Quarterly Report on Federal Reserve
Balance Sheet Developments

Table 2. Domestic SOMA securities holdings
Billions of dollars

Security type	Total par value as of July 24, 2013	Total par value as of May 1, 2013
U.S. Treasury bills	0	0
U.S. Treasury notes and bonds, nominal	1,873	1,756
U.S. Treasury notes and bonds, inflation-indexed 1	97	92
Federal agency debt securities 2	67	72
MBS 2	1,261	1,122
Total SOMA securities holdings	3,297	3,042

 Note: Unaudited. Components may not sum to total because of rounding. Does not include investments denominated in foreign currencies or unsettled transactions.

1. Includes inflation compensation. Return to table

2. Direct obligations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Return to table

3. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the remaining principal balance of the underlying mortgages. Return to table

On September 28, 2012, the Federal Reserve began the regular publication of transaction-level information on individual open market transactions. In accordance with the Dodd-Frank Act, this information will be made available on a quarterly basis and with an approximately two-year lag. The transaction-level detail supplements the extensive aggregate information the Federal Reserve has previously provided in weekly, monthly, and quarterly reports, and is available at www.newyorkfed.org/markets/OMO_transaction_data.html.

On February 20, 2013, the FRBNY announced the introduction of a pilot program for a few small broker-dealers to participate in FRBNY operations to conduct outright purchases or sales of U.S. Treasury securities along with primary dealers. These new counterparties will not be eligible to participate in other types of OMOs. The program will run for about one year--a period long enough for the FRBNY to evaluate the benefits and costs of a wider range of participants in its SOMA operations.

Large-Scale Asset Purchase Programs

From March 2009 through March 2010, the Federal Reserve purchased direct obligations of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Banks; MBS guaranteed by Fannie Mae, Freddie Mac, and the Government National Mortgage Association (Ginnie Mae); and longer-term Treasury securities.² More information on these actions is available at
www.federalreserve.gov/monetarypolicy/bst_openmarketops.htm.

On November 3, 2010, the FOMC decided to expand its holdings of securities and announced that in order to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the FOMC intended to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The last purchase under this program occurred on June 30, 2011.

On August 10, 2010, the FOMC announced that it would reinvest principal payments from agency debt and agency MBS in longer-term Treasury securities in order to maintain domestic securities holdings in the SOMA portfolio at the level intended under the LSAPs. On September 21, 2011, the FOMC announced that it would begin reinvesting these principal payments in agency MBS.

On September 13, 2012, the FOMC announced that it would increase policy accommodation by purchasing additional agency MBS at a pace of $40 billion per month, continue through the end of the year its program to extend the average maturity of its holdings of securities (as described below), and maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency MBS in agency MBS. More information is available at www.federalreserve.gov/newsevents/press/monetary/20120913a.htm.

On December 12, 2012, the FOMC announced that it would continue purchasing additional agency MBS at a pace of $40 billion per month. The FOMC also announced that it would begin purchasing longer-term Treasury securities following the completion of its program to extend the average maturity of its holdings of Treasury securities, initially at a pace of $45 billion per month. In addition, the FOMC decided to maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency MBS in agency MBS and, in January 2013, to resume rolling over maturing Treasury securities at auction. More information is available on the Federal Reserve Board's website at www.federalreserve.gov/newsevents/press/monetary/20121212a.htm.

Maturity Extension Program

On September 21, 2011, the FOMC announced that it would extend the average maturity of its holdings of securities--by purchasing $400 billion par of Treasury securities with remaining maturities of 6 years to 30 years and selling or redeeming an equal par amount of Treasury securities with remaining maturities of 3 years or less--by the end of June 2012. The maturity extension program was intended to put downward pressure on longer-term interest rates and to help make broader financial conditions more accommodative. Additional information is available at www.newyorkfed.org/markets/opolicy/operating_policy_110921.html  and www.newyorkfed.org/markets/pomo_landing.html.

On June 20, 2012, the FOMC announced that it would continue through the end of the 2012 its program to extend the average maturity of its holdings of securities. The maturity extension program concluded as scheduled and resulted in the purchase, as well as the sale and redemption, of about $667 billion in Treasury securities since the inception of the program.

