How The Fed Is Handing Over Billions In "Profits" To Foreign Banks Each Year

Tyler Durden's picture

Over the past two weeks we have reported that just like during the spring and summer of 2011, all the cash generated by Fed excess reserves, has gone to foreign banks operating in the US, which according to the Fed, are vastly composed of European financial institutions. In other words, the cash that the Fed is creating out of thin air by monetizing the US deficit, is going solely and exclusively to European banks and a handful of other foreign banks. This can be seen both in the chart below, and is confirmed by the Fed itself, which in a paper from November 2012, admitted just this when it said that "the recent unprecedented build-up of cash balances by [foreign banks] was almost entirely composed of excess reserves."

What is notable about the chart above is that while cash parked at US-domiciled banks, both small and large, has been relatively flat in the past 3 years at just about $800 billion, it was been foreign banks that absorbed the bulk of the Fed's newly created reserves.

All of this was explained in extensive detail previously here and here.

Just as importantly, and as also shown previously, the excess reserve cash parked at foreign banks just hit a record $954 billion as of the week ended January 31.

What is still a mystery, however, is just what do foreign banks use this cash for: does the cash undergo collateral transformation whereby the cash collateral is transformed into various "safe" intermediary securities via the shadow banking system (as Monte Paschi was discovered to have done recently), and if so what is the ultimate use of free Federal Reserve funds.

We hope that before the Fed loses all control of the economy and markets we will get the answer to this budding question.

But even assuming foreign banks do nothing with this cash and it merely sits on the Fed's books, this does pose another question, one which we hope someone from Congress will ask Chairman Ben at the upcoming Humphrey Hawkins presentation at the end of February. Namely: why has the Fed paid some $6 billion in interest to foreign banks, in the process subsidizing and keeping insolvent European and other foreign banks, in business and explicitly to the detriment of countless US-based banks who have to compete with Fed-funded foreign banks and who have to fire countless workers courtesy of this Fed subsidy to foreign workers?

As readers will recall, on December 18, 2008, the Fed dramatically changed its policy to control the suddenly all critical fungible liquidity bailout reserve level, by implementing a cash interest paid on reserve balances held at Reserve banks, amounting to 25 basis points on the excess reserve balance. The Reserve banks included all foreign banks operating in the US. It is these banks that now have a record $954 billion in cash as of the week ended January 30, and it is this $954 billion that now accrues an interest of 0.25% per year.

We show the surge in the foreign bank cash level, as well as the cumulative cash interest paid to these banks assuming a weekly cash interest payment. What the chart shows is that from December 2008 through the last week of January, the Fed has paid out some $6 billion in cash (red line) to European banks simply as interest on excess reserves.

But that's just the beginning. If we are correct in assuming that QE3 will be a replica of QE2 when all the new reserves created ended up as cash on foreign bank balance sheets, it means that we can quite accurately forecast what the total foreign bank cash position will be on December 31, 2013 (as the Fed will certainly not end its open ended monetization of the US deficit before then, or likely, ever). The result: just under $2 trillion in cash held be foreign banks operating in the US, which also means that in calendar 2013, the Fed will fund and subsidize foreign banks a blended interest payment of $3.5 billion! This is entirely separate from the $2 trillion liquidity subsidy that Bernanke will also have handed out to keep these banks afloat, and is $3.5 billion that will flow right through the P&L and end up in the pockets of offshore shareholders who otherwise would very likely be wiped out had it not been for the Fed's relentless efforts to bailout foreign banks.

And since it is improbable that excess reserves held by any banks will decline at all in the coming years, one can also assume that the annualized interest paid to foreign banks, which would amount to at least $5 billion pear year, every year, will continue indefinitely as a direct Fed subsidy to the bottom line of Foreign banks.

All of this, of course, ignores what happens should the Fed hike interest rates across the board, which will also mean rising the rates on IOER, once inflation finally strikes: simple math means a 1% IOER means some $20 billion in interest paid to foreign banks, 2% - $40 billion, 5% - $100 billion paid to foreign banks, and so on. Putting these numbers in perspective, let's recall that Italy's third largest bank just got a €3.9 billion bailout (its third), and has a market cap of some €2.9 billion.

We can only hope someone in Congress asks Ben Bernanke in two weeks just under which Fed charter it is that the Fed is more focused on generating profits (not just trillions in excess liquidity) for European banks, than on opening up consumer lending which has been stuck in "petrified" mode for the past 4 years, with the total amount of loans outstanding currently at all US banks - foreign and domestic - at levels last seen the week Lehman filed for bankruptcy.

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redpill's picture

More like treason.  Hang 'em.

