Finance and Economics Discussion Series: Accessible versions of figures for 2017-099

How does the Fed adjust its Securities Holdings and Who is Affected?

Accessible version of figures

Figure 1: Simplified Federal Reserve balance sheet, end-2006

Account	Amount
Assets
Securities held outright	779
Other assets	97
Liabilities
Federal Reserve notes	783
Deposits of DIs	13
Other liabilities	49
Memo: Capital	31

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Figure 2: The Federal Reserve's securities holdings as a share of nominal GDP

quarter	Treasury	MBS	Other
1989 Q1	4.1	0.0	0.1
1989 Q2	4.1	0.0	0.1
1989 Q3	3.9	0.0	0.1
1989 Q4	3.8	0.0	0.1
1990 Q1	3.7	0.0	0.1
1990 Q2	3.8	0.0	0.1
1990 Q3	3.8	0.0	0.1
1990 Q4	3.9	0.0	0.1
1991 Q1	3.9	0.0	0.1
1991 Q2	4.0	0.0	0.1
1991 Q3	4.1	0.0	0.1
1991 Q4	4.2	0.0	0.1
1992 Q1	4.1	0.0	0.1
1992 Q2	4.1	0.0	0.1
1992 Q3	4.2	0.0	0.1
1992 Q4	4.3	0.0	0.1
1993 Q1	4.4	0.0	0.1
1993 Q2	4.5	0.0	0.1
1993 Q3	4.6	0.0	0.1
1993 Q4	4.6	0.0	0.1
1994 Q1	4.7	0.0	0.1
1994 Q2	4.7	0.0	0.1
1994 Q3	4.8	0.0	0.1
1994 Q4	4.8	0.0	0.0
1995 Q1	4.8	0.0	0.0
1995 Q2	4.9	0.0	0.0
1995 Q3	4.8	0.0	0.0
1995 Q4	4.8	0.0	0.0
1996 Q1	4.8	0.0	0.0
1996 Q2	4.7	0.0	0.0
1996 Q3	4.7	0.0	0.0
1996 Q4	4.7	0.0	0.0
1997 Q1	4.7	0.0	0.0
1997 Q2	4.7	0.0	0.0
1997 Q3	4.7	0.0	0.0
1997 Q4	4.8	0.0	0.0
1998 Q1	4.8	0.0	0.0
1998 Q2	4.9	0.0	0.0
1998 Q3	4.8	0.0	0.0
1998 Q4	4.8	0.0	0.0
1999 Q1	4.9	0.0	0.0
1999 Q2	5.0	0.0	0.0
1999 Q3	5.0	0.0	0.0
1999 Q4	5.0	0.0	0.0
2000 Q1	5.0	0.0	0.0
2000 Q2	4.9	0.0	0.0
2000 Q3	4.9	0.0	0.0
2000 Q4	4.9	0.0	0.0
2001 Q1	4.9	0.0	0.0
2001 Q2	5.0	0.0	0.0
2001 Q3	5.0	0.0	0.0
2001 Q4	5.1	0.0	0.0
2002 Q1	5.2	0.0	0.0
2002 Q2	5.3	0.0	0.0
2002 Q3	5.4	0.0	0.0
2002 Q4	5.5	0.0	0.0
2003 Q1	5.6	0.0	0.0
2003 Q2	5.7	0.0	0.0
2003 Q3	5.6	0.0	0.0
2003 Q4	5.6	0.0	0.0
2004 Q1	5.6	0.0	0.0
2004 Q2	5.6	0.0	0.0
2004 Q3	5.6	0.0	0.0
2004 Q4	5.7	0.0	0.0
2005 Q1	5.6	0.0	0.0
2005 Q2	5.6	0.0	0.0
2005 Q3	5.5	0.0	0.0
2005 Q4	5.5	0.0	0.0
2006 Q1	5.5	0.0	0.0
2006 Q2	5.5	0.0	0.0
2006 Q3	5.5	0.0	0.0
2006 Q4	5.5	0.0	0.0
2007 Q1	5.5	0.0	0.0
2007 Q2	5.5	0.0	0.0
2007 Q3	5.4	0.0	0.0
2007 Q4	5.3	0.0	0.0
2008 Q1	4.8	0.0	0.0
2008 Q2	3.5	0.0	0.0
2008 Q3	3.2	0.0	0.0
2008 Q4	3.3	0.0	0.1
2009 Q1	3.3	0.5	0.2
2009 Q2	4.0	2.7	0.5
2009 Q3	5.0	4.1	0.8
2009 Q4	5.3	5.6	1.0
2010 Q1	5.3	6.8	1.1
2010 Q2	5.2	7.4	1.1
2010 Q3	5.2	7.4	1.1
2010 Q4	5.8	6.8	1.0
2011 Q1	7.7	6.3	0.9
2011 Q2	9.6	6.0	0.8
2011 Q3	10.6	5.7	0.7
2011 Q4	10.6	5.4	0.7
2012 Q1	10.4	5.3	0.6
2012 Q2	10.3	5.3	0.6
2012 Q3	10.2	5.2	0.5
2012 Q4	10.1	5.4	0.5
2013 Q1	10.5	6.1	0.5
2013 Q2	11.3	6.9	0.4
2013 Q3	12.0	7.6	0.4
2013 Q4	12.6	8.4	0.3
2014 Q1	13.3	9.1	0.3
2014 Q2	13.6	9.5	0.3
2014 Q3	13.8	9.5	0.2
2014 Q4	13.9	9.7	0.2
2015 Q1	13.8	9.7	0.2
2015 Q2	13.6	9.6	0.2
2015 Q3	13.5	9.5	0.2
2015 Q4	13.5	9.6	0.2
2016 Q1	13.4	9.6	0.2
2016 Q2	13.3	9.4	0.1
2016 Q3	13.2	9.3	0.1
2016 Q4	13.0	9.2	0.1
2017 Q1	12.9	9.2	0.1
2017 Q2	12.8	9.2	0.1

