Fed transfered $77 billion in profits to Treasury for 2011

WASHINGTON – The Federal Reserve said Tuesday that it transferred $76.9 billion in profits to the Treasury Department last year, slightly less than its 2010 transfer but much more than in any other previous year.

The Fed is required by law to transfer its profits to the Treasury each year, a provision that has become increasingly lucrative as a byproduct of the central bank’s ongoing campaign to stimulate economic growth.

Almost 97 percent of the Fed’s income was generated by interest payments on its $2.5 trillion in holdings of Treasury securities and mortgage-backed securities, which it has amassed in an effort to reduce borrowing costs for businesses and consumers by reducing long-term interest rates.

Through those purchases, the central bank has become the largest single holder of federal debt, and of securities issued by the government-owned mortgage finance companies Fannie Mae and Freddie Mac. As a consequence, most of the money flowing into the Fed’s coffers comes from the pockets of taxpayers.

But Fed officials note that this recycling – payments flowing from Treasury to the Fed and then back to the Treasury – still saves money for taxpayers because those interest payments otherwise would be made to other investors.

“It’s interest that the Treasury didn’t have to pay to the Chinese,” the Fed’s chairman, Ben S. Bernanke, half-jokingly told Congress last year.