The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
Foreign investors placed roughly $1.0 trillion in U.S. assets in 2011, pushing
the total value of their claims on the United States to $20.6 trillion. Over
the same period, U.S. investors placed $0.5 trillion abroad, bringing total
U.S. holdings of foreign assets to $16.4 trillion. One might expect that the
large gap of -$4.2 trillion between U.S. assets and liabilities would come with
a substantial servicing burden. Yet U.S. income receipts easily exceed payments
abroad. As we explain in this post, a key reason is that foreign investments in
the United States are weighted toward interest-bearing assets currently paying
a low rate of return while U.S. investments abroad are weighted toward multinationals' foreign operations and other corporate claims earning a much higher rate of return.
Since October 2008, the Federal Reserve has increased the size of its balance sheet by lending to financial intermediaries and purchasing assets on a large scale. While these actions have increased the amount of reserves in the U.S. banking system and therefore raised concerns about excessive bank lending and inflation, we can document an important and overlooked benefit of the high level of reserves: a significantly earlier settlement of payments on Fedwire, the Federal Reserve’s large-value payment system. Quicker settlement on Fedwire improves liquidity throughout the economy, reducing uncertainty and risk for people and firms that rely on banks. At the same time, the Fed has been extending less intraday credit, which reduces the public’s risk exposure.
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, Donald Morgan, and Asani Sarkar, all economists in the Bank’s Research Group.
The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
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