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Monthly Report on Credit and Liquidity Programs
and the Balance Sheet
| Lending in Support of Specific Institutions | Financial Tables | Appendix A |
Federal Reserve Banks' Financial Tables
Quarterly Developments
- The average daily balance of the Federal Reserve SOMA holdings was approximately $2.1 trillion during the first three quarters of 2010, as presented in table 25. Net earnings from the portfolio were approximately $57.9 billion; most of the earnings were attributable to interest income on Treasury securities and federal agency and GSE MBS.
- Interest earned from Federal Reserve lending programs was approximately $2.3 billion during the first three quarters of 2010, as presented in table 26; interest earned on credit extended to AIG and loans made by the TALF accounted for most of the total.
- Net income reported on the consolidated financial statements of the FRBNY, including changes in valuation, for the Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs, was approximately $2.4 billion, $1.5 billion, and $2.3 billion, respectively, during the first three quarters of 2010. Net income for the Commercial Paper Funding Facility (CPFF) LLC was approximately $0.2 billion during the first three quarters of 2010, as presented in table 27.
- After providing for the payment of dividends and reserving an amount necessary to equate surplus with capital paid in, distributions to the Treasury as interest on Federal Reserve notes totaled $56.5 billion during the first three quarters 2010, as presented in table 24.
Background
The Federal Reserve Banks prepare annual financial statements reflecting balances as of December 31, and income and expenses for the year then ended. The Federal Reserve Bank financial statements also include the accounts and results of operations of several LLCs that have been consolidated with the FRBNY (the "consolidated LLCs").
The Board of Governors, the Federal Reserve Banks, and the consolidated LLCs are all subject to several levels of audit and review. The Reserve Banks' financial statements and those of the consolidated LLC entities are audited annually by an independent auditing firm retained by the Board of Governors. To ensure auditor independence, the Board requires that the external auditor be independent in all matters relating to the audit. Specifically, the external auditor may not perform services for the Reserve Banks or others that would place it in a position of auditing its own work, making management decisions on behalf of the Reserve Banks, or in any other way impairing its audit independence. In addition, the Reserve Banks, including the consolidated LLCs, are subject to oversight by the Board.
The Board of Governors' financial statements are audited annually by an independent auditing firm retained by the Board's Office of Inspector General (OIG). The audit firm also provides a report on compliance and on internal control over financial reporting in accordance with government auditing standards. The OIG also conducts audits, reviews, and investigations relating to the Board's programs and operations as well as of Board functions delegated to the Reserve Banks.
Audited annual financial statements for the Reserve Banks and Board of Governors are available at www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm. In this report, the Federal Reserve prepares unaudited quarterly updates to tables included in the Federal Reserve Board's Annual Report, available at www.federalreserve.gov/boarddocs/rptcongress/default.htm. As required by the Dodd-Frank Act, the Federal Reserve posted an audit webpage on December 3, 2010. This page will be updated as reports and other information become available. More information can be found at www.federalreserve.gov/newsevents/reform_audit.htm.
Combined Statement of Income and Comprehensive Income
Table 24 presents unaudited combined Reserve Bank income and expense information for the first three quarters of 2010. Tables 25 through 27 present information for the SOMA portfolio, the Federal Reserve loan programs, and the variable interest entities (VIEs)--the CPFF LLC; Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs; and TALF LLC--for the period from January 1, 2010, to September 30, 2010. These tables are updated quarterly.
