By Steven K. Beckner

(MNI) – Independently audited financial statements released Tuesday
by the Federal Reserve show substantial growth and compositional change
in Fed assets during 2010.

And the Fed said the various “Maiden Lane” consolidated LLCs —
special purpose vehicles created by the Fed to aid troubled financial
institutions during the financial crisis — contributed to growth in Fed
income last year.

A Fed official noted that, although the Maiden Lane entities,
created to bail out Bear-Stearns, Lehman Brothers and AIG, are
diminishing in size, the Fed’s overall balance sheet is rising because
of the Federal Open Market Committee’s decision last November to resume
large scale asset purchases or “quantitative easing.”

The Fed financial statements, as audited by Deloitte & Touche LLP,
show that total Reserve Bank assets as of December 31, 2010, were $2.428
trillion — an increase of $193 billion from 2009.

As the Fed noted, “the composition of the balance sheet changed
notably.”

Holdings of U.S. Treasury securities increased $261 billion and
holdings of federal agency and government-sponsored enterprise (GSE)
mortgage-backed securities (MBS) increased $86 billion.

The Fed noted those increases were partly offset by a $96 billion
decrease in loans to depository institutions and a $23 billion decrease
in loans extended under the Term Asset-Backed Securities Loan Facility
(TALF), “largely due to early repayments by borrowers.”

The Reserve Banks’ 2010 comprehensive income increased $28 billion
over 2009 to $82 billion, which the Fed attributed primarily to a $24
billion rise in interest earnings on the Fed’s holdings of federal
agency debt and GSE MBS holdings.

The Reserve Banks transferred $79 billion of their $82 billion in
comprehensive income to the U.S. Treasury in 2010, a $32 billion
increase from the amount transferred in 2009.

The Fed said, “the consolidated LLCs also contributed to the
increase in Reserve Banks’ 2010 comprehensive income, with net earnings
of $8 billion for the year ended December 31, 2010, a $2 billion
increase from the 2009 net earnings of $6 billion.

A Fed official noted that the statement for Maiden Lane III, which
was created to purchase the collateralized debt obligations of AIG, does
not include AIG’s recent recapitalization and payback to the Fed. The
statement shows total assets of $23.582 billion as of the end of 2010.

The Fed’s revised remittance to Treasury for 2010 is a new record
— up from $47.5 billion in 2009, $31.7 billion in 2008, and an average
of $25 billion in the decade prior to the crisis.

** Market News International Washington Bureau: 202-371-2121 **

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