Federal Reserve Banks Combined Quarterly Financial Report
September 30, 2014
PrintAbbreviations
- ABS
- Asset-backed securities
- AIG
- American International Group, Inc.
- CMBS
- Commercial mortgage-backed securities
- FOMC
- Federal Open Market Committee
- 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
- SOMA
- System Open Market Account
- TALF
- Term Asset-Backed Securities Loan Facility
- VIE
- Variable interest entity
Combined Quarterly Financial Statements
| September 30, 2014 | December 31, 2013 | |
|---|---|---|
| Assets | ||
| Gold certificates | $11,037 | $11,037 |
| Special drawing rights certificates | 5,200 | 5,200 |
| Coin | 1,931 | 1,955 |
| Loans: | ||
| Depository institutions | 327 | 74 |
| Term Asset-Backed Securities Loan Facility (measured at fair value) | 14 | 98 |
| System Open Market Account: | ||
| Treasury securities, net (of which $14,384, and $17,153 is lent as of September 30, 2014, and December 31, 2013, respectively) | 2,590,162 | 2,359,434 |
| Government-sponsored enterprise debt securities, net (of which $683 and $1,099 is lent as of September 30, 2014, and December 31, 2013, respectively) | 41,458 | 59,122 |
| Federal agency and government-sponsored enterprise mortgage-backed securities, net | 1,747,016 | 1,533,860 |
| Foreign currency denominated investments, net | 22,195 | 23,724 |
| Central bank liquidity swaps | 240 | 272 |
| Accrued interest receivable | 24,573 | 23,493 |
| Other investments | 12 | 2 |
| Investments held by consolidated variable interest entities (of which $1,721 and $1,774 is measured at fair value as of September 30, 2014, and December 31, 2013, respectively) | 1,848 | 1,926 |
| Bank premises and equipment, net | 2,625 | 2,653 |
| Items in process of collection | 149 | 165 |
| Other assets | 1,446 | 1,134 |
| Total assets | $4,450,233 | $4,024,149 |
| Liabilities and capital | ||
| Federal Reserve notes outstanding, net | $1,246,341 | $1,197,920 |
| System Open Market Account: | ||
| Securities sold under agreements to repurchase | 410,131 | 315,924 |
| Other liabilities | 1,793 | 1,331 |
| Consolidated variable interest entities: | ||
| Beneficial interest in consolidated variable interest entities (measured at fair value) | 39 | 116 |
| Other liabilities (of which $38 and $73 is measured at fair value as of September 30, 2014, and December 31, 2013, respectively) | 125 | 158 |
| Deposits: | ||
| Depository institutions | 2,537,848 | 2,249,070 |
| Term deposit facility | -- | -- |
| Treasury, general account | 158,302 | 162,399 |
| Other deposits | 32,310 | 34,150 |
| Interest payable to depository institutions | 244 | 99 |
| Accrued benefit costs | 1,901 | 1,823 |
| Deferred credit items | 1,064 | 1,127 |
| Accrued remittances to Treasury | 2,979 | 4,791 |
| Other liabilities | 776 | 227 |
| Total liabilities | 4,393,853 | 3,969,135 |
| Capital paid-in | 28,190 | 27,507 |
| Surplus (including accumulated other comprehensive loss of $2,406 and $2,556 at September 30, 2014, and December 31, 2013, respectively) | 28,190 | 27,507 |
| Total capital | 56,380 | 55,014 |
| Total liabilities and capital | $4,450,233 | $4,024,149 |
| Three months ended | Nine months ended | |||
|---|---|---|---|---|
| Sept. 30, 2014 | Sept. 30, 2013 | Sept. 30, 2014 | Sept. 30, 2013 | |
| Interest income | ||||
| Loans: | ||||
| Term Asset-Backed Securities Loan Facility | $1 | $1 | $2 | $5 |
| System Open Market Account: | ||||
| Treasury securities, net | 16,213 | 13,454 | 47,558 | 37,739 |
| Government-sponsored enterprise debt securities, net | 376 | 530 | 1,221 | 1,681 |
| Federal agency and government-sponsored enterprise mortgage-backed securities, net | 12,829 | 9,424 | 38,203 | 25,412 |
| Foreign currency denominated investments, net | 18 | 23 | 62 | 73 |
| Central bank liquidity swaps | -- | 1 | 1 | 21 |
| Investments held by consolidated variable interest entities | 69 | -- | 74 | 1 |
| Total interest income | 29,506 | 23,433 | 87,121 | 64,932 |
| Interest expense | ||||
| System Open Market Account: | ||||
