Research Outline

U.S. Treasury and the Fed


To determine where the money the Treasury has is stored, in order to understand how the Treasury prints out money and affects the stocks.

Early Findings

In our early findings, we determined that the Treasury keeps its money in the Federal Reserve Bank of New York as well as in commercial banks. We also found more information about the interaction between the Fed and the Treasury, such as how the Federal Reserve creates money for the Treasury and on Treasury securities.
  • The Treasury keeps its operating cash in an account at the Federal Reserve Bank of New York. It also maintains some of its cash in Tax and Loan accounts at commercial banks.
  • The Reserve Banks serve the U.S. Treasury, handling its payments, selling government securities and assisting with cash management and investment activities.
  • Unlike with stakeholders in public companies, member banks that hold stock in Reserve Banks cannot sell or trade their Fed stock.
  • The Federal Reserve creates money for the Treasury by buying government IOUs or Treasury bonds from private investors or foreign governments that have lent money to the Treasury. By buying more of these bonds, the interest rates on new borrowing decrease and so the Treasury can borrow more without pushing up the interest rates again.
  • Only the Treasury is authorized to fund the repayment or retirement of a Treasury security. The Board of Governors nor any Reserve Bank can do this.
  • The Fed announced that they will purchase $500 billion in Treasury securities to support the market on March 15, in response to the Covid-19 crisis.
  • The Fed and the Treasury have a rollover program that allows the Fed to keep the same amount of Treasury securities by exchanging maturing securities for newly issued ones.
  • If the Fed allows a security to mature, the payment from the Treasury’s General Account at the Fed offsets the value of the maturing security. Since the balances in the Treasury's General Account are a Fed liability, both the asset and the liability sides of the Fed decrease. This does not constitute income.
  • The New York Fed is authorized to buy and sell Treasury securities in order to carry out the Federal Open Market Committee directive. This includes outright purchases as well as small value exercises.