Table 24. Federal Reserve Banks' Combined Statement of Income and Comprehensive Income
Millions of dollars
| January 1, 2010 - September 30, 2010 | |
|---|---|
| Interest income: | |
| Loans to depository institutions (refer to table 26) | 50 |
| Other loans (refer to table 26) | 2,286 |
| System Open Market Account (refer to table 25) | 56,743 |
| Consolidated variable interest entities (refer to table 27): | |
| Investments held by consolidated variable interest entities: | |
| Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs | 3,218 |
| Commercial Paper Funding Facility LLC | 213 |
| Total interest income | 65,510 |
| Interest expense: | |
| System Open Market Account (refer to table 25) | 68 |
| Depository institution deposits | 2,036 |
| Term deposit facility | 2 |
| Beneficial interest in consolidated variable interest entities (refer to table 27) | 206 |
| Total interest expense | 2,312 |
| Provision for loan restructuring (refer to table 26) | __ |
| Net interest income, after provision for loan restructuring | 60,198 |
| Non-interest income (loss): | |
| Other loans unrealized gains (losses)1 | (412) |
| System Open Market Account--realized and unrealized losses, net (refer to table 25) | 1,211 |
| Investments held by consolidated variable interest entities gains (losses), net (refer to table 27): | |
| Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs | 7,298 |
| Commercial Paper Funding Facility LLC | 1 |
| TALF LLC1 | __ |
| Beneficial interest in consolidated variable interest entities gains (losses), net | (3,920) |
| Dividend on preferred securities | 951 |
| Income from services | 433 |
| Reimbursable services to government agencies | 308 |
| Other income | 65 |
| Total non-interest (loss) | 5,935 |
| Operating expenses: | |
| Salaries and other benefits | 2,002 |
| Occupancy expense | 218 |
| Equipment expense | 129 |
| Assessments by the Board of Governors | 844 |
| Professional fees related to consolidated variable interest entities (refer to table 27) | 82 |
| Other expenses | 383 |
| Total operating expenses | 3,658 |
| Net income prior to distribution | 62,476 |
| Change in funded status of benefit plans2 | 235 |
| Comprehensive income prior to distribution | 62,711 |
| Distribution of comprehensive income: | |
| Dividends paid to member banks | 1,182 |
| Transferred to surplus, distributions to U.S. Treasury, and change in accumulated other comprehensive income (loss) | 61,529 |
| Memo: Distributions to U.S. Treasury (interest on Federal Reserve notes)3 | 55,391 |
1. The fair value option was elected for all TALF loans. Recording all TALF loans at fair value, rather than at the remaining principal amount outstanding, results in consistent accounting treatment among all TALF-related transactions and provides the most appropriate presentation of the TALF program in the financial statements by matching the change in fair value of TALF loans, the related put agreement with the consolidated TALF LLC, and the valuation of the other beneficial interests in TALF LLC. Return to table
2. Represents the recognition of benefit plan deferred actuarial gains and losses and prior service costs. Return to table
3. The Board of Governors requires each Reserve Bank to distribute any remaining net earnings to the U.S. Treasury as interest on Federal Reserve notes, after providing for the payment of dividends and reservation of an amount necessary to equate surplus with capital paid-in. These distributions are made weekly based on estimated net earnings for the preceding week. The amount of each Bank's weekly distribution to the U.S. Treasury is affected by significant losses and increases in capital paid-in at a Reserve Bank, and requires that the Reserve Bank retain net earnings until the surplus is equal to the capital paid-in. The distributions to the U.S. Treasury are reported on an accrual basis; actual payments to the U.S. Treasury during the period from January 1, 2010, through September 30, 2010, were $56.5 billion. Return to table
SOMA Financial Summary
Table 25 shows the Federal Reserve's average daily balance of assets and liabilities in the SOMA portfolio for the period from January 1, 2010, though September 30, 2010, the related interest income and expense, and the realized and unrealized gains and losses for the year to date. Treasury securities, GSE debt securities, as well as federal agency and GSE MBS making up the SOMA portfolio, are recorded at amortized cost on a settlement-date basis, rather than using a fair value presentation. The amortized cost presentation more appropriately reflects the Reserve Banks' purpose for holding these securities given the Federal Reserve's unique responsibility to conduct monetary policy.
