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Fed handed record US$96.9b profit to government last year

[NEW YORK] The Federal Reserve handed US$96.9 billion to the US Treasury last year, audited financial statements showed on Friday, a record payday for the US government thanks to interest on the central bank's massive stable of assets.

The interest in 2014 totaled US$115.9 billion on the Treasury and mortgage bonds the Fed has purchased over three rounds of bond-buying, which were meant to stimulate the US recovery from a 2007-2009 recession. The Fed's 12 reserve banks held US$4.5 trillion at year end, up US$500 billion from 2013.

The annual audit of the central bank's payment to the government, done by Deloitte, has political undertones this year. Republicans in Congress have proposed a bill, known as Audit the Fed, that would allow politicians to second-guess monetary policy decisions.

Some Republicans say the Fed is opaque and has imperiled the country with massive stimulus efforts. The Fed says its operations are transparent and has noted that it is already extensively audited.

Fed Chair Janet Yellen has repeatedly warned against politicizing the Fed's independence. Last month, she waved a copy of the audit in the air at a congressional testimony.

The 83-page audit showed the Fed had interest expenses on depository institutions' reserve balances of US$6.9 billion last year, due to the quarter of a percentage point the central bank pays banks on their excess reserves.

The Fed has kept its key policy rate near zero for more than six years. Strong economic and jobs growth has it aiming to begin to tighten policy later this year. Last October, it halted any new bond buying.

As the recovery proceeds and interest rates rise, the Fed's assets may decline in value on paper, although the central bank would only generate losses from its portfolio if the assets were sold. It has said it does not intend to sell assets for quite some time, if at all.

A Fed official who asked not to be named said that future remittances or losses will depend on economic conditions, adding that the currently rising dollar has the effect of trimming profits.

The US$96.9 billion in remittances to Treasury is not earmarked for anything in particular, said the Fed official. It tops the US$79.6 billion paid in 2013, and US$88.4 billion in 2012.

Preliminary results in January showed 2014 profits of US$98.7 billion.

REUTERS