The Reserve Bank released its latest annual report yesterday.
It showed that at June 30, 2016, the bank’s balance sheet rose to $167 billion, up $10 billion on a year earlier. The RBA’s activities and “operations in financial markets conducted to pursue its monetary policy objectives and support an efficient and orderly payments system in Australia” generated a profit of $2.9 billion.
These earnings “in most years arise from two sources: underlying earnings – comprising net interest and fee income, less operating costs – and valuation gains or losses”.
The RBA makes net interest income by earning interest on its assets while it “pays no interest on a large portion of its liabilities, such as banknotes on issue and capital and reserves”.
The fees it generates, which the RBA says “a material contributor to underlying earnings” come from ADI’s and are associated with the RBA’s emergency liquidity facility offered to Australia’s banking industry, known as the Committed Liquidity Facility.
On the valuation side of the equation the RBA says these gains or losses “result from fluctuations in the value of the Reserve Bank’s assets, in response to movements in exchange rates or in yields on securities”.
Naturally valuation gains can be volatile from year to year, but the RBA says “realised only when the underlying asset is sold or matures”.
The wash-up was “earnings available for distribution of $4.6 billion” from its operations in the 2016 financial year.
After a transfer of $1.39 billion to the Reserve Bank reserve fund, which took its balance to $14.119 billion that left $3.222 billion “payable as a dividend to the Commonwealth”.