| Securities sold under agreements to repurchase | 28 | 4 | 69 | 44 |
| Other | -- | -- | -- | 2 |
| Deposits: | ||||
| Depository institutions | 1,757 | 1,397 | 5,038 | 3,655 |
| Term Deposit Facility | 18 | 4 | 42 | 8 |
| Total interest expense | 1,803 | 1,405 | 5,149 | 3,709 |
| Net interest income | 27,703 | 22,028 | 81,972 | 61,223 |
| Non-interest income | ||||
| Term Asset-Backed Securities Loan Facility, unrealized (losses) | -- | (1) | -- | (3) |
| System Open Market Account: | ||||
| Federal agency and government-sponsored enterprise mortgage-backed securities gains (losses), net | 2 | (39) | 73 | (47) |
| Foreign currency translation gains (losses), net | (1,860) | 657 | (1,610) | (895) |
| Consolidated variable interest entities: | ||||
| Investments held by consolidated variable interest entities gains, net | (50) | 34 | 34 | 122 |
| Income from services | 108 | 111 | 326 | 332 |
| Reimbursable services to government agencies | 134 | 129 | 416 | 394 |
| Other | 18 | 20 | 57 | 61 |
| Total non-interest income | (1,648) | 911 | (704) | (36) |
| Operating expenses | ||||
| Salaries and benefits | 751 | 803 | 2,273 | 2,393 |
| Occupancy | 76 | 77 | 229 | 229 |
| Equipment | 43 | 40 | 123 | 121 |
| Other | 173 | 135 | 445 | 417 |
| Assessments: | ||||
| Board of Governors operating expenses and currency costs | 323 | 478 | 921 | 1,071 |
| Bureau of Consumer Financial Protection | 111 | 195 | 353 | 382 |
| Total operating expenses | 1,477 | 1,728 | 4,344 | 4,613 |
| Net income before providing for remittances to Treasury | 24,578 | 21,211 | 76,924 | 56,574 |
| Earnings remittances to Treasury | 24,173 | 20,952 | 75,130 | 55,571 |
| Net income | 405 | 259 | 1,794 | 1,003 |
| Change in prior service costs related to benefit plans | 22 | 22 | 66 | 70 |
| Change in actuarial gains related to benefit plans | 24 | 81 | 84 | 246 |
| Total other comprehensive income | 46 | 103 | 150 | 316 |
| Comprehensive income | $451 | $362 | $1,944 | $1,319 |
| Capital paid-in | Surplus | Total capital | |||
|---|---|---|---|---|---|
| Net income retained | Accumulated other comprehensive loss |
Total surplus | |||
| Balance at January 1, 2013 (547,195,145 shares) | $27,360 | $32,205 | $(4,845) | $27,360 | $54,720 |
| Net change in capital stock issued (2,941,791 shares) | 147 | -- | -- | -- | 147 |
| Comprehensive income: | |||||
| Net loss | -- | (492) | -- | (492) | (492) |
| Other comprehensive income | -- | -- | 2,289 | 2,289 | 2,289 |
| Dividends on capital stock | -- | (1,650) | -- | (1,650) | (1,650) |
| Net change in capital | 147 | (2,142) | 2,289 | 147 | 294 |
| Balance at December 31, 2013 (550,136,936 shares) | $27,507 | $30,063 | $(2,556) | $27,507 | $55,014 |
| Net change in capital stock issued (13,659,010 shares) | 683 | -- | -- | -- | 683 |
| Comprehensive income: | |||||
| Net income | -- | 1,794 | -- | 1,794 | 1,794 |
| Other comprehensive income | -- | -- | 150 | 150 | 150 |
| Dividends on capital stock | -- | (1,261) | -- | (1,261) | (1,261) |
| Net change in capital | 683 | 533 | 150 | 683 | 1,366 |
| Balance at September 30, 2014 (563,795,946 shares) | $28,190 | $30,596 | $(2,406) | $28,190 | $56,380 |
Supplemental Financial Information
Jump to:
(1) Loans
Loans to Depository Institutions
The Reserve Banks offer primary, secondary, and seasonal loans to eligible depository institutions. The remaining maturity distribution of loans to depository institutions outstanding as of September 30, 2014, and December 31, 2013, was as follows:
| Within 15 days | 16 to 90 days | Total | ||
|---|---|---|---|---|
| September 30, 2014: | ||||
| Primary, secondary, and seasonal credit | $279 | $48 | $327 | |
| December 31, 2013: | ||||
| Primary, secondary, and seasonal credit | $69 | $5 | $74 | |
As of September 30, 2014, and December 31, 2013, the Reserve Banks did not have any loans that were impaired, restructured, past due, or on non-accrual status, and no allowance for loan losses was required. There were no impaired loans during the period ended September 30, 2014, and year ended December 31, 2013.
