If the amount of the capital  surplus account and undistributed net income combined is greater than  capital paid-in, the excess is paid to the Treasury a week later. The Financial Accounting Manual  for Federal Reserve Banks states that the primary purpose of the Federal  Reserve capital surplus account is to provide capital to supplement paid-in  capital for use in the event of loss. The growth in the  Federal Reserve System’s capital surplus account can be attributed to  growth in the banking system together with the Federal Reserve Board  policy of equating the amount in the capital surplus account with paid-in  capital. Several Foreign Central Banks Maintain Accounts That Function Much Like the Federal Reserve Surplus Account

Three of the four central banks that we contacted had capital accounts that  included ownership shares as well as “surplus” accounts with functions  similar to the Federal Reserve System capital surplus account (see table 1). The  Bundesbank and the ECB, for instance, use accounts that are not part of  capital to serve as a cushion against loss. Reserve Banks Occasionally Have Used Funds from Their Surplus Accounts to Absorb Losses

The Federal Reserve System has not had an annual operating loss since  1915. Reserve Bank Earnings Were Not Sufficient to Absorb All of the Reserve Bank Weekly Losses

The individual Reserve Banks transferred funds occasionally from their  capital surplus accounts to absorb losses from 1989 through 2001. Reducing the Surplus Account Provides One-Time Increase in Federal Receipts but Yields No New Resources for the Federal Government

Reducing the Federal Reserve surplus account would create a one-time  increase in federal government receipts, thereby reducing the budget  deficit (or increasing the federal budget surplus) at the time of the transfer. Because the Federal Reserve System is not included in the federal budget, a  Reserve Bank transfer to the Treasury is recorded as a receipt under  current budget accounting. We also reviewed reports from CBO on the  Reserve Banks’ transfers of net earnings to the Treasury.
What GAO Found

The Board of Governors of the Federal Reserve System (Federal Reserve Board) reviewed its policies regarding the size of the Federal Reserve Banks' combined capital surplus account to determine if opportunities exist to decrease the amount held in the account. The consolidated capital surplus account is the aggregate of separate surplus accounts held at each of the 12 Reserve Banks, and the account represents cumulative retained net earnings for the Reserve Banks--that is, cumulative net earnings not paid to the Department of the Treasury. The Reserve Banks use their capital surplus accounts to act as a cushion to absorb losses. The Financial Accounting Manual for Federal Reserve Banks says that the primary purpose of the surplus account is to provide capital to supplement paid-in capital for use in the event of loss. Selected major foreign central banks maintain accounts with functions similar to the Federal Reserve System's capital surplus account. Although their accounts are not fully comparable with the Federal Reserve System capital surplus account, the Bank of England, the Bundesbank, and the European Central Bank have capital surplus or reserve accounts in addition to their paid-in capital accounts that are used as cushions against loss. The Federal Reserve System calculates earnings and transfers excess earnings to the Treasury on a weekly basis. Although the Federal Reserve System has not had an annual operating loss since 1915, the Reserve Banks recorded some weekly losses between 1989 through 2001, thus temporarily reducing their capital surplus accounts to cover these weekly losses. Reducing the Federal Reserve System capital surplus account would create a one-time increase in federal receipts, but the transfer by itself would have no significant long-term effect on the budget or the economy. Amounts transferred to the Treasury from reducing the capital surplus account would be treated as a receipt under federal budget accounting but do not produce new resources for the federal government as a whole