The Fed Balance Sheet and Income Statement Losses: Why they Matter from a Political Economic Viewpoint

John Davis Feldmann

doi:10.1515/ael-2024-0083

Article

The Fed Balance Sheet and Income Statement Losses: Why they Matter from a Political Economic Viewpoint

John Davis Feldmann

Published/Copyright: May 7, 2025

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From the journal Accounting, Economics, and Law: A Convivium

Abstract

The US Federal Reserve has been incurring income statement losses since September 2022 and now operates in a state of negative net equity. The Fed has taken the position that the losses do not matter to monetary policy making and normal functioning. This paper sets out the reasons for the mounting losses and the Fed positioning in response, covering fundamental issues at stake, including interest paid on reserves to financial institutions, remittances and deferred assets. The analysis demonstrates that the scale and duration of the losses and the creditor relation with Treasury that has resulted pose a major challenge to Fed credibility and independence and raise questions regarding the financial and political sustainability of the Fed stance. Further, the paper presents evidence that the Fed has not been transparent with Congress or the public about the risks and costs of the QE and IOR/ONRRP regime. It suggests this non-transparency might be explained by a fear of loss of credibility that has extended and exacerbated the loss making. Finally, the analysis reveals a fiscal and political cost of Quantitative Easing (QE) that questions its possible use as policy response in future crises.

Keywords: deferred asset; remittances; Fed; central bank losses; central bank negative equity

JEL Classification: B25; E52; E58; E65

Corresponding author: John Davis Feldmann, Center for Financial Stability, New York, USA, E-mail: john.davis.feldmann@gmail.com

Appendix

See Table 1–6.

Table 1:

Interest on reserve rate comparison of 2022 Fed staff report and actuals/author projections.

IOR rate	Fed staff projections (2022)^a	Actual [author projection], (%)^b
31/12/2022	3.10 %	4.49 %
31/12/2023	3.82 %	5.33 %
31/12/2024	3.43 %	4.33 %
31/12/2025	3.03 %	[3.83 %]
31/12/2026	2.78 %	[3.33 %]
31/12/2027	2.65 %	[3.08 %]

^a Andersen et al. (2022a, 2022b). ^bBased on Summary of Economic Procedure (SEP), subject to quarterly change.

Table 2:

Remittances – comparison of 2022 Fed staff report and actuals/author’s projections.

Remittances	Fed staff base predictions ($Bn)^a	Actual [author projection] ($Bn)
31/12/2023	0	0
31/12/2024	0	0
31/12/2025	0	0
31/12/2026	29	0
31/12/2027	75	0
31/12/2028	87	0
31/12/2029	90	0
31/12/2030	110	0
Total	470	0
2025–2030

^a Andersen et al. (2022a, 2022b).

Table 3:

Deferred asset – comparison of 2022 Fed staff report estimates and actuals/author estimates.

Deferred asset	Fed staff base projections ($Bn)^a	Actual [author projection] ($Bn)^b
31/12/2022	0	16
31/12/2023	52	133
31/12/2024	60 (peak)	210
^cCurrent: 31/3/2025	57	225

31/12/2025	27	[258]
31/12/2026	0	[280] (peak)
31/12/2027	0	[260]
31/12/2028	0	[230]
31/12/2029	0	[190]
31/12/2030	0	[150]
Total: 31/12/2031	0	[110]

^a Andersen et al. (2022a, 2022b). ^bBased on Standard Economic Procedure (SEP), subject to change. ^cCurrent as of paper submission date.

Table 4:

Amount paid in IOR and ONRRP to Financial Institutions. Actuals through 12/31/24 and author projections/estimates 2025–2032.

Paid in IOR and ONRRP to banks/counterparties	Actual [author projection] ($Bn)
31/12/2022	102
31/12/2023	281
31/12/2024	195
31/12/2025	[138]
31/12/2026	[120]
31/12/2027	[102]
31/12/2028	[99]
31/12/2029	[93]
31/12/2030	[88]
31/12/2031	[84]
31/12/2032	[80]
Total Payments to Financial Institutions	1,382
2022–2032

Table 5:

Fed balance sheet holdings.