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 June 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, 2014, and December 31, 2013, respectively:
| Collateral type 1 | Time to maturity | Total | ||
|---|---|---|---|---|
| Within 90 days | 91 days to 1 year | Over 1 year to 3 years | ||
| September 30, 2014: | ||||
| Student loan | $-- | $-- | $-- | $-- |
| CMBS | 14 | -- | -- | 14 |
| Total | $14 | $-- | $-- | $14 |
| December 31, 2013: | ||||
| Student loan | $-- | $14 | $33 | $47 |
| CMBS | -- | 51 | -- | 51 |
| Total | $-- | $65 | $33 | $98 |
1. All credit ratings are AAA unless otherwise indicated. Return to table
The fair value of TALF loans reported in the Combined statements of condition as of September 30, 2014, and December 31, 2013, includes $0 million and $1 million in unrealized gains, respectively.
As of September 30, 2014, and December 31, 2013, 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, 2014, and December 31, 2013, were as follows:
| September 30, 2014 | December 31, 2013 | |||||
|---|---|---|---|---|---|---|
| Amortized cost |
Fair value | Cumulative unrealized gains (losses) | Amortized cost |
Fair value | Cumulative unrealized gains (losses) | |
| Treasury Securities | ||||||
| Notes | $1,649,802 | $1,666,387 | $16,585 | $1,495,115 | $1,499,000 | $3,885 |
| Bonds | 940,360 | 995,991 | 55,631 | 864,319 | 842,336 | (21,983) |
| Total Treasury securities | $2,590,162 | $2,662,378 | $72,216 | $2,359,434 | $2,341,336 | $(18,098) |
| GSE debt securities | 41,458 | 44,037 | 2,579 | 59,122 | 62,236 | 3,114 |
| Federal agency and GSE MBS | 1,747,016 | 1,752,899 | 5,883 | 1,533,860 | 1,495,572 | (38,288) |
| Total domestic SOMA portfolio securities holdings | $4,378,636 | $4,459,314 | $80,678 | $3,952,416 | $3,899,144 | $(53,272) |
| Memorandum - Commitments for: | ||||||
| Purchases of Treasury securities | $-- | $-- | $-- | $-- | $-- | $-- |
| Purchases of Federal agency and GSE MBS | 66,064 | 66,167 | 103 | 59,350 | 59,129 | (221) |
| Sales of Federal agency and GSE MBS | -- | -- | -- | -- | -- | -- |
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, 2014, and December 31, 2013:
| September 30, 2014 | December 31, 2013 | |||
|---|---|---|---|---|
| Distribution of MBS holdings by coupon rate | Amortized cost | Fair value | Amortized cost | Fair value |
| 2.0% | $13,144 | $12,738 | $14,191 | $13,529 |
| 2.5% | 115,933 | 113,537 | 123,832 | 118,458 |
| 3.0% | 516,318 | 498,649 | 521,809 | 484,275 |
| 3.5% | 439,136 | 438,723 | 349,689 | 338,357 |
| 4.0% | 408,508 | 416,794 | 230,256 | 231,113 |
| 4.5% | 165,030 | 176,683 | 185,825 | 195,481 |
| 5.0% | 69,821 | 75,232 | 83,290 | 87,968 |
| 5.5% | 16,512 | 17,719 | 21,496 | 22,718 |
| 6.0% | 2,296 | 2,478 | 3,051 | 3,225 |
| 6.5% | 318 | 346 | 421 | 448 |
| Total | $1,747,016 | $1,752,899 | $1,533,860 | $1,495,572 |
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, 2014, and December 31, 2013, was as follows:
| Within 15 days | 16 days to 90 days | 91 days to 1 year | Over 1 year to 5 years | Over 5 years to 10 years | Over 10 years | Total | |
