Fact Sheet of the Federal Reserve System
The Federal Reserve system is divided into three entities: the Board of Governors of the Federal Reserve Board, the 12 Federal Reserve Banks (the operating carrier of the Federal Reserve Bank), and the Federal Open Market Committee (FOMC for short), which is responsible for formulating the monetary policy of the United States. Composition), in addition, also includes the Federal Advisory Committee (Reserve System advisory committees) and more than 2,000 depository financial institutions. As the operating vehicle of the Federal Reserve System, the Reserve Bank holds the assets, liabilities and capital of the Federal Reserve System. Therefore, in fact, the Federal Reserve's balance sheet represents the accounts and operating results of the Reserve Bank, which will be published in the H.4.1 statistics every Thursday, and the data disclosed is as of Wednesday. Figure 1 shows the Fed’s balance sheet as disclosed on February 17, 2022.
Analysis of the Fed's assets
As of February 16, 2022, the Fed's total assets exceeded $8.9 trillion. Historically, the Federal Reserve has mainly experienced two rounds of quantitative easing (QE). The first round was QE under the impact of the subprime mortgage crisis. The total assets of the Federal Reserve increased from approximately US$900 billion in early 2008 to approximately US$4.5 trillion at the end of 2014. The second round is QE under the impact of the epidemic. The total assets of the Federal Reserve have greatly expanded from approximately US$4.2 trillion in early 2020 to the latest US$8.9 trillion.
The Federal Reserve’s asset-side subjects include, (1) gold accounts; (2) special drawing rights; (3) coins; (4) direct holdings of securities, unamortized securities premiums/discounts, repurchase agreements, and loans; (5) ) Net portfolio positions of special purpose entities (SPV), which mainly refer to the net investment portfolio held by limited liability companies established by the New York Fed to rescue financial institutions in bankruptcy crisis; (6) Accounts receivable (funds in transit) ; (7) Fixed assets; (8) Central bank liquidity swap; (9) Assets denominated in foreign currency; (10) Other assets.
Next, we will analyze the important subjects of the Fed's asset side:
1. Holding securities directly
The direct holding of securities is the main asset of the Federal Reserve, currently accounting for 94.8% of the total assets of the Federal Reserve. In response to the subprime mortgage crisis, in November 2008, the Federal Reserve began to implement large-scale asset purchase programs (large-scale asset purchase programs), also known as quantitative easing (QE), to purchase treasury bonds, federal agency bonds and bonds on a large scale in the open market . MBS (mortgage-backed securities), currently account for 67.95%, 0.03% and 32.02% of bonds held, respectively.
After the launch of quantitative easing in 2008, the scope of the Federal Reserve’s open market bond purchases expanded from treasury bonds to MBS and federal agency bonds. MBS is an important asset purchased by the Federal Reserve in the open market after the subprime mortgage crisis. Treasury bonds are still the most held by the Federal Reserve. As of February 16, 2022, the scale of US Treasury bonds held by the United States reached 5.7 trillion US dollars. Among them, short-term treasury bonds, medium- and long-term treasury bonds (nominal type), medium- and long-term treasury bonds (inflation index type) and inflation compensation (referring to the adjustment amount of inflation to the principal of inflation index type medium and long-term bonds) accounted for 5.7%, 86.3%, and 6.7% respectively and 1.3%. The Fed buys treasury bonds in the secondary market, not in the primary market.
Federal agency bonds are issued by agencies of the U.S. federal government or operating agencies established by the federal government, and the bond issuer itself is responsible for repaying the bonds. Federal agency bonds held by the Federal Reserve include debt securities issued by National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Bank (Fannie Mae). After the subprime mortgage crisis, the Federal Reserve’s large-scale purchase of federal government bonds was close to 170 billion US dollars in mid-2010. Since then, the scale has continued to decline and has remained at 2 billion US dollars since mid-2018.
2. Unamortized securities premium/discount
The above mentioned securities held by the Federal Reserve are calculated at face value. So if the Fed pays more than its face value when it buys a security, it needs to amortize the premium paid over face value over time. On the contrary, the same is true for discounted purchases.
