Board of Governors of the Federal Reserve System

Federal Reserve Banks Combined Quarterly Financial Report Unaudited - September 30, 2021

Abbreviations

Combined Quarterly Financial Statements

Combined statements of condition

Combined statements of operations

Combined statements of changes in capital

Supplemental Financial Information

(1) Credit and Liquidity Facilities

The Board of Governors authorized several lending facilities under section 13(3) of the Federal Reserve Act (FRA) to support the flow of credit to households and businesses. The structure and objective of these lending facilities are outlined below:

Table 1. 13(3) Lending facilities established by the Board of Governors to support the economy

The combined financial statements include the accounts and result of operations of the consolidated variable interest entities (VIEs) formed to administer certain lending facilities. A Reserve Bank consolidates a VIE if it has a controlling financial interest.

Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Treasury provided credit protection for CCF, MUNI, TALF II, and Main Street. The Treasury is a non-controlling member of and contributed equity to function as credit protection for the Limited Liability Companies (LLCs).

(2) 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). Primary and secondary loans are extended on a short-term basis, typically overnight, whereas seasonal loans may be extended for a period of up to nine months.

Other Loans

MMLF, PPPLF, and PDCF were established under section 13(3) of the FRA (Note 1). The Treasury, using the Exchange Stabilization Fund, committed $10 billion as credit protection to the Federal Reserve Bank of Boston (FRBB) and advanced $1.5 billion. Per the Credit Support Agreement with the Treasury, the FRBB agreed to pay to the Treasury a facility fee in respect of each MMLF loan. On April 12, 2021, the MMLF returned the credit protection of $1.5 billion and paid facility fees of $134 million to the Treasury. The PPPLF program extends credit to eligible financial institutions that originate Paycheck Protection Program loans, taking the loans as collateral at face value.

The amounts outstanding at September 30, 2021, and December 31, 2020, for loans to depository institutions and other loans were as follows (in millions):

Table 2. Loans to depository institutions and other loans

The remaining maturity distribution of loans to depository institutions and other loans outstanding as of September 30, 2021, and December 31, 2020, was as follows:

Table 3. Maturity distribution of loans to depository institutions and other loans

At September 30, 2021, and December 31, 2020, 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, 2021, and year ended December 31, 2020.

(3) System Open Market Account (SOMA) Holdings

Treasury securities, federal agency and government-sponsored enterprise (GSE) mortgage-backed securities (MBS), and GSE debt securities are reported at amortized cost in the Combined statements of condition. SOMA portfolio holdings at September 30, 2021, and December 31, 2020, were as follows:

Table 4. 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, 2021, and December 31, 2020:

Table 5. Detail of Federal agency and GSE MBS holdings—distribution of MBS holdings by coupon rate

The Federal Reserve Bank of New York (FRBNY) may engage in purchases of securities under agreements to resell (repurchase agreements) with primary dealers and expanded counterparties under the domestic standing repurchase agreement facility and foreign official account holders under the FIMA Repo Facility. The FRBNY may also 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 repurchase agreements and reverse repurchase agreements at September 30, 2021, and December 31, 2020, was as follows:

Table 6. Repurchase Agreements and Reverse Repurchase Agreements

The remaining maturity distribution of Treasury securities, federal agency and GSE MBS bought outright, GSE debt securities, repurchase agreements, and reverse repurchase agreements at September 30, 2021, and December 31, 2020, was as follows:

Table 7. Maturity distribution of SOMA domestic portfolio securities, securities purchased under agreements to resell, and securities sold under agreements to repurchase

Federal agency and GSE residential MBS (RMBS) and commercial MBS (CMBS) are reported at stated maturity in table 7 above. The estimated weighted-average lives of these securities differ from the stated maturity in table 7 primarily because these estimated weighted-average lives factor in scheduled payments and prepayment assumptions. The estimated weighted-average life of RMBS was approximately 5.4 years and 3.1 years as of September 30, 2021, and December 31, 2020, respectively. The estimated weighted-average life of CMBS was approximately 8.4 years and 8.8 years as of September 30, 2021, and December 31, 2020, respectively.

