Federal Reserve Earnings

One of the anomalies of the present money situation is the fact that the Federal Reserve system is not at present earning enough to pay 6% dividend upon its stock. There is no doubt, however, that the Reserve Banks will pay their regular dividends out of surplus. It has been estimated that the present surplus is sufficient to cover dividends for the next five years.

The present position of Reserve earnings is due to several factors. The Reserve Banks erected large buildings, the cost and maintenance of which have added to their expenses. The task of warehousing the tremendous gold resources of the system is expensive and without profit. Moreover, the steady import of gold, along with other factors, has enabled the member banks to pay off their debts to the Reserve Banks whose current earnings have in consequence declined. To operate at a profit the twelve Reserve Banks must have about $1,000,000,000 outstanding in loans; the last earning statement showed earning assets for the system of only $850,193,000.

The Federal Reserve Bank of New York must similarly have outstanding loans of $250,000,000 to keep it on a paying basis, but its latest statement of earning assets shows only $177,296,000 outstanding.

It is expected that the entire year of 1924 will show a profit, but deficits are inevitable during the first quarter, and not improbable during the first half of the current year. Not since the early years of its organization, some eight years ago, has the Reserve system failed to earn a regular profit sufficient to cover all dividends.