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Board of Governors of the Federal Reserve System
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Annual Report Budget Review 2012


This publication provides current budgeted expenses of the Federal Reserve Board of Governors and the Federal Reserve Banks, as well as the previous year's income and expenses for both the Board and the Banks. It also describes their budgeting processes and shows trends in their expenses and employment. For a comprehensive report on the Board and Reserve Banks' operations and activities during the year, see the Annual Report of the Board of Governors of the Federal Reserve System at

Overview of the Federal Reserve System

The Federal Reserve System--the nation's central bank--consists of the Board of Governors in Washington, D.C., the 12 Federal Reserve Banks and their 24 branches distributed throughout the nation, the Federal Open Market Committee (FOMC), and three advisory councils--the Federal Advisory Council, the Community Depository Institutions Advisory Council, and the Consumer Advisory Council.1 The System was created in 1913 by the Congress to establish a safe and flexible monetary and banking system. Over the years, the Congress has adjusted the Federal Reserve's authority and responsibility to help achieve broad national economic and financial objectives.

As the nation's central bank, the Federal Reserve System has numerous, varied responsibilities, including

  • conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices;
  • supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the rights of consumers;
  • maintaining the stability of the financial system and containing systemic risk that may arise in financial markets; and
  • providing certain financial services to U.S. financial institutions, the U.S. government, and foreign official institutions.

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Summary of 2011 Income and Expenditures

In carrying out its responsibilities in 2011, the Federal Reserve System incurred $3.4 billion in net expenses. Total spending of $4.4 billion was offset by $1.0 billion in revenue from priced services, claims for reimbursement, and other income. Total 2011 expenses were $156.9 million, or 3.5 percent, less than the amount budgeted for 2011 (table 1).

Table 1. Total expenses of the Federal Reserve System, 2011
Millions of dollars, except as noted

Item Budgeted Actual Variance
Amount Percent
Reserve Banks 3,351.2 3,261.3 -89.9 -2.7
Board 1 493.2 452.3 -40.9 -8.3
Currency 676.1 650.0 -26.1 -3.9
Total System expenses 4,520.5 4,363.6 -156.9 -3.5

Note: Components may not sum to totals and may not yield percentages shown because of rounding.

1. Includes expenses of the Office of Inspector General (OIG). During 2011, the Board approved a $0.4 million decrease in the Board's initial operating budget of $475.6 million; budgeted figure includes combined Board and OIG operating budgets after the decrease (see table 4 in the "Board of Governors Budgets" section ). Return to table

The Reserve Banks' current income in 2011 was $85.2 billion.2 The major sources of income were interest earnings from the portfolio of U.S. government securities ($45.3 billion) and federal agency mortgage-backed securities (MBS) ($38.3 billion) in the System Open Market Account. Earnings in excess of expenses, dividends, and surplus are transferred to the U.S. Treasury--in 2011, a total of $75.4 billion. (These net earnings are treated as receipts in the U.S. budget accounting system when received and as anticipated earnings projected by the Office of Management and Budget in the Budget of the United States Government.)

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Operational Areas

The major operations of the Federal Reserve System can be described using the following broad categories: monetary and economic policy, supervision of financial institutions, services to financial institutions and the public, and services to the U.S. Treasury and other government agencies.

Monetary and Economic Policy

The monetary and economic policy operational area encompasses Federal Reserve actions to influence the availability and cost of money and credit in the pursuit of the Federal Reserve's statutory objectives of maximum employment, stable prices, and moderate long-term interest rates. It also encompasses activities undertaken to monitor the stability of financial institutions and financial markets and to develop appropriate policy responses to structural and emerging risks.

During 2011, the economic recovery continued, albeit at an uneven pace. The Federal Open Market Committee (FOMC) held eight regularly scheduled meetings in 2011, plus two additional meetings by videoconference.3 As part of the Committee's efforts to further enhance the clarity and timeliness of monetary policy communications, regular quarterly press briefings were instituted beginning in April 2011.

To promote continued economic recovery, the FOMC maintained the target range for the federal funds rate at 0 to 1/4 percent throughout the year. In June 2011, the Federal Reserve completed its program of purchasing $600 billion in longer-term Treasury securities that was announced in November 2010.4

In response to a slowdown in growth over the first part of the year, and to support a stronger economic recovery and help ensure that inflation, over time, is at levels consistent with its dual mandate, the FOMC provided additional monetary policy accommodation during the second half of 2011. In August, the Committee modified its forward rate guidance, noting that economic conditions were likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. In order to put downward pressure on longer-term interest rates and foster more accommodative financial conditions and so provide additional stimulus to support the economic recovery, the FOMC decided at its September meeting to extend the average maturity of its Treasury holdings. In particular, the Committee announced it would purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and sell an equal amount of Treasury securities with remaining maturities of 3 years or less. In addition, in order to help support conditions in mortgage markets, the Committee decided in September to reinvest principal payments from its holdings of agency debt and agency MBS in agency MBS, rather than in Treasury securities.

