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Abstract：Since last year, the Federal Reserve (Fed) has implemented a series of interest rate hikes, resulting in increased interest costs for banks' reserve holdings. However, the returns on their assets have remained largely unchanged, leading to a situation where debt outweighs assets. This has raised concerns among market participants as any loss of confidence in the Fed could potentially cause significant disruptions.
According to a report from ChinesePress News, based on the H.4.1 balance sheet data as of the week ending April 27th, the indicator “Other Liabilities and Capital,” used to assess the net assets of the Federal Reserve, stood at negative $3.27 billion.
According to the accounting principles of the Federal Reserve, accumulated losses are recorded as “deferred assets” on the balance sheet under the asset column. Although this number is nominally an asset, it is essentially equivalent to accumulated losses, according to the Brookings Institution. As of the end of April, the Federal Reserve's deferred assets exceeded $52 billion, surpassing its paid-in capital and surplus, resulting in a negative net asset value.
The impact of the central bank's financial situation on the market remains to be seen. This appears to be the first time the Federal Reserve has encountered substantial negative assets, and the number of central banks in developed economies facing losses or negative net worth is unprecedented.
The report indicates that although this will not hinder the central bank's operations, there are two concerns in the market. One risk is the loss of confidence in the currency issued by the central bank. If panic intensifies, it may affect exchange rates.
The other risk is related to the central bank's independence, which could disrupt the market. When the Reserve Bank of Australia revealed a negative net worth in September last year, then-World Bank President Malpass stated that a central bank with negative book value would require even greater political support.
Disclaimer:
The views in this article only represent the author's personal views, and do not constitute investment advice on this platform. This platform does not guarantee the accuracy, completeness and timeliness of the information in the article, and will not be liable for any loss caused by the use of or reliance on the information in the article.
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