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Board of Governors of the Federal Reserve System
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Federal Reserve Banks Combined Quarterly Financial Report
Unaudited
March 31, 2015

Abbreviations

ABS
Asset-backed securities
AIG
American International Group, Inc.
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

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Combined Quarterly Financial Statements

Combined statements of condition
(in millions)
  March 31, 2015 December 31, 2014
Assets
Gold certificates $ 11,037 $ 11,037
Special drawing rights certificates 5,200 5,200
Coin 1,833 1,873
Loans:
Depository institutions 49 145
System Open Market Account:
Treasury securities, net (of which $13,757 and $11,144 is lent as of March 31, 2015, and December 31, 2014, respectively) 2,590,553 2,596,241
Government-sponsored enterprise debt securities, net (of which $405 and $633 is lent as of March 31, 2015, and December 31, 2014, respectively) 38,058 39,990
Federal agency and government-sponsored enterprise mortgage-backed securities, net 1,784,415 1,789,083
Foreign currency denominated investments, net 19,431 20,900
Central bank liquidity swaps 810 1,528
Accrued interest receivable 24,567 25,644
Other assets 10 29
Investments held by consolidated variable interest entities (of which $1,803 and $1,808 is measured at fair value as of March 31, 2015, and December 31, 2014, respectively) 1,809 1,811
Bank premises and equipment, net 2,607 2,630
Items in process of collection 139 86
Deferred asset - remittances to the Treasury -- 667
Other assets 1,004 910
Total assets $ 4,481,522 $ 4,497,774
Liabilities and capital
Federal Reserve notes outstanding, net $ 1,314,423 $ 1,298,725
System Open Market Account:
Securities sold under agreements to repurchase 536,859 509,837
Other liabilities 955 830
Liabilities of consolidated variable interest entities (of which $33 and $41 is measured at fair value as of March 31, 2015 and December 31, 2014, respectively) 120 127
Deposits:
Depository institutions 2,437,282 2,377,996
Treasury, general account 100,084 223,452
Other deposits 26,291 25,560
Interest payable to depository institutions 241 124
Accrued benefit costs 3,024 3,089
Deferred credit items 887 641
Accrued remittances to the Treasury 3,014 --
Other liabilities 698 249
Total liabilities 4,423,878 4,440,630
Capital paid-in 28,822 28,572
Surplus (including accumulated other comprehensive loss of $4,127 and $4,168 at March 31, 2015 and December 31, 2014, respectively) 28,822 28,572
Total capital 57,644 57,144
Total liabilities and capital $ 4,481,522 $ 4,497,774
Combined statements of income and comprehensive income
(in millions)
  Three months ended
  March 31, 2015 March 31, 2014
Interest income
Loans:
Term Asset-Backed Securities Loan Facility $ -- $ 1
System Open Market Account:
Treasury securities, net 13,845 14,635
Government-sponsored enterprise debt securities, net 348 447
Federal agency and government-sponsored enterprise mortgage-backed securities, net 12,503 12,425
Foreign currency denominated investments, net 11 22
Central bank liquidity swaps -- 1
Investments held by consolidated variable interest entities (6) 1
Total interest income 26,701 27,532
Interest expense
System Open Market Account:
Securities sold under agreements to repurchase 45 13
Deposits:
Depository institutions 1,637 1,604
Term Deposit Facility 66 5
Total interest expense 1,748 1,622
Net interest income 24,953 25,910
Non-interest income
System Open Market Account:
Federal agency and government-sponsored enterprise mortgage-backed securities gains, net 23 21
Foreign currency translation (losses) gains, net (1,491) 193
Other 4 3
Consolidated variable interest entities gains, net 11 74
Income from services 107 109
Reimbursable services to government agencies 149 133
Other 15 12
Total non-interest (loss) income (1,182) 545
Operating expenses
Salaries and benefits 782 780
Occupancy 78 76
Equipment 42 39
Other 134 135
Assessments:
Board of Governors operating expenses and currency costs 281 272
Bureau of Consumer Financial Protection 92 126
Total operating expenses 1,409 1,428
Net income before providing for remittances to the Treasury 22,362 25,027
Earnings remittances to the Treasury 21,723 24,130
Net income 639 897
Change in prior service costs related to benefit plans 19 22
Change in actuarial gains related to benefit plans 22 42
Total other comprehensive income 41 64
Comprehensive income $ 680 $ 961

