Board of Governors of the Federal Reserve System

Federal Reserve Banks Combined Quarterly Financial Report Unaudited - September 30, 2017

Abbreviations

BAC

Committee on Federal Reserve Bank Affairs

FAST Act

Fixing America's Surface Transportation Act

FRA

Federal Reserve Act

FOMC

Federal Open Market Committee

FRBNY

Federal Reserve Bank of New York

GSE

Government-sponsored enterprise

MBS

Mortgage-backed securities

ML

Maiden Lane LLC

LLC

Limited liability company

SOMA

System Open Market Account

TBA

To be announced

VIE

Variable interest entity

Combined Quarterly Financial Statements

 

Combined statements of condition

 

 

Combined statements of operations

 

 

Combined statements of changes in capital

 

Supplemental Financial Information

(1) Loans

Loans to Depository Institutions

The Reserve Banks offer primary, secondary, and seasonal loans to eligible borrowers (depository institutions that maintain reservable transaction accounts or nonpersonal time deposits and have established discount window borrowing privileges). The remaining maturity distribution of loans to depository institutions outstanding as of September 30, 2017, and December 31, 2016, was as follows:

 

Table 1. Loans to depository institutions

 

At September 30, 2017, and December 31, 2016, the Reserve Banks did not have any loans that were impaired, restructured, past due, or on non-accrual status, and no allowance for loan losses was required. There were no impaired loans during the period ended September 30, 2017, and year ended December 31, 2016.

(2) System Open Market Account (SOMA) Holdings

Treasury securities, government-sponsored enterprise (GSE) debt securities,
and federal agency and GSE mortgage-backed securities (MBS) are reported at amortized cost in the Combined statements of condition. SOMA portfolio holdings at September 30, 2017, and December 31, 2016, were as follows:

 

Table 2. Domestic SOMA portfolio holdings

 

The following table provides additional information on the amortized cost and fair values of the federal agency and GSE MBS portfolio at September 30, 2017, and December 31, 2016:

 

Table 3. Detail of federal agency and GSE MBS holdings

 

The Federal Reserve Bank of New York (FRBNY) may engage in sales of securities under agreements to repurchase (reverse repurchase agreements) with primary dealers and with a set of expanded counterparties that includes banks, savings associations, GSEs, and domestic money market funds (primary dealer and expanded counterparties reverse repurchase agreements). Reverse repurchase agreements may also be executed with foreign official and international account holders as part of a service offering. Financial information related to reverse repurchase agreements at September 30, 2017, and December 31, 2016, was
as follows:

 

Table 4. Reverse Repurchase Agreements

 

The remaining maturity distribution of Treasury securities, GSE debt securities, federal agency and GSE MBS bought outright, and reverse repurchase agreements at September 30, 2017, and December 31, 2016, was as follows:

 

Table 5. Maturity distribution of domestic SOMA portfolio securities and securities sold under agreements to repurchase

 

Federal agency and GSE MBS are reported at stated maturity in table 5 above. The estimated weighted-average life of these securities, which differs from the stated maturity in table 5 primarily because it factors in scheduled payments and prepayment assumptions, was approximately 6.7 years and 7.2 years as of September 30, 2017, and December 31, 2016, respectively.

Information about transactions related to Treasury securities, GSE debt securities, and federal agency and GSE MBS held in the SOMA during the nine months ended September 30, 2017, and during the year ended December 31, 2016, is summarized as follows:

 

Table 6. Domestic portfolio transactions of SOMA securities

 

Information about foreign currency denominated investments recorded at amortized cost and valued at foreign currency market exchange rates held in the SOMA at September 30, 2017, and December 31, 2016, was as follows:

 

Table 7. Foreign currency denominated investments

 

The remaining maturity distribution of foreign currency denominated investments at September 30, 2017, and December 31, 2016, was as follows:

 

Table 8. Maturity distribution of foreign currency denominated investments

 

At September 30, 2017, and December 31, 2016, the fair value of foreign currency denominated investments held in the SOMA was $21,145 million and $19,510 million, respectively.

Because of the global character of bank funding markets, the Federal Reserve has at times coordinated with other central banks to provide liquidity. The Federal Open Market Committee (FOMC) authorized and directed the FRBNY to maintain standing U.S. dollar liquidity swap arrangements and standing foreign currency liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The FRBNY holds amounts outstanding under these swap lines in the SOMA. These swap lines, which were originally established as temporary arrangements, were converted to standing arrangements on October 31, 2013, and will remain in place until further notice.

The remaining maturity distribution of U.S. dollar liquidity swaps that were allocated to the Reserve Banks at September 30, 2017, and December 31, 2016, was as follows:

 

Table 9. Maturity distribution of liquidity swaps

 

The following table presents the realized gains and the change in the cumulative unrealized gains (losses) related to SOMA domestic securities holdings during the periods ended September 30, 2017, and September 30, 2016:

 

Table 10. Realized gains and change in unrealized gain position

 

(3) Consolidated Variable Interest Entity (VIE)

The combined financial statements include the accounts and results of operations of a limited liability company (LLC), Maiden Lane LLC (ML), which is consolidated by the FRBNY. Intercompany balances and transactions are eliminated in consolidation.

