Dr. Econ

Does the Federal Reserve System hold stocks or other commonly traded equities like the Bank of Japan recently started doing?

September 2002

The Federal Reserve System does not hold corporate stocks, but it does hold government securities. In 2001 government securities1 accounted for a significant share of Federal Reserve System’s $654 billion in assets. The Federal Reserve’s securities portfolio is composed of securities issued by the United States government or government agencies. Securities held by Federal Reserve Banks are obtained and traded through open market operations.

While the Bank of Japan (BOJ) also conducts monetary policy through open market operations, it recently announced a plan to purchase stocks from commercial banks that fit a set of specified criteria. A subsequent analysis in the Financial Times2 explained the reason for the BOJ’s decision to purchase stocks from commercial banks: "The bank said falls in the Nikkei stock average, which dipped briefly below 9000 last week, near its 20-year low, could threaten the stability of financial markets and the financial system."

Security Holdings are Important to the Federal Reserve System

At year-end 2001, the twelve Federal Reserve Banks held over $560 million in U.S. Treasury and federal agency securities. This accounted for about 86 percent of total System assets (see Chart 1). The majority of these securities were Treasury bills, notes, and bonds. The balance of the securities portfolio was federal agency securities issued by Federal Farm Credit Banks, the Federal Home Loan Bank, Federal Land Banks, or the Federal National Mortgage Association (Fannie Mae).

Source: Annual Report, Federal Reserve Board, 2001. Available at: http://www.federalreserve.gov/publications.htm
*Other assets include Coin, Items in Process of Collection, Loans to Depository Institutions, and Accrued Interest Receivable.

For more information on the Financial Statements of the Federal Reserve System, see its Annual Report3 at http://www.federalreserve.gov/boarddocs/rptcongress/annual01/default.htm. In addition, each Federal Reserve Bank publishes an Annual Report that details its securities holdings.

Securities Held by the Federal Reserve System are Used in Open Market Operations

Open market operations involve the buying and selling of government securities in order to control the money supply and to meet interest rate targets in the federal funds market. The Federal Reserve System publication, Purposes and Functions, describes this process in more detail and is available at: http://www.federalreserve.gov/pf/pdf/frspf2.pdf. Similar to the Federal Reserve System, the BOJ conducts monetary policy by buying and selling Japanese Government Bonds (JGBs).

The Bank of Japan Proposed a Plan to Repurchase Stocks from Commercial Banks

In September 2002, the BOJ announced that it would begin to buy corporate stocks from troubled Japanese commercial banks that meet particular criteria (see "The Outline of the Stock Purchasing Plan" at http://www.boj.or.jp/en/seisaku/02/sei0209b.htm). Since the announcement, analysts have expressed both positive and negative views about the Japanese central bank’s decision.

A Wall Street Journal4 article published subsequently to the BOJ’s announcement stated: "The decision by the [Japanese] central bank to buy shares in companies owned by the banks could remove one of the most-feared triggers of the financial crisis in Japan by cutting the link between share prices and bank capital. However, Bank of Japan Gov. Masaru Hayami has long restricted calls for the bank to combat price deflation by buying unconventional assets such as stocks or bad loans, arguing that such tactics could destroy the credibility of the nation’s lender of last resort."


1. For more information about securities or other financial instruments, see Instruments of the Money Market at: http://www.rich.frb.org/pubs/instruments/.

2. Pilling, David. "Hayami’s Handout." Financial Times. September 19, 2002.

3. The 2001 Annual Report for the Federal Reserve Bank of San Francisco is available on the Web at: /publications/federalreserve/annual/index.html.

4. Dvorak, Phred. "Japan’s Central Bank Will Buy Stocks Held by Troubled Lenders." Wall Street Journal. September 19, 2002.


Annual Report. 2001. Federal Reserve System, Washington D.C. http://www.federalreserve.gov/boarddocs/rptcongress/annual01/default.htm

Instruments of the Money Market. 1988. Federal Reserve Bank of Richmond., Richmond, VA, http://www.rich.frb.org/pubs/instruments/.

Purposes and Functions.1994. Board of Governors of the Federal Reserve System, Washington, D.C. http://www.federalreserve.gov/pf/pf.htm.

The Outline of the Stock Purchasing Plan. Bank of Japan. October 11, 2002. Available at: http://www.boj.or.jp/en/seisaku/02/sei0209b.htm.