[转贴] The most profitable bank in the United States

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of America isn't Jamie Dimon's JP Morgan Chase or the rejuvenated Bank of America.

In fact, it doesn't have any ATMs, and it pays out almost all its earnings to you and your neighbors.

It's the Federal Reserve, which is expected to post another year of record profits in 2010.

In recent years, America's central bank has come under criticism — much of it justified. Under former Fed Chairman Alan Greenspan and his successor, Ben Bernanke, the Fed slept through the housing/subprime bubble, did a poor job of regulating banks and failed to forecast the deepest recession in 80 years.

Once the crisis hit, the Fed intervened in unprecedented and expensive ways that have weakened the dollar and punished savers with rock-bottom interest rates. Bernanke vastly increased the size of the Fed's balance sheet, which now stands at $2.3 trillion vs. about $800 billion before the crisis began.

But as much as it may have contributed to our financial problems, the Fed may also be part of the solution — by helping to keep the deficit from growing even larger.

How does that work? Good question.

The Fed is a collection of regional Federal Reserve banks that are in turn owned by their members. But when the Fed and its banks generate profits, they turn them over to the Treasury Department via weekly payments. The Fed doesn't make money the way regular banks do — by charging ATM fees and making mortgage and credit card loans. Rather, it collects interest on the securities it acquires, by lending money to banks, and by charging fees for certain services.

It turns out that in the U.S., central banking is a reliably profitable business. The Fed's 2008 annual report (see Chart 11 on page 426) has tables that show profits going back to 1914. Over its lifetime, the Fed has funneled more than $680 billion into the coffers of the Treasury. Until recently, the figures were pretty steady and relatively small — between $20 billion and $30 billion from 2000 to 2008.

Last Bank Standing

But in the last few years, as America's banking system buckled, the Fed expanded its scope of activities. The Fed grew its balance sheet by swapping cash with banks for interest-bearing securities, acquired assets from Bear Stearns and AIG, lent money directly to AIG, and started new programs to guarantee asset-backed securities, like the TALF. In 2009, it kicked off a program to buy $1.25 trillion of mortgage-backed securities.

All the liabilities the central bank assumed essentially have created new streams of interest and fee income. As the 2009 annual report shows (page 187), the Fed in 2008 had about $1 trillion in securities and loans, which paid an average interest rate of 3.66 percent. At the end of 2009, it had $1.8 trillion in securities and loans, paying an average interest rate of 2.99 percent. Despite the lower interest rates, the Fed's collections rose sharply. The Fed also reaped gains in 2009 from the rise in value of the toxic assets it acquired from AIG.

The upshot: thanks to booming profits, the Fed transferred $47.4 billion in income to the Treasury last year, up 50 percent from 2008.

In 2010, responding to a sluggish economy and the poor housing market, the Fed has continued to boost its balance sheet. Last week, the Fed's balance sheet stood at $2.3 trillion, including nearly $1.1 trillion in mortgage-backed securities. The Fed's profits for 2010 are on pace to rise 50 percent from 2009. In the first half of 2010, according to the Fed's most recent quarterly report (see Table 24), the central bank kicked in $34.1 billion into the Treasury's coffers.

The U.S. government's 2010 fiscal year closes on Thursday (fiscal years run from October to September). The books will close with the federal deficit at about $1.3 trillion. But without the Fed's earnings, which could approach $75 billion, the deficit picture would be noticeably worse.