The classification of significant assets and liabilities of ML at September 30, 2017, and December 31, 2016, is summarized in the following table:

 

Table 11. Assets and liabilities of consolidated VIE

 

ML had net income of $4 million and incurred net losses of $16 million for the nine months ended September 30, 2017, and September 30, 2016, respectively.

The FRBNY will continue to sell the remaining assets from the ML portfolio as market conditions warrant and if the sales represent good value for the public. In accordance with the ML agreements, proceeds from future asset sales will be distributed to the FRBNY as contingent interest after all derivative instruments in ML have been terminated and paid or sold from the portfolio.

(4) Federal Reserve Notes

Federal Reserve notes are the circulating currency of the United States. These notes, which are identified as issued to a specific Reserve Bank, must be fully collateralized. All of the Reserve Banks' assets are eligible to be pledged as collateral. At September 30, 2017, and December 31, 2016, all Federal Reserve notes, net, were fully collateralized.

(5) Depository Institution Deposits

Depository institution deposits are primarily comprised of required reserve balances and excess reserve balances. Required reserve balances are those that a depository institution must hold to satisfy its reserve requirement. Reserve requirements are the amount of funds that a depository institution must hold in reserve against specified deposit liabilities. Excess reserves are those held by the depository institutions in excess of their required reserve balances.

(6) Treasury Deposits

The Treasury holds deposits at the Reserve Banks in a general account pursuant the Reserve Banks' role as fiscal agent and depositary of the United States.

(7) Capital and Surplus

The Federal Reserve Act (FRA) requires that each member bank subscribe to the capital stock of the Reserve Bank in an amount equal to 6 percent of the capital and surplus of the member bank. These shares are nonvoting, with a par value of $100, and may not be transferred or hypothecated. As a member bank's capital and surplus changes, its holdings of Reserve Bank stock must be adjusted. Currently, only one-half of the subscription is paid in, and the remainder is subject to call. A member bank is liable for Reserve Bank liabilities up to twice the par value of stock subscribed by it.

The FRA requires each Reserve Bank to pay each member bank an annual dividend on paid in capital stock. By law member banks with more than $10 billion of total consolidated assets, adjusted annually for inflation, receive a dividend on paid in capital stock equal to the smaller of 6 percent or the rate equal to the high yield of the 10-year Treasury note auctioned at the last auction held prior to the payment of the dividend. Member banks with $10 billion or less of total consolidated assets, adjusted annually for inflation, receive a dividend on paid in capital stock equal to 6 percent. The dividend is paid semiannually and is cumulative.

The FRA limits aggregate Reserve Bank surplus to $10 billion.

(8) Income and Expense

(A) Loans

Interest income on primary, secondary, and seasonal credit is accrued using the applicable rate established at least every 14 days by the Reserve Banks' boards of directors, subject to review and determination by the Board of Governors. For the nine months ended September 30, 2017 and 2016, primary, secondary, and seasonal credit average daily balances were $106 million and $113 million, respectively, and average interest rates were 1.08 percent and 0.61 percent, respectively.

(B) SOMA Holdings

The amount reported as interest income on SOMA portfolio holdings includes the amortization of premiums and discounts. Supplemental information on interest income on SOMA portfolio holdings is as follows:

 

Table 12. Interest income on SOMA portfolio

 

Supplemental information on interest expense on securities sold under agreement to repurchase (reverse repurchase agreements) is as follows:

 

Table 13. Interest expense on securities sold under agreement to repurchase

 

(C) Depository Institution Deposits

The Reserve Banks pay interest to depository institutions on qualifying balances held at the Reserve Banks. The interest rates paid on required reserve balances and excess balances are determined by the Board of Governors, based on a FOMC-established target range for the federal funds rate.

In May 2010, the Reserve Banks commenced the auction of term deposits to be offered through its Term Deposit Facility. The interest rate paid on these deposits is determined by auction.

(D) Operating Expenses

The Federal Reserve Banks have established procedures for budgetary control and monitoring of operating expenses as part of their efforts to ensure appropriate stewardship and accountability. Reserve Bank and Board governance bodies provide budget guidance for major functional areas for the upcoming budget year. The Board's Committee on Federal Reserve Bank Affairs (BAC) reviews the Banks' budgets and the BAC chair submits the budgets to Board members for review and final action. Throughout the year, Reserve Bank and Board staffs monitor actual performance and compare it with approved budgets and forecasts.

Additional information regarding Reserve Bank operating expenses is available each year in the Annual Report of the Board of Governors of the Federal Reserve System at www.federalreserve.gov/publications/annual-report.htm, and on the Audit webpage of the Board's public website at www.federalreserve.gov/regreform/audit.htm.