How Is the Federal Reserve Funded? Interest, Losses, and Remittances

The Federal Reserve is funded almost entirely by the interest it earns on a portfolio of U.S. Treasury securities and agency mortgage-backed bonds worth roughly $6.4 trillion. It receives no annual appropriation from Congress and no money from taxpayers. Smaller amounts come from fees charged to banks for payment services, interest on short-term loans to banks, and returns on foreign currency holdings. In profitable years, whatever is left after expenses and dividends is sent to the U.S. Treasury.

The Main Source: Interest on Government Securities

The bulk of the Fed’s income comes from a portfolio called the System Open Market Account, or SOMA, managed by the Federal Reserve Bank of New York. The Fed builds this portfolio through open market operations, buying bonds in the secondary market to influence interest rates and the money supply.¹

As of 2025, Treasury notes, bonds, bills, and inflation-protected securities account for over $4.2 trillion of SOMA. Another $2 trillion sits in agency mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae, with a small slice in federal agency debt.¹ Because the U.S. government and its agencies pay interest on this debt, the Fed collects a steady, predictable stream of cash. In 2024, interest income across the Federal Reserve System reached $158.8 billion.²

For most of the Fed’s modern history, this income has covered every operating expense, paid the dividends owed to member banks, and left tens of billions over to send to the Treasury each year. The structure dates to the Federal Reserve Act of 1913 and was designed to keep the Fed’s budget out of the annual political fight over federal spending.

Smaller Revenue Streams

The Fed also runs the payment infrastructure that thousands of banks, credit unions, and savings associations rely on every day. Services include Fedwire for large-value wire transfers, the Automated Clearing House network for direct deposits and bill payments, check processing, and cash and coin distribution. Section 11A of the Federal Reserve Act requires fees for these services to recover their full long-run cost, including an adjustment that approximates what a private competitor would pay in taxes, financing, and profit.³ In 2024, priced services generated about $524 million against total operating expenses of roughly $8.2 billion.⁴ The fees cover their own costs but are small compared with interest income.

Two other sources add modestly to the total. The discount window makes short-term loans to banks managing temporary cash shortages, at a rate called the primary credit rate. Borrowing is minimal in calm times and heavier during financial stress.⁵ The Fed also holds foreign-currency assets, valued at about $39.2 billion as of February 2026, which earn interest from foreign government bonds and deposits.⁶ Neither comes close to the scale of SOMA.

Why the Fed Is Currently Losing Money

Here is where the recent picture gets unusual. Since late 2022, the Fed has been spending more than it brings in. In 2024, the system posted a net loss of about $77.6 billion.²

The reason sits on the expense side. When banks hold deposits at the Federal Reserve, the Fed pays them interest at a rate known as IORB, interest on reserve balances. That rate stood at 3.65 percent in December 2025.⁷ In 2024, interest paid on reserve balances and overnight reverse repurchase agreements totaled $226.8 billion, well above the Fed’s $158.8 billion in interest income.² The Fed’s assets are mostly long-term bonds bought during the low-rate years, while the interest it pays on reserves tracks today’s short-term rates. When the Fed raised rates to fight inflation starting in 2022, expenses jumped while income from older bonds stayed flat. The gap is expected to close as those older bonds mature and roll off.⁸

When the Fed loses money, it does not go to Congress for funding. It records a “deferred asset” on its balance sheet, a running tally of cumulative losses. As of September 2025, that figure had grown to $242 billion.⁹ During this period, payments to the Treasury are suspended. Normal remittances resume only after the Fed earns enough to work the deferred asset back down to zero. The Congressional Budget Office projects a return to net profitability in 2026 as short-term rates ease; remittances in 2025 totaled only $5.5 billion.¹⁰ None of this affects the Fed’s ability to meet its obligations or carry out monetary policy. It simply means the Treasury goes without its usual windfall for a while.

Where the Money Goes

In profitable years, Section 7 of the Federal Reserve Act sets a strict order for distributing earnings.¹¹ Each Reserve Bank first covers its operating expenses. Member banks then receive a statutory dividend on the capital stock they are required to hold in their regional Reserve Bank. Banks with total consolidated assets at or below $13.182 billion (the 2026 inflation-adjusted threshold) receive 6 percent annually on paid-in capital. Larger banks receive the lesser of 6 percent or the most recent 10-year Treasury note yield.¹² Unpaid dividends carry forward.¹³

After dividends, the Reserve Banks maintain a combined surplus fund capped by Congress at $6.825 billion. Anything above that cap goes to the Treasury’s general fund. Before the recent losses, the Fed sent more than $100 billion to the Treasury in some years, reducing the federal deficit with non-tax revenue.¹³

Independence, Audits, and Accountability

A self-funded entity sitting on trillions in assets raises obvious questions about who is watching the books. The Fed is subject to multiple layers of external audit. An independent public accounting firm, retained by the Board’s Office of Inspector General, audits the Board of Governors’ financial statements and internal controls each year. A separate independent auditor retained by the Board audits each of the twelve Reserve Banks annually. The Government Accountability Office has authority under the Federal Banking Agency Audit Act and the Dodd-Frank Act to review certain operations, and the Board files an annual report to Congress describing the System’s operations, budgets, and audited financials.¹⁴

What the GAO cannot audit is the Fed’s monetary policy deliberations. That carve-out is the point of the whole funding structure: because the Fed pays for itself from investment income rather than appropriations, it can set interest rates without needing sign-off from Congress or the White House, even when the decisions are politically unpopular.¹⁵

1
FEDERAL RESERVE BANK of NEW YORK. System Open Market Account Holdings of Domestic Securities
2
Board of Governors of the Federal Reserve System. Combined Financial Statements 2024 – Federal Reserve Banks
3
Board of Governors of the Federal Reserve System. Section 11A – Pricing of Services
4
Board of Governors of the Federal Reserve System. Federal Reserve System Budgets
5
Board of Governors of the Federal Reserve System. Discount Window
6
Board of Governors of the Federal Reserve System. U.S. Reserve Assets, February 2026
7
Board of Governors of the Federal Reserve System. Implementation Note issued December 10, 2025
8
Board of Governors of the Federal Reserve System. Interest on Reserve Balances FAQs
9
Board of Governors of the Federal Reserve System. Federal Reserve Balance Sheet Developments
10
Congressional Budget Office. The Budget and Economic Outlook: 2026 to 2036
11
Board of Governors of the Federal Reserve System. Federal Reserve Act – Section 7 – Division of Earnings
12
Federal Register. Federal Reserve Bank Capital Stock
13
Board of Governors of the Federal Reserve System. SECTION 7 – Division of Earnings
14
Board of Governors of the Federal Reserve System. Federal Reserve System Audits
15
Brookings Institution. Why Is the Federal Reserve Independent, and What Does That Mean in Practice