``The Fed had losses of $66.5 billion on its securities holdings on Sept. 30, if it marked them to market, according to its latest quarterly financial report. That dwarfed its $39.1 billion in capital, effectively leaving it with a negative net worth on that basis, a sure sign of financial frailty if it were an ordinary company.

... officials play down the significance of the theoretical losses and say they won't affect the ability of what they call "a unique non-profit entity'' to carry out monetary policy or remit profits to the Treasury Department. Case in point: the Fed handed over $51.6 billion to the Treasury in the first nine months of the year.

... "A central bank with a negative net worth matters not in theory,'' former Fed Governor Kevin Warsh said in an email. "But in practice, it runs the risk of chipping away at Fed credibility, its most powerful asset.''

The unrealized losses also provide fuel to critics of the Fed's huge bond buying programs -- commonly known as quantitative easing -- and the monetary operating framework underpinning them, just as central bankers begin discussing the future of its balance sheet. The ostensible red ink also could make it politically more difficult for the Fed to resume QE if the economy turns down.

... The Fed is currently reducing its bond holdings by a maximum of $50 billion per month -- not by selling them, which could force it to recognize an actual loss -- but by opting not to reinvest some of the proceeds of securities as they mature.

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