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Monthly Report on Credit and Liquidity Programs
and the Balance Sheet
| Lending in Support of Specific Institutions | Federal Reserve Banks' Financial Tables | Appendix A |
Federal Reserve Banks' Financial Tables
Quarterly Developments
- The daily average balance of the Federal Reserve System Open Market Account (SOMA) holdings exceeded $1 trillion during the first three quarters of 2009, as indicated in table 27. Net earnings from the portfolio amounted to approximately $32 billion during this period; most of the earnings are attributable to the holdings of U.S. government securities and agency-guaranteed mortgage-backed securities (MBS).
- Net earnings from Federal Reserve loan programs over the first three quarters of the year amounted to about $2.2 billion; interest earned on Term Auction Facility (TAF) loans and credit extended to American International Group, Inc. (AIG) accounted for most of the total, as indicated in table 28.
- After providing for the payment of dividends and reservation of an amount necessary to equate surplus with capital paid in, distributions to the U.S. Treasury as interest on Federal Reserve notes totaled $27 billion during the first three quarters of 2009, as noted in table 26.
- On January 12, 2010, the Federal Reserve Board announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $46.1 billion of their estimated 2009 net income of $52.1 billion to the U.S. Treasury. These payments represent an increase of $14.4 billion over the payments made in 2008, primarily due to increased earnings on securities holdings during 2009. The Reserve Banks' securities holdings and other assets expanded significantly during 2009 as a result of the Federal Reserve's response to the severe economic downturn. Figures for the full year of 2009 will be published in this report following the release of the audited financial statements of the Federal Reserve System.
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 limited liability companies (LLCs) that have been consolidated with the Federal Reserve Bank of New York (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 a registered independent public accountant 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 audit 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. On a quarterly basis, the Federal Reserve prepares unaudited updates of tables presented in the Annual Report.
Combined Statement of Income and Comprehensive Income
Table 26 presents unaudited combined Reserve Bank income and expense information for the first three quarters of the year. Tables 27 through 29 present information for the SOMA portfolio, the Federal Reserve loan programs, and the variable interest entities--the Commercial Paper Funding Facility LLC (CPFF) and Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs--for the first three quarters of this year. These tables are updated quarterly.
Table 26. Federal Reserve Banks' Combined Statement of Income and Comprehensive Income
Millions of dollars
| January 1, 2009 to September 30, 2009 | |
|---|---|
| Interest income: | |
| Loans to depository institutions (refer to table 28) | 889 |
| Other loans (refer to table 28) | 2,261 |
| System Open Market Account (refer to table 27) | 31,131 |
| Consolidated variable interest entities (refer to table 29): | |
| Investments held by consolidated variable interest entities: | |
| Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs | 4,668 |
| Commercial Paper Funding Facility LLC | 3,962 |
| Total interest income | 42,911 |
| Interest expense: | |
| System Open Market Account (refer to table 27) | 86 |
| Depository institution deposits | 1,496 |
| Consolidated variable interest entities (refer to table 29) | 200 |
| Total interest expense | 1,782 |
| Net interest income | 41,129 |
| Non-interest income (loss): | |
| System Open Market Account--realized and unrealized losses, net (see table 27) | 487 |
| Investments held by consolidated variable interest entities (losses), net (see table 29): | |
| Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs | (3,802) |
| Commercial Paper Funding Facility LLC | 8 |
| Provision for loan restructuring (refer to table 28)1 | (989) |
| Income from services | 517 |
| Reimbursable services to government agencies | 299 |
| Other income | 25 |
| Total non-interest (loss) | (3,455) |
| Operating expenses: | |
| Salaries and other benefits | 2,019 |
| Occupancy expense | 202 |
| Equipment expense | 136 |
| Assessments by the Board of Governors | 641 |
| Professional fees related to consolidated variable interest entities (refer to table 29) | 88 |
| Other expenses | 401 |
