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Monthly Report on Credit and Liquidity Programs
and the Balance Sheet
| Lending in Support of Specific Institutions | Financial Tables |
Financial Tables: Federal Reserve System
Recent Developments
- As noted in Table 35, total SOMA holdings exceeded $1 trillion as of March 31. Total earnings from the portfolio amounted to about $4.6 billion over the first quarter, with the bulk of the earnings attributable to holdings of U.S. Treasury, agency, and agency-backed MBS securities.
- As noted in Table 36, interest income from Federal Reserve loan programs over the first quarter amounted to about $1.2 billion; interest earned on TAF loans and on loans to AIG accounted for most of the total.
- As noted in Table 37, net income for FRBNY associated with the CPFF amounted to about $2 billion over the first quarter. Net income for Maiden Lane, Maiden Lane II, and Maiden Lane III was negative over the first quarter, mostly reflecting unrealized losses on the assets held by these entities.
Background
The Federal Reserve Banks annually prepare 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 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. The audit firm also provides a report on compliance and on internal control over financial reporting in accordance with government auditing standards. The Office of Inspector General 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 financial statements. Tables 35 through 37 present information for the SOMA portfolio, the Federal Reserve loan programs, and the so-called "variable interest entities"--the CPFF and Maiden Lane I, II, and III for the first quarter of this year. These data are not audited and will be provided on a quarterly basis between the release dates for the audited annual financial statements.
Financial Tables
SOMA Financial Summary
Table 35 shows the Federal Reserve's net assets and liabilities of the SOMA portfolio as of March 31, 2009, the related interest income and expense, and the unrealized and realized gains for the quarter. U.S. government, federal agency, and government-sponsored enterprise securities, as well as agency-backed MBS comprising the SOMA portfolio are recorded at amortized cost, on a settlement-date basis. Rather than using a fair value presentation, amortized cost more appropriately reflects the Reserve Bank's securities holdings given the Federal Reserve's unique responsibility to conduct monetary policy.
Table 35. SOMA Financial Summary
As of March 31, 2009
| SOMA Holdings ($ millions) | Balance | Interest income/(expense) | Realized gains (losses) | Unrealized gains (losses) | Total earnings |
|---|---|---|---|---|---|
| SOMA assets | |||||
| U.S. government, federal agency, and government-sponsored enterprise securities, net | 553,107 | 3,918 | (53) | … | 3,865 |
| Securities purchased under agreements to resell | 0 | 12 | … | … | 12 |
| Mortgage-backed securities | 240,801 | 929 | … | … | 929 |
| Investments denominated in foreign currencies1 | 23,615 | 87 | … | (1,562) | (1,475) |
| Central bank liquidity swaps | 308,672 | 1,271 | … | … | 1,271 |
| SOMA liabilities | |||||
| Securities sold under agreements to repurchase | (70,590) | (35) | … | … | (35) |
| Total SOMA holdings | 1,055,605 | 6,182 | (53) | (1,562) | 4,567 |
1. Unrealized gains and losses result from the daily revaluation of the currency. 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 March 31, 2009, the fair value of the U.S. government, federal agency, and GSE securities held in the SOMA, excluding accrued interest, was $606,489 million, mortgage-backed securities was $243,832 million, and investments denominated in foreign currencies was $23,556 million, as determined by reference to quoted prices for identical securities. The fair value is noted here solely for informational purposes.
Purchases and sales of U.S. government securities are conducted by the FRBNY under authorization and direction from the FOMC. The securities are bought from or sold to securities dealers and foreign and international accounts maintained at FRBNY at market prices. The Federal Reserve is also authorized by the FOMC to acquire U.S. government securities under agreements with the dealer to repurchase the securities (securities purchased under agreements to resell) and securities sold under agreements to repurchase.
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 mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Outright transactions in mortgage-backed securities are recorded on settlement dates, which can extend several months into the future.
Loan Programs
Table 36 summarizes the loan balances and interest income of the Federal Reserve for the first quarter 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 AMLF, the PDCF, and credit extended to AIG. Amounts funded by the Reserve Banks under these programs are recorded as loans by the Reserve Banks. The Federal Reserve earned $1.2 billion of interest income from these loan programs during the first quarter of 2009. All loans must be fully collateralized to the satisfaction of the lending Reserve Bank, with an appropriate haircut applied to the collateral. At March 31, 2009, no loans were impaired, and an allowance for loan losses was not required.
