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short essays and reports on the economic issues of the day
2009 ■ Number 13

Federal Reserve Assets:
Understanding the Pieces of the Pie
Charles S. Gascon, Senior Research Associate
ince September 2007, the Federal Reserve has inter“One way to examine the composition
vened repeatedly and in various ways to ease credit
of assets on the Fed’s balance sheet is to
conditions in financial markets. The Federal Open
group them according to the objectives
Market Committee (FOMC) aggressively reduced the federal funds rate target from 5.25 percent to the current range
of the programs used to acquire them.”
of 0 to 0.25 percent. As financial conditions deteriorated,
The second set of assets falls under the broad category
the Fed established numerous programs (which make use
of rescue operations.6 Following the failure of Bear Stearns
of the asset side of its balance sheet) to increase the flow of
in March 2008, the Federal Reserve Board invoked section
credit to households and businesses. Chairman Bernanke
13(3) of the Federal Reserve Act, which allows the Fed to
described this approach as credit easing.2
extend credit through discounts in “unusual and exigent
The Fed’s numerous new programs are not easily sumcircumstances” when a borrower is “unable to secure ademarized by a single number, such as the size of the monequate credit accommodations from other banking institutary base. The programs involve purchasing assets of varytions.” These include special purpose vehicles to handle
ing types and maturities; moreover, the size of some proassets from Bear Stearns and AIG.7 Unlike many of the
grams will naturally decline as market conditions improve.
short-term assets under the first group of lending programs,
It therefore becomes important to track not only the size
of the Fed’s balance sheet, but also the
composition of its assets.
One way to examine the composition of
1. Composition of Federal Reserve Assets (Week ending Wednesday)
assets on the Fed’s balance sheet is to group
$ Billions
them according to the objectives of the pro3,000
Short-Term Lending to Financial Firms and Markets
grams used to acquire them. The first set of
Rescue Operations
Operations Focused on Longer-Term Credit Conditions
ity to financial firms and markets. The
Traditional Portfolio
largest of these programs, at $413 billion,
Traditional Porfolio and Long-Term Assets
is the Term Auction Facility (TAF), which
allows depository institutions to borrow
from the Fed for 28 or 84 days against a
wide variety of collateral.4 At $390 billion,
currency swap lines are the second largest
program. These facilities allow the 14 participating foreign central banks to acquire
U.S. dollars to lend to their constituents.
In exchange, the Fed receives holdings in
foreign currencies.5 Combined, these lending programs are designed to ensure that
markets have adequate short-term dollar
funding. These programs will dissipate as
01/03/07 04/03/07 07/03/07 10/03/07 01/03/08 04/03/08 07/03/08 10/03/08 01/03/09
market conditions improve.


Economic SYNOPSES

Federal Reserve Bank of St. Louis


these assets may remain on the
2. Federal Reserve Assets Week Ending 03/04/2009
Fed’s balance sheet for some time.
Finally, in January 2009, the Fed
Rescue Operations
$114 Billion
began purchasing agency mort6%
gage-backed securities and debt
Traditional Portfolio
$493 Billion
from Fannie Mae and Freddie Mac.
These efforts are directed at easing
longer-term credit conditions.8
Although these programs account
for slightly less than 6 percent of
the Fed’s current balance sheet,
future additions to these programs
could add another $500 billion.
Chart 1 displays changes in the
Short-Term Lending to
Operations Focused on LongerFinancial Firms and Markets
Term Credit Conditions
total size and composition of the
$1,189 Billion
$107 Billion
assets since January 2007. Chart 2
provides additional detail on the
composition of the assets as of
Total Assets: $1,903 Billion
NOTE: Components may not sum to totals because of rounding.
March 4, 2009. The additional
SOURCE: Federal Reserve Board H.4.1 Tables 1 and 8.
category in these charts, labeled
Traditional Portfolio, includes the
1 See for a chronology and description of these
traditional assets the Fed holds on its balance sheet.
Usually, more than 95 percent of this portfolio is Treasury
See Ben Bernanke’s “The Crisis and Policy Response,” Stamp Lecture, London
securities held outright.9 The black line in chart 1 provides
School of Economics, London, England, January 13, 2009.
a measure of the Fed’s balance sheet minus the assets from
3 The assets included are term auction credit, central bank liquidity swaps, net
the short-term lending programs.
portfolio holdings of Commercial Paper Funding Facility LLC, net portfolio holdNotice that, until September 2008, total assets remained
ings of LLCs through the Money Market Investor Funding Facility, repurchase
agreements, other assets, and other loans (less loans to AIG).
slightly under $1,000 billion, because the Fed reduced its
4 See David Wheelock’s “Another Window: The Term Auction Facility,” Economic
supply of Treasury securities to offset new lending programs.
Synopses, 2008, Number 6; and Craig Aubuchon’s “The Fed’s Response to the
Beginning in September, the Fed continued to lend, but
Credit Crunch,” Economic Synopses, 2009, Number 6.
stopped offsetting the acquisition of new assets with the
5 The loans made to foreign central banks are booked as assets on the Fed’s balance
accompanying sale of Treasuries: Total assets doubled.
sheet, not the foreign currency.
6 The assets included are credit extended to AIG and net portfolio holdings of
As an alternative to the Fed reducing its holdings of
Maiden Lane LLC I, II, and III.
Treasuries, the Treasury agreed to hold a large volume of
7 Special purpose vehicles are legal entities (i.e., LLCs) created by the Fed to fulfill
deposits at the Fed. The deposits by the Treasury offset the
narrow or temporary objectives.
creation of new base money, as the reserves created by new
8 The assets included are federal agency obligations held outright and mortgageprograms are placed in the Treasury’s account at the Fed.
backed securities.
The black line in Chart 1 indicates that the total assets,
9 Assets also included are gold certificate account, SDRs certificate account, coin,
net the short-term portion, has actually declined since
items in process of collection, and assets on bank premises.
2007. According to Chart 2, the sum of these assets comprise 38 percent of the total, or $714 billion. Tracking the
composition of Fed assets, as well as the total size of the
balance sheet, provides a more comprehensive summary
of the current stance of Fed policy during this time of
credit easing. ■

Posted on March 10, 2009
Views expressed do not necessarily reflect official positions of the Federal Reserve System.