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A Review of the Fed’s Financial Statements (with Screenshots) – Robert Aro (04/02/2021)

After discussing the nature of the Fed’s annual audit in my previous article, I will now share the highlights of the 2020 audited financial statements. Starting with one, if not the largest, balance sheets on the planet:


As of December 31, 2020 year-end, the Fed had $7.3 trillion worth of assets, not bad for an entity who creates digital money out of thin air to buy real assets. The brunt of the balance sheet is due to nearly $5 trillion in Treasury securities and $2 trillion for mortgage-backed securities (MBS).

The nearly $7 trillion of securities stands as an account receivable balance, an asset for the Fed; this means somewhere in the world, there are entities, who effectively owe $7 trillion to the Federal Reserve. Until this $7 trillion is paid, the Fed will continue to earn interest income on this balance. Also note, despite the mortgage crisis ending over a decade ago, we find the Fed still unable to exit the mortgage market.

It’s also easy to forget there exists a liability side to the balance sheet, as seen below, (similar to above table, the left data column is 2020 and the right column is 2019):


When the Fed creates money to buy assets, assets increase (e.g., MBS) to account for the purchases made, while on the liability side, there exists a corresponding change to actual money supply. Per above, $2.0 trillion Federal Reserve notes are outstanding, nearly $3 trillion deposits held at the Fed, (owned by the banks), as well as $1.7 trillion of Treasury’s deposits held at the Fed. To simplify, there are $2 trillion of dollar bills in circulation and $5 trillion sitting on deposit at the Fed (mostly in digital form).

The $2 trillion of Federal Reserve notes sounds reasonable as the Fed charts Currency in Circulation, which is currently at $2.1 trillion. This is concerning when contrasted against the M2 Money Supply of nearly $20 trillion; the reason why bank runs are an ever-present threat and why central planners might favor digital currency…

The money the Fed makes is nothing short of fantastic. For the year, they made interest income of $101 billion, paying interest expenses (money on deposits/ liabilities) of just under $8 trillion.

The interest income society pays is just one cost of having a central bank. But what of the actual operating expenses? What are the “brick and mortar” costs of running the Fed?

The answer: Around $8 billion annually.


Imagine: $3.5 billion on salaries and benefits, plus another $662 million on pension costs. This is the cost required to pay economic experts who find creative ways to manage our economy as they see fit.

However, the most concerning item on the entire financial statements is the $1.778 billion to the “Board of Governors operating expenses and currency costs.” Unfortunately, there is absolutely no disclosure as to where this money is really going, other than the Board of Governors spent it in some way. The $517 million paid to the “Bureau of Consumer Financial Protection” is just another large payment to a similarly little understood government agency.

Lastly, there is the dividend of $386 million on over 600 million shares, per page 5:


Understand, the Federal Reserve has a regulation component to it. Unlike “routine” regulation, the entity forced to be regulated normally pays the government, quasi-government or self-funded entity for regulatory services. This is not the case here. Instead of the regulated entities, i.e., banks, paying the Fed for services, the banks are obligated to buy shares of the Fed, essentially “funding the Fed,” except with the added benefit that those shares have been paying out handsome dividends for over 100 years….

Even though remittances to treasury are many, multiple times larger than the dividend paid to banks, the dividend is so integral to the banks, that if the Fed doesn’t make enough money to pay its dividend, the US Treasury will not be paid!

As explained under NOTE 3) q, (page 18):

If earnings during the year are not sufficient to provide for the costs of operations, payment of dividends, and maintaining surplus at an amount equal to the aggregate surplus limitation, remittances to the Treasury are suspended.

Between earning interest on deposits, borrowing at favorable rates, receiving odd bailouts from time-to-time, along with other moral hazards the Fed creates, the dividend paid to banks is just one of the many perks banks receive from the central bank. Sounds like a pretty steep price the public must pay in order to achieve that elusive 2% inflation and full employment target.