Federal Reserve Banks Combined Quarterly Financial Report
September 30, 2012
PrintAbbreviations
- ABS
- Asset-backed securities
- AIG
- American International Group, Inc.
- ARM
- Adjustable rate mortgage
- CDO
- Collateralized debt obligation
- CMBS
- Commercial mortgage-backed securities
- FRBNY
- Federal Reserve Bank of New York
- GSE
- Government-sponsored enterprise
- MBS
- Mortgage-backed securities
- ML
- Maiden Lane LLC
- ML II
- Maiden Lane II LLC
- ML III
- Maiden Lane III LLC
- LLC
- Limited liability company
- RMBS
- Residential mortgage-backed securities
- SBA
- Small Business Administration
- SOMA
- System Open Market Account
- TALF
- Term Asset-Backed Securities Loan Facility
- VIE
- Variable interest entity
Combined Quarterly Financial Statements
| September 30, 2012 | December 31, 2011 | |
|---|---|---|
| Assets | ||
| Gold certificates | $11,037 | $11,037 |
| Special drawing rights certificates | 5,200 | 5,200 |
| Coin | 2,190 | 2,306 |
| Loans: | ||
| Depository institutions | 126 | 196 |
| Term Asset-Backed Securities Loan Facility (measured at fair value) | 1,474 | 9,059 |
| System Open Market Account: | ||
| Treasury securities, net | 1,778,878 | 1,750,277 |
| Government-sponsored enterprise debt securities, net | 86,353 | 107,828 |
| Federal agency and government-sponsored enterprise mortgage-backed securities, net | 851,092 | 848,258 |
| Foreign currency denominated assets, net | 25,788 | 25,950 |
| Central bank liquidity swaps | 12,551 | 99,823 |
| Other investments | 52 | -- |
| Investments held by consolidated variable interest entities (of which $3,089 and $35,593 is measured at fair value as of September 30, 2012, and December 31, 2011, respectively) | 3,168 | 35,693 |
| Accrued interest receivable | 18,963 | 19,710 |
| Bank premises and equipment, net | 2,707 | 2,549 |
| Items in process of collection | 203 | 273 |
| Other assets | 678 | 711 |
| Total assets | $2,800,460 | $2,918,870 |
| Liabilities and capital | ||
| Federal Reserve notes outstanding, net | $1,086,086 | $1,034,052 |
| System Open Market Account: | ||
| Securities sold under agreements to repurchase | 92,743 | 99,900 |
| Other liabilities | 3,072 | 1,368 |
| Consolidated variable interest entities: | ||
| Beneficial interest in consolidated variable interest entities (measured at fair value) | 1,111 | 9,845 |
| Other liabilities (of which $86 and $106 is measured at fair value as of September 30, 2012, and December 31, 2011, respectively) | 512 | 690 |
| Deposits: | ||
| Depository institutions | 1,437,324 | 1,562,253 |
| Term Deposit Facility | 3,040 | -- |
| Treasury, general account | 85,446 | 85,737 |
| Other deposits | 28,532 | 65,034 |
| Interest payable to depository institutions | 252 | 178 |
| Accrued benefit costs | 3,610 | 3,952 |
| Deferred credit items | 810 | 904 |
| Accrued interest on Federal Reserve notes | 2,490 | 900 |
| Other liabilities | 700 | 259 |
| Total liabilities | 2,745,728 | 2,865,072 |
| Capital paid-in | 27,366 | 26,899 |
| Surplus | 27,366 | 26,899 |
| Total capital | 54,732 | 53,798 |
| Total liabilities and capital | $2,800,460 | $2,918,870 |
| Three months ended | Nine months ended | |||
|---|---|---|---|---|
| Sept. 30, 2012 | Sept. 30, 2011 | Sept. 30, 2012 | Sept. 30, 2011 | |
| Interest income | ||||
| Loans: | ||||
| Depository institutions | $-- | $-- | $-- | $-- |
| Term Asset-Backed Securities Loan Facility | 14 | 54 | 76 | 218 |
| American International Group, Inc., net | -- | -- | -- | 409 |
| System Open Market Account: | ||||
| Treasury securities, net | 10,912 | 11,100 | 34,280 | 31,179 |
| Government-sponsored enterprise debt securities, net | 646 | 731 | 2,015 | 2,339 |
| Federal agency and government-sponsored enterprise mortgage-backed securities, net | 7,615 | 9,561 | 24,196 | 29,590 |
| Foreign currency denominated assets, net | 33 | 67 | 109 | 193 |
| Central bank liquidity swaps | 42 | 1 | 222 | 1 |
| Other investments | 2 | -- | 5 | -- |
| Investments held by consolidated variable interest entities | 98 | 839 | 1,110 | 2,746 |
| Total interest income | 19,362 | 22,353 | 62,013 | 66,675 |
| Interest expense | ||||
| System Open Market Account: | ||||
| Securities sold under agreements to repurchase | 38 | 8 | 94 | 33 |
| Beneficial interest in consolidated variable interest entities | 16 | 72 | 151 | 212 |
| Deposits: | ||||
