SOMA's Unrealized Loss: What Does it Mean?

6 Pages Posted: 1 Jan 2019

See all articles by Brian Bonis

Brian Bonis

George Mason University; Board of Governors of the Federal Reserve System

Jamie Noonan

Board of Governors of the Federal Reserve System

Lauren Fiesthumel

Board of Governors of the Federal Reserve System

Date Written: August 13, 2018

Abstract

In May 2018, the Federal Reserve published its Federal Reserve Banks Combined Quarterly Financial Report for the first quarter of 2018. For the first time since 2013, the report showed the System Open Market Account (SOMA) portfolio having an unrealized loss position. In particular, SOMA displayed an unrealized loss position of $462 million. What does it mean for the Fed to have an unrealized loss position on its securities holdings? This Note discusses the various valuation measures of the Fed's securities holdings, what these values mean, and the expected evolution of the value of the SOMA portfolio. Importantly, as discussed below, the SOMA portfolio's unrealized position has no effect on the ability of the Federal Reserve, as a central bank, to meet its financial obligations and pursue its statutory goals of price stability and maximum employment; in addition, it has no implications for the evolution of the Federal Reserve's earnings remittances to the U.S. Treasury or, ultimately, for U.S. taxpayers when, as expected, securities are held to maturity.

Keywords: Federal Reserve, monetary policy, accounting, balance sheet

JEL Classification: E5

Suggested Citation

Bonis, Brian and Noonan, Jamie and Fiesthumel, Lauren, SOMA's Unrealized Loss: What Does it Mean? (August 13, 2018). GMU Working Paper in Economics. Available at SSRN: https://ssrn.com/abstract=3300776 or http://dx.doi.org/10.2139/ssrn.3300776

Brian Bonis (Contact Author)

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jamie Noonan

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Lauren Fiesthumel

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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