Fed Generates $46.1 Billion Profit in 2009

The Federal Reserve had its biggest bottom line ever in 2009, generating record profits as its holdings of Treasury, mortgaged-backed securities and agency debt grew.

The Fed last year generated a net income of $52.1 billion, of which it paid $46.1 billion to the U.S. Treasury, the Fed said Tuesday. The windfall came as the Fed’s balance sheet ballooned to more than $2.2 trillion and the Fed acquired billions in securities through unusual asset-purchase programs aimed at spurring economic growth.

The Fed last year purchased $300 billion in US government debt and is on track to buy $1.25 trillion in mortgage-backed securities plus $175 billion in debt from government-backed mortgage agencies. The larger holdings more than offset the historically low interest rates that bring the Fed its income.

The Fed’s 2009 earnings were up 47% from 2008 when it generated a net income of $35.5 billion and transferred $31.7 billion to the Treasury.

The 2009 earnings reflect an estimated $3.7 billion in losses on holdings the Fed acquired when it helped J.P. Morgan Chase & Co. buy Bear Stearns and when it rescued American International Group.

Of the 2009 earnings, $46.1 billion was generated through open market operations and $5.5 billion was generated by companies it created as part of the Bear Stearns, AIG and other rescue operations. The Fed earned $2.9 billion in 2009 on interest on loans it made to banks and other institutions.