Information about transactions related to Treasury securities, federal agency and GSE MBS, and GSE debt securities held in the SOMA during the nine months ended September 30, 2021, and during the year ended December 31, 2020, is summarized as follows:

Table 8a. Domestic portfolio transactions of SOMA securities—bills, notes, and bonds

Table 8b. Domestic portfolio transactions of SOMA securities—residential and commercial MBS and GSE debt 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, 2021, and December 31, 2020, was as follows:

Table 9. Foreign currency denominated investments

The remaining maturity distribution of foreign currency denominated investments at September 30, 2021, and December 31, 2020, was as follows:

Table 10. Maturity distribution of foreign currency denominated investments

At September 30, 2021, and December 31, 2020, the fair value of foreign currency denominated investments held in the SOMA was $20,909 million and $22,374 million, respectively.

Because of the global character of bank funding markets, the Federal Reserve System has, at times, coordinated with other central banks to provide liquidity. As of September 30, 2021, the Federal Open Market Committee (FOMC) authorized and directed the FRBNY to maintain standing U.S. dollar 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 in order to provide U.S. dollar liquidity to foreign markets. The FOMC established swap U.S. dollar liquidity lines with the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank (Denmark), the Bank of Korea, the Banco de Mexico, the Norges Bank (Norway), the Reserve Bank of New Zealand, the Monetary Authority of Singapore, and the Sveriges Riksbank (Sweden).

The remaining maturity distribution of U.S. dollar liquidity swaps that were allocated to the Reserve Banks at September 30, 2021, and December 31, 2020, was as follows:

Table 11. Maturity distribution of U.S. dollar liquidity swaps

The following table presents the realized gains (losses), net and the change in the cumulative unrealized gains (losses) related to SOMA domestic securities holdings during the periods ended September 30, 2021, and September 30, 2020:

Table 12. Realized gains (losses) and change in unrealized gain position

(4) Consolidated Variable Interest Entities (VIEs)

The combined financial statements include the accounts and operations of CPFF II, CCF, Main Street, MLF, and TALF II. The Reserve Banks that are controlling members have extended loans to the VIEs under the authority of section 13(3) of the FRA. Intercompany balances and transactions are eliminated in consolidation.

Purchases of each LLC's portfolio assets were funded by loans extended by the controlling Reserve Bank. The assets of the VIE and the amounts provided by the Treasury as credit protection are used to secure the loan from the Reserve Banks. In January 2021, CCF, Main Street, MLF, and TALF II returned a portion of the Treasury's equity investment in each facility.

CPFF II ceased purchasing commercial paper on March 31, 2021. Prior to the conclusion of CPFF II, when all obligations of CPFF II were repaid, the remaining net assets were allocated and distributed to FRBNY and Treasury, in accordance with the Amended and Restated LLC Agreement of CPFF II. On June 29, 2021, CPFF II returned in full the Treasury's equity investment of $10 billion and Treasury's allocated portion of earnings of the LLC of $49 million, as reported in table 15a.

Additionally, the Board announced in June 2021 plans to begin winding down the portfolio of CCF and begin sales to be conducted in a gradual and orderly manner. In accordance with the decision to wind down the portfolio, CCF reclassified investments in the portfolio from held-to-maturity to trading securities and recorded a net unrealized gain of $20 million from the reclassification of corporate bonds to fair value measurement from amortized cost. CCF concluded sales of its ETFs and corporate bonds in August 2021. On September 24, 2021, CCF returned the Treasury's remaining equity investment of $13.9 billion and the Treasury's earnings on non-marketable securities of $17 million, as reported in table 15a.

The classification of assets and liabilities of the consolidated VIEs as of September 30, 2021, and December 31, 2020, respectively, are as follows:

Table 13a. Net portfolio assets and liabilities of consolidated VIEs

Table 13b. Net portfolio assets and liabilities of consolidated VIEs

Investments held by the CCF and MLF are subject to review each reporting period to identify indications of other-than-temporary impairment, and no impairments were indicated as of September 30, 2021. TALF II loans and Main Street loan participations are evaluated for impairment in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 310-10. No impairments were indicated for loans and there were no loans in non-accrual status extended by TALF II as of September 30, 2021. Main Street's allowance for loan losses consists of specific allowances for impaired loan participations and a general allowance for all other loan participations, and collectively reflects management's estimate of probable loan losses inherent in the loan portfolio at reporting date. The principal exposure of loan participations in non-accrual status as of September 30, 2021, was $3,220 million. The evaluation of loan participations purchased by Main Street, including those in non-accrual status, resulted in recording a loan loss allowance of $2,330 million as of September 30, 2021.

