Federal Reserve Banks Combined Quarterly Financial Report
Unaudited
September 30, 2015
PrintAbbreviations
- ABS
- Asset-backed securities
- AIG
- American International Group, Inc.
- BAC
- Committee on Federal Reserve Bank Affairs
- 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, 2015 | December 31, 2014 | |
|---|---|---|
| Assets | ||
| Gold certificates | $ 11,037 | $11,037 |
| Special drawing rights certificates | 5,200 | 5,200 |
| Coin | 1,909 | 1,873 |
| Loans: | ||
| Depository institutions | 252 | 145 |
| System Open Market Account: | ||
| Treasury securities, net (of which $16,438 and $11,144 is lent as of September 30, 2015, and December 31, 2014, respectively) | 2,585,033 | 2,596,241 |
| Government-sponsored enterprise debt securities, net (of which $73 and $633 is lent as of September 30, 2015, and December 31, 2014, respectively) | 36,019 | 39,990 |
| Federal agency and government-sponsored enterprise mortgage-backed securities, net | 1,793,882 | 1,789,083 |
| Foreign currency denominated investments, net | 19,919 | 20,900 |
| Central bank liquidity swaps | 681 | 1,528 |
| Accrued interest receivable | 24,584 | 25,644 |
| Other assets | 32 | 29 |
| Investments held by consolidated variable interest entities (of which $1,814 and $1,808 is measured at fair value as of September 30, 2015, and December 31, 2014, respectively) | 1,814 | 1,811 |
| Bank premises and equipment, net | 2,598 | 2,630 |
| Items in process of collection | 396 | 86 |
| Deferred asset--remittances to the Treasury | -- | 667 |
| Other assets | 849 | 910 |
| Total assets | $4,484,205 | $4,497,774 |
| Liabilities and capital | ||
| Federal Reserve notes outstanding, net | $ 1,342,390 | $1,298,725 |
| System Open Market Account: | ||
| Securities sold under agreements to repurchase | 641,081 | 509,837 |
| Other liabilities | 867 | 830 |
| Liabilities of consolidated variable interest entities (of which $22 and $41 is measured at fair value as of September 30, 2015, and December 31, 2014, respectively) | 100 | 127 |
| Deposits: | ||
| Depository institutions | 2,197,657 | 2,377,996 |
| Treasury, general account | 198,716 | 223,452 |
| Other deposits | 38,499 | 25,560 |
| Interest payable to depository institutions | 250 | 124 |
| Accrued benefit costs | 2,961 | 3,089 |
| Deferred credit items | 483 | 641 |
| Accrued remittances to the Treasury | 1,857 | -- |
| Other liabilities | 782 | 249 |
| Total liabilities | 4,425,643 | 4,440,630 |
| Capital paid-in | 29,281 | 28,572 |
| Surplus (including accumulated other comprehensive loss of $3,938 and $4,168 at September 30, 2015, and December 31, 2014, respectively) | 29,281 | 28,572 |
| Total capital | 58,562 | 57,144 |
| Total liabilities and capital | $4,484,205 | $4,497,774 |
| Three months ended | Nine months ended | |||
|---|---|---|---|---|
| September 30 2015 |
September 30 2014 |
September 30 2015 |
September 30 2014 |
|
| Interest income | ||||
| Loans: | ||||
| Term Asset-Backed Securities Loan Facility | $ -- | $ 1 | $ -- | $ 2 |
| System Open Market Account: | ||||
| Treasury securities, net | 16,837 | 16,213 | 47,899 | 47,558 |
| Government-sponsored enterprise debt securities, net | 329 | 376 | 1,013 | 1,221 |
| Federal agency and government-sponsored enterprise mortgage-backed securities, net | 12,244 | 12,829 | 36,282 | 38,203 |