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Figure 3: Federal Reserve purchase of Treasury securities from nonbank sector

Federal Reserve: Purchased Treasury securities

Account	Amount
Assets
U.S. Treasury securities holdings	+ 100
Unamortized discounts on securities	- 1
Liabilities
Reserve balances	+ 99

Banking sector: Cleared the transaction

Account	Amount
Assets
Reserve balances	+ 99
Liabilities
Bank deposits	+ 99

Nonbank sector (businesses, etc.): Sold Treasury securities

Account	Amount
Assets
U.S. Treasury securities holdings	99
Bank deposits	+ 99

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Figure 4: Federal Reserve purchase of Treasury securities from banking sector

Federal Reserve: Purchased Treasury securities

Account	Amount
Assets
U.S. Treasury securities holdings	+ 100
Unamortized discounts on securities	- 1
Liabilities
Reserve balances	+ 99

Banking sector: Sold Treasury securities

Account	Amount
Assets
U.S. Treasury securities holdings	- 99
Reserve balances + 99

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Figure 5: Federal Reserve purchase of agency MBS

SOMA cash and cash equivalents are recorded in "Other assets" on the Federal Reserve Board's H.4.1 statistical release.

Sold MBS assumes that the seller's basis in the MBS is the same as the Federal Reserve's purchase price. If the seller had a different basis, the seller would realize a gain or loss on the transaction.

Federal Reserve: Purchased MBS

Account	Amount
Assets
SOMA Cash and cash equivalents Funding of purchase	+ 1020
SOMA Cash and cash equivalents Purchase of agency MBS	- 1020
SOMA Agency MBS holdings Purchase of agency MBS	+ 1000
SOMA Agency MBS holdings Purchase premium	+ 20
Liabilities
Reserve balances Funding of purchase	+ 1020
Reserve balances Purchase of agency MBS	+ 0

The Fed's MBS custodian

Account	Amount
Assets
Reserve balances Funding of purchase	+ 1020
Reserve balances Purchase of agency MBS	- 1020
Liabilities
Bank deposits Funding of purchase	+ 1020
Bank deposits Purchase of agency MBS	- 1020

Banking sector: Cleared the transaction

Account	Amount
Assets
Reserve balances Purchase of agency MBS	+ 1020
Liabilities
Bank deposits Purchase of agency MBS	+ 1020

Nonbank sector:

Account	Amount
Assets
Bank deposits Purchase of agency MBS	+ 1020
Agency MBS holdings Purchase of agency MBS	- 1020

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Figure 6: Maturing Treasury securities held by Federal Reserve

Federal Reserve

Account	Amount
Assets
SOMA U.S. Treasury securities holdings Maturing securities	- 100
Liabilities
Treasury General Account Maturing securities	- 100

Treasury

Account	Amount
Assets
Treasury General Account Maturing securities	- 100
Liabilities
Treasury debt Maturing securities	- 100

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Figure 7: Reinvestment of maturing Treasury securities

Federal Reserve

Account	Amount
Assets
SOMA U.S. Treasury security holdings Maturing Treasury securities	- 100
SOMA U.S. Treasury security holdings Acquired Treasury securities	+ 100
Liabilities
Treasury General Account Maturing Treasury securities	- 100
Treasury General Account Acquired Treasury securities	+ 100

Treasury

Account	Amount
Assets
Treasury General Account Maturing Treasury securities	- 100
Treasury General Account Auction of Treasury securities + 100
Liabilities
Treasury debt Maturing Treasury securities	- 100
Treasury debt Auction of Treasury securities	+ 100