Temporary Open Market Operations and Other Reserve Management Tools

Recent Developments

• Beginning on June 25, 2013, the FRBNY conducted a series of small-value repurchase (repo) transactions with the primary dealers using all eligible collateral types. Also, beginning on August 7, 2013, the FRBNY conducted a series of small-value reverse repurchase (reverse repo) transactions with a full set of eligible counterparties using Treasury and MBS collateral. These types of transactions are conducted as a matter of prudent planning by the Federal Reserve and are designed to have no material impact on the availability of reserves or on market rates. They do not represent a change in the stance of monetary policy and no inference should be drawn about the timing of any change in the stance of monetary policy in the future. The results of these operations are available on the FRBNY's website at www.newyorkfed.org/markets/omo/dmm/temp.cfm.
• On July 15, 2013, the Federal Reserve awarded $11.9 billion of 28-day term deposits through the Term Deposit Facility (TDF). This TDF operation was conducted using a fixed-rate full-allotment format. Each participating institution was allowed to submit one tender with a maximum value of $1.25 billion that was awarded in full at the predetermined rate of 0.26 percent. The ongoing small-value TDF offerings are a matter of prudent planning and have no implications for the near-term conduct of monetary policy. Additional information about term deposits and recent operations is available through the TDF Resource Center at www.frbservices.org/centralbank/term_deposit_facility.html.

Repos and Reverse Repos

Temporary OMOs are typically used to address reserve needs that are deemed to be transitory in nature. These operations are either repos or reverse repos. Under a repo, the FRBNY Trading Desk buys a security under an agreement to resell that security in the future. A repo is the economic equivalent of a collateralized loan; the difference between the purchase and sale prices reflects the interest on the loan.

Under a reverse repo, the Trading Desk sells a security under an agreement to repurchase that security in the future. A reverse repo is the economic equivalent of collateralized borrowing. Reverse repos are a tool that could be used to support a reduction in monetary accommodation at the appropriate time.³ Amounts outstanding under repos and reverse repos are reported weekly in tables 1, 2, 8, and 9 of the H.4.1 statistical release.

In addition, the Federal Reserve has long operated an overnight securities lending facility as a vehicle to address market pressures for specific Treasury securities. Since July 9, 2009, this facility has also lent housing-related GSE debt securities that are particularly sought after. Amounts outstanding under this facility are reported weekly in table 1A of the H.4.1 statistical release. 

Expanded Counterparties for Reverse Repos

Since late 2009, the FRBNY has taken steps to expand the types of counterparties for reverse repos to include entities other than primary dealers. This initiative is intended to enhance the Federal Reserve's capacity to conduct large-scale reverse repo operations to drain reserves beyond what could likely be conducted through primary dealers. The additional counterparties are not eligible to participate in transactions conducted by the FRBNY other than reverse repos.

In 2010 and 2011, the FRBNY initiated three waves of counterparty expansions aimed at domestic money market funds. With each wave, the set of eligibility criteria was broadened to allow more and smaller money market funds to participate as counterparties. In addition, on July 27, 2011, the FRBNY announced that it had accepted two GSEs--Freddie Mac and Fannie Mae--as reverse repo counterparties. On December 1, 2011, and April 30, 2012, the FRBNY announced that several banks had been accepted as reverse repo counterparties. On August 16, 2012, the FRBNY released another round of criteria for the acceptance of banks, savings associations, GSEs, and domestic money market funds as counterparties; institutions accepted under these criteria were announced on January 15, 2013.

Acceptance as a counterparty does not constitute a public endorsement by the FRBNY of any listed counterparty and should not substitute for prudent counterparty risk management and due diligence. Further information on reverse repo counterparties is available on the FRBNY's website at www.newyorkfed.org/markets/rrp_announcements.html and www.newyorkfed.org/markets/expanded_counterparties.html.