|---|---|---|---|---|---|---|---|
| September 30, 2014: | |||||||
| Treasury securities (par value) | $-- | $89 | $3,194 | $1,047,869 | $739,909 | $660,681 | $2,451,742 |
| GSE debt securities (par value) | 306 | 1,023 | 3,584 | 32,746 | -- | 2,347 | 40,006 |
| Federal agency and GSE MBS (par value) 1 | -- | -- | -- | 10 | 4,715 | 1,691,699 | 1,696,424 |
| Securities sold under agreements to repurchase (contract amount) | 410,131 | -- | -- | -- | -- | -- | 410,131 |
| December 31, 2013: | |||||||
| Treasury securities (par value) | $-- | $298 | $176 | $763,329 | $864,700 | $580,272 | $2,208,775 |
| GSE debt securities (par value) | 2,310 | 7,568 | 8,666 | 36,268 | 62 | 2,347 | 57,221 |
| Federal agency and GSE MBS (par value)1 | -- | -- | -- | 5 | 2,549 | 1,487,608 | 1,490,162 |
| Securities sold under agreements to repurchase (contract amount) | 315,924 | -- | -- | -- | -- | -- | 315,924 |
1. The par amount shown for federal agency and GSE MBS is the remaining principal balance of the securities. 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, 2014, and December 31, 2013, which differs from the stated maturity primarily because it factors in scheduled payments and prepayment assumptions, was approximately 5.4 years and 6.5 years, respectively.
Information about transactions related to Treasury securities, GSE debt securities, and federal agency and GSE MBS during the nine months ended September 30, 2014, and during the year ended December 31, 2013, is summarized as follows:
| Notes | Bonds | Total Treasury securities | GSE debt securities | Federal agency and GSE MBS | ||
|---|---|---|---|---|---|---|
| Balance December 31, 2012 | $1,142,219 | $666,969 | $1,809,188 | $79,479 | $950,321 | |
| Purchases 1 | 358,656 | 206,208 | 564,864 | -- | 864,538 | |
| Sales1 | -- | -- | -- | -- | -- | |
| Realized gains, net 2 | -- | -- | -- | -- | -- | |
| Principal payments and maturities | (21) | -- | (21) | (19,562) | (273,991) | |
| Amortization of premiums and accretion of discounts, net | (6,024) | (9,503) | (15,527) | (795) | (7,008) | |
| Inflation adjustment on inflation-indexed securities | 285 | 645 | 930 | -- | --- | |
| Balance December 31, 2013 | $1,495,115 | $864,319 | $2,359,434 | $59,122 | $1,533,860 | |
| Purchases1 | 158,626 | 81,971 | 240,597 | -- | 360,379 | |
| Sales1 | -- | -- | -- | -- | (29) | |
| Realized gains, net2 | -- | -- | -- | -- | -- | |
| Principal payments and maturities | (385) | -- | (385) | (17,215) | (142,197) | |
| Amortization of premiums and accretion of discounts, net | (4,159) | (7,546) | (11,705) | (449) | (4,997) | |
| Inflation adjustment on inflation-indexed securities | 605 | 1,616 | 2,221 | -- | -- | |
| Balance September 30, 2014 | $1,649,802 | $940,360 | $2,590,162 | $41,458 | $1,747,016 | |
| Year ended December 31, 2013 | ||||||
| Supplemental information - par value of transactions: | ||||||
| Purchases 3 | $356,766 | $184,956 | $541,722 | $-- | $837,490 | |
| Sales3 | -- | -- | -- | -- | -- | |
| Nine months ended September 30, 2014 | ||||||
| Supplemental information - par value of transactions | ||||||