Table 25. SOMA financial summary
Millions of dollars
| January 1, 2010 - September 30, 2010 | |||||
|---|---|---|---|---|---|
| Average daily balance | Interest income (expense) | Realized gains (losses) | Unrealized gains (losses) | Net earnings | |
| SOMA assets | |||||
| U.S. Treasury securities1 | 807,320 | 19,442 | _ | _ | 19,442 |
| Government-sponsored enterprise debt securities1 | 170,627 | 2,670 | _ | _ | 2,670 |
| Federal agency and government-sponsored enterprise mortgage-backed securities2 | 1,087,687 | 34,455 | 782 | _ | 35,237 |
| Investments denominated in foreign currencies3 | 24,567 | 165 | _ | 429 | 594 |
| Central bank liquidity swaps4 | 1,289 | 11 | _ | _ | 11 |
| Securities purchased under agreements to resell | _ | _ | _ | _ | _ |
| Other assets5 | 385 | _ | _ | _ | _ |
| Total assets | 2,091,875 | 56,743 | 782 | 429 | 57,954 |
| SOMA liabilities | |||||
| Securities sold under agreements to repurchase | 59,121 | (68) | _ | _ | (68) |
| Other liabilities6 | 1,068 | 0 | _ | _ | 0 |
| Total liabilities | 60,189 | (68) | _ | _ | (68) |
| SOMA assets and liabilities | 2,031,686 | 56,675 | 782 | 429 | 57,886 |
1. Face value, net of unamortized premiums and discounts. Return to table
2. 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, net of premiums and discounts. Does not include unsettled transactions. Return to table
3. Includes accrued interest. Investments denominated in foreign currencies are revalued daily at market exchange rates. Return to table
4. Dollar value of foreign currency held under these agreements valued at the exchange rate to be used when the foreign currency is returned to the foreign central bank. This exchange rate equals the market exchange rate used when the foreign currency was acquired from the foreign central bank. Return to table
5. Cash and short-term investments related to the federal agency and government-sponsored enterprise mortgage-backed securities portfolio. Return to table
6. Related to the purchases of federal agency and government-sponsored enterprise mortgage-backed securities that the seller fails to deliver on the settlement date. Return to table
Although the fair value of security holdings can be substantially greater than or less than the recorded value at any point in time, these unrealized gains or losses have no effect on the ability of the Reserve Banks to meet their financial obligations and responsibilities. As of September 30, 2010, the fair value of the Treasury securities held in the SOMA, excluding accrued interest, was $920.3 billion (amortized cost was $840.6 billion); the fair value of the GSE debt, excluding accrued interest, was $166.3 billion (amortized cost was $160.2 billion); the fair value of the federal agency and GSE MBS, excluding accrued interest, was $1,128.8 billion (amortized cost was $1,092.6 billion); and the fair value of investments denominated in foreign currencies was $26.1 billion (amortized cost was $25.9 billion). Fair value was determined by reference to quoted prices for identical securities, except for MBS, for which market values are determined using a model-based approach based on observable inputs for similar securities.
The FRBNY conducts purchases and sales of U.S. government securities under authorization and direction from the FOMC. The FRBNY buys and sells securities at market prices from securities dealers and foreign and international account holders. The FOMC has also authorized the FRBNY to purchase and sell U.S. government securities under agreements to resell or repurchase such securities (commonly referred to as repurchase and reverse repurchase transactions).
The SOMA holds foreign currency deposits and foreign government debt instruments denominated in foreign currencies with foreign central banks and the Bank for International Settlements. Central bank liquidity swaps are the foreign currencies that the Federal Reserve acquires and records as an asset (excluding accrued interest) on the Federal Reserve's balance sheet. On January 5, 2009, the Federal Reserve began purchasing MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Transactions in MBS are recorded on settlement dates, which can extend several months into the future. MBS dollar roll transactions, which consist of a purchase or sale of TBA MBS combined with an agreement to sell or purchase TBA MBS on a specified future date, may generate realized gains and losses. On June 28, 2010, the Federal Reserve began entering into coupon swaps, which are trades with a single counterparty in which the Federal Reserve agrees to simultaneously sell TBA MBS in one coupon and to buy an equal face value of TBA MBS in a different coupon. MBS dollar roll transactions, and coupon swaps are recorded on settlement date and may generate realized gains and losses.
