Economics
Fed Balance Sheet
The Fed Balance Sheet is a financial statement that shows the assets and liabilities of the Federal Reserve System. It includes the amount of money in circulation, the reserves held by banks, and the securities held by the Fed. The balance sheet is used to monitor the Fed's monetary policy and its impact on the economy.
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5 Key excerpts on "Fed Balance Sheet"
- Michael Brandl(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
All of these publications are free to the public. So, the Fed has a lot on its plate. It does so much more than just set and carry out monetary policy and thus influence interest rates. This became very clear during the financial crisis of 2007-2008. The Fed is responsible for keeping the financial markets functioning properly, and during a financial crisis that can be a daunting challenge. To understand how the Fed dealt with the financial crisis, it might be beneficial to take a look at the Fed’s balance sheet a little more in depth. So that is where we turn next: the Fed’s balance sheet and how it has changed recently. 8-3b The Fed’s Balance Sheet Examining balance sheets can be a dreadfully boring exercise. A balance sheet, with its different classes of assets and liabilities, can be a complex blur of names and numbers. If done properly, however, examining a balance sheet can provide a great deal of insight and trigger many inter-esting questions, such as “What on earth is going on?” and “Why did they do that?” And so it is with the balance sheet of the Federal Reserve. We first examine the Fed’s balance sheet as it stood on March 22, 2007, on the eve of the crisis that began in the summer of 2007. Then we will see how it changed radically over time in response to the crisis, arriving at its sta-tus on March 24, 2010. Examining the Fed’s balance sheet is much more than a dull exercise in accounting; instead, it offers us a window through which we can watch as the biggest economic crisis since the Great Depression batters US and global financial markets. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience.
eBook - ePub- (Author)
- 2010(Publication Date)
- North Holland(Publisher)
Figure 19 . The increased cash holdings reflect the sharp increase in reserves held at the Federal Reserve — a liability of the Federal Reserve to the commercial banks.Figure 19 Cash as proportion of U.S. commercial bank assets.(Source : Federal Reserve, H8 database).In this way, central bank liquidity facilities have countered the shrinking of intermediary balance sheets and have become a key plank of policy, especially after short-term interest rates were pushed close to their zero bound. The management of the increased Federal Reserve balance sheet has been facilitated by the introduction of interest on reserves on October 1, 2008, which effectively separates the management of balance sheet size from that of the Federal Funds interest rate (see Keister & McAndrews, 2009 for a discussion of the interest on reserve payment on the Federal Reserve’s balance sheet management).The Federal Reserve has also put in place various other LOLR programs to cushion the strains on balance sheets, and to target the unusually wide spreads in a variety of credit markets. Liquidity facilities have been aimed at the repo market (Term Securities Loan Facility TSLF and Primary Dealer Credit Facility PDCF), the commercial paper market (commercial paper funding facility; CPFF and Asset-Backed Commercial Paper Money Market Fund Liquidity Facility AMLF), and ABS markets (term asset-backed loan facility; TALF). In addition, the Federal Reserve has conducted outright purchases of Treasury and agency securities, and has provided dollar liquidity in the FX futures markets (FX Swap lines). The common motivating element in these policies has been to try and alleviate the strains associated with the shrinking balance sheets of intermediaries by substituting the central bank’s own balance sheet. The spirit of these policies differs from that of classic monetary policy in that they are explicitly aimed at replacing the collapse of private sector balance sheet capacity. Since the deleveraging of financial intermediary balance sheets is associated with a widening of risk premia, the effectiveness of balance sheet policies can be judged by the level of risk premia in various financial markets. In practice, the degree to which risk premia are associated with the expansions and contractions of intermediary balance sheets are important indicators for the risk appetite of the financial sector, which, in turn, affect credit supply and real activity. Adrian, Moench, and Shin (2010)
eBook - PDF- David S. Kidwell, David W. Blackwell, David A. Whidbee, Richard W. Sias(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
The components of the monetary base—vault cash and reserve balances— are the only assets that financial institutions can use to satisfy reserve requirements. By controlling the monetary base, the Federal Reserve can control the total amount of assets that financial institutions can use to meet their reserve requirements. The Federal Reserve uses its power over these reserves to control the amount of money outstanding in the country. MEASURES OF THE MONEY SUPPLY Up to this point, we used the term money supply conceptually without providing a specific definition or measure. The reason for this is that there are many different definitions of money, and each measure has a role in monetary policy. Some of the definitions of money are based on theoretical arguments over the definition of money—is money primarily trans- actional, or is money primarily a safe haven to store purchasing power? Putting theory aside, inside the Fed things are more practical; that is, what the Fed really wants to know is, when it increases or decreases the money supply, which definition of money has the greatest impact on interest rates, unemployment, and inflation. C H A P T E R P R E V I E W In Chapter 2, we explained what the Federal Reserve is and how it controls the total reserves in the banking system by initiating changes to its balance sheet. The purpose of Chapter 3 is to explain how the Fed conducts monetary policy, which is the primary policy tool that the federal government uses to stabilize the economy over the business cycle. In the chapter, we discuss how the Fed adjusts the money supply, the role of the fed funds rate in the conduct of monetary policy, the goals for monetary policy, and how monetary policy is transmitted through the various sectors of the economy. We also discuss fiscal policy, how it’s conducted, and its role in stabilizing the economy.
