How Do Federal Reserve Banks Get Their Money?

Federal Reserve Banks get their money mainly from interest earned on the roughly $6.2 trillion portfolio of U.S. Treasury securities and agency mortgage-backed securities they hold in the System Open Market Account. Smaller amounts come from lending to commercial banks through the discount window, fees charged for payment services, interest on foreign currency holdings, and income from repurchase agreement operations. The Fed does not receive any funding through the congressional appropriations process. It covers its own expenses, pays statutory dividends to member banks, and sends whatever is left to the U.S. Treasury.¹

Interest on the Securities Portfolio

The dominant source of Federal Reserve income is interest on the bonds it owns. Through open market operations directed by the Federal Open Market Committee, the Fed buys and sells U.S. Treasury bonds, notes, and bills along with agency mortgage-backed securities to influence the money supply and interest rates.² Those holdings sit in the System Open Market Account, or SOMA. As of early March 2026, SOMA held approximately $4.2 trillion in Treasury securities and $2.0 trillion in mortgage-backed securities, a combined portfolio of about $6.2 trillion.³

These holdings pay the Fed the way bonds pay any investor. When the Treasury pays a coupon on a ten-year note, the Fed collects it. When a homeowner makes a monthly mortgage payment on a loan bundled into an agency MBS, a share of that interest flows to the Fed. Total interest income across all twelve Reserve Banks came to about $158.8 billion in 2024.¹

The portfolio grew to its current size through two rounds of large-scale asset purchases: the response to the 2008 financial crisis and the response to the pandemic. In both episodes, the Fed bought large volumes of longer-term Treasuries and MBS to push down long-term interest rates. The balance sheet has been shrinking since then as securities mature without replacement, but the remaining holdings still generate most of the Fed’s gross income.

Discount Window Lending to Banks

The Reserve Banks also earn interest by lending directly to commercial banks and other depository institutions through the discount window. A bank facing a short-term cash need can borrow overnight or for a few days by pledging collateral such as Treasury securities, agency debt, or high-quality loans.⁴ All discount window loans must be fully collateralized, and the Reserve Banks apply haircuts to the pledged assets to protect against declines in value.⁵

The rate on these loans, called the primary credit rate, is set by each Reserve Bank’s board of directors and reviewed and approved by the Board of Governors.⁴ It sits at the top of the Fed’s target range for the federal funds rate, which discourages banks from using the window as everyday funding. In quiet periods, this line of business is small. During financial stress, borrowing can spike, though the loans are short and repaid quickly.

Fees for Payment and Financial Services

The Fed also operates as the payments utility of the banking system. It runs the Fedwire Funds Service for large-value wire transfers, the automated clearinghouse network for recurring payments like direct deposits, and traditional services including check clearing and currency distribution. Banks pay per-transaction fees for using these systems.

Federal law requires the Fed to price these services to recover the full cost of providing them, including overhead, plus an amount representing the taxes and return on capital a private firm would need to earn. That add-on is called the Private Sector Adjustment Factor.⁶ The rule keeps the Fed from undercutting private-sector operators just because it does not pay taxes or raise equity capital. Fee income is small compared with interest on the securities portfolio, but it ensures the cost of running the payment system falls on the banks that use it.

Foreign Currency Holdings and Repo Operations

A smaller share of revenue comes from interest on foreign-currency-denominated assets. The Fed holds reserves in major currencies to facilitate international transactions and, when necessary, to intervene in foreign exchange markets. Those holdings earn interest much like domestic bonds, though the volume is far smaller.

The Fed also earns income through its standing repurchase agreement facility, operational since 2021. In a repo transaction, the Fed buys a Treasury or agency security from an eligible counterparty and simultaneously agrees to sell it back the next business day. The difference between the purchase price and the sale price is interest earned by the Fed.⁷ The FOMC sets the repo rate, and the facility accepts Treasury securities, agency debt, and agency MBS as collateral. Standing repos exist primarily to keep short-term rates from spiking above the target range, and they generate a modest revenue stream when activity is elevated.

Where the Money Goes: Dividends and Treasury Remittances

Once expenses are covered, the Fed’s income has two claims on it before anything else happens. First come dividends to member banks. Every nationally chartered bank and every state-chartered bank that joins the Federal Reserve System must purchase stock in its regional Reserve Bank equal to six percent of its own capital and surplus.⁸ That stock cannot be traded and carries no vote on monetary policy, but it pays a dividend. Smaller banks with $13.2 billion or less in total consolidated assets receive a flat six percent annual dividend. Larger banks receive the lesser of six percent or the most recent high yield on the ten-year Treasury note auctioned before the payment date.⁹ The asset threshold is adjusted annually for inflation using the GDP Price Index.

After dividends, the Federal Reserve is required by law to send its remaining net earnings to the U.S. Treasury.⁹ Each Reserve Bank keeps a small surplus fund, but the aggregate across all twelve banks is capped at $6.825 billion. Anything above that cap goes to the Treasury’s general fund. Between 2011 and 2021, the Fed typically transferred $5 billion to $10 billion a month to the Treasury, often totaling $80 billion to $100 billion a year.¹⁰ That flow reduced the federal deficit, because the government was paying interest on bonds the Fed held and then getting most of that interest back.

Why Remittances Have Stopped Since 2022

Since 2008, the Fed has paid interest on the reserve balances that commercial banks hold at Reserve Banks. The interest rate on reserve balances, known as the IORB rate, stood at 3.65 percent as of early 2026.¹¹ When the Fed raised short-term rates aggressively starting in 2022 to fight inflation, the IORB rate climbed with it. The Fed suddenly owed banks a high rate on trillions of dollars in reserves, while most of the securities in SOMA still paid the lower coupon rates locked in during the easy-money years. In 2024, interest paid on those balances and related deposits totaled roughly $186.5 billion, while total interest income was only $158.8 billion.¹

Because the Fed’s ability to conduct monetary policy does not depend on positive net income, it does not ask Congress for a bailout when this happens. Instead, cumulative losses are recorded as an accounting entry called a deferred asset, which tracks how much the Fed must earn back before remittances to the Treasury can restart.¹⁰ The deferred asset began accumulating in September 2022. As of early March 2026, it stood at approximately $245.2 billion.¹² No taxpayer money has been or will be used to cover the shortfall. Once income exceeds expenses again, the Fed will pay down the entire deferred asset balance before resuming remittances to the Treasury.

1
Federal Reserve Board. Federal Reserve Banks Combined Financial Statements 2024
2
Federal Reserve Bank of St. Louis. What Are Open Market Operations? Monetary Policy Tools, Explained
3
Federal Reserve Bank of New York. System Open Market Account Holdings of Domestic Securities
4
Federal Reserve Board of Governors. Discount Window
5
Board of Governors of the Federal Reserve System. Discount Window Lending
6
Office of the Law Revision Counsel. 12 US Code 248a – Pricing of Services
7
Federal Reserve Board. Standing Repurchase Agreement Operations
8
eCFR. Part 209 Federal Reserve Bank Capital Stock (Regulation I)
9
Office of the Law Revision Counsel. 12 US Code 289 – Dividends and Surplus Funds of Reserve Banks
10
Federal Reserve Bank of St. Louis. The Fed’s Remittances to the Treasury: Explaining the ‘Deferred Asset’
11
Federal Reserve Board. Interest on Reserve Balances
12
Federal Reserve Board. Factors Affecting Reserve Balances – H.4.1