| Depository institutions | 967 | 1,031 | 2,920 | 2,772 |
| Term Deposit Facility | 1 | 2 | 3 | 5 |
| Total interest expense | 1,022 | 1,113 | 3,168 | 3,022 |
| Net interest income | 18,340 | 21,240 | 58,845 | 63,653 |
| Non-interest income | ||||
| Term Asset-Backed Securities Loan Facility, unrealized gains (losses) | (8) | (18) | (31) | (70) |
| System Open Market Account: | ||||
| Treasury securities gains, net | 3,215 | -- | 8,713 | -- |
| Federal agency and government-sponsored enterprise mortgage-backed securities gains, net | 40 | -- | 169 | -- |
| Foreign currency gains (losses), net | 485 | (607) | (271) | 652 |
| Consolidated variable interest entities: | ||||
| Investments held by consolidated variable interest entities gains (losses), net | 987 | (3,510) | 7,462 | (3,958) |
| Beneficial interest in consolidated variable interest entities (losses), net | (323) | 843 | (2,347) | 671 |
| Dividends on preferred interests | -- | -- | -- | 47 |
| Income from services | 109 | 118 | 338 | 364 |
| Reimbursable services to government agencies | 146 | 122 | 384 | 332 |
| Other | 20 | 17 | 53 | 116 |
| Total non-interest income | 4,671 | (3,035) | 14,470 | (1,846) |
| Operating expenses | ||||
| Salaries and benefits | 785 | 682 | 2,261 | 2,070 |
| Occupancy | 78 | 79 | 230 | 227 |
| Equipment | 47 | 46 | 139 | 135 |
| Assessments: | ||||
| Board of Governors operating expenses and currency costs | 303 | 269 | 875 | 764 |
| Bureau of Consumer Financial Protection | 86 | 45 | 249 | 147 |
| Office of Financial Research | -- | -- | 42 | 11 |
| Professional fees related to consolidated variable interest entities | 4 | 18 | 22 | 57 |
| Other | 149 | 140 | 420 | 429 |
| Total operating expenses | 1,452 | 1,279 | 4,238 | 3,840 |
| Net income prior to distribution | 21,559 | 16,926 | 69,077 | 57,967 |
| Change in funded status of benefit plans | 120 | 71 | 309 | 240 |
| Comprehensive income prior to distribution | $21,679 | $16,997 | $69,386 | $58,207 |
| Distribution of comprehensive income: | ||||
| Dividends paid to member banks | $409 | $388 | $1,226 | $1,180 |
| Transferred to surplus and change in accumulated other comprehensive income (loss) | 24 | (481) | 467 | (519) |
| Payments to Treasury as interest on Federal Reserve notes | 21,246 | 17,090 | 67,693 | 57,546 |
| Total distribution | $21,679 | $16,997 | $69,386 | $58,207 |
| Capital paid-in | Surplus | Total capital | |||
|---|---|---|---|---|---|
| Net income retained | Accumulated other comprehensive loss | Total surplus | |||
| Balance at January 1, 2011 (530,481,136 shares) | $26,524 | $30,154 | $(3,630) | $26,524 | $53,048 |
| Net change in capital stock issued (7,503,485 shares) | 375 | -- | -- | -- | 375 |
| Transferred to surplus and change in accumulated other comprehensive loss | -- | 1,537 | (1,162) | 375 | 375 |
| Balance at December 31, 2011 (537,984,621 shares) | $26,899 | $31,691 | $(4,792) | $26,899 | $53,798 |
| Net change in capital stock issued (9,337,553 shares) | 467 | -- | -- | -- | 467 |
| Transferred to surplus and change in accumulated other comprehensive loss | -- | 158 | 309 | 467 | 467 |
| Balance at September 30, 2012 (547,322,174 shares) | $27,366 | $31,849 | $(4,483) | $27,366 | $54,732 |
Supplemental Financial Information
(1) Loans
In this Section:
Loans to Depository Institutions
The remaining maturity distribution of loans to depository institutions outstanding as of September 30, 2012, and December 31, 2011, was as follows:
| Within 15 days | 16 to 90 days | Total | |
|---|---|---|---|
| As of September 30, 2012: | |||
| Primary, secondary, and seasonal credit | $104 | $22 | $126 |
| As of December 31, 2011: | |||
| Primary, secondary, and seasonal credit | $189 | $7 | $196 |
As of September 30, 2012, and December 31, 2011, the Reserve Banks did not have any impaired loans and no allowance for loan losses was required. There were no impaired loans during the period ended September 30, 2012, and year ended December 31, 2011.
Term Asset-Backed Securities Loan Facility (TALF) Loans
The Board of Governors authorized the offering of TALF loans collateralized by newly-issued asset-backed securities (ABS) and legacy commercial mortgage-backed securities (CMBS) until March 31, 2010, and TALF loans collateralized by newly-issued CMBS until September 30, 2010. All TALF loans are recorded at fair value.
