A Brief Illustrated History of the Federal Reserve's Balance Sheet

February 13, 2026

A Brief Illustrated History of the Federal Reserve's Balance Sheet

Ruth Judson and Colin Weiss

1. Introduction

The size of the Federal Reserve's balance expanded dramatically from 2008 to 2022 and has recently begun to adjust as the Fed moves toward a policy of "ample" reserves. While this expansion was unprecedented in its speed and came after a long period of stability, the Federal Reserve's balance sheet has risen and fallen and changed in composition over time. This note provides a graphical review of the evolution of the balance sheet from the Fed's founding in 1914 through 2025, with particular emphasis on how the balance sheet changed as the gold standard ended in the early 1970s, as the Fed shifted to interest-rate targeting in the early 1990s, and as the Fed responded to the 2008 financial crisis.¹

It is not the objective of this note to provide an exhaustive history of either the Federal Reserve's balance sheet, its operations, or monetary policy implementation. Instead, the goal is to show, briefly and graphically, how the balance sheet's size and composition have changed over time.

The discussion is centered around Figure 1, which displays the major elements of the Federal Reserve's balance sheet as a share of GDP at the end of each year from 1914 to 2025 as compiled from Bao et al. (2018) and the last H.4.1 statistical release of each year thereafter. Federal Reserve assets are shown above the horizontal axis and Federal Reserve liabilities and capital are shown below it, with colors indicating major components.²

2. The Data

In Figure 1, six major asset categories are shown: gold, shown in yellow, which comprised a substantial share of Federal Reserve assets in the Federal Reserve's early years; government securities (Treasuries), shown in blue; agency securities, shown in aqua; loans, shown in purple; foreign currency assets, including dollar swaps, shown in red; and "other," shown in gray, which includes miscellaneous items and is typically small. The liabilities categories are capital and other assets, shown in darker gray, which, like "other" assets, have generally been small; currency, shown in green; and deposits by depository institutions (often referred to as reserves) and the government, shown in light and dark tan respectively.^{3, 4}

3. Early Years

The Federal Reserve began operation in November 1914, and thus had been in operation only a few weeks when the chart begins, at the end of 1914.⁵ The primary components of the balance sheet at that time were gold as an asset, reflecting the United States' adherence to a gold standard at the time, and deposits of depository institutions (light brown). For the first few years, currency in circulation (green) and loans were quite small, and capital paid in was likewise minimal. Currency issued by the Federal Reserve (Federal Reserve notes) was minimal because currency was being supplied by the Treasury (Federal Reserve, 1915). As of the end of 1914, authorization for open market purchases of securities had been drafted but no purchases had been made.

Even though the balance was small, the approach laid out in the Federal Reserve's very first Annual Report is still in place today (Federal Reserve (1915), p. 17):

The resources of a Reserve Bank, to be useful for its peculiar purposes, should always be readily available. It follows, therefore, that they should be mainly invested in such short-term liquid investments as can be easily converted into cash as occasion may require. This conception of a Reserve Bank, moreover, implied that its investments should be marshaled in a steady succession of maturities, so that it may at all times as nearly as possible prove equal to the situation…

The more complete adaptation of the credit mechanism and facilities of the country to the needs of industry, commerce, and agriculture-with all their seasonal fluctuations and contingencies-should be the constant aim of a Reserve Bank's management.

By 1917, the Federal Reserve had come into its own and the balance sheet had expanded considerably, in part because of the onset of World War I. Federal Reserve notes began to supplant other types of currency in circulation, and loan activity (shown in light purple) increased.⁶ Indeed, it is worth noting that, as a share of GDP, Federal Reserve lending in the early 1920s was greater than in the 2008-2009 period.⁷ In these early years, and for many years thereafter, monetary policy-that is, the supply of money and credit-was controlled by the interest rates Federal Reserve Banks set for lending to banks, changes in reserve requirements, and open market operations. Following the end of World War I and the associated need for increased lending, the Federal Reserve's balance sheet contracted steadily as a share of GDP for a decade.

4. The Great Depression, World War II, and the Postwar Recovery

The balance sheet expanded dramatically during the Great Depression and through World War II as need for support of the economy grew, peaking at about 22 percent of GDP.⁸ Gold (and later gold certificate) holdings dominated assets until the onset of World War II, at which point Treasury purchases expanded as a means to support wartime investment, which at the time was a novel approach to open market operations.⁹ Nevertheless, gold certificates remained the dominant asset component and Federal Reserve gold certificate holdings grew considerably in the years leading up to WWII, as gold flowed out of Europe and into the U.S. (and Treasury and the Fed chose not to sterilize most of these inflows).¹⁰ On the liability side, currency began to contract at the end of the war, in part reflecting the growing use of checks not only by businesses, but also by consumers.¹¹ Over this period, bank deposits at the Federal Reserve remained substantial and the Federal Reserve continued to control the money supply using reserve requirements, discount rates, and open market operations.

During the period of the Bretton Woods system, gold holdings declined steadily. Under this system, the dollar was pegged to gold at a price of $35 per troy ounce, and other countries fixed the dollar value of their currencies. Countries participating in the Bretton Woods system also agreed to settle international transactions in dollars. Stability of the system required the relative supplies of dollars and gold to be such that the open market price of gold remained near the official price of gold. Unfortunately, conditions were such that gold steadily flowed out of the U.S. to keep the market price of gold around $35 until U.S. gold holdings were deemed insufficient to redeem dollars for gold, with official convertibility of the dollar into gold at a fixed rate ending in 1971 and other governments letting their currencies float in 1973.¹² The earliest foreign currency swap networks were also developed in this period, but were lightly used and are barely visible in the figure. (Federal Reserve, 1974).