eBook - PDFModern Money Theory
A Primer on Macroeconomics for Sovereign Monetary Systems
- L. Randall Wray(Author)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
The final balance sheets of Bank A, Bank B, and the central bank look like this: Bank A balance sheet Assets Liabilities and NW Advance of Funds to Mr. X = $200 Building = $200 Debt to Federal Reserve = $200 Net Worth = $200 Bank A makes money as long as the interest it receives on the advance to Mr. X is higher than the interest it pays to the Federal Reserve. 96 Modern Money Theory The balance sheet of Bank B looks like this (assuming it did not have any reserves before): Bank B balance sheet Assets Liabilities and NW Reserves = $200 Checking Account of Car Dealer = $200 And the balance sheet of the central bank is (assuming that it did not provide any advances to banks or any cash): Federal Reserve balance sheet Assets Liabilities and NW Reserve Loan to Bank A = $200 Reserves = $200 Note that all these operations did not involve any transfer of physical cash – it was all bookkeeping entries through keystrokes to computers. Also note we only show the assets and liabilities directly related to our examples. Of course, private banks and the central bank have many other assets and liabilities, as well as net worth on their balance sheets. In practice, the central bank will usually not advance reserves to the bank directly in the form of an unsecured advance; instead it will ask for collateral (usually a treasury security) in exchange and will provide funds for less than the value of the collateral. So, if Bank A has a $300 bond, it surrenders it to the Federal Reserve in exchange for reserves. The Fed will usually give only, say, $285 if the discount is 5 percent. Box: Frequently asked questions Q: What is the relation between the accounting of debits and credits and the financial uses and sources approach? In my business school accounting classes I learned this a bit differently. A: In this Primer we use “T accounts” that are presented in every money and banking textbook.
eBook - PDFInterest Rates, Prices and Liquidity
Lessons from the Financial Crisis
- Jagjit S. Chadha, Sean Holly(Authors)
- 2011(Publication Date)
- Cambridge University Press(Publisher)
In most cases, central banks neutralised the effects on the size of their balance sheets of the operations associated with their liquidity facilities. For instance, as shown in Figure 7.4 on p. 184, the Federal Reserve initially managed the impact on its balance sheet by redeeming and selling securities in the System Open Market Account portfolio. However, in some cases, particularly with the intensification of the financial crisis after the failure of Lehman Brothers, central bank balance sheets increased with expanded use of liquidity facilities as well as with use of credit facilities and asset purchases. 5 2.2 Credit facilities and asset purchases Central banks intervened in a targeted manner to improve conditions in credit markets, in order to avoid further economic disruption, through purchases of commercial paper (e.g. the Commercial Paper Funding Facility (CPFF) in the United States), asset-backed commercial paper, corporate and covered bonds, and facilities to support money market mutual funds. Measures targeting the commercial paper market in the United States (Bernanke, 2009) appear to have been effective, reducing spreads and increasing issuance. Central banks in the United States and the United Kingdom began purchasing government-issued securities in order to further ease overall financing conditions. These purchases increased the size of central bank balance sheets. 6 The Asset Purchase Facility of the Bank of England was set up to purchase UK government securities (gilts) in the secondary market and high-quality private-sector assets, including commercial paper and cor- porate bonds. In the United States, large-scale asset purchases by the Federal Reserve included purchases of Treasury debt, agency debt and agency MBS (given the effective nationalisation of Freddie Mac and Fannie Mae). 5 Initially, the post-Lehman rapid expansion of liquidity was being sterilised with Treasury deposits in a Treasury Supplementary Financing Account.
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