| Purchases3 | $160,854 | $80,276 | $241,130 | $-- | $348,488 | |
| Sales3 | -- | -- | -- | -- | (29) | |
1. Purchases and sales are reported on a settlement-date basis and may include payments and receipts related to principal, premiums, discounts, and inflation compensation adjustments to the basis of inflation-indexed securities. The amount reported as sales also includes realized gains and losses on such transactions. Purchases and sales exclude MBS TBA transactions that are settled on a net basis. Return to table
2. Realized gains, net offset the amount of realized gains and losses included in the reported sales amount. Return to table
3. Includes inflation compensation. Return to table
Information about foreign currency denominated investments valued at amortized cost and foreign currency market exchange rates as of September 30, 2014, and December 31, 2013, was as follows:
| September 30, 2014 | December 31, 2013 | |
|---|---|---|
| Euro: | ||
| Foreign currency deposits | $8,271 | $7,530 |
| Securities purchased under agreements to resell | -- | 2,549 |
| German government debt instruments | 2,322 | 2,397 |
| French government debt instruments | 3,099 | 2,397 |
| Japanese yen: | ||
| Foreign currency deposits | 2,812 | 2,926 |
| Japanese government debt instruments | 5,691 | 5,925 |
| Total | $22,195 | $23,724 |
The remaining maturity distribution of foreign currency denominated investments, by currency, as of September 30, 2014, and December 31, 2013, was as follows:
| Within 15 days | 16 days to 90 days | 91 days to 1 year | Over 1 year to 5 years | Total | |
|---|---|---|---|---|---|
| September 30, 2014: | |||||
| Euro | $1,177 | $3,798 | $4,364 | $4,353 | $13,692 |
| Japanese yen | 3,017 | 420 | 1,756 | 3,310 | 8,503 |
| Total | $4,194 | $4,218 | $6,120 | $7,663 | $22,195 |
| December 31, 2013: | |||||
| Euro | $7,037 | $1,803 | $2,161 | $3,872 | $14,873 |
| Japanese yen | 3,116 | 380 | 1,870 | 3,485 | 8,851 |
| Total | $10,153 | $2,183 | $4,031 | $7,357 | $23,724 |
As of September 30, 2014, and December 31, 2013, the fair value of foreign currency denominated investments, including accrued interest, was $22,295 million and $23,802 million, respectively.
Because of the global character of bank funding markets, the Federal Reserve has at times coordinated with other central banks to provide liquidity. The Federal Open Market Committee (FOMC) authorized and directed the Federal Reserve Bank of New York (FRBNY) to establish temporary U.S. dollar liquidity swap lines with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. In addition, as a contingency measure, the FOMC authorized and directed the FRBNY to establish temporary foreign currency liquidity swap arrangements with these five central banks to allow for the Federal Reserve to access liquidity, if necessary, in any of these foreign central banks' currencies. On October 31, 2013, the Federal Reserve and these five central banks agreed to convert their existing temporary liquidity swap arrangements to standing arrangements which will remain in place until further notice.
