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Federal Reserve Earns Record Profits, Largely From Investments In Economy, Banks

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FED PROFITS

The Federal Reserve earned a record $81.7 billion in 2010, largely on investments made to help the economy and banks weather the 2007-2009 financial crisis, and turned the bulk of it over to the U.S. Treasury.

According to audited financial statements, the U.S. central bank transferred $79.3 billion to Treasury's coffers last year, up from $47.4 billion in 2009 and a record turnover for a second straight year.

The figure for the total turned over to Treasury was slightly larger than the Fed had reported in January when it said it had remitted $78.4 billion.

The latest figure was based on additional data, Fed officials said on Tuesday when they issued statements for all 12 Fed regional banks and some of the entities established during the financial crisis.

The Fed said that at year-end, the value of assets in its Maiden Lane investment vehicle -- taken on to help rescue Bear Stearns in 2008 -- had declined slightly to $27.96 billion from $28.14 billion at the end of 2009. This was due largely to payoffs of underlying mortgages, according to Fed officials.

Assets held in vehicles created to rescue American International Group (AIG.N), Maiden Lane II and III, rose slightly, to a combined total of about $40 billion, but these have since been transferred to the Treasury with the payoff of Fed loans to AIG.

The U.S. central bank took unprecedented actions to prop up the economy at the height of the financial crisis, in the process acquiring a swollen portfolio of assets that earns money for it but has also drawn some criticism from lawmakers.

After driving overnight interest rates to near zero in December 2008, the Fed bought $1.7 trillion of longer-term Treasury and mortgage-related bonds as a supplement to its pledge to keep overnight rates near zero for an extended period.

It followed that up late last year with a new $600 billion bond-buying program to spur growth. That program is scheduled to end at mid-year.

The Fed said that at the end of 2010 it had total assets of $2.43 trillion, up $193 billion from a year earlier. It said its balance sheet's makeup was changing, and that holdings of U.S. Treasury securities were up $261 billion while its holdings of federal agency and government-sponsored enterprise mortgage-backed securities had climbed by $86 billion.

(additional reporting by David Lawder)

(Reporting by Glenn Somerville, Editing by Kenneth Barry)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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