2. Maturity distribution of securities, loans, and selected other assets and liabilities, March 26, 2025
Millions of dollars
Remaining maturity	Within 15 days	16 days–90 days	91 days to 1 year	Over 1 year to 5 years	Over 5 year to 10 years	Over 10 years	All
Loans^b	1,100	1,225	351	1,413	0	…	4,089
U.S. Treasury securities ^c

Holdings	54,915	216,641	421,797	1,463,220	528,686	1,552,159	4,237,419
Weekly changes	+11,337	−11,382	+131	+273	+71	+201	+632
Federal agency debt securities ^d

Holdings	0	0	0	1,151	1,196	0	2,347
Weekly changes	0	0	0	0	0	0	0
Mortgage-backed securities ^e

Holdings	0	0	71	3,969	33,866	2,151,093	2,188,999
Weekly changes	0	0	0	−35	−859	−13,364	−14,258
Loan participations held by MS

Facilities 2020 LLC (main street lending program)^f	45	0	3,881	12	…	…	3,939
Repurchase agreements^g	0	0	…	…	…	…	0
Central bank liquidity swaps^h	86	0	0	0	0	0	86
Reverse repurchase agreements^g	628,611^a	0	…	…	…	…	628,611
Term deposits	0	0	0	…	…	…	0

^aClassified as short-term but continuously renewed through time. Note: Components may not sum to totals because of rounding. Not applicable. ^bLoans includes primary, secondary, and seasonal loans and credit extended through the Paycheck Protection Program Liquidity Facility (PPPLF) and other credit extensions. A component of PPPLF loans presented in the Within 15 day category has reached maturity and is recognized as performing loans based upon the underlying guarantee of the collateral by the Small Business Administration. Loans exclude the loans from the Federal Reserve Bank of Boston (FRBB) to MS Facilities 2020 LLC, which were eliminated when preparing the FRBB’s statement of condition, consistent with consolidation under generally accepted accounting principles. ^cFace value. For inflation-indexed securities, includes the original face value and compensation that adjusts for the effect of inflation on the original face value of such securities. ^dFace value. ^eGuaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. The current face value shown is the remaining principal balance of the securities. ^fBook value of the loan participations held by the MS Facilities 2020 LLC. ^gCash value of agreements. ^hDollar value of foreign currency held under these agreements valued at the exchange rate to be used when the foreign currency is returned to the foreign central bank. This exchange rate equals the market exchange rate used when the foreign currency was acquired from the foreign central bank.

Table 6:

Statement of condition of each Federal Reserve Bank, March 26, 2025.

Millions of dollars
Assets, liabilities, and capital	Total	Boston	New York	Philadelphia	Cleveland	Richmond	Atlanta	Chicago	St. Louis	Minneapolis	Kansas	Dallas	San
Assets, liabilities, and capital	Total	Boston	New York	Philadelphia	Cleveland	Richmond	Atlanta	Chicago	St. Louis	Minneapolis	City	Dallas	Francisco
Liabilities

Federal Reserve notes, net	2,322,082	83,751	749,028	57,888	116,486	165,560	359,660	106,321	77,549	30,040	36,638	201,198	337,962
Reverse repurchase agreements^b	628,611	13,075	338,281	9,366	24,513	62,659	42,057	34,692	8,796	3,927	6,912	27,451	56,884
Deposits	3,959,205	96,331	2,402,863	80,753	138,098	401,189	75,002	262,390	24,705	19,882	39,195	99,081	319,716
Depository institutions	3,450,550	96,312	2,019,083	80,751	138,064	400,703	74,974	138,464	24,704	19,668	39,167	98,985	319,675
U.S. Treasury, General Account	315,970	0	315,970	0	0	0	0	0	0	0	0	0	0
Foreign official	9,436	2	9,410	1	4	8	1	2	1	0	0	1	5
Other^c	183,249	18	58,400	0	30	478	26	123,924	1	214	27	94	36
Earnings remittances due to the U.S. Treasury^a	−225,391	−4,700	−136,117	−3,682	−10,008	−36,041	67	−16,535	−2	−381	−960	−1,214	−15,816
Treasury contributions to credit facilities^j	3,461	3,461	0	0	0	0	0	0	0	0	0	0	0
Other liabilities and accrued dividends	8,065	1,263	2,676	214	298	896	832	475	198	147	198	272	595
Total liabilities	6,696,032	193,181	3,356,731	144,538	269,387	594,263	477,617	387,342	111,246	53,615	81,983	326,788	699,340
Capital