The remaining maturity distribution of U.S. dollar liquidity swaps as of September 30, 2014, and December 31, 2013, was as follows:
| September 30, 2014 | December 31, 2013 | |||||
|---|---|---|---|---|---|---|
| Within 15 days | 16 days to 90 days | Total | Within 15 days | 16 days to 90 days | Total | |
| Euro | $-- | $-- | $-- | $113 | $159 | $272 |
| Japanese yen | 240 | -- | 240 | -- | -- | -- |
| Total | $240 | $-- | $240 | $113 | $159 | $272 |
The following table presents the realized gains (losses) and the change in the cumulative unrealized gains (losses), presented as "Fair value changes unrealized gains (losses)," of the domestic securities holdings during the periods ended September 30, 2014, and September 30, 2013:
| Nine months ended September 30, 2014 |
Nine months ended September 30, 2013 |
|||
|---|---|---|---|---|
| Total portfolio holdings realized gains 1 | Fair value changes unrealized gains (losses) 2 |
Total portfolio holdings realized gains (losses)1 | Fair value changes unrealized gains (losses)2 | |
| Treasury securities | $-- | $90,314 | $-- | $(131,538) |
| GSE debt securities | -- | (535) | -- | (1,955) |
| Federal agency and GSE MBS | 73 | 44,171 | (47) | (56,085) |
| Total | $73 | $133,950 | $(47) | $(189,578) |
1. Total portfolio holdings realized gains (losses) are reported in "Non-interest income: System Open Market Account" in the Combined statements of income and comprehensive income. Return to table
2. Because SOMA securities are recorded at amortized cost, unrealized gains (losses) are not reported in the Combined statements of income and comprehensive income. Return to table
(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, 2014, and December 31, 2013, was as follows:
| ML | ML II | ML III | TALF LLC | Total | ||
|---|---|---|---|---|---|---|
| September 30, 2014: | ||||||
| Assets | ||||||
| Short-term investments | $1,400 | $-- | $-- | $-- | $1,400 | |
| Commercial mortgage loans | -- | -- | -- | -- | -- | |
| Swap contracts | 122 | -- | -- | -- | 122 | |
| Non-agency residential mortgage-backed securities (RMBS) | 10 | -- | -- | -- | 10 | |
| Other investments | 1 | -- | -- | -- | 1 | |
| Subtotal--investments | $1,533 | $-- | $-- | $-- | $1,533 | |
| Cash, cash equivalents, accrued interest receivable, and other receivables | 272 | -- | -- | 43 | 315 | |
| Total portfolio assets | $1,805 | $-- | $-- | $43 | $1,848 | |
| Liabilities | 125 | -- | -- | -- | 125 | |
| Net portfolio assets available | $1,680 | $-- | $-- | $43 | $1,723 | |
| December 31, 2013: | ||||||
| Assets | ||||||
| Short-term investments | $530 | $-- | $-- | $-- | $530 | |
| Commercial mortgage loans | 507 | -- | -- | -- | 507 | |
| Swap contracts | 158 | -- | -- | -- | 158 | |
| Non-agency RMBS | 8 | -- | -- | -- | 8 | |
| Other investments | 2 | -- | -- | -- | 2 | |
| Subtotal--investments | $1,205 | $-- | $-- | $-- | $1,205 | |
| Cash, cash equivalents, accrued interest receivable, and other receivables | 527 | 63 | 22 | 109 | 721 | |
| Total portfolio assets | $1,732 | $63 | $22 | $109 | $1,926 | |
| Liabilities | 158 | -- | -- | -- | 158 | |
| Net portfolio assets available | $1,574 | $63 | $22 | $109 | $1,768 | |
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 a subordinated loan, a deferred purchase price, and equity for ML, ML II, and ML III, respectively.
On June 14, 2012, the remaining outstanding balance of the senior loan from the FRBNY to ML was repaid in full, with interest. On November 15, 2012, the remaining outstanding balance of the subordinated loan from JPMorgan Chase & Co was repaid in full, with interest. The FRBNY will continue to sell the remaining assets from the ML portfolio as market conditions warrant and if the sales represent good value for the public. In accordance with the ML agreements, proceeds from future asset sales will be distributed to the FRBNY as contingent interest after all derivative instruments in ML have been terminated and paid or sold from the portfolio.
On March 1, 2012, the loan from the FRBNY to ML II was repaid in full with interest, in accordance with the terms of the facility. On March 15, 2012, the remaining portion of the fixed deferred purchase price plus interest owed to the American International Group, Inc. (AIG) subsidiaries was paid in full. On March 19, 2012, ML II was dissolved and the FRBNY began the wind up process in accordance with and as required by Delaware law and the agreements governing ML II. Winding up requires ML II to pay or make reasonable provision to pay all claims and obligations. Any remaining proceeds will be divided between the Bank, which is entitled to receive five-sixths, and the AIG subsidiaries, which are entitled to receive one-sixth. While its affairs are being wound up, the ML II is retaining certain assets to meet trailing expenses and other obligations as required by law. Dissolution costs are not expected to be material. On September 15, 2014, the remaining proceeds in ML II (apart from a small amount of cash held in reserve for trailing expenses) were paid to FRBNY and AIG in accordance with their respective interests in ML II.
