(Wall Street on Parade) Few Americans are aware that the central bank of the United States, the Federal Reserve, has its own trading desk in New York that interacts every business day with the trading desks of the giant Wall Street banks.
When Americans think of massive trading operations, names like JPMorgan, Goldman Sachs, Morgan Stanley, UBS and Citigroup come to mind. But if we measure trading desks by the value of their portfolio holdings, these global banks are pikers compared to the Fed’s trading desk, operated by one of its 12 private regional banks, the Federal Reserve Bank of New York (New York Fed).
Using the New York Fed’s own annual reports to obtain the data, we can report that the New York Fed’s Trading Desk has grown from $576 billion in holdings of domestic securities as of December 31, 2008 (at the peak of the last financial crisis) to $6.59 trillion as of December 9, 2020. And according to the New York Fed’s most recent financial statement, its Trading Desk’s domestic securities holdings have spiked by $15.9 billion in just the past week.
This is how the New York Fed explains why it has a massive Trading Desk:
“The Federal Open Market Committee (FOMC) is the Federal Reserve System’s top monetary policy-making body. The FOMC delegates responsibility for implementing U.S. monetary policy to the Manager of the System Open Market Account (SOMA) at the Federal Reserve Bank of New York through the Authorization. This Authorization is contained in the minutes of the first FOMC meeting of each year.
“The SOMA Manager is responsible for the staff of the Trading Desk at the Federal Reserve Bank of New York (‘the Desk’). The Desk thus executes open market operations on behalf of the entire Federal Reserve System.”
With whom exactly is the New York Fed’s Trading Desk conducting its trades? The same Wall Street trading houses (primary dealers) it bailed out to the tune of $29 trillion from 2007-2010 and to the tune of $9 trillion beginning on September 17, 2019 – months before there was a COVID-19 pandemic in the United States.
Even crazier, some of the largest Wall Street banks who own these primary dealers actually own the New York Fed. (See These Are the Banks that Own the New York Fed and Its Money Button.)
Adding further to the New York Fed’s status as the quintessential captured regulator, it has been put in charge of regulating these same banks by the Federal Reserve’s Board of Governors.