The table below presents the fair value of TALF loans by concentration as of September 30, 2012, and December 31, 2011, respectively:
| Collateral type 1 | Remaining maturity | Total | ||
|---|---|---|---|---|
| Within 90 days | 91 days to 1 year | Over 1 year to 4 years | ||
| September 30, 2012: | ||||
| Auto | $-- | $-- | $-- | $-- |
| CMBS | 77 | 77 | 213 | 367 |
| Credit card | -- | -- | -- | -- |
| Floorplan | 87 | 240 | -- | 327 |
| SBAs | -- | -- | 15 | 15 |
| Student loan | -- | -- | 718 | 718 |
| Other 2 | -- | 47 | -- | 47 |
| Total | $164 | $364 | $946 | $1,474 |
| December 31, 2011: | ||||
| Auto | $1 | $374 | $36 | $411 |
| CMBS | -- | 578 | 1,454 | 2,032 |
| Credit card | -- | 2,326 | 80 | 2,406 |
| Floorplan | -- | 533 | 430 | 963 |
| SBAs | -- | 113 | 221 | 334 |
| Student loan | -- | 23 | 1,937 | 1,960 |
| Other 2 | -- | 426 | 527 | 953 |
| Total | $1 | $4,373 | $4,685 | $9,059 |
1. All credit ratings are AAA unless otherwise indicated. Return to table
2. Includes equipment loans, insurance premium financial loans, and residential mortgage servicing advances. Return to table
The fair value of TALF loans reported in the Combined Statements of Condition as of September 30, 2012, and December 31, 2011, includes $7 million and $37 million in unrealized gains, respectively.
As of September 30, 2012, and December 31, 2011, no TALF loans were over 90 days past due or on nonaccrual status. Because TALF loans are measured at fair value, an allowance for loan losses was not required.
(2) System Open Market Account (SOMA) Holdings
Treasury securities, government-sponsored enterprise (GSE) debt securities, and federal agency and GSE mortgage-backed securities (MBS) are reported at amortized cost in the Combined Statements of Condition. SOMA portfolio holdings as of September 30, 2012, and December 31, 2011, were as follows:
| September 30, 2012 | December 31, 2011 | |||
|---|---|---|---|---|
| Amortized cost | Fair value | Amortized cost | Fair value | |
| Bills | $-- | $-- | $18,423 | $18,423 |
| Notes | 1,169,964 | 1,253,150 | 1,311,917 | 1,389,429 |
| Bonds | 608,914 | 714,376 | 419,937 | 508,694 |
| Subtotal--Treasury securities | $1,778,878 | $1,967,526 | $1,750,277 | $1,916,546 |
| GSE debt securities | 86,353 | 92,446 | 107,828 | 114,238 |
| Federal agency and GSE MBS | 851,092 | 904,161 | 848,258 | 895,495 |
| Other investments | 52 | 52 | -- | -- |
The following table provides additional information on the amortized cost and fair values of the federal agency and GSE MBS portfolio as of September 30, 2012, and December 31, 2011:
| September 30, 2012 | December 31, 2011 | |||
|---|---|---|---|---|
| Distribution of MBS holdings by coupon rate | Amortized cost | Fair value | Amortized cost | Fair value |
| 2.5% | $6,867 | $7,052 | $-- | $-- |
| 3.0% | 36,012 | 37,036 | 1,313 | 1,336 |
| 3.5% | 159,486 | 165,887 | 19,415 | 19,660 |
| 4.0% | 157,759 | 168,079 | 161,481 | 169,763 |
| 4.5% | 298,262 | 321,383 | 406,465 | 431,171 |
| 5.0% | 139,016 | 148,014 | 182,497 | 192,664 |
| 5.5% | 46,344 | 48,934 | 66,795 | 70,064 |
| 6.0% | 6,497 | 6,853 | 9,152 | 9,616 |
| 6.5% | 849 | 923 | 1,140 | 1,221 |
| Total MBS holdings | $851,092 | $904,161 | $848,258 | $895,495 |
Information about transactions related to Treasury securities, GSE debt securities, and federal agency and GSE MBS during the nine months ended September 30, 2012, and during the year ended December 31, 2011, is summarized as follows:
| Bills | Notes | Bonds | Total Treasury securities | GSE debt securities | Federal agency and GSE MBS | |
|---|---|---|---|---|---|---|
| Balance December 31, 2011 | $18,423 | $1,311,917 | $419,937 | $1,750,277 | $107,828 | $848,258 |
| Purchases 1 | 118,886 | 309,986 | 200,666 | 629,538 | -- | 239,204 |
| Sales1 | - | (389,920) | (7,635) | (397,555) | -- | -- |
| Realized gains, net 2 | - | 7,888 | 825 | 8,713 | -- | -- |
