Federal Reserve Balance Sheet Analysis of the federal reserve balance sheet as of Feb 2007.
Federal Reserve Balance Sheet
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- I think you'll find this video exciting because until now,
- we've just been talking about the Federal reserve in the
- abstract and I was drawing little boxes to represent
- balance sheets, but this is the actual Federal reserve
- balance sheet and I took a date that was before all of
- this silliness started happening in the banking
- sector just so we could kind of see what a Federal reserve
- balance would've looked like in a normal environment.
- And then we can actually, in future videos, compare what
- they've done since then and then we can get a better
- insight into all of the different machinations that
- the Federal reserve has done to kind of try to keep banks
- liquid and solvent and to keep everything going.
- And we can debate whether they've been good or bad or
- they're just keeping banks in kind of zombie mode.
- But anyway, this is the Federal reserve's balance
- sheet as of February 14th, 2007.
- So before all the craziness happened, although a little
- bit started-- this is before the Feds started taking really
- aggressive action to provide liquidity for the markets.
- But here the assets.
- So first of all, we have the total assets number.
- That's just interesting to look at.
- These are all in millions.
- So this is $871 billion of assets.
- Let's just get the big picture.
- Let me draw that here in our traditional box diagram.
- So if I were to draw the assets-- the sum of all the
- assets over here is $871 billion, and we know that the
- liabilities plus equity better add up to $871 billion.
- Let's see.
- What's the total liabilities?
- Total liabilities is $839 billion-- so
- give or take $840.
- So the liabilities-- I'll do it in a different color.
- The liabilities are $840 billion, give or
- take a little bit.
- They should have the same width, not that the width
- matters that much.
- And then whatever's left over should be equity, right?
- Assets minus liabilities.
- What you have minus what you owe is what you're left with
- for the owners.
- And of course, owners of the Federal reserve, you kind of
- have to take with a grain of salt.
- They really don't have the upside of traditional owners.
- They're really just kind of stakeholders.
- What's left over is the equity.
- It should be roughly $31 billion.
- And let's confirm that by looking at the
- actual balance sheet.
- And here we have it-- total capital is $31 billion.
- So big picture, so far it's kind of meeting up with how
- we've envisioned a Federal reserve balance sheet, but
- let's dig a little deeper and see if we can find interesting
- things and things we've talked about.
- And hopefully at this point, we should actually
- understand all of it.
- Let's focus on the assets for now.
- So the assets are just this part of it.
- So it has-- this is what?
- This is $11 billion of gold certificate accounts and
- that's some type of rights on gold.
- Let's see.
- Gold certificate accounts.
- Let's see if they have any other gold anywhere.
- Coin-- $1 billion.
- But this is all small potatoes, right?
- I don't know what special drawing rights certificate
- account is, but it's very small relative to
- the big pie, right?
- There's $871 billion of assets.
- This is just kind of almost rounding-off error.
- Here we have a big chunk of something.
- Actually, I think this $11 billion is actual gold because
- I don't see it anywhere else on their assets.
- So I think if you combine roughly-- I don't know what
- this thing here is, but if you combine this and this, it's
- saying that the Federal reserve is-- because I don't
- see gold anywhere else here-- that it's holding roughly $12
- billion worth of gold, which really isn't a lot of gold
- when you consider the total size of its balance sheet.
- The big piece right here-- let me pick a different color.
- I'll do it in the purple.
- It has securities, repurchase agreements, and loans-- $808
- billion-- almost $809 billion.
- So this is a big piece of the Fed's balance sheet.
- Out of the whole $871, $808.
- So pretty much it's almost like that much of it.
- Actually, maybe a little bit less of that-- are these
- securities and things like that.
- Let's see what kind of securities they have. And they
- break them down.
- So this $808 billion is made up of these things right here.
- The bulk of them are U.S. treasury loans, right?
- So these are going to be bills, notes, and bonds-- OK.
- So just to explain, a treasury bill-- and I've done videos on
- this-- this is essentially a loan to the government for a
- year or less.
- So it's just a loan to the government that matures in a
- year or in three months.
- Notes and bonds-- these are loans to the U.S. treasury
- that have longer maturities.
- Notes are up to 10 years.
- Bonds are more than 10 years.
- And then inflation index bonds-- I'll do a whole video
- on that in the future, but these are essentially
- treasuries that are indexed to inflation so you can kind of
- hedge out a little bit of your inflation risk.