In November, against a backdrop of increased pressures in global money markets, the Federal Reserve, along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank, agreed to lower the pricing on their existing temporary U.S. dollar liquidity swap arrangements and to extend the authorization of these swap arrangements through early 2013. As a contingency measure, the central banks also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity could be provided in each jurisdiction in any of their currencies, should market conditions warrant. These actions were taken to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

Meanwhile, the Board and the FOMC continued to develop the tools, including reverse repurchase agreements with a range of counterparties and a new term deposit facility, that will allow the Federal Reserve to reduce the supply of reserve balances, if needed, when it becomes appropriate to begin removing monetary policy accommodation. Tests of both reverse repurchase agreements and the term deposit facility were conducted over the course of 2011 to ensure the effectiveness of the tools and to provide eligible institutions with an opportunity to gain familiarity with the procedures.

The Board and the FOMC base their monetary policy decisions on high-quality research and thorough analysis of economic and financial data. A vast amount of banking and financial data flows through the Reserve Banks to the Board, where the data are compiled and made available to the public. The research staffs at the Board and at the Reserve Banks use the data, along with information collected by other public and private institutions, to assess the state of the economy and the relationships between the financial markets and economic activity. Staff members provide background information to the Board of Governors and the FOMC by preparing detailed economic and financial analyses and projections for the domestic economy and international markets. The Board and the FOMC use these analyses and projections in establishing the appropriate stance for monetary policy. Staff members also conduct longer-run economic studies on regional, national, and international issues.

To help the Federal Reserve carry out its responsibilities for promoting the stability of the financial system, the Board's Office of Financial Stability Policy and Research works closely with other groups throughout the System to monitor financial institutions, markets, and infrastructure; assess potential risks; and develop appropriate policy responses. It also helps develop and evaluate alternative approaches to implementing macroprudential regulations and works with bank supervisory committees on a variety of issues, such as developing quantitative loss models and alternative scenarios to serve as the basis for stress tests. Staff members conduct research in banking, finance, and macroeconomics to foster a broader understanding of financial stability issues. In addition, the office coordinates the Board's interagency and international work on financial stability, including the Board's responsibilities as a member of the Financial Stability Oversight Council and the Financial Stability Board.  Leaving the Board

Supervision and Regulation of Financial Institutions

The Federal Reserve plays a major role in the supervision and regulation of banks, bank holding companies (BHCs), and savings and loan holding companies (SLHCs).5 The Board's supervisory responsibilities extend to the foreign operations of U.S. banks and, under the International Banking Act, to the U.S. operations of foreign banks. The Board also develops regulations to carry out statutory directives, and establishes System supervisory and regulatory policies.

The Reserve Banks conduct on-site examinations and inspections of state member banks, BHCs, SLHCs, and branches and agencies of foreign banking organizations; review applications for mergers, acquisitions, and changes in control from banks and BHCs; and take formal supervisory actions. In 2011, the Federal Reserve conducted 507 examinations of state member banks (some of them jointly with state agencies), 642 inspections of large BHCs, and 3,160 inspections of small, noncomplex BHCs; it acted on 1,457 proposals, representing 2,078 individual applications involving BHC formations and acquisitions, bank mergers, and other transactions. The Federal Reserve, in coordination with appropriate state regulatory authorities, conducted or participated in 379 examinations of branches and agencies of foreign banking organizations.

The Board also enforces the compliance of state member banks and certain foreign banking organizations with the federal laws that protect consumers who use credit and deposit accounts. During the reporting period from July 1, 2010, to June 30, 2011, the System conducted 279 consumer compliance examinations of its 835 state member banks and two foreign banking organizations.6 During this period, the System also conducted 250 examinations of banks for their compliance with the Community Reinvestment Act.

Beyond these activities, the Federal Reserve System maintains continuous oversight of the banking industry as part of its effort to ensure the overall safety and soundness of the financial system.

Services to Financial Institutions and the Public

The Federal Reserve System plays a central role in the nation's payment systems by ensuring that enough currency and coin are in circulation to meet the public's demand. As the issuing authority for Federal Reserve notes, the Board orders new currency from the Treasury's Bureau of Engraving and Printing and issues that currency to the Reserve Banks. The Reserve Banks distribute currency and coin to the public through depository institutions to meet demand. The Reserve Banks process currency that they receive from depository institutions and remove poor quality and suspect counterfeit notes. In 2011, the Reserve Banks distributed approximately $734.3 billion in currency and $6.5 billion in coin to depository institutions. The Reserve Banks also received approximately $642.0 billion in currency and $5.9 billion in coin from depository institutions, and they destroyed $81.9 billion in unfit currency. In 2011, the Board paid $650.0 million for currency-related expenses.