Small-Value Repo and Reverse Repo Transactions

The FRBNY periodically conducts small-scale, real-value triparty repo and reverse repo transactions to ensure operational readiness at the Federal Reserve, the major clearing banks, the primary dealers, and other counterparties. The transactions have no material impact on the availability of reserves or on market rates, and are a matter of prudent advance planning by the Federal Reserve. They do not represent any change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future.

In December 2009, the FRBNY conducted its first set of small-scale, real-value, triparty reverse repos with primary dealers. Additional series of reverse repos have been conducted since 2009, some of which were open to the sets of expanded counterparties (money market mutual funds, GSEs, banks, and savings associations).

In August 2012, the FRBNY conducted a series of small-value repo transactions with primary dealers using all eligible collateral types. The FRBNY had not conducted a repo since December 2008, and since that time six primary dealers had been added and there had been several changes to the infrastructure of the repo market. Additional series of repos have been conducted since 2012.

Additional details and the results of these operations are available on the FRBNY website at
www.newyorkfed.org/markets/omo/dmm/temp.cfm.

Term Deposit Facility

The TDF is a program through which the Federal Reserve Banks offer interest-bearing term deposits to eligible institutions. A term deposit is a deposit with a specific maturity date. The TDF was established to facilitate the conduct of monetary policy by providing a tool that may be used to manage the aggregate quantity of reserve balances held by depository institutions, and in particular (as with reverse repos) to support a reduction in monetary accommodation at the appropriate time. An increase in term deposits outstanding drains reserve balances because funds to pay for them are removed from the accounts of participating institutions for the life of the term deposit.

Term deposits may be awarded either through (1) a competitive single-price auction with a noncompetitive bidding option (which allows institutions to place small deposits at the rate determined in the competitive portion of the operation) or (2) a fixed-rate format with full allotment at an interest rate specified in advance.

Beginning in June 2010, the Federal Reserve has periodically conducted small-value TDF offerings as a matter of prudent planning. These offerings have no implications for the near-term conduct of monetary policy. Additional information about term deposits, auction results, and future small-value offerings is available through the TDF Resource Center at www.frbservices.org/centralbank/term_deposit_facility.html.

Discount Window Lending

Recent Developments

• Credit provided to depository institutions through the discount window remains generally around its historically usual level. As presented in table 5, discount window credit outstanding on July 24, 2013, was $0.1 billion, and the lendable value of collateral pledged by borrowing institutions on that date was $0.4 billion.
• In July 2013, the Federal Reserve amended its Operating Circular No. 10, the standard legal agreement under which institutions borrow from the discount window, to help ensure that the Federal Reserve complies with the requirements of section 716 of the Dodd-Frank Act. Subject to certain exceptions, section 716 and the Federal Reserve Board's Regulation KK prohibit the extension of discount window credit to "swaps entities." A swaps entity includes a person that is registered as a swap dealer, security-based swap dealer, major swap participant, or major security-based swap participant under the Commodity Exchange Act or Securities Exchange Act of 1934, other than an insured depository institution that is registered as a major swap participant or major security-based swap participant.⁴

Background

The discount window helps to relieve liquidity strains for individual depository institutions and for the banking system as a whole by providing a source of funding in times of need. Much of the statutory framework that governs lending to depository institutions is contained in Section 10B of the Federal Reserve Act, as amended. The general policies that govern discount window lending are set forth in the Federal Reserve Board's Regulation A.

Depository institutions have, since 2003, had access to three types of discount window credit: primary credit, secondary credit, and seasonal credit. Primary credit is available to depository institutions in generally sound financial condition with few administrative requirements, at an interest rate that is 50 basis points above the FOMC's target rate for federal funds. Secondary credit may be provided to depository institutions that do not qualify for primary credit, subject to review by the lending Reserve Bank, at an interest rate that is 50 basis points above the rate on primary credit. Seasonal credit provides short-term funds to smaller depository institutions that experience regular seasonal swings in loans and deposits. The interest rate on seasonal credit is a floating rate based on market funding rates.

