Legislation Eliminating the Federal Reserve's Surplus (CRS Report for Congress)
| Release Date |
Nov. 20, 2015 |
| Report Number |
IN10395 |
| Report Type |
Insight |
| Authors |
Labonte, Marc |
| Source Agency |
Congressional Research Service |
Summary:
On November 5, 2015, the House adopted H.Amdt. 824 as a 'pay for' (revenue offset) to the highway bill (H.R. 22). It would permanently eliminate the Federal Reserve's (Fed's) surplus account and transfer those funds to the Treasury. [â¦] The Fed retains some of its profits in a surplus account, which currently has a balance of $29.3 billion. Since 1964, the Fed has set its surplus equal to the amount of capital that private banks are required to pay in as members of the Federal Reserve System. Together, the paid-in capital and surplus represent the total capital of the Fed, loosely analogous to the capital that private banks hold. But unlike a private bank's capital, 'if a Reserve Bank were to incur an overall loss, its capital would not fall, rather it would suspend remitting to the Treasury until such time as it had returned to positive earnings and had earned back any losses to date,' according to a Fed working paper. The Fed earns income on its holdings of Treasury and mortgage-backed securities that exceed its expenses. The Fed's net income (hereinafter referred to as profits) is used to pay dividends to banks on paid-in capital, add to its surplus, and make remittances to Treasury, where they become general revenues. In 2014, the Fed earned profits of $101.3 billion, of which $1.6 billion were used to pay dividends, $1.1 billion were added to the surplus, and $96.9 billion were remitted to the Treasury.