| Total operating expenses | 3,487 |
| Net income prior to distribution | 34,187 |
| Change in funded status of benefit plans2 | 297 |
| Comprehensive income prior to distribution | 34,484 |
| Distribution of comprehensive income: | |
| Dividends paid to member banks | 1,049 |
| Remaining amount to be distributed | 33,435 |
| Memo: Distributions to U.S. Treasury (Interest on Federal Reserve notes)3 | 26,977 |
1. In accordance with GAAP, as of June 30, 2009, the AIG revolving credit extension was reduced by a $1.4 billion adjustment for loan restructuring. The adjustment is related to the loan modification, announced on March 2, 2009, which eliminated the existing floor on the interest rate. The restructuring adjustment will be recovered as it is amortized over the remaining term of the credit extension. 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 would be affected by significant losses and increases in capital paid-in at a Reserve Bank, which would require that the Reserve Bank retains 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, 2009, through September 30, 2009, were $24,552 million. Return to table
SOMA Financial Summary
Table 27 shows the Federal Reserve's average daily balance of assets and liabilities in the SOMA portfolio for the period from January 1, 2009, though September 30, 2009, the related interest income and expense, and the realized and unrealized gains and losses for the first three quarters of the year. U.S. government and agency securities, as well as agency-guaranteed MBS making up the SOMA portfolio, are recorded at amortized cost on a settlement-date basis. Rather than using a fair value presentation, an 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 27. SOMA Financial Summary
Millions of dollars
| January 1, 2009 - September 30, 2009 | |||||
|---|---|---|---|---|---|
| Average daily balance1 | Interest income/(expense) | Realized gains (losses) | Unrealized gains (losses) | Net earnings | |
| SOMA assets | |||||
| U.S. government securities2 | 592,742 | 16,202 | _ | _ | 16,202 |
| Federal agency debt securities2 | 73,655 | 1,241 | _ | _ | 1,241 |
| Mortgage-backed securities3 | 352,202 | 11,351 | (411) | _ | 10,940 |
| Investments denominated in foreign currencies4 | 24,505 | 231 | _ | 898 | 1,129 |
| Central bank liquidity swaps5 | 230,113 | 2,093 | _ | _ | 2,093 |
| Securities purchased under agreements to resell | 5,128 | 13 | _ | _ | 13 |
| Total | 1,278,345 | 31,131 | (411) | 898 | 31,618 |
| SOMA liabilities | |||||
| Securities sold under agreements to repurchase | 69,928 | (86) | _ | _ | (86) |
| Total SOMA holdings | 1,208,417 | 31,045 | (411) | 898 | 31,532 |
1. Based on holdings at opening of business. Return to table
2. Face value. 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
4. Includes accrued interest. Investments denominated in foreign currencies are revalued daily at market exchange rates. Return to table
5. 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
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, 2009, the fair value of the U.S. government and agency securities held in the SOMA, excluding accrued interest, was $980 billion, the fair value of the agency-guaranteed MBS was $703 billion, and the fair value of investments denominated in foreign currencies was $26 billion, as determined by reference to quoted prices for identical securities, except for MBS, for which market values are obtained from an independent pricing vendor.
FRBNY conducts purchases and sales of U.S. government securities under authorization and direction from the Federal Open Market Committee (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 securities combined with an agreement to sell or purchase securities in the future, may generate realized gains and losses.
Loan Programs Financial Summary
Table 28 summarizes the average daily loan balances and interest income of the Federal Reserve for the first three quarters of 2009. The most significant loan balance is the TAF, which was established at the end of 2007. 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. These included the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Primary Dealer Credit Facility (PDCF), credit extended to American International Group, Inc. (AIG), and the Term Asset-Backed Securities Loan Facility (TALF). Amounts funded by the Reserve Banks under all these programs are recorded as loans by the Reserve Banks. Net earnings from these loan programs were about $2.2 billion during the first three quarters of 2009. 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, 2009, no loans were impaired, and an allowance for loan losses was not required.