Table 36. Interest Income--Loan Programs
As of March 31, 2009
| Loan programs ($ millions) | Balance | Interest income/(expense) | Net earnings |
|---|---|---|---|
| Primary, secondary and seasonal credit | 69,080 | 82 | 82 |
| Term Auction Facility (TAF) | 467,278 | 327 | 327 |
| Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) | 6,745 | 50 | 50 |
| Primary Dealer Credit Facility (PDCF) and other broker-dealer credit | 18,116 | 33 | 33 |
| Credit extended to AIG | 45,966 | 715 | 715 |
| Total loan programs | 607,185 | 1,207 | 1,207 |
| Allowance for loan losses | 0 | 0 | 0 |
| Total loan programs, net | 607,185 | 1,207 | 1,207 |
Consolidated Variable Interest Entities (VIEs)
Table 37 summarizes the assets and liabilities of various consolidated VIE entities previously discussed in this financial report, along with the net position of senior and subordinated interest holders, and the allocation of the change in net assets to interest holders. FRBNY is the sole beneficiary of the CPFF LLC and the primary beneficiary of the Maiden Lane LLCs. CPFF 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, 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 FRBNY. As a consequence of the consolidation, the extensions of credit from FRBNY to the LLCs are eliminated, the net assets of the LLCs appear as assets on the Federal Reserve's balance sheet, and the liabilities of the LLCs to entities other than FRBNY, including those with recourse only to the portfolio holdings of the LLCs, are included in other liabilities.
Table 37. Assets and Liabilities of Consolidated Variable Interest Entities
As of March 31, 2009
| Consolidated LLCs ($ millions) | CPFF | ML | ML II | ML III | Total Maiden Lane VIEs |
|---|---|---|---|---|---|
|
Fair value of portfolio and assets of the consolidated LLCs Assets and liabilities of the consolidated LLCs and the net position of senior and subordinated interest holder |
|||||
| Net portfolio assets | 249,050 | 30,702 | 16,675 | 20,732 | 68,109 |
| Other liabilities of consolidated LLCs | (500) | (5,350) | (2) | (5) | (5,357) |
| Net portfolio assets available | 248,550 | 25,352 | 16,673 | 20,727 | 62,752 |
| Loans extended to the consolidated LLCs by FRBNY | 245,767 | 29,123 | 18,638 | 24,168 | 71,929 |
| Other beneficial interests1 | 0 | 1,202 | 1,012 | 5,065 | 7,279 |
| Total loans | 245,767 | 30,325 | 19,650 | 29,233 | 79,208 |
|
Cumulative change in net assets since the inception of the programs Allocation of the change in net assets to interest holders |
|||||
| Allocated to FRBNY | 2,783 | (3,771) | (1,965) | (3,441) | (9,177) |
| Allocated to other beneficial interests | 0 | (1,202) | (1,012) | (5,065) | (7,279) |
| Cumulative change in net assets | 2,783 | (4,973) | (2,977) | (8,506) | (16,456) |
|
Current period income of the consolidated LLCs Summary of consolidated VIE net income for the current year, through March 31, 2009, including a reconciliation of total consolidated VIE net income to the consolidated VIE net income recorded by FRBNY |
|||||
| Portfolio interest income | 2,151 | 437 | 270 | 731 | 1,438 |
| Interest expense on loans extended by FRBNY2 | (438) | (36) | (68) | (87) | (191) |
| Interest expense--other | 0 | (14) | (9) | (43) | (66) |
| Portfolio holdings gains (losses) | 6 | (757) | (1,835) | (6,903) | (9,495) |
| Professional fees | (14) | (12) | (3) | (6) | (21) |
| Net income (loss) of consolidated LLCs | 1,705 | (382) | (1,645) | (6,308) | (8,335) |
| Less: Net income (loss) allocated to other beneficial interests | 0 | (14) | (9) | (2,867) | (2,890) |
| Net income (loss) allocated to FRBNY | 1,705 | (368) | (1,636) | (3,441) | (5,445) |
| Add: Interest expense on loans extended by FRBNY, eliminated in consolidation2 | 438 | 36 | 68 | 87 | 191 |
| Net income (loss) recorded by FRBNY | 2,143 | (332) | (1,568) | (3,354) | (5,254) |
1. Other beneficial interest holder related to Maiden Lane LLC is JPMC, and for Maiden Lane II LLC and Maiden Lane III LLC is AIG. Return to table
2. Interest expense recorded by each VIE on the loans extended by FRBNY is eliminated when the VIEs are consolidated in FRBNY's financial statements and, as a result, the consolidated VIEs' net income (loss) recorded by FRBNY is increased by this amount. Return to table
The net portfolio assets available represent the net assets available to beneficiaries of the consolidated VIEs and for repayment of loans extended by the FRBNY. The 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 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 be incurred by the beneficiaries if the assets had been fully liquidated at prices equal to the fair value as of March 31, 2009.
