It’s Time for Shareholders of the New York Federal Reserve Bank To Receive a Call for Capital

This column is about the capital deficit confronting the biggest among the 12 Federal Reserve Banks. Although we often refer to our central bank in the singular as the “Fed,” the system includes twelve different Federal Reserve Banks, each a separate corporation. Each has its own shareholders, directors, officers, balance sheet, profit and loss performance, and capital — or recently, absence of capital. New York has always had a special and superior position, the most prominent and prestigious of the twelve Federal Reserve Banks. All other FRBs are required by statute to take turns serving as voting members of the Fed’s super-powerful Federal Open Market Committee, but New York has a permanent seat on the FOMC. Moreover, its president is always the Vice Chairman of the committee. New York carries out the open market buying and selling on behalf of the entire Fed.In the early years of the Federal Reserve, the most influential officer of the System was Benjamin Strong, the Governor of the New York Fed 1914-1928 and “a dominant force in U.S. monetary and banking affairs.” Strong, for example, negotiated directly with the Governor of the Bank of England, the top central bank in the world until surpassed by the Fed.Note the matching titles at that time. The heads of the individual FRBs were originally called “Governors,” after the style of the head of the Bank of England. In 1935 they had their titles downgraded to “president” so the members of the Federal Reserve Board could become “governors.”New York is far and away the biggest FRB, with massive total assets of $3.4 trillion. This is more than all the other eleven FRBs put together, more than five times as big as the No. 2 reserve bank, San Francisco, and 67 times as big as the No. 12, Minneapolis. New York owns the most bonds and mortgage securities of any FRB and has the biggest naked interest rate risk position of long invested vs. short funded. In recent times, New York has added another distinction, one less desirable. It has far and away the biggest losses and the most deeply negative capital of any FRB. Since the fourth quarter of 2022, the Fed on a combined basis has been losing previously unimaginable amounts of money — its aggregate operating losses as of the end of April 2025 are a staggering $228 billion. Of that amount, the FRB New York alone has suffered operating losses of $137 billion, a disproportionate share of the Federal Reserve System. While it has 51 percent of the combined Fed assets, New York has 60 percent of the operating losses.When the FRBs marked their investments to market at year-end 2024, the results of which they disclose but do not include in their financial statements, the combined Fed had a market value loss of more than $1 trillion. The FRB of New York alone had a market value loss on its investments of $572 billion, 54 percent of the System total.The New York Fed shows on its official balance sheet extremely little capital relative to its huge assets, about $15 billion in capital or less than half a percentage point of assets. In reality, the $15 billion is not there — New York’s losses of $137 billion mean the capital has been lost nine times over. Fundamental accounting requires that losses be subtracted from capital, so the FRB New York’s real capital is $15 billion minus $137 billion or negative $122 billion. This is 66 percent of the System’s combined negative capital.What should the stockholders of the FRB New York think? They own equity in a technically insolvent corporation. They are still getting dividends from their FRB, but while such dividends are required by law to come from profits, there are no profits and there is no capital. Does the Audit Committee of the FRB New York consider that?Under the Federal Reserve Act, the stockholders are subject to a capital call at any time requiring them to buy more stock in their FRB. Should such a call be made on the New York stockholders? The stockholders are also subject under the act to being assessed to offset an FRB’s losses for up to twice their current investment. Are the Audit Committees of the New York stockholder banks aware of that? What would Benjamin Strong have thought of the finances of the current New York Fed?

It’s Time for Shareholders of the New York Federal Reserve Bank To Receive a Call for Capital

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