| Principal payments and maturities | (137,314) | (66,152) | -- | (203,466) | (20,589) | (232,831) |
| Amortization of premiums and discounts | 5 | (4,115) | (5,413) | (9,523) | (886) | (3,539) |
| Inflation adjustment on inflation-indexed securities | -- | 360 | 534 | 894 | -- | -- |
| Balance September 30, 2012 | $-- | $1,169,964 | $608,914 | $1,778,878 | $86,353 | $851,092 |
| Supplemental information - par value of transactions for the nine months ended September 30, 2012: | ||||||
| Purchases | $118,892 | $297,214 | $153,858 | $569,964 | $-- | $230,136 |
| Sales | -- | (379,665) | (5,888) | (385,553) | -- | -- |
| Balance December 31, 2010 | $18,422 | $786,575 | $261,955 | $1,066,952 | $152,972 | $1,004,695 |
| Purchases1 | 239,487 | 731,252 | 161,876 | 1,132,615 | -- | 42,145 |
| Sales1 | -- | (137,733) | -- | (137,733) | -- | -- |
| Realized gains, net2 | -- | 2,258 | -- | 2,258 | -- | -- |
| Principal payments and maturities | (239,494) | (67,273) | -- | (306,767) | (43,466) | (195,413) |
| Amortization of premiums and discounts | 8 | (4,445) | (4,985) | (9,422) | (1,678) | (3,169) |
| Inflation adjustment on inflation-indexed securities | -- | 1,283 | 1,091 | 2,374 | -- | -- |
| Balance December 31, 2011 | $18,423 | $1,311,917 | $419,937 | $1,750,277 | $107,828 | $848,258 |
| Supplemental information - par value of transactions for the year ended December 31, 2011: | ||||||
| Purchases | $239,494 | $713,878 | $127,802 | $1,081,174 | $-- | $40,955 |
| Sales | -- | (134,829) | -- | (134,829) | -- | -- |
Note: Does not include transactions related to other investments, which are all short term in duration.
1. Purchases and sales are reported on a settlement-date basis and include payments and receipts related to principal, premiums, discounts, and inflation compensation included in the basis of inflation-indexed securities. The amount reported as sales also includes realized gains, net. Return to table
2. Adjustment for realized gains, net is required because these amounts do not affect the reported amount of the related securities. Excludes realized gains and losses that result from net settled "to be announced" (TBA) MBS transactions. Return to table
The remaining maturity distribution of Treasury securities, GSE debt securities, federal agency and GSE MBS bought outright, and securities sold under agreements to repurchase as of September 30, 2012, and December 31, 2011, was as follows:
| Treasury securities (par value) | GSE debt securities (par value) | Federal agency and GSE MBS (par value) 1 | Securities sold under agreements to repurchase (contract amount) | |
|---|---|---|---|---|
| September 30, 2012: | ||||
| Within 15 days | $825 | $659 | $-- | $92,743 |
| 16 days to 90 days | 103 | 5,963 | -- | -- |
| 91 days to 1 year | 993 | 16,131 | 3 | -- |
| Over 1 year to 5 years | 456,761 | 53,895 | 3 | -- |
| Over 5 years to 10 years | 809,211 | 4,410 | 294 | -- |
| Over 10 years | 377,392 | 2,347 | 834,688 | -- |
| Total | $1,645,285 | $83,405 | $834,988 | $92,743 |
| December 31, 2011: | ||||
| Within 15 days | $16,246 | $2,496 | $-- | $99,900 |
| 16 days to 90 days | 27,107 | 5,020 | -- | -- |
| 91 days to 1 year | 89,899 | 19,695 | -- | -- |
| Over 1 year to 5 years | 649,698 | 60,603 | 13 | -- |
| Over 5 years to 10 years | 649,913 | 13,833 | 34 | -- |
| Over 10 years | 230,583 | 2,347 | 837,636 | -- |
| Total | $1,663,446 | $103,994 | $837,683 | $99,900 |
1. The par amount shown for federal agency and GSE MBS is the remaining principal balance of the underlying mortgages. Return to table
Federal agency and GSE MBS are reported at stated maturity in the table above. The estimated weighted average remaining life of these securities as of September 30, 2012, and December 31, 2011, which differs from the stated maturity primarily because it factors in scheduled payments and prepayment assumptions, was approximately 2.1 years and 2.4 years, respectively.
