Only accounting gimmickry is keeping the US Federal Reserve System’s total net capital in negative territory, raising the prospect that the Fed could someday require recapitalization. To ensure that such scenarios do not jeopardize its core mandates, US policymakers should take a page from their British counterparts’ playbook.
NEW YORK – On August 30, 2023, the US Federal Reserve System’s Consolidated Statement of Condition recorded total capital of $42.72 billion. This figure would have been negative but for the appearance of an $87.15 billion negative liability, driven by minus $95.12 billion in earnings remittances to be paid to the US Treasury. But make no mistake: this negative liability (known as a deferred asset) is an accounting gimmick that allows the Fed to avoid having to report negative total capital (equity or net worth) on its balance sheet.
NEW YORK – On August 30, 2023, the US Federal Reserve System’s Consolidated Statement of Condition recorded total capital of $42.72 billion. This figure would have been negative but for the appearance of an $87.15 billion negative liability, driven by minus $95.12 billion in earnings remittances to be paid to the US Treasury. But make no mistake: this negative liability (known as a deferred asset) is an accounting gimmick that allows the Fed to avoid having to report negative total capital (equity or net worth) on its balance sheet.