Discussion Paper

A History of SOMA Income

Abstract: Historically, the Federal Reserve has held mostly interest-bearing securities on the asset side of its balance sheet and, up until 2008, mostly currency on its liability side, on which it pays no interest. Such a balance sheet naturally generates income, which is almost entirely remitted to the U.S. Treasury once operating expenses and statutory dividends on capital are paid and sufficient earnings are retained to equate surplus capital to capital paid in. The financial crisis that began in late 2007 prompted a number of changes to the balance sheet. First, the asset side of the balance sheet increased dramatically, a result of both the various liquidity facilities and the Large-Scale Asset Purchase programs (LSAPs) (see yesterday's post on the history of the Fed’s balance sheet). Second, this expansion of the balance sheet was financed in large part by issuing interest-bearing reserves instead of additional noninterest-bearing currency. As a consequence of these changes, future net income from the Fed’s portfolio will depend on a wider range of factors and may be more variable for a period of time—a topic that has generated increased discussion (see papers by Carpenter et al., Hall and Reis, and Greenlaw, Hamilton, Hooper, and Mishkin).

Keywords: income; portfolio; SOMA; market; interest; securities;

JEL Classification: H0;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2013-08-13

Number: 20130813

Note: Note: On August 15, 2013, the data files associated with this post and with the post “The SOMA Portfolio through Time” were expanded to include historical data in nominal dollars. In addition, the estimated value for 1996 in the chart “Total Portfolio Unrealized Gains and Losses” was revised and the associated data file was updated.