Manoj Singh wrote an article for Investopedia titled Understanding the Federal Reserve’s Balance Sheet (20 February 2026).
« The Federal Reserve System is the central bank of the United States and conducts the nation’s monetary policy. The primary goals of the Fed’s monetary policy are to promote maximum employment, stable prices, and moderate long-term interest rates. The Fed also seeks to ensure the stability of the financial system. »
« The Federal Reserve uses its balance sheet to help it accomplish those goals. The Fed decides what assets it holds and whether to expand or shrink its holdings. When the Federal Reserve buys debt instruments like Treasury notes or mortgage-backed securities, it is seeking to increase their price and lower yields, while signaling a looser monetary policy to support the economy. Conversely, the sale of Fed assets is a policy tightening approach that constrains financial conditions and asset values. »
« The Federal Reserve does not literally print money—that’s the job of the Bureau of Engraving and Printing, under the U.S. Department of the Treasury. However, the Federal Reserve does affect the money supply by buying assets and lending money. When the Fed wants to increase the amount of currency in circulation, it buys Treasurys or other assets on the market. When it wants to reduce the amount of currency in circulation, it sells the assets. The Fed can also affect the money supply in other ways, by lending money at higher or lower interest rates.»
« Unlike other government agencies, the Federal Reserve is not funded by taxes. Instead, the Fed pays its bills with the interest earnings from the Treasurys and other assets on its balance sheet. After paying its bills, any net surplus is transferred to the Department of the Treasury.»
« The Federal Reserve system is set up as a combination of public and private interests. While the Board of Governors is a federal agency, each Federal Reserve bank is structured as a private corporation, with its member banks acting as shareholders. Each Federal Reserve Bank is governed by a board of directors. Six of the directors are elected by the member banks, and three by the Board of Governors.»
Assets on the Federal Reserve’s Balance Sheet
« Traditionally, the Fed’s assets have mainly consisted of U.S. Treasury securities, primarily notes and bonds.
- Treasury notes are issued in maturities ranging from 2 to 10 years.
- Treasury bonds have maturities of more than 10 years.
- Treasury bills, or T-bills, are short-term debt with maturities of 4, 8, 13, 26, and 52 weeks. »
« Mortgage-backed securities, which entitle buyers to cash flows from a basket of mortgage loans, are the second largest asset type by value on the Fed’s balance sheet. These fixed-income securities are created and sold to investors by banks and financial institutions, including government-sponsored enterprises like Fannie Mae and Freddie Mac. »
« Fed assets also include loans extended to banks through the repo and discount window, lending under a variety of credit facilities established to support the smooth functioning of credit markets and economic growth, and foreign currency held under central bank liquidity swaps ensuring the availability of dollars for foreign institutions. »
Liabilities of the Federal Reserve’s Balance Sheet
« Currency in circulation, including a significant proportion in use overseas as well as any dollar bills in your pocket, was historically the largest Federal Reserve liability, until it was surpassed in 2010 by bank reserves on deposit with the Fed. Since 2019, the overnight rate the Fed pays on bank reserves has been its primary tool in setting the federal funds rate. »
« Reverse repurchase agreements, or reverse repos, are borrowings of Treasury’s from commercial counterparties used to hold the federal funds rate in the Fed’s targeted range.»
« When a bank converts some of its Fed reserve balance into currency, it increases currency in circulation and decreases reserves on deposit with the Fed, without changing the overall level of Fed liabilities. »
Congressional Research Services, which operates as a service to congressional committees and Members of Congress, published an article titled The Federal Reserve Balance Sheet (updated 15 December 2025).
« The size and composition of the Federal Reserve‘s (Fed’s) balance sheet is a product of its monetary policy and lender-of-last-resort activities. The balance sheet has increased to counter past crises and peaked at 10 times its size before the 2008 financial crisis. As part of the post-pandemic normalization of monetary policy, the Fed reduced the size of its balance sheet from $8.9 trillion in 2022 to $6.5 trillion in 2025. Going forward, it plans to increase the balance sheet enough to maintain ample bank reserves over time. »
« Its assets are equal in value to its liabilities and capital. »
Assets
« Most assets on the Fed’s balance sheet are financial securities. The Fed is permitted by law to buy or sell a narrow range of securities and must do so on the open market (referred to as open market operations). In practice, it purchases mainly Treasury securities and mortgage-backed securities (MBS) that are guaranteed by a federal agency or a government-sponsored enterprise (GSE). The open market requirement means that the Fed cannot purchase Treasury securities directly from the U.S. Treasury, instead transacting with primary dealers, a set of large broker-dealers active in Treasury markets. When the Fed purchases securities from primary dealers, it increases bank reserves (discussed below), increasing the overall liquidity of the financial system. »
« The Fed can also provide primary dealers, banks, and foreign central banks with temporary liquidity through repurchase agreements (repos). In a repo, the Fed temporarily purchases a Treasury security or MBS with an agreement to reverse the sale in the near future. »
« In crises, the Fed lends to banks through its discount window and creates emergency programs to stabilize financial markets. Through these programs, it makes or acquires loans and acquires private securities that are also held as assets on its balance sheet. These assets swell during crises and then shrink relatively quickly as financial conditions normalize. The Fed also lends dollars to foreign central banks in crises through foreign currency swaps. »
