The Federal Reserve System Balance Sheet-What Happened and Why it Matters

 
Author/Editor: Stella, Peter
 
Publication Date: May 01, 2009
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: The recent expansion of the balance sheet of the consolidated Federal Reserve Banks (FRB) is analyzed in an historical context. The analysis reveals that the nature of Fed involvement in U.S. financial markets has changed dramatically and its expansion is several orders of magnitude beyond what is usually reported. The associated fiscal risks and potential exit strategies are then considered. Although risks are considerable in certain unlikely scenarios, FRB capital, earnings capacity, and reserves are more than ample to preserve their financial independence. Nevertheless, the occurrence of losses or a significant drop in FRB profit might lead to an eventual curtailment of Fed operational independence. The paper concludes by considering options to enhance FRB risk management and to assign responsibilities for monetary, financial stability and fiscal policies once the current crisis is overcome.
 
Series: Working Paper No. 09/120
Subject(s): Capital markets | Central bank policy | Central banks | Commercial banks | Credit risk | Financial risk | Financial systems | Liquidity management | Monetary policy | Monetary reserves | Risk management | United States

Author's Keyword(s): Central bank capital
 
English
Publication Date: May 01, 2009
Format: Paper
Stock No: WPIEA2009120 Pages: 60
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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