| Foreign currency denominated investments, net | 7 | 18 | 26 | 62 |
| Central bank liquidity swaps | -- | -- | 1 | 1 |
| Investments held by consolidated variable interest entities | 3 | 69 | 9 | 74 |
| Total interest income | 29,420 | 29,506 | 85,230 | 87,121 |
| Interest expense | ||||
| System Open Market Account: | ||||
| Securities sold under agreements to repurchase | 58 | 28 | 154 | 69 |
| Other | -- | -- | 1 | -- |
| Deposits: | ||||
| Depository institutions | 1,674 | 1,757 | 4,959 | 5,038 |
| Term Deposit Facility | 10 | 18 | 87 | 42 |
| Total interest expense | 1,742 | 1,803 | 5,201 | 5,149 |
| Net interest income | 27,678 | 27,703 | 80,029 | 81,972 |
| Non-interest income | ||||
| System Open Market Account: | ||||
| Federal agency and government-sponsored enterprise mortgage-backed securities gains, net | -- | 2 | 46 | 73 |
| Foreign currency translation (losses) gains, net | 155 | (1,860) | (1,021) | (1,610) |
| Other | 4 | -- | 12 | 10 |
| Consolidated variable interest entities gains, net | 11 | (50) | 23 | 34 |
| Income from services | 107 | 108 | 322 | 326 |
| Reimbursable services to government agencies | 161 | 134 | 472 | 416 |
| Other | 17 | 18 | 46 | 47 |
| Total non-interest (loss) income | 455 | (1,648) | (100) | (704) |
| Operating expenses | ||||
| Salaries and benefits | 890 | 751 | 2,517 | 2,273 |
| Occupancy | 82 | 76 | 238 | 229 |
| Equipment | 44 | 43 | 131 | 123 |
| Other | 140 | 173 | 419 | 445 |
| Assessments: | ||||
| Board of Governors operating expenses and currency costs | 368 | 323 | 993 | 921 |
| Bureau of Consumer Financial Protection | 85 | 111 | 275 | 353 |
| Total operating expenses | 1,609 | 1,477 | 4,573 | 4,344 |
| Net income before providing for remittances to the Treasury | 26,524 | 24,578 | 75,356 | 76,924 |
| Earnings remittances to the Treasury | 26,041 | 24,173 | 73,575 | 75,130 |
| Net income | 483 | 405 | 1,781 | 1,794 |
| Change in prior service costs related to benefit plans | 22 | 22 | 62 | 66 |
| Change in actuarial gains related to benefit plans | 80 | 24 | 168 | 84 |
| Total other comprehensive income | 102 | 46 | 230 | 150 |
| Comprehensive income | $ 585 | $ 451 | $ 2,011 | $ 1,944 |
| 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 (14,177,229 shares) | 709 | -- | -- | -- | 709 |
| Comprehensive income: | |||||
| Net income | -- | 1,781 | -- | 1,781 | 1,781 |
| Other comprehensive income | -- | -- | 230 | 230 | 230 |
| Dividends on capital stock | -- | (1,302) | -- | (1302) | (1302) |
| Net change in capital | 709 | 479 | 230 | 709 | 1,418 |
| Balance at September 30, 2015 (585,613,195 shares) | $ 29,281 | $ 33,219 | $ (3,938) | $ 29,281 | $ 58,562 |
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, 2015, and December 31, 2014, was as follows:
| Within 15 days | 16 to 90 days | Total | ||
|---|---|---|---|---|
| September 30, 2015: | ||||
| Primary, secondary, and seasonal credit | $ 191 | $61 | $ 252 | |
| December 31, 2014: | ||||
| Primary, secondary, and seasonal credit | $ 140 | $ 5 | $ 145 | |
As of September 30, 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 September 30, 2015, and year ended December 31, 2014.
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.