Loan Programs Financial Summary
Table 26 summarizes the average daily loan balances and interest income of the Federal Reserve during the first three quarters of 2010. The most significant loan balance is the TALF, which was established in 2009. As noted earlier in this report, during 2008 the Federal Reserve established several lending facilities under authority of Section 13(3) of the Federal Reserve Act. Many of these lending facilities have since been closed. Credit remains outstanding to AIG and under the TALF; the Reserve Banks record amounts funded under these programs as loans. Interest income from these loan programs was about $2.3 billion during the first three quarters of 2010. All loans must be fully collateralized to the satisfaction of the lending Reserve Bank, with an appropriate haircut applied to the collateral. At September 30, 2010, no loans were impaired, and an allowance for loan losses was not required.
Table 26. Loan programs financial summary
Millions of dollars
| Loan programs1 | January 1, 2010 - September 30, 2010 | |||
|---|---|---|---|---|
| Average daily balance2 | Interest income3 | Provision for loan restructuring | Total | |
| Primary, secondary, and seasonal credit | 6,266 | 32 | _ | 32 |
| Term Auction Facility (TAF) | 9,499 | 18 | _ | 18 |
| Total loans to depository institutions | 15,765 | 50 | _ | 50 |
| Credit extended to American International Group, Inc. (AIG), net | 23,862 | 1,658 | _ | 1,658 |
| Term Asset-Backed Securities Loan Facility (TALF)4 | 43,135 | 628 | _ | 628 |
| Total loans to others | 66,997 | 2,286 | _ | 2,286 |
| Total loan programs | 82,762 | 2,336 | _ | 2,336 |
| Allowance for loan losses | _ | _ | _ | _ |
| Total loan programs, net | 82,762 | 2,336 | _ | 2,336 |
1. Does not include loans to consolidated VIEs. Does not include preferred interests in AIA Aurora LLC and ALICO Holdings LLC. Return to table
2. Average daily balance includes outstanding principal and capitalized interest net of unamortized deferred commitment fees and allowance for loan restructuring, and excludes undrawn amounts. Return to table
3. Interest income includes the amortization of the deferred commitment and administrative fees. Return to table
4. Book value. Return to table
Consolidated VIEs Financial Summary
Table 27 summarizes the assets and liabilities of various consolidated VIEs previously discussed in this report. It also summarizes the net position of senior and subordinated interest holders and the allocation of the change in net assets to interest holders. The FRBNY is the sole and managing member of TALF LLC and the primary beneficiary of the Maiden Lane LLCs. The FRBNY was the sole beneficiary of CPFF LLC, which was dissolved on August 30, 2010.