Everybodys All American's picture

Nothing is going to change until shots are fired imo. For all you NSA people watching. I'm not advocating. I'm just stating an opinion.

SamAdams's picture

Cointelpro is the typical lone post that calls for violence, but then secretly records dissent.  However, for those who are resistance and are compiling your own list, please do not forget these traitorous senators who lied to prevent further investigation into the 911 false flag / sacrifice.  You will find one of the names quite familiar, a name infamous for clandestine crime and graft:

earleflorida's picture

54 Min. of the best time you'll ever spend!!!

"The New World Order" __ Eustace Mullins ~ 1993

enjoy it,  if you care at your convenience, with some popcorn

SamAdams's picture

Other suggestions:

  • Web of Debt, Ellen Brown
  • War is a Racket, Smedley Butler
  • Dialogue Between Machiavelli and Montesqeuies
  • The International Jew - Henry Ford
  • Tragedy and Hope - Carrol Quigley
  • Federal Reserve Act of Dec 23, 1913
  • Secrets of The Federal Reserve - Eustace Mullins
  • Federal Reserve Directors - Committee on Banking, 1976
  • None Dare Call It a Conspiracy - Gary Allen
  • Billions for Bankers - Sheldon Emry

Read the above and you will be able to identify the black to your white...

Yes We Can. But Lets Not.'s picture

If the proposed line of questioning, which is sensible, reasonable, pertinent and serious, is actually pursued two weeks out, I will eat my shirt, my T shirt, and my jacket.

EnslavethechildrenforBen's picture

The Fed is handing over $Trillions to al-Queda terrorists.

Send in the Drones immediately

EnslavethechildrenforBen's picture

Seriously, the Central Bankers all print each others currencies anyways. Who the fuck is going to stop them? The fucking Military?

Yeah right!

Pegasus Muse's picture

All Wars Are Bankers' Wars

Published on Feb 4, 2013

Written and spoken by Michael Rivero.

The written version is here:

video: (44 min)

This video expands on the history presented by G. Edward Griffin in his book/video The Creature from Jekyll Island . All Wars are Banker’s Wars focuses on how privately-owned Central Banks and their mega-wealthy private owners (the Rothschilds, Warburgs, Rockefellers, Lazards, Brown/Harriman [the GW Bush family], Schiffs, etc.) use war to force countries to adopt their dishonest monetary system so these families can thieve those countries’ natural resources and honest labor, “paying” for it with worthless inked paper called fiat money. Recent Bankster Wars include the Iraq War (Saddam wanted to sell Iraqi oil for gold, cutting out the US Dollar) and the Libyan Invasion (Gaddafi wanted to establish the gold dinar as the foundation for all currency on the African continent and he wanted payment in gold for Libyan oil). This video discusses how the bankers were behind the War of 1812, the American Civil War, and both World Wars. Interesting stuff.

Wile-E-Coyote's picture

The NSA knows exactly what you meant, there is a drone over your house right now; hell fire missile waiting for an infrared thermal lock.

Shell Game's picture

There's about a 1:1 ratio of trees to statists in D.C.  This bullshit will never stop until rotting corpses decorate every one of them..

NidStyles's picture

I didn't think there were that many trees in D.C..

Papasmurf's picture

DC has plenty of trees.  There are also plenty of lamposts.

Yes We Can. But Lets Not.'s picture

DC features a very large urban park known as Rock Creek Park (where body of Chandra Levy, who was boinking greaseball ex-Congressman Condit, was found), that has many thousands of trees.  And just across the river is Virginia, with thousands more trees, including those in Fort Marcy Park (where body of Vince Foster, counsel for the charming Hillary Clinton) was found.

cynicalskeptic's picture

They'll be cut down to heat houses before there's any accounting.  Look at past and present collapses - people can't afford to heat their homes so trees start getting cut down.

eatthebanksters's picture

Everyone ought to just take a deep breath and settle down.....then grab your ankles

rahbii's picture

And expect a drone overhead shortly



Dear Infinity's picture

Capital punishment should be reinstated... this country has gone SOFT.

Al Gorerhythm's picture

The masses still believe that their savings are used as collateral for 100% of all loans. They believe that everyone's money is held in safe keeping, that their bank is safe with 100% deposits held in the vault. Foolish sheeple. They haven't even heard of Fractional Reserve Banking, nor have they heard who legislated this nonsense into existence and who gave them legal cover.

Never One Roach's picture

The Fed hates Americans.



Al Gorerhythm's picture

The Fed hates Americans when they use a gold based currency as a national money base, which backs the currency on a 100% reserve ratio.