Combined statements of changes in capital
(in millions, except share data)
  Capital paid-in Surplus Total capital
Net income retained Accumulated other comprehensive
loss
Total surplus
Balance at January 1, 2014 (550,136,963 shares) $ 27,507 $ 30,063 $ (2,556) $ 27,507 $ 55,014
Net change in capital stock issued (21,299,030 shares) 1,065 -- -- -- 1,065
Comprehensive income:
Net income -- 4,363 -- 4,363 4,363
Other comprehensive loss -- -- (1,612) (1,612) (1,612)
Dividends on capital stock -- (1,686) -- (1,686) (1,686)
Net change in capital 1,065 2,677 (1,612) 1,065 2,130
Balance at December 31, 2014 (571,435,966 shares) $ 28,572 $ 32,740 $ (4,168) $ 28,572 $ 57,144
Net change in capital stock issued (5,004,953 shares) 250 -- -- -- 250
Comprehensive income:
Net income -- 639 -- 639 639
Other comprehensive income -- -- 41 41 41
Dividends on capital stock -- (430) -- (430) (430)
Net change in capital 250 209 41 250 500
Balance at March 31, 2015 (576,440,919 shares) $ 28,822 $ 32,949 $ (4,127) $ 28,822 $ 57,644

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Supplemental Financial Information

(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 March 31, 2015, and December 31, 2014, was as follows:

Table 1. Loans to depository institutions
(in millions)
  Within 15 days 16 to 90 days Total
March 31, 2015:
Primary, secondary, and seasonal credit $ 45 $4 $ 49
December 31, 2014:
Primary, secondary, and seasonal credit $ 140 $ 5 $ 145

As of March 31, 2015, and December 31, 2014, 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 March 31, 2015, and year ended December 31, 2014.

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Term Asset-Backed Securities Loan Facility (TALF) Loans

On October 29, 2014, the final outstanding TALF loan was repaid in full. Over the life of the program, all TALF loans were repaid in full at or before their respective maturity dates, and as such, the FRBNY did not incur a loss on any TALF loan.

On October 31, 2014, TALF LLC was dissolved and the FRBNY began the process of winding up in accordance with and as required by Delaware law and the agreements governing TALF LLC. As part of that process, during the year ended December 31, 2014, after paying expenses, TALF LLC distributed its remaining assets to the Treasury and to the FRBNY in accordance with the agreement. Distributions were made in the form of contingent interest to the Treasury totaling $98 million and to the FRBNY totaling $11 million during the year ended December 31, 2014. On November 26, 2014, a certificate of cancellation was filed in the office of the Delaware Secretary of State, thereby terminating the legal existence of TALF LLC.

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(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 March 31, 2015, and December 31, 2014, were as follows:

Table 2. Domestic SOMA portfolio holdings
(in millions)
  March 31, 2015 December 31, 2014
Amortized
cost
Fair value Cumulative unrealized gains (losses) Amortized
cost
Fair value Cumulative unrealized gains (losses)
Treasury Securities
Notes $ 1,653,062 $ 1,698,854 $ 45,792 $ 1,654,901 $ 1,683,377 $ 28,476
Bonds 937,491 1,074,277 136,786 941,340 1,052,916 111,576
Total Treasury securities $ 2,590,553 $ 2,773,131 $ 182,578 $ 2,596,241 $ 2,736,293 $ 140,052
GSE debt securities 38,058 40,487 2,429 39,990 42,499 2,509
Federal agency and GSE MBS 1,784,415 1,824,680 40,265 1,789,083 1,820,544 31,461
Total domestic SOMA portfolio securities holdings $ 4,413,026 $ 4,638,298 $ 225,272 $ 4,425,314 $ 4,599,336 $ 174,022
Memorandum - Commitments for:
Purchases of Treasury securities $ -- $ -- $ -- $ -- $ -- $ --
Purchases of Federal agency and GSE MBS 33,730 33,907 177 28,692 28,803 111
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 March 31, 2015, and December 31, 2014:

Table 3. Detail of federal agency and GSE MBS holdings
(in millions)
  March 31, 2015 December 31, 2014
Distribution of MBS holdings by coupon rate Amortized cost Fair value Amortized cost Fair value
2.0% $ 12,429 $ 12,320 $ 12,788 $ 12,618
2.5% 115,380 115,286 114,609 113,468
3.0% 524,556 522,724 513,289 506,280
3.5% 501,129 512,164 481,305 489,390
4.0% 407,054 419,707 428,047 441,204
4.5% 145,855 157,833 155,867 167,844
5.0% 61,613 66,839 65,544 70,719
5.5% 14,170 15,372 15,232 16,414
6.0% 1,957 2,133 2,110 2,287
6.5% 272 302 292 320
Total $ 1,784,415 $ 1,824,680 $ 1,789,083 $ 1,820,544

