Fed reports huge balance sheet jump

Fed reports huge balance sheet jump
The central bank increased spending to help the global economy recover.
April 23, 2009: 5:20 PM ET

CHICAGO (Reuters) -- The U.S. Federal Reserve's balance sheet more than doubled in 2008 as the central bank stepped up efforts to bail out the financial system and turn around the U.S. economy, data released Thursday showed.

The surge reflected the dramatic scope of the Fed's rescue of a financial industry battered by the global crisis.

Combined assets in the Fed system reached $2.25 trillion as of Dec. 31, 2008, up a sharp $1.33 trillion from a year ago.

The Fed -- the U.S. central bank -- has enacted an alphabet soup of new programs to support credit markets.

The financial statement issued on Thursday provided a window into the Fed's Commercial Paper Funding Facility (CPFF), created in October 2008, and the three "Maiden Lane" limited liability companies created by the New York Fed.

Much interest was on the original Maiden Lane LLC, created in mid-March 2008 as part of the orchestrated takeover of the failing investment bank Bear Stearns by JPMorgan Chase (JPM, Fortune 500).

The $1.7 billion in gains logged by the CPFF was swamped by a $3.1 billion unrealized loss in Maiden Lane.

Fed figures showed that some 40% of the assets in Maiden Lane were Level 3, or basically illiquid, at year-end. That included $5.5 billion in commercial mortgage loans and $2.4 billion in swap contracts.

"Maiden Lane is just a collection of crummy assets, so there was always a potential for a loss," said William Fleckenstein, president of Fleckenstein Capital in Seattle.

Fed officials said various aspects of the bailout effort also combined to reduce payments made to the Treasury in 2008 to $31.7 billion from $34.6 billion, an 8% decline.

Still, the Fed's holdings of commercial and residential loans were said to be in relatively good shape, with the majority regarded as performing.

Over time that could create substantial upside, the officials said, as real estate markets recover.

Fed officials said they were mulling ways to increase disclosure of the type of information contained in Thursday's reports, including potential quarterly releases. To top of page