by Dismal-Jellyfish
Today the Fed released it’s audited financial statement for 2022:
www.federalreserve.gov/newsevents/pressreleases/other20230324a.htm
KPMG
It’s worth noting that the Fed’s audit firm, KPMG, has been involved in numerous scandals, including the use of stolen regulatory information to cheat on audit inspections, and has also experienced major audit failures, such as that of UK outsourcing giant Carillion, which collapsed unexpectedly in early 2018.
Maybe Paul Munter was talking about these guys when he was throwing auditors under the bus last week?
The Fed’s total Revenues: $170.1 billion (Up from $123.1 billion last year):
- $170.0 billion in interest received on holdings of its securities, mostly Treasury securities and MBS that it purchased as part of its QE.
- $108.0 million in net income from facilities related to the Federal Reserve’s pandemic response
The Fed’s total Expenses of $111.6 billion, (Up from $15.5 billion last year):
- $60.4 billion in interest expense on depository institutions’ reserve balances
- $42 billion in interest to counterparties of reverse repos
- $9.2 billion in operating expenses, including assessments of $2.8 billion for Board expenses, currency costs, and the operations of the Consumer Financial Protection Bureau.
The Fed’s ‘Earnings’ for 2022: $58.8 billion
The Fed is generally a very profitable organization–for example, in 2021 earnings were $107.8 Billion.
The Fed does not pay income taxes but remits it earning to the Treasury. However, since September, there have not been any earnings to report to the Treasury, hence the drop in earnings and building deferred asset:
REMEMBER: none of this ‘matters’ to the Fed. The Fed creates its own money, and cannot become insolvent.
Again, the Fed is playing slight of hand here.
Storing losses (-42.196 billion as of 3/22/2023–was -41.067 3/15/22)) on the balance sheet as an asset like what is happening above, rather than showing the loss on the income statement right away, is an old corporate accounting trick.
The Fed explains this in footnote:
The Federal Reserve Banks remit residual net earnings to the U.S. Treasury after providing for the costs of operations, payment of dividends, and the amount necessary to maintain each Federal Reserve Bank’s allotted surplus cap.
Positive amounts represent the estimated weekly remittances due to U.S. Treasury.Negative amounts represent the cumulative deferred asset position, which is incurred during a period when earnings are not sufficient to provide for the cost of operations, payment of dividends, and maintaining surplus.
The deferred asset is the amount of net earnings that the Federal Reserve Banks need to realize before remittances to the U.S. Treasury resume.
In other words, each week going forward, the linked chart will show the Fed’s total losses starting from September 2022. The bigger the negative number, the bigger the accumulated loss.
So, ‘wut mean’? This number will get bigger to indicate the amount of money the Fed owes the treasury (-42.196 billion and counting).
The Fed gets to just sit on this negative balance and when it starts making money for treasury again (from money it makes on interest and fees, lowering its operating expenses, paying less on dividends), will see that negative number start to shrink (in theory).
However, what this will mean for Treasury I am not sure–with the current debt ceiling nonsense seeing Yellen taking extraordinary measures to keep everything afloat through June. You can bet they wish the Fed was sending those weekly earnings while having to navigate this environment.
TLDRS:
The Fed’s audited financials are in:
The Fed’s ‘Earnings’ for 2022: $58.8 billion
The Fed’s total Revenues: $170.1 billion (Up from $123.1 billion last year)
The Fed’s total Expenses of $111.6 billion, (Up from $15.5 billion last year)
In 2022, the Fed paid $42 Billion in interest to counterparties of reverse repos.