Foreign currency denominated assets are comprised of foreign currency deposits, securities purchased under agreements to resell, and government debt instruments. The foreign currency denominated assets, including accrued interest, valued at amortized cost and foreign currency market exchange rates as of September 30, 2012, and December 31, 2011, was as follows:
| September 30, 2012 | December 31, 2011 | |
|---|---|---|
| Euro: | ||
| Foreign currency deposits | $8,572 | $9,367 |
| Securities purchased under agreements to resell | 771 | -- |
| German government debt instruments | 1,906 | 1,885 |
| French government debt instruments | 2,603 | 2,635 |
| Japanese yen: | ||
| Foreign currency deposits | 3,943 | 3,985 |
| Japanese government debt instruments | 7,993 | 8,078 |
| Total | $25,788 | $25,950 |
The remaining maturity distribution of foreign currency denominated assets, by currency, as of September 30, 2012, and December 31, 2011, was as follows:
| Euro | Japanese yen | Total | |
|---|---|---|---|
| September 30, 2012: | |||
| Within 15 days | $5,457 | $4,367 | $9,824 |
| 16 days to 90 days | 2,886 | 687 | 3,573 |
| 91 days to 1 year | 2,033 | 2,275 | 4,308 |
| Over 1 year to 5 years | 3,476 | 4,607 | 8,083 |
| Total | $13,852 | $11,936 | $25,788 |
| December 31, 2011: | |||
| Within 15 days | $5,352 | $4,180 | $9,532 |
| 16 days to 90 days | 2,933 | 662 | 3,595 |
| 91 days to 1 year | 2,115 | 3,143 | 5,258 |
| Over 1 year to 5 years | 3,487 | 4,078 | 7,565 |
| Total | $13,887 | $12,063 | $25,950 |
As of September 30, 2012, and December 31, 2011, the fair value of foreign currency denominated assets, including accrued interest, was $25,962 million and $26,116 million, respectively.
In May 2010, U.S. dollar liquidity swap arrangements were re-authorized with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank through January 2011. Subsequently, these arrangements were extended through February 1, 2013. There is no specified limit to the amount that may be drawn by the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank under these swap arrangements; the Bank of Canada may draw up to $30 billion under the swap arrangement with the Federal Reserve Bank of New York (FRBNY). In addition to the central bank liquidity swap arrangements, the Federal Open Market Committee has authorized reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico.
The remaining maturity distribution of U.S. dollar liquidity swaps as of September 30, 2012, and the total U.S. dollar liquidity swaps outstanding as of December 31, 2011, was as follows:
| September 30, 2012 | December 31,2011 | |||
|---|---|---|---|---|
| Within 15 days | 16 days to 90 days | Total | Total | |
| Euro | $4,376 | $8,175 | $12,551 | $85,437 |
| Japanese yen | -- | -- | -- | 13,991 |
| Swiss franc | -- | -- | -- | 395 |
| Total | $4,376 | $8,175 | $12,551 | $99,823 |
(3) Consolidated Variable Interest Entities (VIEs)
The combined financial statements include the accounts and results of operations of Maiden Lane LLC (ML), Maiden Lane II LLC (ML II), Maiden Lane III LLC (ML III), and TALF LLC, which are consolidated by the FRBNY. Intercompany balances and transactions are eliminated in consolidation.
Substantially all of the investments held by ML, ML II, ML III, and TALF LLC are recorded at fair value.
The classification of significant assets and liabilities of the consolidated VIEs as of September 30, 2012, and December 31, 2011, was as follows:
| ML | ML II | ML III | TALF LLC | Total | |
|---|---|---|---|---|---|
| As of September 30, 2012: | |||||
| Assets | |||||
| CDOs | $-- | $-- | $-- | $-- | $-- |
| Non-agency RMBS | 3 | -- | -- | -- | 3 |
| Federal agency and GSE MBS | 384 | -- | -- | -- | 384 |
| Commercial mortgage loans | 466 | -- | -- | -- | 466 |
| Swap contracts | 457 | -- | -- | -- | 457 |
| Residential mortgage loans | -- | -- | -- | -- | -- |
| Other investments | 450 | -- | -- | 471 | 921 |
| Other assets | 1 | -- | -- | -- | 1 |
| Subtotal--investments | $1,761 | $-- | $-- | $471 | $2,232 |
| Cash, cash equivalents, accrued interest receivable, and other assets | 470 | 61 | 23 | 382 | 936 |
| Total portfolio assets | $2,231 | $61 | $23 | $853 | $3,168 |
| Liabilities | 512 | -- | -- | -- | 512 |
| Net portfolio assets available | $1,719 | $61 | $23 | $853 | $2,656 |
| As of December 31, 2011: | |||||
| Assets | |||||
| CDOs | $380 | $-- | $17,474 | $-- | $17,854 |
| Non-agency RMBS | 1,537 | 9,105 | 261 | -- | 10,903 |
| Federal agency and GSE MBS | 440 | -- | -- | -- | 440 |
| Commercial mortgage loans | 2,861 | -- | -- | -- | 2,861 |
| Swap contracts | 657 | -- | -- | -- | 657 |
| Residential mortgage loans | 378 | -- | -- | -- | 378 |
| Other investments | 955 | -- | -- | 374 | 1,329 |
| Other assets | 29 | -- | -- | -- | 29 |
| Subtotal--investments | $7,237 | $9,105 | $17,735 | $374 | $34,451 |
| Cash, cash equivalents, and accrued interest receivable | 568 | 152 | 85 | 437 | 1,242 |
| Total portfolio assets | $7,805 | $9,257 | $17,820 | $811 | $35,693 |
| Liabilities | 684 | 3 | 3 | -- | 690 |
| Net portfolio assets available | $7,121 | $9,254 | $17,817 | $811 | $35,003 |
To finance the initial acquisition of assets by ML, ML II, and ML III, the FRBNY extended senior loans, and other beneficial interest holders acquired subordinated interests through the contribution of subordinated loans, a deferred purchase price, and equity for ML, ML II, and ML III, respectively.