Say What Again's picture

Examination of this fleecing of America should be one of the TOP 3 priorities of the congress.  But I know I ask for too much

redpill's picture

It is, it's number 2.  The problem is number 1 is to keep the fleecing going.

Say What Again's picture

I know that most of the morons in congress don't do their homework. They're just too lazy.

But when ZH does it for them, all they need to to do to look smart is to read the message/questions given above -- but they don't do so.

The Banktstas must have some good shit on those morons to keep them that compliant.

SamAdams's picture

My senator told me he was well aware of the problem, but he would lose his influence (seat) if he pushed too hard.  He said that some influence is better than none at all.  How is that for reassuring?  Whichever poster said that force will be the only solution was correct.  Those in power will never rescind and they know as well as anyone, force is power.  Time to quit fooling yourselves.  Be it known, the right should not be anxious to fire the first shot.  Our current agenda is to educate and spread awareness.

cynicalskeptic's picture

Makes perfect sense when you realize that the Federal Reserve is OWNED BY PRIVATE BANKS - INCULDING FOREIGN BANKS.

The Fed is serving its owners quite well.

Say What Again's picture

Correction: The Federal Reserve is owned by the "House of Rothschild."

Al Gorerhythm's picture


NWO, same as the OWO.

earleflorida's picture

just watch it... for christ sake!

even if your brain can't absorb a five-minute drill?  let the learned, and inculcate Cassandra imbibe upon your headstrong dogma's... before showing ones ignorance, in the burrows of cranium darkness!

Al Gorerhythm's picture

Cosmicly, wildly,  flowery, dude.

I did watch it, and my comment remains the same. New World Order same as the Old World Order. It has been threatened only once, recently, in the history of money. Jesus had a swipe at them but even his mightiness couldn't stop it. Get your ego in check and you might see that I was supporting your post.

EnslavethechildrenforBen's picture

They could easily be stopped. This thing can turn on a dime.

Al Gorerhythm's picture

Well now, please share. I've been scratching my melon over this for years and banging the drum. Who you gonna call to mount the attack, if that's the plan?

Banksters's picture

Obama is going to enact an executive order on cyber security.

Anonymous= CIA

The truth is that govts can't stand freedom of speech.  Especially now that there are so many people piecing together their CORRUPTION!



trendybull459's picture

From all of those points its still people who are interesting to keep and run system of crooks on your behalf,there no strikes or revolutions,it looks every american quit down this option via given to him portion of cheeseburger from catched on the street dog or cat,looks no one care of their wealth devalue and only monkeys who are care is a foreighners who feeling their dollars becoming very very liquid so some of it we do not find in account to buy enough as in the past,on this not I asking you visit and tell us in FED pool what do you think on it and visit our new page:

Theta_Burn's picture

Dude, you took the words right out of my mouth..

redpill's picture

Then you must have a cheek full of punctuation, cuz he sure didn't take that!

Karl von Bahnhof's picture

Its because people are not hungry (yet).

Al Gorerhythm's picture

"Click here to learn how to write good."

Beautifully done! You triggered my incontinence.

Straight from Zoolander's "School for kids who wanna read good."?

Pairadimes's picture

I think I just sprained my prefrontal cortex.

Say What Again's picture

No worries...

Obama's health plan has got you covered.

While we're working on you, just leave your smart phone, tablets, computers, and credit cards in this little basket -- OK?

ZeroAvatar's picture

trendybull, nice try.  Your attempt to appear like some 'foriegner' is poor at best.  '"Hey, everybody!  Look!  This guy must be Chinese or something!  I'm SURE he's MUCH smarter than most people and I'm going to click on his spam link just as fast as I can get my curser over it!"

q99x2's picture

The US Gold reserves also went that way. They did not audit the Gold even though I signed the petition. They probably don't care about me.

Maybe they are paying me off. College starts this week.

Gold crushed on the news Russia has joined China as both are buying like crazy. Guess we know where the US Citizen's gold is going.

NidStyles's picture

Citizen's can not own anything, for they themselves are owned by the state. Try loooking up where the word Citizen comes from. You'll refrain from using that word in the future.

falak pema's picture

you pretend to understand historical context when you say that?

Citizens make nations and states via elections. Thats how the US began.

Don't act like the dog's tail. 

These Oligarchs have TakEN over the state; they are not representing people's interest. They ARE a minority!

Learn to count, economist. The state belongs to the responsible citizen. 

Super Broccoli's picture

who cares if that funny money ends up in an Yankee or in a european bank ? Not like it did get thru my pocket !

CaptainSpaulding's picture

I wish some of that money would make its way to a couple of snow plows and plow my street.