- But, needless to say, the big picture is is that $780
- billion of the Fed's assets are treasuries, loans to the
- Federal government.
- Let me draw that here.
- So a pretty big piece, roughly that much is treasury.
- So most of what the Federal reserve owns are treasuries.
- And that's consistent with everything we've gone over so
- far and that account for everything up to here.
- And then what's interesting-- what we just talked about--
- repurchase agreements, $30 billion.
- And I don't know 100%, but I'm guessing that these are--
- someone came to the discount window and essentially
- borrowed $30 billion from the Fed-- and
- it's not just someone.
- It's probably multiple people came and borrowed $30 billion
- from the Fed-- and they gave treasuries as collateral, but
- as we know, just the way repurchase agreements work,
- they actually kind of sold the treasuries to the Fed and the
- Fed agreed to buy it later, but it's essentially
- So these repurchase agreements-- they're included
- in these securities because they're not
- just agreements, right?
- They actually are-- they're probably treasuries or they
- might be other types of highly rated securities and we'll
- learn in future videos that the Fed has lowered its
- standards over the last year in terms of what type of
- collateral or what type of securities it's willing to
- trade in these repurchase agreements, but in the
- situation it looks like about $30 billion.
- And you can also-- you get a clue of what repurchase
- agreements are because here, they say securities held
- outright, right?
- So there's no repurchase agreement.
- There's not some contract where they say they're going
- to sell this to someone else at another price.
- These are repurchase agreements.
- These are kind of more collateral for loans.
- And then they have outright loans-- $39 million.
- That's pretty much peanuts in the Federal reserve world.
- So the bulk is treasuries, a little bit of repurchase
- agreements, and then there's other assets.
- They don't break out what this is.
- Maybe there's some gold in that.
- I'm not sure.
- Bank premises, the buildings of the Federal reserve are
- worth $2 billion.
- I mean, they have 12 banks around the country and I'm
- sure they have a bunch of other things.
- And then items in process collection.
- I don't know what these things are, but these
- are all small potatoes.
- The big thing is that the Federal reserve's assets are
- predominantly U.S. treasuries-- at least, they're
- predominantly treasuries right now.
- Now let's look at the liabilities.
- And to some degree, this is much more interesting.
- So Federal reserve notes, net of Federal
- reserve bank holdings.
- So $769 billion.
- So when I talked about notes outstanding,
- that's what this is.
- These are Federal reserve notes that have been printed
- and they're liabilities, right?
- Because the Federal reserve bank printed these notes and
- then used them as currency and so they're liabilities now
- because someone can come back another time and say, hey,
- give me back the value of these things and that's a bit
- of an abstract concept, but roughly $700 something of this
- are notes outstanding.
- This is money that the Federal reserve had printed.
- And then there's some reverse repurchase agreements, which
- essentially-- see for some reason, the Federal reserve
- used repurchase agreements to borrow from someone else.
- It has a little bit of deposits, right?
- And these deposits have actually grown dramatically in
- the past year.
- Has $22 billion of deposits.
- So these are actually deposits that banks are keeping with
- the Federal reserve.
- The U.S. treasury actually keeps some money there.
- Depository institutions have $17 billion-- and actually,
- that's how the Federal reserve traditionally
- has paid its expenses.
- People put deposits with the Federal reserve-- so let's say
- these are deposits from banks.
- It's a very small piece.
- It's like $17 billion.
- These could be deposits from member banks, but the Federal
- reserve does not pay interest in these deposits.
- They don't pay interest on these deposits and then they
- can take these deposits and by treasuries or other securities
- and get interest on them.
- So they're essentially getting free interest and that's what
- they used actually to fund their operations.
- Any excess after funding their operations goes back to the
- U.S. Treasury so it's not like Ben Bernanke can fly around or
- drive a Bentley or something.
- And then I don't know what this is-- foreign official--
- these are nothing items. So the bulk of it is money that
- had been printed and that's a liability of the Federal
- reserve now.
- And then there's a little bit of deposits from depository
- And the treasury has kept some money with the
- Federal reserve as well.
- And then everything left over is the equity.
- Anyway, I thought that would be pretty neat to see that you
- can actually look at what the Federal reserve's balance
- sheet is right now.
- You can actually just do a web search for it.
- You'll find it in a bunch of different sources.
- And you can actually analyze it.
- You now have the tools to look at that and make sense of it.
- And what's even more interesting is to compare this
- balance sheet with the current Federal reserve balance sheet
- and then you can know everything that
- they've been up to.
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