The TALF LLC, which was formed to purchase from the FRBNY any ABS that might be surrendered by a TALF borrower or claimed by the FRBNY in connection with enforcement rights, has not purchased any ABS collateral from the inception of the program to September 30, 2012. As compensation for the commitment to purchase assets, the FRBNY pays the TALF LLC a put option fee based on the amount of TALF loans extended to eligible borrowers. The Treasury provided initial funding of $100 million to the TALF LLC in the form of a subordinated loan. The TALF LLC invests the fees received from the FRBNY and the funding received from the Treasury in short-term investments.
The following table presents the activity related to the senior and subordinated interests from inception to September 30, 2012, and December 31, 2011:
| September 30, 2012 | December 31, 2011 | |||||||
|---|---|---|---|---|---|---|---|---|
| ML | ML II | ML III | TALF LLC | ML | ML II | ML III | TALF LLC | |
| Net assets available to pay senior and subordinated interests | $1,719 | $61 | $23 | $853 | $7,121 | $9,254 | $17,817 | $811 |
| FRBNY loan: 1 | ||||||||
| Loan extended (par value) | 28,820 | 19,494 | 24,339 | -- | 28,820 | 19,494 | 24,339 | -- |
| Plus: interest accrued and capitalized | 765 | 580 | 738 | -- | 755 | 569 | 692 | -- |
| Less: repayments of principal and interest | (29,585) | (20,074) | (25,077) | -- | (24,716) | (13,271) | (15,205) | -- |
| Total FRBNY loan outstanding | $-- | $-- | $-- | $-- | $4,859 | $6,792 | $9,826 | $-- |
| Subordinated interests: | ||||||||
| Loans and equity contributions | $1,150 | $1,000 | $5,000 | $100 | $1,150 | $1,000 | $5,000 | $100 |
| Plus: interest accrued and capitalized | 279 | 113 | 639 | 12 | 235 | 106 | 542 | 9 |
| Less: repayments of principal and interest | (1,121) | (1,113) | (5,639) | -- | -- | -- | -- | -- |
| Total subordinated interests outstanding | $308 | $-- | $-- | $112 | $1,385 | $1,106 | $5,542 | $109 |
| Excess of net assets available over loans and subordinated interest outstanding: | ||||||||
| Allocated to FRBNY | 1,411 | 51 | 15 | 68 | 877 | 1,130 | 1,641 | 33 |
| Allocated to other beneficial interests | -- | 10 | 8 | 673 | -- | 226 | 808 | 669 |
| Total | $1,411 | $61 | $23 | $741 | $877 | $1,356 | $2,449 | $702 |
1. Loans extended by FRBNY to ML, ML II, and ML III are eliminated in consolidation. Return to table
On November 15, 2012, the FRBNY announced that net proceeds from additional sales of securities in ML enabled the full repayment of the subordinate loan made by JPMorgan Chase & Co. plus accrued interest. In accordance with the ML agreements, the FRBNY will receive all future cash flows generated from the remaining ML assets.
The following table presents information on the rating composition of specific ML, ML II, and ML III portfolio assets as of September 30, 2012, recorded at fair value, as a percentage of aggregate fair value of each VIE's total portfolio assets.