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Fed’s receipt of interest on Treasury securities

Federal Reserve

Account	Amount
Assets
SOMA Accrued interest receivable Interest income earned	+ 0.25
SOMA Accrued interest receivable Interest payment	- 0.25
Liabilities
Interest income accrual Interest income earned	+ 0.25
Treasury General Account Interest payment	- 0.25

Treasury

Account	Amount
Assets
Interest Expense Interest expense accrual	+ 0.25
Treasury General Account Interest payment	- 0.25
Liabilities
Accrued interest payable Interest expense accrual	+ 0.25
Accrued interest payable Interest payment	- 0.25

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Figure 8: Agency MBS payment: Funds flow from household to Federal Reserve

Figure 8 has four boxes to illustrate the linkage between a household, who took out a mortgage and made a principal payment, and the Federal Reserve, who holds the agency MBS backed by the mortgage. Starting from the left of the figure, the first box is labeled “Household.” We assume the household makes a principal payment of $100 and this payment first goes to the holder of the mortgage, which is the second box and labeled “GSE.” The payment is indicated by an arrow between the two boxes and is denoted “Household pays GSE $100.” The GSE then passes the household’s $100 payment on to the Federal Reserve’s MBS custodian. The third box is labeled “Fed’s MBS custodian.” The arrow between box 2 and 3 is labeled “GSE pays Fed’s custodian $100.” To get the funds to the Fed, the arrow between the third and last boxes states “Custodian pays Fed $100.” The fourth, and final, box is labeled “Federal Reserve.”

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Figure 9: Payment received by Fed on agency MBS

Household: Made mortgage P&I payment

Account	Amount
Assets
Bank deposits P&I payment by household	- 100
Liabilities
Mortgage (both P&I owed) P&I payment by household	- 100

Banking sector: Cleared household's payment

Account	Amount
Assets
Reserve balances P&I payment by household	- 100
Liabilities
Bank deposits P&I payment by household	- 100

GSE/Seller: Received payment, sends to agency MBS holders

Account	Amount
Assets
Reserve balances P&I payment by household	+ 100
Reserve balances MBS payment to custodian	- 100
Mortgage P&I receivable P&I payment by household	- 100
Liabilities
Agency MBS obligation MBS payment to custodian	- 95
Accrued interest payable MBS payment to custodian	- 5

The Fed's MBS custodian

Account	Amount
Assets
Reserve balances MBS payment to custodian	+ 100
Reserve balances MBS payment to Fed	- 100
Liabilities
Bank deposits (of the Fed) MBS payment to custodian	+ 100
Bank deposits (of the Fed) MBS payment to Fed	- 100

Federal Reserve

Account	Amount
Assets
SOMA Cash and cash equivalents MBS payment to custodian	+ 100
SOMA Cash and cash equivalents MBS payment to Fed	- 100
Agency MBS holdings MBS payment to custodian	- 95
Accrued Interest receivable MBS payment to custodian	- 5
Liabilities
Reserve balances P&I payment by household	+ 0
Reserve balances MBS payment to custodian	+ 0
Reserve balances MBS payment to Fed	- 100

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Figure 10: Reinvestment of principal payment on agency MBS securities

Federal Reserve

Account	Amount
Assets
SOMA Cash and cash equivalents	+ 0
SOMA Agency MBS holdings	+ 95
Liabilities
Reserve balances	+ 95

The Fed's MBS custodian: Purchased MBS from GSE on behalf of Fed

Account	Amount
Assets
Reserve balances	+ 0
Liabilities
Bank deposits	+ 0

GSE/Seller: Issued agency MBS

Account	Amount
Assets
Reserve balances	+ 95
Liabilities
Agency MBS obligation	+ 95

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Figure 11: Sectors possibly affected by Federal Reserve's securities redemptions

Figure 11 has three columns of boxes, with the right-most column having three stacked boxes. This figure illustrates the linkage from the Fed redeeming a Treasury security to the ultimate holder of a newly-issued Treasury security. The first column has one box, which is labeled “Federal Reserve.” The second column also has one box, which is labeled “Treasury.” The arrow between the two boxes states “Fed redeems maturing security, which reduces the Treasury’s cash balance.” This figure assumes the Treasury issues new debt. In doing so, the figure shows, in the final column, that there can be three private sector purchasers of the debt. These three stacked boxes are labeled: “Dealer,” “Bank,” and “Household.” The arrow between the middle and right-most boxes states “Treasury decides to maintain its cash balance by issuing additional debt to the private sector.”

