The Federal Reserve’s balance sheet is more than $4 trillion. If the quantitative easing initiative does not cease then that figure could hit $5 trillion in a couple of years. Although it might seem like a tremendous number for those concerned about the central bank’s actions, former Fed head Ben Bernanke isn’t worried.
Speaking at a monetary policy conference Monday, Bernanke explained that the Fed doesn’t need to shrink the immense balance sheet by even 10 cents in order for monetary policy to normalize when the time does finally come and the economy appears to he improved.
“The Fed has worked very carefully to figure out how to raise rates at the appropriate time,” Bernanke said. “That will eventually happen. We hope it happens because that means the economy is going back to normal.”
Bernanke noted that when the central bank does tighten its monetary policy then there could be some minor hiccups in the markets. However, as time goes by, “it will be a fairly normal process.”
“There is absolutely no need or requirement for the balance sheet to go back to normal as monetary policy normalizes. The balance sheet could be kept where it is for a very long time if necessary,” added Bernanke.
Under Bernanke, the Federal Reserve took on trillions of dollars long-term securities in order to boost the United States economy, improve the labor market and assist the housing market in its recovery. He also issued approximately $16 trillion in loans to 35 domestic and foreign banking institutions, according to an auditing report published by the Government Accountability Office (GAO).
Here is the list:
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion
Because of this, the major financial institutions are bigger than they ever were as they increased their assets by 39 percent in a five-year period.