| AAA | AA+ to AA- | A+ to A- | BBB+ to BBB- | BB+ and lower | Gov't / agency | Not rated | Total | |
|---|---|---|---|---|---|---|---|---|
| ML: | ||||||||
| Federal agency and GSE MBS | -- | -- | -- | -- | -- | 45.9% | -- | 45.9% |
| Non-agency RMBS | -- | -- | -- | -- | 0.3% | -- | -- | 0.3% |
| Other | -- | 3.6% | -- | 1.0% | 3.2% | 41.8% | 4.2% | 53.8% |
| Total | -- | 3.6% | -- | 1.0% | 3.5% | 87.7% | 4.2% | 100.0% |
| ML II: | ||||||||
| Alt-A ARM | -- | -- | -- | -- | -- | -- | -- | |
| Subprime | -- | -- | -- | -- | -- | -- | -- | |
| Option ARM | -- | -- | -- | -- | -- | -- | -- | |
| Other | -- | -- | -- | -- | -- | -- | -- | |
| Total | -- | -- | -- | -- | -- | -- | -- | |
| ML III: | ||||||||
| High-grade ABS CDOs: | ||||||||
| Pre-2005 | -- | -- | -- | -- | -- | -- | -- | |
| 2005 | -- | -- | -- | -- | -- | -- | -- | |
| 2006 | -- | -- | -- | -- | -- | -- | -- | |
| 2007 | -- | -- | -- | -- | -- | -- | -- | |
| Mezzanine ABS CDOs: | ||||||||
| Pre-2005 | -- | -- | -- | -- | -- | -- | -- | |
| 2005 | -- | -- | -- | -- | -- | -- | -- | |
| 2006 | -- | -- | -- | -- | -- | -- | -- | |
| 2007 | -- | -- | -- | -- | -- | -- | -- | |
| Commercial real estate CDOs: | ||||||||
| Pre-2005 | -- | -- | -- | -- | -- | -- | -- | |
| 2005 | -- | -- | -- | -- | -- | -- | -- | |
| 2006 | -- | -- | -- | -- | -- | -- | -- | |
| 2007 | -- | -- | -- | -- | -- | -- | -- | |
| RMBS, CMBS, & Other: | ||||||||
| Pre-2005 | -- | -- | -- | -- | -- | -- | -- | |
| 2005 | -- | -- | -- | -- | -- | -- | -- | |
| 2006 | -- | -- | -- | -- | -- | -- | -- | |
| 2007 | -- | -- | -- | -- | -- | -- | -- | |
| Total | -- | 3.6% | -- | 1.0% | 3.5% | 87.7% | 4.2% | 100.0% |
Note: Lowest of all ratings was used for the purpose of this table if rated by two or more nationally recognized statistical rating organizations. The year of issuance with the highest concentration of underlying assets as measured by outstanding principal balance determines the vintage of the CDO. Rows and columns may not total due to rounding.
(4) 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. As of September 30, 2012, and December 31, 2011, all Federal Reserve notes were fully collateralized.
(5) Depository Institution Deposits
Depository institution deposits are primarily comprised of required reserve balances, contractual clearing balances, and excess reserve balances. Required reserve balances are those that a depository institution must hold to satisfy its reserve requirement. Contractual clearing balances are those established by a depository institution to provide protection against overdrafts in its account with its Reserve Bank. Excess reserves are those held by the depository institutions in excess of their required reserve balances and contractual clearing balances. The contractual clearing balance program was eliminated on July 12, 2012.
(6) Treasury Deposits
The Treasury holds deposits at the Reserve Banks in a general account pursuant the Reserve Banks' role as fiscal agents of the United States.
(7) Capital and Surplus
The Federal Reserve Act 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 are nonvoting with a par value of $100, and may not be transferred or hypothecated. Currently, only one-half of the subscription is paid in and the remainder is subject to call. By law, each Reserve Bank is required to pay each member bank an annual dividend of 6 percent on paid-in capital stock.
In addition, the Board of Governors requires the Reserve Banks to maintain a surplus equal to the amount of capital paid-in as of December 31 of each year.
(8) Income and Expense
(A) Loans to Depository Institutions
Interest income on loans includes interest earned on TALF loans and American International Group, Inc. (AIG) credit extensions. 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. Supplemental information on interest income on loans to depository institutions is as follows:
| Nine months ended September 30, 2012 | Nine months ended September 30, 2011 | |
|---|---|---|
| Interest income: | ||
| Primary, secondary, and seasonal credit | * | * |
| AIG | $-- | $409 |
| TALF | 76 | 218 |
| Total interest income | $76 | $627 |
| Average daily loan balance: | ||
| Primary, secondary, and seasonal credit | $77 | $56 |
| AIG 1 | -- | 951 |
| TALF | 5,655 | 16,321 |
| Average interest rate: | ||
| Primary, secondary, and seasonal credit | 0.40% | 0.37% |
| AIG 2 | N/A | 3.94% |
| TALF | 1.79% | 1.78% |
* Less than $500 thousand.
