The average FDIC insured bank has a leverage ratio of 8.73%, or a leverage multiplier of 11.5. This means the average FDIC insured bank borrows $11.5 for ever $1 in assets, and would have to lose more than 8.73% of its assets to go bankrupt. Washington Mutual, which failed in 2008, had a leverage multiple of 13.4. Lehman Brothers was at 21.1. Surprisingly, the Federal Reserve has a multiplier of 50.5.
Yesterday the Federal Reserve released the Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks (April 7, 2011). The Federal Reserve’s equivalent of stockholders equity is simply called capital.
In total, the Federal Reserve has $52.5 billion in capital. Its assets include $937.1 billion in mortgage-backed securities, which are “Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. [The current] face value of the securities, […] is the remaining principal balance of the underlying mortgages.” If 6% of them default, the Federal Reserve would suffer $56.2 billion in losses, which would place it in negative equity (insolvency). More than likely, the values of these mortgage securities are overstated, meaning the Federal Reserve is already insolvent.
More: http://www.cqcabusinessresearch.com/?p=92
Does anyone know what would happen if the Federal Reserve was insolvent?