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 March 31, 2015, and December 31, 2014, was as follows:

Table 4. Maturity distribution of domestic SOMA portfolio securities and securities sold under agreements to repurchase
(in millions)
  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
March 31, 2015:
Treasury securities (par value) $ 1 $ 1,898 $ 63,822 $ 1,112,866 $ 637,914 $ 643,061 $ 2,459,562
GSE debt securities (par value) 982 -- 6,638 26,910 -- 2,347 36,877
Federal agency and GSE MBS (par value) 1 -- -- -- 15 8,364 1,723,548 1,731,927
Securities sold under agreements to repurchase (contract amount) 536,859 -- -- -- -- -- 536,859
December 31, 2014:
Treasury securities (par value) $ -- $ 4 $ 3,516 $ 1,112,927 $ 686,627 $ 658,289 $ 2,461,363
GSE debt securities (par value) 1,089 711 3,933 30,597 -- 2,347 38,677
Federal agency and GSE MBS (par value)1 -- -- -- 13 6,453 1,730,367 1,736,833
Securities sold under agreements to repurchase (contract amount) 509,837 -- -- -- -- -- 509,837

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 March 31, 2015, and December 31, 2014, which differs from the stated maturity primarily because it factors in scheduled payments and prepayment assumptions, was approximately 5.0 years and 5.7 years, respectively.

Information about transactions related to Treasury securities, GSE debt securities, and federal agency and GSE MBS during the three months ended March 31, 2015, and during the year ended December 31, 2014, is summarized as follows:

Table 5. Domestic portfolio transactions of SOMA securities
(in millions)
  Notes Bonds Total Treasury securities GSE debt securities Federal agency and GSE MBS
Balance December 31, 2013 $ 1,495,115 $ 864,319 $ 2,359,434 $ 59,122 $ 1,533,860
Purchases 1 165,306 85,826 251,132 -- 466,384
Sales1 -- -- -- -- (29)
Realized gains, net 2 -- -- -- -- --
Principal payments and maturities (475) -- (475) (18,544) (203,933)
Amortization of premiums and accretion of discounts, net (5,545) (10,132) (15,677) (588) (7,199)
Inflation adjustment on inflation-indexed securities 500 1,327 1,827 -- --
Balance December 31, 2014 $ 1,654,901 $ 941,340 $ 2,596,241 $ 39,990 $ 1,789,083
Purchases1 2 1 3   78,525
Sales1 -- -- -- -- (464)
Realized gains, net2 -- -- -- -- 17
Principal payments and maturities (4) (1) (5) (1,800) (79,919)
Amortization of premiums and accretion of discounts, net (1,357) (2,530) (3,887) (132) (2,827)
Inflation adjustment on inflation-indexed securities (480) (1,319) (1,799) -- --
Balance March 31, 2015 $ 1,653,062 $ 937,491 $ 2,590,553 $ 38,058 $ 1,784,415
Year ended December 31, 2014
Supplemental information - par value of transactions:
Purchases 3 $ 167,497 $ 83,739 $ 251,236 $ -- $ 450,633
Sales -- -- -- -- (29)
Three months ended March 31, 2015
Supplemental information - par value of transactions
Purchases3 $ 2 $ 1 $ 3 $ -- $ 75,448
Sales -- -- -- -- (435)

1. Purchases and sales 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 includes the 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 March 31, 2015, and December 31, 2014, was as follows:

Table 6. Foreign currency denominated investments
(in millions)
  March 31, 2015 December 31, 2014
Euro:
Foreign currency deposits $6,158 $ 6,936
Securities purchased under agreements to resell -- --
German government debt instruments 2,234 2,494
French government debt instruments 3,262 3,687
Japanese yen:
Foreign currency deposits 2,572 2,576
Japanese government debt instruments 5,205 5,207
Total $ 19,431 $ 20,900

The remaining maturity distribution of foreign currency denominated investments, by currency, as of March 31, 2015, and December 31, 2014, was as follows:

Table 7. Maturity distribution of foreign currency denominated investments
(in millions)
  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 Total
March 31, 2015:
Euro $ 1,687 $ 4,076 $ 1,418 $ 4,377 $ 96 $ 11,654
Japanese yen 2,746 338 1,543 3,150 -- 7,777
Total $ 4,433 $ 4,414 $ 2,961 $ 7,527 $ 96 $ 19,431
December 31, 2014:
Euro $ 3,635 $ 2,809 $ 1,644 $ 5,029 $ -- $ 13,117
Japanese yen 2,755 392 1,540 3,096 -- 7,783
Total $ 6,390 $ 3,201 $ 3,184 $ 8,125 $ -- $ 20,900

As of March 31, 2015, and December 31, 2014, the fair value of foreign currency denominated investments was $19,514 million and $20,996 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 U.S. dollar liquidity and reciprocal foreign currency swap lines with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. The FRBNY holds amounts outstanding under these swap lines in the SOMA. These swap lines, which were originally established as temporary arrangements, were converted to standing arrangements on October 31, 2013, and will remain in place until further notice.

The remaining maturity distribution of U.S. dollar liquidity swaps as of March 31, 2015, and December 31, 2014, was as follows:

Table 8. Maturity distribution of liquidity swaps
(in millions)
  March 31, 2015
Within 15 days
December 31, 2014
Within 15 days
Euro $ -- $ --
Japanese yen 810 1,528
Total $ 810 $ 1,528

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 March 31, 2015, and March 31, 2014:

Table 9. Realized gains and change in unrealized gain position
(in millions)
  Three months ended
March 31, 2015
Three months ended
March 31, 2014
Realized gains 1 Change in cumulative unrealized gains (losses) 2 Realized gains1 Change in cumulative unrealized gains (losses)2
Treasury securities $ -- $ 42,526 $ -- $ 48,999
GSE debt securities -- (80) -- (114)
Federal agency and GSE MBS 23 8,804 21 17,950
Total $ 23 $ 51,250 $ 21 $ 66,835

1. Realized gains are reported in "Non-interest (loss) income: System Open Market Account: Federal agency and government-sponsored enterprise mortgage-backed securities gains, net" 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

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(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.

The classification of significant assets and liabilities of the consolidated VIEs as of March 31, 2015, and December 31, 2014, was as follows:

Table 10. Assets and liabilities of consolidated VIEs
(in millions)
  March 31, 2015
ML
December 31, 2014
ML
Assets
Short-term investments $ 1,100 $ 1,399
Swap contracts 119 124
Other investments 11 11
Subtotal $ 1,230 $ 1,534
Cash, cash equivalents, accrued interest receivable, and other receivables 579 277
Total investments held by consolidated VIEs $ 1,809 $ 1,811
 
Liabilities
Swap contracts 33 41
Cash collateral on swap contracts 86 85
Other liabilities 1 1
Total liabilities held by consolidated VIEs $ 120 $ 127

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 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 November 12, 2014, a certificate of cancellation was filed in the office of the Delaware Secretary of State, thereby terminating the legal existence of ML II.

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. On November 12, 2014, a certificate of cancellation was filed in the office of the Delaware Secretary of State, thereby terminating the legal existence of ML III.

On October 31, 2014, TALF LLC was dissolved and the FRBNY began the process of winding up in accordance with and as required by Delaware law and the agreements governing TALF LLC. As part of that process, during the year ended December 31, 2014, after paying expenses, TALF LLC distributed its remaining assets to the Treasury and to the FRBNY in accordance with the agreement. On November 26, 2014, a certificate of cancellation was filed in the office of the Delaware Secretary of State, thereby terminating the legal existence of TALF LLC.

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(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 March 31, 2015, and December 31, 2014, all Federal Reserve notes were fully collateralized.

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(5) Depository Institution Deposits

Depository institution deposits are primarily comprised of required reserve balances and excess reserve balances. Required reserve balances are those that a depository institution must hold to satisfy its reserve requirement. Excess reserves are those held by the depository institutions in excess of their required reserve balances.

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(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.

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(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. This cumulative dividend is paid semiannually. A member bank is liable for Reserve Bank liabilities up to twice the par value of stock subscribed by it.

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.

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(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:

Table 11. Interest income on loans
(in millions)
  Three months ended
March 31, 2015
Three months ended
March 31, 2014
Interest income:
Primary, secondary, and seasonal credit * *
TALF -- 1
Total interest income $ -- $ 1
Average daily loan balance:
Primary, secondary, and seasonal credit $ 32 $ 17
TALF -- 94
Average interest rate:
Primary, secondary, and seasonal credit 0.60% 0.38%
TALF -- 2.63%

* Less than $500 thousand.