1. Average daily loan balance for AIG represents the average from January 1, 2011, to January 14, 2011, when the AIG loan was repaid in full. Return to table
2. As a result of the closing of the AIG recapitalization plan on January 14, 2011, $381 million of deferred commitment fees and allowances were recognized as interest income in 2011. The average interest rate calculation for September 30, 2011, excludes these items. There was no interest income recognized during the nine months ended September 30, 2012, related to the AIG loan. Return to table
In addition to TALF LLC net income, the FRBNY records income and expense related to TALF loans in its consolidated financial statements. The following table summarizes the earnings of the TALF program, taken as a whole:
| Nine months ended September 30, 2012 | Nine months ended September 30, 2011 | |
|---|---|---|
| TALF loans: | ||
| Interest income | $76 | $218 |
| Gains (losses) | (31) | (70) |
| Subtotal--TALF loans | $45 | $148 |
| TALF LLC | (8) | (39) |
| Total--TALF | $37 | $109 |
(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:
| Nine months ended September 30, 2012 | Nine months ended September 30, 2011 | |
|---|---|---|
| Interest income: | ||
| U.S. Treasury securities | $34,280 | $31,179 |
| GSE debt securities | 2,015 | 2,339 |
| Federal agency and GSE MBS | 24,196 | 29,590 |
| Foreign currency denominated assets | 109 | 193 |
| Central bank liquidity swaps | 222 | 1 |
| Other SOMA assets | 5 | -- |
| Total interest income | $60,827 | $63,302 |
| Average daily balance: | ||
| U.S. Treasury securities 1 | $1,767,926 | $1,495,186 |
| GSE debt securities1 | 97,866 | 130,737 |
| Federal agency and GSE MBS 2 | 863,830 | 937,801 |
| Foreign currency denominated assets 3 | 25,498 | 26,614 |
| Central bank liquidity swaps 4 | 47,742 | 65 |
| Other SOMA assets 5 | 67 | -- |
| Average interest rate: | ||
| U.S. Treasury securities | 2.59% | 2.78% |
| GSE debt securities | 2.75% | 2.39% |
| Federal agency and GSE MBS | 3.73% | 4.21% |
| Foreign currency denominated assets | 0.57% | 0.97% |
| Central bank liquidity swaps | 0.62% | 1.12% |
| Other SOMA assets | 9.95% | -- |
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. Return to table
3. Includes accrued interest. Foreign currency denominated assets 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
The average daily balance of securities sold under agreements to repurchase as of September 30, 2012, and September 30, 2011, was $90,004 million and $67,098 million, respectively. The average interest rate on these transactions was 0.1 percent for each of the nine months ended September 30, 2012, and September 30, 2011, respectively.
(C) Consolidated VIEs
The interest income related to the consolidated VIEs is recorded when earned and includes amortization of premiums, accretion of discounts, and paydown gains and losses. Interest expense of the consolidated VIEs is attributable to loans extended by subordinated interest holders; interest expense on loans extended by the FRBNY is eliminated when the VIEs are consolidated in the FRBNY's financial statements. Gains and losses include realized and unrealized gains. Unrealized gains result from the quarterly revaluation of the VIEs portfolio assets. Operating expenses of the consolidated VIEs, which are reported as a component of "Operating expenses" in the Combined Statement of Income, were $22 million and $57 million for the nine months ended September 30, 2012, and September 30, 2011, respectively.
The following table summarizes the net income and loss recorded by the FRBNY in its consolidated financial statements for each of the VIEs for the periods ended September 30, 2012, and September 30, 2011:
| ML | ML II | ML III | TALF LLC | Total | |
|---|---|---|---|---|---|
| Nine months ended September 30, 2012: | |||||
| Interest income: | |||||
| Portfolio interest income | $34 | $52 | $1,024 | $-- | $1,110 |
| Less: interest expense | 44 | 7 | 98 | 2 | 151 |
| Net interest income | (10) | 45 | 926 | (2) | 959 |
| Non-interest income: | |||||
| Portfolio holdings gains | 564 | 1,393 | 5,505 | -- | 7,462 |
| Less: unrealized and realized gains on beneficial interest in consolidated VIEs | -- | (238) | (2,104) | (5) 1 | (2,347) |
| Net non-interest (loss) income | 564 | 1,155 | 3,401 | (5) | 5,115 |
| Total net interest income and non-interest income | 554 | 1,200 | 4,327 | (7) | 6,074 |
| Less: professional fees | 10 | 1 | 10 | 1 | 22 |
| Net income (loss) attributable to consolidated VIEs | $544 | $1,199 | $4,317 | $(8) 2 | $6,052 |
| Nine months ended September 30, 2011: | |||||
| Interest income: | |||||
| Portfolio interest income | $712 | $469 | $1,565 | $-- | $2,746 |
| Less: interest expense | 52 | 26 | 131 | 3 | 212 |
| Net interest income | 660 | 443 | 1,434 | (3) | 2,534 |
| Non-interest income: | |||||
| Portfolio holdings (losses) gains | 482 | (964) | (3,476) | -- | (3,958) |
| Less: unrealized (gains) losses on beneficial interest in consolidated VIEs | (114) | 104 | 717 | (36)1 | 671 |
| Net non-interest (loss) income | 368 | (860) | (2,759) | (36) | (3,287) |
| Total net interest income and non-interest income | 1,028 | (417) | (1,325) | (39) | (753) |
| Less: professional fees | 34 | 6 | 17 | -- | 57 |
| Net income (loss) attributable to consolidated VIEs | $994 | $(423) | $(1,342) | $(39)2 | $(810) |
1. Represents the amount of TALF LLC's income allocated to the Treasury. Return to table
2. Additional information regarding TALF-related income recorded by FRBNY is presented in Table 14. Return to table
(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 Federal Open Market Committee-established target range for the effective federal funds rate.
In May 2010, the Reserve Banks commenced the auction of term deposits to be offered through its Term Deposit Facility. The interest rate paid on these deposits is determined by auction.
