New York Fed, and pots and kettles

Article Highlights

  • The NY Fed's $2.6 trillion in assets and $18 billion in capital give it a risible capital ratio of 0.7%, and a leverage of 139:1

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  • With $4.2 trillion in assets and $56 billion in capital, the consolidated capital ratio of the Fed is1.3%, and its leverage is 75:1

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"More Yellen on Bank Capital " (Heard on the Street, April 16) relates that Fed Chairwoman Janet Yellen has suggested the possibility of "even higher capital requirements" for banks. That would be higher than the minimum 5% capital ratio, which equals a maximum 20:1 leverage limit, now required for large bank-holding companies. This logically leads one to ask: What are the capital ratio and the leverage of the Federal Reserve itself, with its new, much riskier balance sheet? The answer is that with $4.2 trillion in assets and $56 billion in capital, the consolidated capital ratio of the Fed is a mere 1.3%, and its leverage is 75:1.

That's low capital and high leverage, but the overall numbers don't begin to match those of by far the biggest and most important Federal Reserve Bank, that of New York. The New York Fed's $2.6 trillion in assets and only $18 billion in capital give it a risible capital ratio of 0.7%, and a leverage of 139:1.

Something about pots and kettles springs to mind. I have heard it argued that low capital ratios or even negative net worth don't matter if you are the Fed. Maybe.

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Alex J.
Pollock

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