On September 28, 2012, the Federal Reserve began the regular publication of detailed information on individual discount window loans. In accordance with the Dodd-Frank Act, this information will be made available on a quarterly basis and with an approximately two-year lag. The disclosure includes the name and identifying details of the depository institution, the amount borrowed, the interest rate paid, and information identifying the types and amount of collateral pledged. This detailed information supplements the extensive aggregate information the Federal Reserve has previously provided in weekly, monthly, and quarterly reports, and is available on the Federal Reserve's public website at www.federalreserve.gov/newsevents/reform_quarterly_transaction.htm.

During the financial crisis, the Federal Reserve modified the terms and conditions of the discount window lending programs in order to promote orderly market functioning. Information about these actions is available on the Federal Reserve's public website at www.federalreserve.gov/monetarypolicy/bst_lendingdepository.htm and www.frbdiscountwindow.org.

In extending credit through the discount window, the Federal Reserve closely monitors the financial condition of depository institutions utilizing a four-step process designed to minimize the risk of loss to the Federal Reserve posed by weak or failing borrowers. The first step is monitoring, on an ongoing basis, the safety and soundness of all depository institutions that access or may access the discount window and the payment services provided by the Federal Reserve. The second step is identifying institutions whose condition, characteristics, or affiliation would present higher-than-acceptable risk to the Federal Reserve in the absence of controls on their access to Federal Reserve lending facilities and other Federal Reserve services. The third step is communicating--to staff within the Federal Reserve System and to other supervisory agencies, if and when necessary--relevant information about those institutions identified as posing higher risk. The fourth step is implementing appropriate measures to mitigate the risks posed by such entities.

The Federal Reserve periodically reviews its collateral valuation practices. The most recent changes to the lending margins on discount window collateral took effect on October 19, 2009, and reflected the results of a broad-based review, which began before the financial crisis, of methodology and data sources. For more information on collateral margins, refer to the Discount Window and Payments System Risk public website, www.frbdiscountwindow.org.

Liquidity Arrangements with Foreign Central Banks

Recent Developments

• Between May 1 and July 24, 2013, dollar liquidity extended under the central bank liquidity swap arrangements decreased from $7.3 billion to $1.5 billion. As presented in table 7, almost all outstanding swaps are with the European Central Bank. Detailed information about swap operations is available at www.newyorkfed.org/markets/fxswap/fxswap.cfm.

Background

Because of the global character of bank funding markets, the Federal Reserve has at times coordinated with other central banks to provide liquidity. In December 2007, the Federal Reserve entered into agreements to establish temporary reciprocal currency arrangements (central bank liquidity swap lines) with the European Central Bank and the Swiss National Bank in order to provide liquidity in U.S. dollars. Subsequently, the FOMC authorized swap lines with the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, the Bank of Japan, Danmarks Nationalbank, the Bank of England, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, Norges Bank, the Monetary Authority of Singapore, and Sveriges Riksbank. Two types of temporary swap lines were established: U.S. dollar liquidity swap lines and foreign currency liquidity swap lines. These temporary arrangements expired on February 1, 2010.

In May 2010, temporary U.S. dollar liquidity swap lines were re-established with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank in order to address the re-emergence of strains in global U.S. dollar short-term funding markets. In December 2010, the FOMC authorized an extension of the arrangements through August 1, 2011. In June 2011, the FOMC authorized another extension of the arrangements through August 1, 2012. On November 30, 2011, the FOMC and these five foreign central banks (FCBs) agreed to reduce the rate on these swap arrangements from the U.S. dollar overnight index swap (OIS) rate plus 100 basis points to the OIS rate plus 50 basis points, and extended the authorization of these swap arrangements through February 1, 2013. In addition, as a contingency measure, the FOMC agreed to establish temporary bilateral liquidity swap arrangements with these five FCBs to provide liquidity in any of their currencies if necessary. In December 2012, the FOMC and these five FCBs authorized an extension of the temporary U.S. dollar liquidity swap lines and the network of temporary bilateral liquidity swap arrangements through February 1, 2014.

The FRBNY operates the swap lines under the authority granted under Section 14 of the Federal Reserve Act and in compliance with authorizations, policies, and procedures established by the FOMC.