The Reserve Banks also play a central role in the nation's payment systems by collecting checks and providing a variety of electronic services for depository institutions. In 2011, the Banks collected approximately 6.8 billion commercial checks, with a total value of about $9.9 trillion. The Banks' automated clearinghouse (ACH) service allows depository institutions to send or receive credit transfers, such as direct payroll payments and corporate payments to vendors, and debit payment transactions, such as payments of insurance premiums, mortgages, and other bills from consumer accounts. In 2011, the Reserve Banks processed approximately 11.7 billion ACH transactions, valued at about $22.3 trillion. Approximately 11 percent of the transactions were for the federal government; the rest were for commercial establishments.

The Reserve Banks' Fedwire Funds Service allows participants to use their accounts at the Reserve Banks to transfer funds to other participants. In 2011, the Reserve Banks processed approximately 127 million Fedwire funds transfers, valued at more than $663.8 trillion.

The Reserve Banks' National Settlement Service allows participants in private clearing arrangements to settle transactions through their Federal Reserve accounts. In 2011, 16 local and national private arrangements, primarily check clearinghouse associations, used the National Settlement Service. The Reserve Banks processed more than 571,300 settlement entries for these arrangements, with a debit value of more than $15.7 trillion in 2011.

The Reserve Banks' Fedwire Securities Service provides securities services to participants, including the settlement of book-entry transfers of securities issued by the Treasury, federal government agencies, government-sponsored enterprises, and certain international organizations. In 2011, participants originated 19.2 million transfers, valued at more than $296.7 trillion.

Services to the U.S. Treasury and Other Government Agencies

As fiscal agents and depositories for the federal government, the Reserve Banks auction Treasury securities; process electronic and check payments for the Treasury; collect funds owed to the federal government; maintain the Treasury's bank account; and develop, operate, and maintain a number of automated systems to support the Treasury's mission. The Reserve Banks also provide certain fiscal agency and depository services to other entities. The Treasury and other entities fully reimbursed the Reserve Banks for the costs of providing fiscal agency and depository services. In 2011, reimbursable expenses amounted to $484.2 million.

The Reserve Banks auction, issue, maintain, and redeem securities, as well as operate the automated systems supporting paper U.S. savings bonds and book-entry marketable Treasury securities. In 2011, the Reserve Banks conducted 269 Treasury securities auctions and processed nearly 11.1 million Treasury securities transfers. The Reserve Banks also printed and mailed more than 7.9 million savings bonds.7 The Reserve Banks continued to support the Treasury's efforts to improve the quality and efficiency of its securities services.

The Reserve Banks collect and disburse funds on behalf of the federal government. In 2011, the Reserve Banks processed 1.3 billion government ACH payments and 159 million Treasury check payments. The Reserve Banks continued to support the Treasury's ongoing effort to convert paper checks to electronic payments through the Go Direct initiative and operated, an application supporting the Treasury's program that allows the public to use the Internet to authorize and initiate payments to federal agencies.

The Treasury maintains operating cash accounts at the Reserve Banks. In 2011, the Reserve Banks continued to support the Treasury's effort to modernize its financial management processes, with a focus on improving centralized government accounting and reporting functions. The Reserve Banks also managed several new and ongoing software development efforts in support of the Treasury's objectives.

When permitted by federal statute or when required by the Secretary of the Treasury, the Reserve Banks provide fiscal agency and depository services to other domestic and international entities. Book-entry securities issuance and maintenance activities account for a significant amount of the work performed for these entities.

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1. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the Consumer Advisory Council was dissolved on July 21, 2011, the designated transfer date upon which certain consumer protection functions were transferred from the Board to the Consumer Financial Protection Bureau (CFPB). The act authorized the CFPB to establish a Consumer Advisory Board to advise and consult on the exercise of the bureau's functions.  Return to text

2. For a list of items included in the Reserve Banks' current income, refer to Table 10, Income and expenses of the Federal Reserve Banks, in the "Statistical Tables" section of the 2011 Annual Report of the Board of Governors of the Federal Reserve System, available at More detailed information on System income and the distribution of income can also be found in the Annual ReportReturn to text

3. FOMC meeting minutes and policy statements are available on the Board's website at to text

4. The program was announced in November 2010; see the November 3, 2010, FOMC statement at to text

5. Under the Dodd-Frank Act, supervisory and regulatory authority for SLHCs was transferred from the Office of Thrift Supervision to the Board of Governors on July 21, 2011.  Return to text

6. The foreign banking organizations examined by the Federal Reserve are organizations that operate under section 25 or 25A of the Federal Reserve Act (Edge Act and agreement corporations) and state-chartered commercial lending companies owned or controlled by foreign banks. These institutions are typically not subject to the Community Reinvestment Act, and they typically engage in relatively few activities covered by consumer protection laws.  Return to text

7. As part of the Treasury's all-electronic initiative, the agency eliminated the paper savings bonds payroll program in 2010. The number of savings bonds printed and mailed by the Reserve Banks in 2011 decreased by 8.1 million, or 50.6 percent. As of January 1, 2012, paper savings bonds are no longer sold at financial institutions.  Return to text

Last update: July 11, 2012

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