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(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:

Table 12. Interest income on SOMA portfolio
(in millions)
  Three months ended
March 31, 2015
Three months ended
March 31, 2014
Interest income:
U.S. Treasury securities $ 13,845 $ 14,635
GSE debt securities 348 447
Federal agency and GSE MBS 12,503 12,425
Foreign currency denominated investments 11 22
Central bank liquidity swaps * 1
Total interest income $ 26,707 $ 27,530
Average daily balance:
U.S. Treasury securities 1 $ 2,593,447 $ 2,410,233
GSE debt securities1 38,605 53,961
Federal agency and GSE MBS 2 1,795,004 1,598,968
Foreign currency denominated investments 3 20,126 23,963
Central bank liquidity swaps 4 175 361
Average interest rate:
U.S. Treasury securities 2.14% 2.43%
GSE debt securities 3.60% 3.31%
Federal agency and GSE MBS 2.79% 3.11%
Foreign currency denominated investments 0.22% 0.37%
Central bank liquidity swaps 0.62% 1.11%

* Less than $500 thousand.

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:

Table 13. Interest expense on securities sold under agreement to repurchase
(in millions)
  Three months ended
March 31, 2015
Three months ended
March 31, 2014
Interest expense:
Overnight and term reverse repurchase agreements 1 $ 22 $ 8
Foreign official and international accounts 2 23 5
Total interest expense $ 45 $ 13
Average daily balance:
Overnight and term reverse repurchase agreements1 $ 152,565 $ 86,444
Foreign official and international accounts2 125,202 102,175
Average interest rate:
Overnight and term reverse repurchase agreements 0.06% 0.04%
Foreign official and international accounts 0.07% 0.02%

1. Reverse repurchase transactions arranged as open market operations are settled through overnight and term reverse repurchase agreements. 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

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(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 statements of income and comprehensive income, were $1 million for the three months ended March 31, 2015, and March 31, 2014, 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 March 31, 2015, and March 31, 2014:

Table 14. FRBNY net income from consolidated VIEs
(in millions)
  ML ML II ML III TALF LLC Total
Three months ended March 31, 2015:
Interest income:
Portfolio interest income 1 $ (6) $ -- $ -- $ -- $ (6)
Less: interest expense -- -- -- -- --
Net interest income (6) -- -- -- (6)
Non-interest income:
Portfolio holdings gains 11 -- -- -- 11
Less: realized and unrealized gains on beneficial interest in consolidated VIEs -- -- -- -- --
Net non-interest income 11 -- -- -- 11
Total net interest income and non-interest income 5 -- -- -- 5
Less: professional fees 2 1 -- -- -- 1
Net income attributable to consolidated VIEs $ 4 $ -- $ -- $ -- $ 4
Three months ended March 31, 2014:
Interest income:
Portfolio interest income $ 1 $ -- $ -- $ -- $ 1
Less: interest expense -- -- -- -- --
Net interest income 1 -- -- -- 1
Non-interest income:
Portfolio holdings gains 74 -- -- -- 74
Less: realized and unrealized losses on beneficial interest in consolidated VIEs -- -- -- -- --
Net non-interest income 74 -- -- -- 74
Total net interest income and non-interest income 75 -- -- -- 75
Less: professional fees2 1 -- -- -- 1
Net income attributable to consolidated VIEs $ 74 $ -- $ -- $ -- 74

1. Interest income includes gains and losses from paydowns and losses resulting from the write off of securities. Return to table

2. Professional fees are reported as a component of "Operating Expenses: Other" in the "Combined Statements of Income and Comprehensive Income."  Return to table

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(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.

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(E) Operating Expenses

The Federal Reserve Banks have established procedures for budgetary control and monitoring of operating expenses as part of their efforts to ensure appropriate stewardship and accountability. Reserve Bank and Board governance bodies provide budget guidance for major functional areas for the upcoming budget year. The Board's Committee on Federal Reserve Bank Affairs (BAC) reviews the Banks' budgets and the BAC chair submits the budgets to Board members for review and final action. Throughout the year, Reserve Bank and Board staffs monitor actual performance and compare it with approved budgets and forecasts.

Additional information regarding Reserve Bank operating expenses is available each year in the Annual Report of the Board of Governors of Federal Reserve System at www.federalreserve.gov/publications/annual-report/default.htm, and on the Audit webpage of the Board's public website at www.federalreserve.gov/newsevents/reform_audit.htm.

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Last update: June 8, 2015