For U.S. Treasury and federal agency bonds, straight-line amortization is used, which keeps the amortized amount constant for each period. For MBS, amortization is on an effective interest basis, accelerated upon receipt of principal repayments, based on the actual interest earnings accrued each period. As the unamortized premium on securities falls, the Fed's capital account equivalent falls. For example, at the beginning of the year, the Federal Reserve bought US$12 billion of national debt with a face value of US$10 billion due at the end of the year, then US$100 was included in the national debt project, and the US$2 billion premium at the beginning of the year was included in the unamortized securities premium. By the end of February, the unamortized securities premium fell to $16.67 (20/12*(12-2)=$16.67), corresponding to a $333 million reduction in the Fed's capital.
The Federal Reserve purchases assets from the counterparty and enters into an agreement with the counterparty, stipulating that it will repurchase these securities within a short period of time (generally no more than one week). In fact, it is a temporary open market purchase through which the Federal Reserve injects short-term liquidity into commercial banks. It should be noted that, contrary to the open market operations of the People's Bank of China, the Fed is repurchasing liquidity and reverse repurchasing liquidity.
Before the subprime mortgage crisis, the repurchase agreement was an important tool for the Fed to release liquidity. After the opening of QE, the Federal Reserve rarely used this tool. It was not until September 2019 that liquidity in the financial market suddenly tightened, triggering the "repurchase crisis", that the Federal Reserve once again used this tool to inject liquidity on a large scale.
3. Loans
There are many sub-subjects and the subjects are different at different stages, but they are essentially credit tools provided by the Federal Reserve to different types of financial institutions based on different types of collateral. The most common ones are Primary credit, Secondary credit, and Seasonal credit, which belong to the Federal Reserve’s regular discount window lending. At the same time, loans also include the Federal Reserve through the primary dealer credit facility (Primary Dealer Credit Facility, PDCF), money market mutual fund liquidity facility (Money Market Mutual Fund Liquidity Facility, MMLF), the Paycheck Protection Program liquidity facility (Paycheck Protection Program Lending Facility, PPPLF) and other credit facilities (Other credit extensions) to provide credit.
Since March 2020, the loans held by the Federal Reserve have increased rapidly. During the subprime mortgage crisis, loans have also exploded, mainly because the Federal Reserve created and used unconventional lending tools on a large scale in response to the crisis. The significance of the new tool is that it breaks the rule that the Federal Reserve cannot directly lend to households and businesses, and achieves the purpose of directly providing loans to entities in crisis situations by creating new lending tools.
4. Net Portfolio Positions of Special Purpose Vehicles (SPVs)
The net portfolio positions of special purpose entities are measured according to fair value. It was born after the financial crisis by the Federal Reserve to directly rescue financial institutions. It is one of the unconventional monetary policies in the United States. The Federal Reserve provides special-purpose entities with credit to acquire part of the assets of financial institutions that are in bankruptcy crisis, and provides financing for financial institutions that are in bankruptcy crisis through this tool, so as to avoid bankruptcy from impacting the financial market. The Federal Reserve’s asset holdings in such entities are indirect. The Federal Reserve only provides credit to SPVs, and the U.S. Treasury Department actually contributes (reflected in the Fed’s liability-side Treasury Department’s capital injection into credit facilities). The Fed launched this tool mainly because the Federal Reserve Act stipulates that these assets cannot be purchased directly.
There are different entities at different stages of the crisis. The entities shown in the latest Fed balance sheet include CPFF (Commercial Paper Financing Facility), CCF (Corporate Bond Financing Facility), MSF (Main Street Financing Facility), MLF (Municipal Bond Facility) Financing Facility) and TALF (Asset-Backed Securities Financing Facility), the balances at the end of February 16, 2022 were $0, $0, $29 billion, $7.1 billion, and $2.5 billion, respectively, reflecting the Fed’s response to The use of unconventional tools for the epidemic has gradually withdrawn. Entities during the 2008 subprime crisis included Maiden Lane LLC, AIG, and TALF LLC.
Good things, learn to share~ You can't eat alone!
Add
