Fed Turns Record Profit

The Hill reports:

The Federal Reserve turned a record $81.7 billion profit in 2010, up 53 percent from 2009, the central bank reported Tuesday.

The vast majority of the Fed's profit — $79.3 billion — will be turned over to the Treasury Department, with the rest being paid out to member banks in dividends.

A substantial chunk of that profit came from increased interest income from the $1 trillion in mortgage-backed securities the Fed purchased during the financial crisis to help stabilize the housing market. The Fed made $24.4 billion more in interest on those holdings in 2010. The central bank also made $3.5 billion in interest from its increased holdings in Treasury bonds, as it buys up Treasury debt in an effort to boost private lending.

While the Fed is still reaping profits from its intervention into the financial system during the crisis, it is beginning to wind down other areas where it had stepped in. Loans given to insurance giant American International Group, Inc. (AIG) declined slightly in 2010 to $20.6 billion, from $21.3 billion in 2009. As a result, the Fed made roughly $1 billion less in interest on those loans.

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