallstreetonparade.com
issuesinsights.com
According to Federal Reserve data, for the first time in its history, the Fed has been losing money on a consistent monthly basis since September 28, 2022. As of the last reporting date of June 19, 2024, those losses add up to a cumulative $176 billion.
These losses are separate and distinct from the unrealized losses the Fed is experiencing on the debt securities it holds on its balance sheet. The losses shown in the chart are actual cash operating losses that result from the fact that the Fed is earning significantly less interest on its debt securities than the high rates of interest the Fed is paying out to depository banks on their reserves held at the Fed; to mutual funds on its reverse repo operations; and in dividend payments to the banks that are shareowners of the 12 regional Fed banks.
Since July 27 of last year, the Fed has been paying 5.40 percent interest on reserve balances held by banks at the Fed. A significant part of that generous payout has been going to megabanks like JPMorgan Chase and Bank of America. However, these megabanks aren't passing along that generosity to their customers' savings accounts, since those savings accounts continue to pay the preposterously low rate of 0.01 percent interest, despite 11 rate hikes by the Fed since 2022.
A detail that goes missing in mainstream media reports on this generous payout by the Fed is that the Fed and banking system were able to survive for 95 years without the Fed paying any interest on bank reserves. The Fed began paying interest on reserves at a time when the megabanks on Wall Street were in the process of imploding during their self-inflicted financial crisis of 2008 and needed every handout they could conjure up from the Fed.
In addition to paying out 5.40 percent interest on bank reserve balances, the Fed has been paying the hefty rate of 5.30 percent on its reverse repo operations since July 28, 2023. The highest interest rate of all paid by the Fed is the 6 percent dividend that the Fed pays to the member shareholder banks that own the 12 regional Fed banks. If those banks have assets of $10 billion or less, they receive the 6 percent dividend. Shareholder banks with assets larger than $10 billion receive a dividend which is the lesser of 6 percent or the yield on the 10-year Treasury note at the most recent auction prior to the dividend payment.
In January, two researchers, Paul Kupiec and Alex Pollock, put the cash operating losses at the Fed into broader perspective with a detailed report published at the think tank, American Enterprise Institute (AEI). The researchers wrote: "Notwithstanding the claims made by current and former Federal Reserve officials, the Fed’s cash operating losses and unrealized interest rate losses have already changed the way the Fed conducts monetary policy."
The researchers further suggest that the Fed is engaged in a dangerous confidence game: "As long as the public and financial market participants retain confidence in the FRB’s unsecured deposits, FRBs can continue to pay banks billions in interest and dividend payments while operating at a loss, deeply technically insolvent, and with asset shortfalls. Aided by an implicit guarantee, taxpayers will bear the burden of accumulating Federal Reserve losses that are hidden by Federal Reserve accounting policies and not included in reported government deficit statistics."
For how the U. S. taxpayer is on the hook for the Fed’s losses, see our May 2020 report: Taxpayers Are on the Hook for 98 Percent of the Fed’s $6.98 Trillion Balance Sheet. (As of June 19 of this year, the Fed’s balance sheet was $7.3 trillion.)
Sources:
thenewamerican.com
wallstreetonparade.com
issuesinsights.com
Latest News