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Figure 12: Case 1: Fed redeems Treasuries; primary dealer purchases newly-issued securities

Federal Reserve: Redeemed Treasury securities

Account	Amount
Assets
SOMA U.S. Treasury security holdings Maturing Treasury securities	- 100
Liabilities
Treasury General Account Maturing Treasury securities	- 100
Treasury General Account Newly-issued Treasury securities	+ 100
Reserve balances Newly-issued Treasury securities	- 100

Treasury: Issued new Treasury securities

Account	Amount
Assets
Treasury General Account Maturing Treasury securities	- 100
Treasury General Account Newly-issued Treasury securities	+ 100
Liabilities
Treasury debt Maturing Treasury securities	- 100
Treasury debt Newly-issued Treasury securities	+ 100

Primary Dealer: Bought Treasury securities

Account	Amount
Assets
U.S. Treasury security holdings Newly-issued Treasury securities	+ 100
Liabilities
Repo Newly-issued Treasury securities	+ 100

Banking Sector: Provided funding for the transaction

Account	Amount
Assets
Reserve balances Newly-issued Treasury securities	- 100
Outstanding repo Newly-issued Treasury securities	+ 100

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Figure 13: Case 2: Fed redeems Treasuries; bank purchases newly-issued securities

Federal Reserve: Redeemed Treasury securities

Account	Amount
Assets
SOMA U.S. Treasury security holdings Maturing Treasury securities	- 100
Liabilities
Treasury General Account Maturing Treasury securities	- 100
Treasury General Account Newly-issued Treasury securities	+ 100
Reserve Balances Newly-issued Treasury securities	- 100

Treasury: Issued new Treasury securities

Account	Amount
Assets
Treasury General Account Maturing Treasury securities	- 100
Treasury General Account Newly-issued Treasury securities	+ 100
Liabilities
Treasury debt Maturing Treasury securities	- 100
Treasury debt Newly-issued Treasury securities	+ 100

Banking sector: Bought Treasury securities

Account	Amount
Assets
Reserve balances Newly-issued Treasury securities	- 100
U.S. Treasury securities holdings Newly-issued Treasury securities	+ 100

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Figure 14: Case 3: Fed redeems Treasuries; household purchases newly-issued securities

Federal Reserve: Redeemed Treasury securities

Account	Amount
Assets
SOMA U.S. Treasury security holdings Maturing Treasury securities	- 100
Liabilities
Treasury General Account Maturing Treasury securities	- 100
Treasury General Account Newly-issued Treasury securities + 100
Reserve balances Newly-issued Treasury securities	- 100

Treasury: Issued new Treasury securities

Account	Amount
Assets
Treasury General Accountbr /> Maturing Treasury securities	- 100
Treasury General Accountbr /> Newly-issued Treasury securities	+ 100
Liabilities
Treasury debtbr />Maturing Treasury securities	- 100
Treasury debtbr /> Newly-issued Treasury securities	+ 100

Banking Sector: Cleared the transaction

Account	Amount
Assets
Reserve balances Newly-issued Treasury securities	- 100
Liabilities
Deposits Newly-issued Treasury securities	- 100

Household: Bought Treasury securities

Account	Amount
Assets
U.S. Treasury security holdings Newly-issued Treasury securities	+ 100
Bank deposits Newly-issued Treasury securities	- 100

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Figure 15: Newly-issued agency MBS purchased by bank

Federal Reserve: Redeemed agency MBS

Account	Amount
Assets
SOMA Cash and cash equivalents	+ 0
SOMA Agency MBS holdings MBS payment to holders	- 95
SOMA Accrued Interest receivable MBS payment to holders	- 5
Liabilities
Reserve balances (of banks) Redemption of MBS	- 100
Reserve balances (of banks) Newly-issued MBS	- 95
GSE reserve balances Newly-issued MBS	+ 95

GSE/Seller: Issued agency MBS

Account	Amount
Assets
Reserve balances MBS payment to holders	- 100
Newly-issued MBS	+ 95
Liabilities
Agency MBS obligation MBS payment to holders	- 95
Agency MBS obligation Newly-issued MBS	+ 95
Accrued interest payable MBS payment to holders	- 5

Banking sector: Purchased agency MBS

Account	Amount
Assets
Reserve balances Newly-issued MBS	- 95
MBS holdings Newly-issued MBS	+ 95

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Figure 16: Newly-issued agency MBS purchased by household

Federal Reserve: Redeemed agency MBS; GSE/Seller: Issued agency MBS
Same entries as above (figure 15)

Banking sector: Cleared the purchase transaction

Account	Amount
Assets
Reserve balances Newly-issued MBS	- 95
Bank deposits Newly-issued MBS	- 95

Household sector: Purchased agency MBS

Account	Amount
Assets
Bank deposits Newly-issued MBS	- 95
Agency MBS holdings Newly-issued MBS	+ 95

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