The maturity distribution of major asset categories in the consolidated VIEs net portfolio holdings, which have set maturity terms is as follows:

Table 14. Maturity distribution of major asset categories of consolidated VIEs

The following tables present information related to the portfolio holdings of the VIEs and the funding provided by the Reserve Bank and Treasury, as of September 30, 2021, and December 31, 2020, respectively.

Table 15a. Analysis of Reserve Bank funding and Treasury non-controlling interests of VIEs

Table 15b. Analysis of Reserve Bank funding and Treasury non-controlling interests of VIEs

The allocation of the excess of net unconsolidated VIE assets is determined in accordance with the limited liability company agreement for each entity. The hypothetical liquidation basis of valuation (HLBV) is applied in determining the allocation. Under the HLBV, the hypothetical liquidation of the VIE at book value forms the basis for allocating income or loss and net assets between its controlling and non-controlling interest holders.

(5) 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, 2021, and December 31, 2020, all Federal Reserve notes, net, were fully collateralized.

(6) Depository Institution Deposits

Depository institutions' deposits primarily represent the balances in the master accounts and excess balance accounts that depository institutions hold at the Reserve Banks. 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. Effective March 26, 2020, reserve requirements were removed, and all balances held are excess balances. Effective July 29, 2021, the Board of Governors eliminated references to an interest on required reserves rate and to an interest on excess reserves rate and replaced them with a single interest on reserve balances rate.

(7) 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.

(8) Capital and Surplus

The 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 have 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 $6.785 billion. On January 1, 2021, the National Defense Authorization Act for 2021 reduced the aggregate Reserve Bank surplus from $6.825 billion to $6.785 billion. On February 5, 2021, Reserve Banks made a $40 million lump sum payment to the Treasury and is reported as a component of "Earnings remittances to the Treasury" in the Combined statements of operations.

The Treasury equity contribution to the consolidated VIEs is reported as an element of "Consolidated variable interest entities formed to administer credit and liquidity facilities: Non-controlling interest" in the Combined statements of condition. The reported amount also includes Treasury's allocated portion of undistributed net VIE assets as of September 30, 2021, determined in accordance with VIE agreements and accounting policies adopted by the VIEs.

(9) Income and Expense

(A) Loans to Depository Institutions and Other 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. Interest income on advances made under the MMLF, PPPLF, and PDCF is accrued using the applicable rate as outlined by the term sheets of the respective programs.

Supplemental information on interest income on loans and other loans is as follows:

Table 16. Interest income on loans to depository institutions and other loans

(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 17. Interest income on SOMA portfolio

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

Table 18. Interest expense on securities sold under agreement to repurchase

(C) Consolidated Variable Interest Entities (VIEs)

The combined financial statements include the accounts and results of operations of consolidated VIEs formed under the authority of section 13(3) of the FRA (Notes 1 and 4). Net income and losses from operations of the consolidated VIEs are reported as "Consolidated variable interest entities: Income, net" in the Combined statements of operations. The portion of consolidated VIE net income and loss that is allocated to the non-controlling interests is reported as "Consolidated variable entities: Non-controlling interest (income), net" in the Combined statements of operations.

Supplemental information on consolidated VIE income is as follows:

Table 19a. Net operating income (loss) of consolidated VIEs

Table 19b. Net operating income (loss) of consolidated VIEs

(D) 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. Effective March 26, 2020, the Board of Governors has reduced reserve requirements ratios to zero. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.

The Reserve Banks also offer term deposits through the Term Deposit Facility, and all depository institutions that are eligible to receive interest on their balances at the Reserve Banks may participate in the term deposit program. The interest rate paid on these deposits is determined by auction.

(E) 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 https://www.federalreserve.gov/publications/annual-report.htm, and on the Audit webpage of the Board's website at https://www.federalreserve.gov/regreform/audit.htm.