On June 14, 2012, the FRBNY announced that its loan to ML III had been repaid in full, with interest. On July 16, 2012, the FRBNY announced that net proceeds from additional sales of securities in ML III enabled the full repayment of AIG's equity contribution plus accrued interest and provided residual profits to the FRBNY and AIG. On September 10, 2012, ML III was dissolved and the FRBNY began the wind up process in accordance with and as required by Delaware law and the agreements governing ML III. Winding up requires ML III to pay or make reasonable provision to pay all claims and obligations. Any remaining proceeds will be divided between the FRBNY, which is entitled to receive two-thirds, and AIG (or its assignee), which is entitled to receive one-third, in accordance with the agreement. While its affairs are being wound up, the ML III is retaining certain assets to meet trailing expenses and other obligations as required by law. Dissolution costs are not expected to be material. On September 15, 2014, the remaining proceeds in ML III (apart from a small amount of cash held in reserve for trailing expenses) were paid to FRBNY and AIG in accordance with their respective interests in ML III.
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, 2014. As compensation for the commitment to purchase assets, the FRBNY pays 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 TALF LLC in the form of a subordinated loan. TALF LLC invests the fees received from the FRBNY and the funding received from the Treasury in short-term investments.
On January 15, 2013, the Treasury and FRBNY eliminated the Treasury's and FRBNY's funding commitments to TALF LLC. These commitments were no longer deemed necessary because the cash equivalents and short-term investments held by the TALF LLC exceeded the amount of TALF loans then outstanding. In addition, the agreement related to distribution of proceeds was amended to limit funding of the cash collateral account to an amount equal to the outstanding principal plus accrued interest of all TALF loans as of the payment determination date; all accumulated funding in excess of that amount would then be distributed according to the distribution priorities described in the agreements governing TALF LLC. Pursuant to this agreement, on February 6, 2013, TALF LLC repaid in full the outstanding principal and accrued interest on the Treasury loan. During the nine months ended September 30, 2014, and during the year ended December 31, 2013, additional distributions were made to the Treasury and FRBNY as contingent interest in the amounts of $59 million and $7 million and $573 million and $64 million, respectively.
The following table presents the activity related to the senior and subordinated interests from inception to September 30, 2014, and December 31, 2013:
| September 30, 2014 | December 31, 2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| ML | ML II | ML III | TALF LLC | ML | ML II | ML III | TALF LLC | |
| Net assets available to pay senior and subordinated interests | $1,680 | $-- | $-- | $43 | $1,575 | $63 | $22 | $109 |
| Total loans and subordinated interests outstanding | -- | -- | -- | -- | -- | -- | -- | -- |
| Excess of net assets available over loans and subordinated interest outstanding: | ||||||||
| Allocated to FRBNY | 1,680 | -- | -- | 4 | 1,575 | 53 | 15 | 11 |
| Allocated to other beneficial interests | -- | -- | -- | 39 | -- | 10 | 7 | 98 |
| Total | $1,680 | $-- | $-- | $43 | $1,575 | $63 | $22 | $109 |
(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, 2014, and December 31, 2013, 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 agent and depositary 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
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. Interest income on loans includes interest earned on TALF loans. Supplemental information on interest income on loans is as follows:
| Nine months ended September 30, 2014 |
Nine months ended September 30, 2013 |
|
|---|---|---|
| Interest income: | ||
| Primary, secondary, and seasonal credit | * | * |
| TALF | 2 | 5 |
| Total interest income | $2 | $5 |
| Average daily loan balance: | ||
| Primary, secondary, and seasonal credit | $108 | $72 |
| TALF | 68 | 320 |
| Average interest rate: | ||
| Primary, secondary, and seasonal credit | 0.21% | 0.26% |
| TALF | 2.30% | 2.08% |
* Less than $500 thousand. 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, 2014 |
Nine months ended September 30, 2013 |
|
|---|---|---|