Liabilities
« Just as the Fed increases market liquidity through repos, it can reduce liquidity through reverse repos, in which the Fed temporarily sells securities to market participants and foreign central banks in exchange for cash. »
« Mechanically, when the Fed purchases a security or makes a loan, it finances it by creating new bank reserves. As a result, the asset and liability sides of the balance sheet increase by an identical amount so that assets always equal liabilities plus capital. »
« The U.S. Treasury also holds its cash balances at the Fed in the Treasury General Account. When the Treasury receives revenue, its balance increases, and when it makes payments, its balance decreases. The Fed issues paper currency (cash), officially called Federal Reserve notes. A Federal Reserve note is an IOU from the Fed that pays no interest, making it a liability on the balance sheet. »
Capital
« The Fed’s capital is equal in value to the difference between its assets and liabilities. It takes two forms. First, private banks that are members of the Fed must purchase stock in the Fed, called paid-in capital. Membership is required for nationally chartered banks and optional for state-chartered banks. Unlike common stock in a private company, this stock does not confer ownership control. However, it does provide the banks with seats on the boards of the 12 Fed regional banks. The stock pays a dividend that is fixed by statute at 6% for banks with under $10 billion in assets and the lesser of 6% or the prevailing 10-year Treasury yield for banks with over $10 billion. »
« The other form of capital is the Fed’s surplus. It comes from retained earnings and is capped by statute at $6.825 billion. Congress first capped the surplus and then repeatedly reduced the cap as a “pay for” (budgetary offset) for unrelated legislation. »
Net Income and Remittances
« The Fed earns income on its loans, repos, and securities, along with fees it charges. These finance its expenses, which include operating expenses and the interest paid on bank reserves and repos. The difference between income and expenses is called net income. Net income is used to pay statutorily required dividends to shareholders and pay remittances to Treasury, which are added to the federal government’s general revenues. »
« From 2008 to 2022, net income and remittances increased significantly. From September 2022 to November 2025, its net income was negative, because the interest rates it pays on bank reserves and reverse repos became higher than the yield on the securities it holds. As a result, its remittances to Treasury fell close to zero for the first time since 1934. »
« But unlike a private company, under the Fed’s accounting conventions, negative net income does not reduce its capital or cause it to become insolvent. Instead, it registers the losses as negative liabilities (or deferred assets) on the balance sheet. Remittances will not resume until the negative liability is depleted by future positive net income, which will occur once the yield on its assets exceeds the interest rate on its liabilities. »
Quantitative Easing
« Before the 2008 financial crisis, the Fed’s balance sheet grew modestly over time. During that crisis, the Fed created a number of emergency lending programs that caused its balance sheet to balloon. In addition, the Fed wanted to provide more monetary stimulus after reducing interest rates to zero. »
« For the first time, it made monthly large-scale asset purchases, popularly called quantitative easing (QE), at a preannounced rate that also caused the balance sheet to increase rapidly. Under QE, the Fed purchased Treasury securities and debt and MBS issued by government agencies and GSEs. The increase in assets was matched by an increase in liabilities—mainly bank reserves, which were kept at a minimum before the financial crisis but afterwards topped $1 trillion. »
« Since the crisis, the Fed has conducted monetary policy under an ample reserves framework, where it creates so many reserves that banks’ demand for reserves does not influence market interest rates. In the long run, the Fed decides how many securities to hold based on the reserves needed under this framework. »
« QE occurred in three rounds between 2009 and 2014, as the recovery from the financial crisis was initially weak. The goals of QE were to stimulate the economy by reducing long-term interest rates and to provide additional liquidity to the financial system. QE reduced long-term interest rates by driving down yields on the securities the Fed was purchasing, which led to lower interest rates throughout the economy. The reduction in yields on MBS translated to lower mortgage rates, stimulating housing demand. QE increased liquidity by increasing bank reserves. »
« From 2014 to 2018, the Fed kept the size of its balance sheet steady by rolling over (reinvesting the principal from) maturing assets. Beginning in 2018, the Fed gradually reduced its balance sheet by allowing maturing assets instead to roll off the balance sheet (i.e., no longer reinvesting principal—as opposed to selling securities) up to a fixed amount. »
« In 2019, repo market volatility convinced the Fed that more bank reserves were needed to operate its ample reserves framework, so it began increasing the balance sheet again. When the COVID-19 pandemic began, the pace of repo lending and asset purchases increased and emergency facilities were reintroduced, causing faster balance sheet growth. »
Quantitative Tightening
« In November 2021, responding to high inflation, the Fed announced that it would taper off its asset purchases (i.e., purchase fewer assets per month). In March 2022, it ended asset purchases, at which point the balance sheet had more than doubled from its pre-pandemic size. In June 2022, the balance sheet began to shrink. Popularly called quantitative tightening (QT), it involved the Fed allowing a capped amount of maturing Treasury securities and MBS to roll off the balance sheet each month. MBS redemptions were typically below the cap, as households held on to low fixed-rate mortgages. QT ended in December 2025, with only half of the pandemic balance sheet growth reversed. »
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