Capital paid in	37,436	1,577	12,564	1,287	3,933	7,257	1,337	2,067	942	240	463	1,084	4,686
Surplus	6,785	287	2,288	235	704	1,322	230	379	172	44	75	198	852
Other capital	0	0	0	0	0	0	0	0	0	0	0	0	0
Total liabilities and capital	6,740,253	195,045	3,371,584	146,059	274,023	602,842	479,184	389,788	112,360	53,899	82,521	328,070	704,878
Liabilities

Federal Reserve notes, net	2,322,082	83,751	749,028	57,888	116,486	165,560	359,660	106,321	77,549	30,040	36,638	201,198	337,962
Reverse repurchase agreements^b	628,611	13,075	338,281	9,366	24,513	62,659	42,057	34,692	8,796	3,927	6,912	27,451	56,884
Deposits	3,959,205	96,331	2,402,863	80,753	138,098	401,189	75,002	262,390	24,705	19,882	39,195	99,081	319,716
Depository institutions	3,450,550	96,312	2,019,083	80,751	138,064	400,703	74,974	138,464	24,704	19,668	39,167	98,985	319,675
U.S. Treasury, General Account	315,970	0	315,970	0	0	0	0	0	0	0	0	0	0
Foreign official	9,436	2	9,410	1	4	8	1	2	1	0	0	1	5
Other^c	183,249	18	58,400	0	30	478	26	123,924	1	214	27	94	36
Earnings remittances due to the U.S. Treasury^d	-225,391	-4,700	-136,117	-3,682	-10,008	-36,041	67	-16,535	-2	-381	-960	-1,214	-15,816
Treasury contributions to credit facilities^e	3,461	3,461	0	0	0	0	0	0	0	0	0	0	0
Other liabilities and accrued dividends	8,065	1,263	2,676	214	298	896	832	475	198	147	198	272	595
Total liabilities	6,696,032	193,181	3,356,731	144,538	269,387	594,263	477,617	387,342	111,246	53,615	81,983	326,788	699,340
Capital

Capital paid in	37,436	1,577	12,564	1,287	3,933	7,257	1,337	2,067	942	240	463	1,084	4,686
Surplus	6,785	287	2,288	235	704	1,322	230	379	172	44	75	198	852
Other capital	0	0	0	0	0	0	0	0	0	0	0	0	0
Total liabilities and capital	6,740,253	195,045	3,371,584	146,059	274,023	602,842	479,184	389,788	112,360	53,899	82,521	328,070	704,878

^aNote: Remittances carried as a negative liability. Note: Components may not sum to totals because of rounding. ^bCash value of agreements, which are collateralized by U.S. Treasury securities, federal agency debt securities, and mortgage-backed securities. ^cIncludes deposits held at the Reserve Banks by international and multilateral organizations, government-sponsored enterprises, designated financial market utilities, and deposits held by depository institutions in joint accounts in connection with their participation in certain private-sector payment arrangements. Also includes certain deposit accounts other than the U.S. Treasury, General Account, for services provided by the Reserve Banks as fiscal agents of the United States.^dThe 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. ^eBook value. Amount of equity investments in MS Facilities 2020 LLC.

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Received: 2024-07-11

Accepted: 2025-04-07

Published Online: 2025-05-07

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https://doi.org/10.1515/ael-2024-0083

Keywords for this article

deferred asset; remittances; Fed; central bank losses; central bank negative equity