Table 27. Consolidated Variable Interest Entities Financial Summary
Millions of dollars
| Item | ||||||
|---|---|---|---|---|---|---|
| CPFF LLC | TALF LLC | ML | ML II | ML III |
Total Maiden |
|
|
Net portfolio assets of the consolidated LLCs and the net position of FRBNY and subordinated interest holders as of September 30, 2010 |
||||||
| Net portfolio assets1 | 0 | 601 | 30,052 | 16,619 | 23,722 | 70,393 |
| Liabilities of consolidated LLCs | 0 | 0 | (1,031) | (1) | (3) | (1,035) |
| Net portfolio assets available | 0 | 601 | 29,021 | 16,618 | 23,719 | 69,358 |
| Loans extended to the consolidated LLCs by FRBNY2 | 0 | 0 | 28,206 | 14,064 | 15,138 | 57,408 |
| Other beneficial interests2,3 | ... | 105 | 1,297 | 1,062 | 5,322 | 7,681 |
| Total loans and other beneficial interests | 0 | 105 | 29,503 | 15,126 | 20,460 | 65,089 |
|
Cumulative change in net assets since the inception of the programs |
||||||
| Allocated to FRBNY | 0 | (96) | 0 | 1,243 | 2,184 | 3,427 |
| Allocated to other beneficial interests | ... | 592 | (482) | 249 | 1,075 | 842 |
| Cumulative change in net assets | 0 | 496 | (482) | 1,492 | 3,269 | 4,269 |
|
Summary of consolidated VIE net income for the current year through September 30, 2010, including a reconciliation of total consolidated VIE net income to the consolidated VIE net income recorded by FRBNY |
||||||
| Portfolio interest income4 | 213 | 0 | 889 | 609 | 1,720 | 3,218 |
| Interest expense on loans extended by FRBNY5 | (4) | 0 | (154) | (142) | (158) | (454) |
| Interest expense--other | 0 | (3) | (49) | (26) | (129) | (204) |
| Portfolio holdings gains (losses) | 1 | 0 | 2,364 | 2,190 | 2,744 | 7,298 |
| Professional fees | (2) | 0 | (54) | (8) | (18) | (80) |
| Net income (loss) of consolidated LLCs | 208 | (3) | 2,996 | 2,623 | 4,159 | 9,778 |
| Less: Net income (loss) allocated to other beneficial interests | ... | (107)* | 766 | 1,285 | 1,975 | 4,026 |
| Net income (loss) allocated to FRBNY | 208 | 104 | 2,230 | 1,338 | 2,184 | 5,752 |
| Add: Interest expense on loans extended by FRBNY, eliminated in consolidation5 | (4) | 0 | 154 | 142 | 158 | 454 |
| Net income (loss) recorded by FRBNY | 212 | 104** | 2,384 | 1,480 | 2,342 | 6,206 |
* Represents the amount of TALF LLC's income allocated to the U.S. Treasury. Return to table
** In addition to the TALF LLC net income of $104 million, the FRBNY reported $216 million of income on TALF loans during the first three quarters of 2010. Earnings on TALF loans include interest income and fees of $628 million and unrealized losses of $412 million. Return to table
... Not applicable.
1. CPFF LLC commercial paper holdings are recorded at book value; other holdings are recorded at fair value. TALF LLC, Maiden Lane, Maiden Lane II, and Maiden Lane III holdings are recorded at fair value. Return to table
2. Includes accrued interest. Return to table
3. The other beneficial interest holder related to TALF LLC is the U.S. Treasury. JPMC is the beneficial interest holder for Maiden Lane LLC. AIG is the beneficial interest holder for Maiden Lane II and Maiden Lane III LLCs. Return to table
4. Interest income is recorded when earned, and it includes amortization of premiums, accretion of discounts, and paydown gains and losses. Return to table
5. Interest expense recorded by each VIE on the loans extended by the FRBNY is eliminated when the VIEs are consolidated in the FRBNY's financial statements and, as a result, the consolidated VIEs' net income (loss) recorded by the FRBNY is increased by this amount. Return to table
Maiden Lane LLC, Maiden Lane II LLC, Maiden Lane III LLC, and TALF LLC holdings are recorded at fair value, which reflects an estimate of the price that would be received upon selling an asset if the transaction were to be conducted in an orderly market on the measurement date. Consistent with GAAP, the assets and liabilities of these LLCs have been consolidated with the assets and liabilities of the FRBNY. As a consequence of the consolidation, the extensions of credit from the FRBNY to the LLCs are eliminated.
"Net portfolio assets available" represents the net assets available to beneficiaries of the consolidated VIEs and for repayment of loans extended by the FRBNY. "Net income (loss) allocated to FRBNY" represents the allocation of the change in net assets and liabilities of the consolidated VIEs available for repayment of the loans extended by the FRBNY and other beneficiaries of the consolidated VIEs. The differences between the fair value of the net assets available and the face value of the loans (including accrued interest) are indicative of gains or losses that would have been incurred by the beneficiaries if the assets had been fully liquidated at prices equal to the fair value as of September 30, 2010.