Table 28. Loan Programs Financial Summary
Millions of dollars
| Loan Programs | January 1, 2009 - September 30, 2009 | |||
|---|---|---|---|---|
| Average daily balance1 | Interest income2 | Provision for loan restructuring | Total | |
| Primary, secondary, and seasonal credit | 46,864 | 176 | _ | 176 |
| Term Auction Facility (TAF) | 351,661 | 713 | _ | 713 |
| Total loans to depository institutions | 398,525 | 889 | _ | 889 |
| Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) | 10,315 | 72 | _ | 72 |
| Primary Dealer Credit Facility (PDCF) and other broker-dealer credit | 10,167 | 37 | _ | 37 |
| Credit extended to American International Group, Inc. (AIG), net | 41,753 | 1,938 | (989) | 949 |
| Term Asset-Backed Securities Loan Facility (TALF) | 16,011 | 214 | _ | 214 |
| Total loans to others | 78,246 | 2,261 | (989) | 1,272 |
| Total loan programs | 476,771 | 3,150 | (989) | 2,161 |
| Allowance for loan losses | _ | _ | _ | |
| Total loan programs, net | 476,771 | 3,150 | (989) | 2,161 |
1. Based on holdings at opening of business. Average daily balance includes outstanding principal and capitalized interest net of unamortized deferred commitment fees and allowance for loan restructuring, and excludes undrawn amounts and credit extended to consolidated LLCs. Return to table
2. Interest income includes the amortization of the deferred commitment and administrative fees. Return to table
Consolidated Variable Interest Entities (VIEs) Financial Summary
Table 29 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 beneficiary of CPFF LLC and the primary beneficiary of the Maiden Lane LLCs. Commercial paper holdings are recorded at book value, which includes amortized cost and related fees. Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III 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 generally accepted accounting principles, 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.
Table 29. Consolidated Variable Interest Entities Financial Statement
Millions of dollars
| Item | |||||
|---|---|---|---|---|---|
| CPFF | 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, 2009 |
|||||
| Net portfolio assets1 | 41,384 | 28,559 | 16,199 | 23,503 | 68,261 |
| Other liabilities of consolidated LLCs | (360) | (2,418) | (2) | (3) | (2,423) |
| Net portfolio assets available | 41,024 | 26,141 | 16,197 | 23,500 | 65,838 |
| Loans extended to the consolidated LLCs by FRBNY2 | 36,589 | 29,196 | 16,801 | 19,855 | 65,852 |
| Other beneficial interests2,3 | 0 | 1,233 | 1,028 | 5,151 | 7,412 |
| Total loans | 36,589 | 30,429 | 17,829 | 25,006 | 73,264 |
|
Cumulative change in net assets since the inception of the programs |
|||||
| Allocated to FRBNY | 4,435 | (3,055) | (604) | 0 | (3,659) |
| Allocated to other beneficial interests | 0 | (1,233) | (1,028) | (1,506) | (3,767) |
| Cumulative change in net assets | 4,435 | (4,288) | (1,632) | (1,506) | (7,426) |
|
Summary of consolidated VIE net income for the current year through September 30, 2009, including a reconciliation of total consolidated VIE net income to the consolidated VIE net income recorded by FRBNY |
|||||
| Portfolio interest income4 | 3,962 | 1,369 | 876 | 2,423 | 4,668 |
| Interest expense on loans extended by FRBNY5 | (587) | (109) | (187) | (236) | (532) |
| Interest expense--other | 0 | (45) | (26) | (129) | (200) |
| Portfolio holdings gains (losses)6 | 8 | (881) | (955) | (1,346) | (3,182) |
| Professional fees | (27) | (31) | (9) | (21) | (61) |
| Net income (loss) of consolidated LLCs | 3,356 | 303 | (301) | 691 | 693 |
| Less: Net income (loss) allocated to other beneficial interests6 | 0 | (45) | (26) | 691 | 620 |
| Net income (loss) allocated to FRBNY | 3,356 | 348 | (275) | 0 | 73 |
| Add: Interest expense on loans extended by FRBNY, eliminated in consolidation5 | 587 | 109 | 187 | 236 | 532 |
| Net income (loss) recorded by FRBNY | 3,943 | 457 | (88) | 236 | 605 |
1. Commercial paper holdings are recorded at book value, which includes amortized cost and related fees. 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 Maiden Lane LLC is JPMC, and for Maiden Lane II and Maiden Lane III LLCs it is AIG. 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
6. The amount of Maiden Lane portfolio holdings losses allocated to FRBNY is $3,802 million, which is the total of portfolio holdings gains (losses) reduced by the net income (loss) allocated to other beneficial interests. This amount is reported as "Investments held by consolidated variable interest entities gains (losses), net" in table 26. Return to table
"Net portfolio assets available" represent 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, 2009.