| TALF loans: | ||
| Interest income | $2 | $5 |
| Gains (losses) | -- | (3) |
| Subtotal--TALF loans | $2 | $2 |
| TALF LLC | -- | -- |
| Total--TALF | $2 | $2 |
(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, 2014 |
Nine months ended September 30, 2013 |
|
|---|---|---|
| Interest income: | ||
| U.S. Treasury securities | $47,558 | $37,739 |
| GSE debt securities | 1,221 | 1,681 |
| Federal agency and GSE MBS | 38,203 | 25,412 |
| Foreign currency denominated investments | 62 | 73 |
| Central bank liquidity swaps | 1 | 21 |
| Total interest income | $87,045 | $64,926 |
| Average daily balance: | ||
| U.S. Treasury securities 1 | $2,494,299 | $2,023,850 |
| GSE debt securities1 | 47,961 | 72,957 |
| Federal agency and GSE MBS 2 | 1,674,670 | 1,177,395 |
| Foreign currency denominated investments 3 | 23,808 | 23,902 |
| Central bank liquidity swaps 4 | 237 | 4,401 |
| Average interest rate: | ||
| U.S. Treasury securities | 2.54% | 2.49% |
| GSE debt securities | 3.39% | 3.07% |
| Federal agency and GSE MBS | 3.04% | 2.88% |
| Foreign currency denominated investments | 0.35% | 0.41% |
| Central bank liquidity swaps | 0.56% | 0.64% |
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 securities, net of premiums and discounts. Return to table
3. Foreign currency denominated investments 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
Supplemental information on interest expense on securities sold under agreement to repurchase (reverse repurchase agreements) is as follows:
| Nine months ended September 30, 2014 |
Nine months ended September 30, 2013 |
|
|---|---|---|
| Interest expense: | ||
| Tri-party 1 | $44 | * |
| Foreign official and international accounts 2 | 25 | 44 |
| Total interest expense | $69 | $44 |
| Average daily balance: | ||
| Tri-party1 | $122,405 | $676 |
| Foreign official and international accounts2 | 103,976 | 92,380 |
| Average interest rate: | ||
| Tri-party | 0.05% | 0.03% |
| Foreign official and international accounts | 0.03% | 0.06% |
* Less than $500 thousand. Return to table
1. Reverse repurchase transactions arranged as open market operations are settled through tri-party arrangements. Return to table
2. Reverse repurchase transactions are executed with foreign official and international account holders as part of a service offering. Return to table
(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: Other" in the combined statement of income, were $3 million and $6 million for the nine months ended September 30, 2014, and September 30, 2013, 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, 2014, and September 30, 2013:
| ML | ML II | ML III | TALF LLC 1 | Total | |
|---|---|---|---|---|---|
| Nine months ended September 30, 2014: | |||||
| Interest income: | |||||
| Portfolio interest income | $74 | $-- | $-- | $-- | $74 |
| Less: interest expense | --- | -- | -- | -- | -- |
| Net interest income | 74 | -- | -- | -- | 74 |
| Non-interest income: | |||||
| Portfolio holdings gains | 34 | -- | -- | -- | 34 |
| Less: realized and unrealized gains on beneficial interest in consolidated VIEs | -- | -- | -- | -- | -- |
| Net non-interest (loss) income | 34 | -- | -- | -- | 34 |
| Total net interest income and non-interest income | 108 | -- | -- | -- | 108 |
| Less: professional fees | 3 | -- | -- | -- | 3 |
| Net income (loss) attributable to consolidated VIEs | $105 | $-- | $-- | $-- | $105 |
| Nine months ended September 30, 2013: | |||||
| Interest income: | |||||
| Portfolio interest income | $(3) 2 | $4 | $-- | $-- | $1 |
| Less: interest expense | -- | -- | -- | -- | -- |
| Net interest income | (3) | 4 | -- | -- | 1 |
| Non-interest income: | |||||
| Portfolio holdings (losses) gains | 122 | -- | -- | -- | 122 |
| Less: realized and unrealized (gains) losses on beneficial interest in consolidated VIEs | -- | -- | -- | -- | -- |
| Net non-interest (loss) income | 122 | -- | -- | -- | 122 |
| Total net interest income and non-interest income | 119 | 4 | -- | -- | 123 |
| Less: professional fees | 5 | 1 | -- | -- | 6 |
| Net income (loss) attributable to consolidated VIEs | $114 | $3 | $-- | $-- | $117 |
1. Additional information regarding TALF-related income recorded by FRBNY is presented in Table 14. Return to table
2. Reflects a reduction of $5.1 million due to the recalculation by the trustee of payments originally received and recorded in previous periods. 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 FOMC-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.