5. The Post-Bretton Woods Era

Through the 1970s and 1980s, gold's share of the balance sheet dwindled to minimal levels as a share of GDP, partly because gold operations became smaller and less frequent and partly because gold's value on the balance was fixed at the statutory price, now $42.22, where it remains today. Assets were dominated by Treasuries, with small holdings of agency debt. Lending activity was minimal, limited to discount window and other "last resort" borrowing by banks. Currency in circulation trended down a bit as non-cash payments grew. Monetary policy continued to be controlled by reserve requirements, discount rates, and open market purchases of Treasuries and agency debt.

6. Moving to Interest-Rate Targeting

In the late 1980s, the relationships between the monetary aggregates and economic activity became less stable, and the Federal Reserve moved to a greater focus on the use of interest rate targeting. In the early 1990s, the interest rate target began to be announced publicly, a practice that continues to this day. The interest rate target was the federal funds rate, the rate at which banks lend Federal Reserve balances overnight to one another. The target was met by managing the supply of reserves on a daily basis through open market operations. Reserves were thus "scarce," with the supply of excess reserves relatively small, and government deposits (the Treasury General Account, or TGA) were small and tightly managed.¹³ As a consequence of the scarce reserves regime, lending activity increased somewhat, and saw a brief increase at the end of 1999, a time when banks wanted to hold adequate reserves to cover any unanticipated problems associated with the century date change. Until 1994, the interest rate target was announced only indirectly or with a lag; thereafter, the target rate and associated actions were reported immediately following each FOMC meeting.

7. The 2008 Financial Crisis, Credit Easing, and Asset Purchases

The implementation of monetary policy using a announced interest rate target and scarce reserves continued until 2008. During this period, Treasuries dominated the asset side of the balance sheet and currency dominated the liability side, with Treasury purchases tracking changes in demand for currency.¹⁴ Currency demand also stopped declining and even rose a bit, likely due to international demand for U.S. banknotes following the collapse of the Soviet Union and a succession of crises in Argentina (Judson (2012)). Relative to GDP, the Fed's balance sheet was about the same size as it had been in its early years-between 5 and 10 percent of GDP.

In 2007 and early 2008, lending was expanded following strains in international markets and the collapse of Bear Stearns. Still, the scarce reserves regime was maintained as increased lending was offset, or "sterilized," as maturing Treasuries were not replaced. But the support for markets needed in 2008 following the fall of Lehman Brothers in mid-September exceeded Federal Reserve holdings of Treasuries, and the scarce reserves regime ended.¹⁵ Loans and foreign currency swaps ("central bank liquidity swaps") grew dramatically and were matched by increases in deposits on the liability side. These loans and swaps were ultimately fully repaid.

Subsequently, the Federal Reserve embarked on a series of asset purchase programs with the goal of reducing long-term interest rates. But since the balance sheet by definition must balance, these increases were matched by yet larger deposits of depository institutions.¹⁶ Currency demand also began a new upward trend when Lehman Brothers collapsed (Judson (2012)), again partly due to international demand for U.S. banknotes but also as a general response to uncertainty. The balance sheet size peaked at just over 25 percent of GDP in 2014 before beginning to shrink as a move toward policy "normalization" began. Treasury and agency securities holdings were not sold, but were allowed to mature with less than full replacement. Over the five years from 2014 to 2019, the balance sheet shrank from about 25 percent of GDP to a bit less than 20 percent.

8. Covid Pandemic and Moving Toward "Ample" Reserves

The normalization process halted with the arrival of the COVID pandemic, which brought another round of lending and securities purchases. This round of lending was significant, peaking at about $70 billion but short lived as most loans were repaid quickly and indeed, the loans hardly appear at all in the year-end data.¹⁷ The COVID pandemic also generated a large increase in demand for banknotes which has since reversed. In the most recent years, the balance sheet has once again been shrinking as the Federal Reserve moves to a goal of "ample" reserves. As of the end of 2025, the balance sheet was equal to about 22 percent of GDP, about the level at the end of the Great Depression.

9. Summary and Conclusion

The history of Federal Reserve policy management is long and rich, and yet the history of the balance sheet is often shown only starting in 2007. This approach is partly a matter of convenience: Most online data sources begin only in the mid-2000s. But the longer series compiled by Bao et al. allows a longer look, and shows that changes over time in the size and composition of the balance sheet are the norm rather than the exception.

References

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Judson, Ruth (2012), "Crisis and Calm: Demand for U.S. Currency at Home and Abroad From the Fall of the Berlin Wall to 2011," International Finance Discussion Paper 2012-1058.

Keister, Todd, and James McAndrews (2009), "Why Are Banks Holding So Many Excess Reserves? (PDF)" Federal Reserve Bank of New York: Staff Report 380.

Millsteain, Eric, and David Wessel (2024), "What did the Fed do in response to the Covid-19 crisis?" Brookings Institution.

Vissing-Jorgensen, Annette (2025). "Fluctuations in the Treasury General Account and their effect on the Fed's balance sheet," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, August 06, 2025.