Skip to main content

July 1978

Does the Federal Reserve Invest Member Bank Reserves?

by Albert E. Burger

The Federal Reserve Banks earned $6.9 billion in 1977. How are the Federal Reserve Banks able to “earn” this amount of income? One popular misconception is that the Federal Reserve Banks earn income by investing member bank reserves. In fact, earnings of the Federal Reserve Banks are not the result of the volume of member bank reserves, but that bank reserves and earnings of the Federal Reserve Banks are both by-products of the way a central bank operates.