(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, 2015, and December 31, 2014, were as follows:
| September 30, 2015 | December 31, 2014 | |||||
|---|---|---|---|---|---|---|
| Amortized cost |
Fair value | Cumulative unrealized gains (losses) | Amortized cost |
Fair value | Cumulative unrealized gains (losses) | |
| Treasury Securities | ||||||
| Notes | $ 1,650,470 | $ 1,692,061 | $ 41,591 | $ 1,654,901 | $ 1,683,377 | $ 28,476 |
| Bonds | 934,563 | 1,028,392 | 93,829 | 941,340 | 1,052,916 | 111,576 |
| Total Treasury securities | $2,585,033 | $2,720,453 | $135,420 | $2,596,241 | $2,736,293 | $140,052 |
| GSE debt securities | 36,019 | 37,851 | 1,832 | 39,990 | 42,499 | 2,509 |
| Federal agency and GSE MBS | 1,793,882 | 1,821,863 | 27,981 | 1,789,083 | 1,820,544 | 31,461 |
| Total domestic SOMA portfolio securities holdings | $4,414,934 | $4,580,167 | $165,233 | $4,425,314 | $4,599,336 | $174,022 |
| Memorandum--Commitments for: | ||||||
| Purchases of Treasury securities | $ -- | $ -- | $ -- | $ -- | $ -- | $ -- |
| Purchases of federal agency and GSE MBS | 28,070 | 28,213 | 143 | 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 September 30, 2015, and December 31, 2014:
| Distribution of MBS holdings by coupon rate | September 30, 2015 | December 31, 2014 | ||
|---|---|---|---|---|
| Amortized cost | Fair value | Amortized cost | Fair value | |
| 2.0% | $ 11,588 | $ 11,513 | $ 12,788 | $ 12,618 |
| 2.5% | 117,546 | 117,490 | 114,609 | 113,468 |
| 3.0% | 552,613 | 547,652 | 513,289 | 506,280 |
| 3.5% | 554,186 | 562,373 | 481,305 | 489,390 |
| 4.0% | 368,252 | 378,689 | 428,047 | 441,204 |
| 4.5% | 123,450 | 132,883 | 155,867 | 167,844 |
| 5.0% | 52,371 | 56,309 | 65,544 | 70,719 |
| 5.5% | 11,980 | 12,898 | 15,232 | 16,414 |
| 6.0% | 1,663 | 1,799 | 2,110 | 2,287 |
| 6.5% | 233 | 257 | 292 | 320 |
| Total | $ 1,793,882 | $ 1,821,863 | $ 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 September 30, 2015, and December 31, 2014, 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, 2015: | |||||||
| Treasury securities (par value) | $ -- | $ 327 | $ 173,788 | $ 1,135,732 | $ 514,060 | $ 638,041 | $ 2,461,948 |
| GSE debt securities (par value) | 947 | 1,202 | 12,452 | 18,145 | -- | 2,347 | 35,093 |
| Federal agency and GSE MBS (par value) 1 | -- | -- | -- | 146 | 9,314 | 1,731,773 | 1,741,233 |
| Securities sold under agreements to repurchase (contract amount) | 641,081 | -- | -- | -- | -- | -- | 641,081 |
| 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 September 30, 2015, and December 31, 2014, which differs from the stated maturity primarily because it factors in scheduled payments and prepayment assumptions, was approximately 5.7 years.
Information about transactions related to Treasury securities, GSE debt securities, and federal agency and GSE MBS during the nine months ended September 30, 2015, and during the year ended December 31, 2014, is summarized as follows:
| 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 | 2,493 | 680 | 3,173 | -- | 278,662 | |
| Sales1 | -- | -- | -- | -- | (464) | |
| Realized gains, net 2 | -- | -- | -- | -- | 16 | |
| Principal payments and maturities | (2,975) | (218) | (3,193) | (3,584) | (264,198) | |
| Amortization of premiums and accretion of discounts, net | (4,107) | (7,672) | (11,779) | (387) | (9,217) | |
| Inflation adjustment on inflation-indexed securities | 158 | 433 | 591 | -- | -- | |
| Balance September 30, 2015 | $1,650,470 | $934,563 | $2,585,033 | $ 36,019 | $1,793,882 | |
| Year ended December 31, 2014 | ||||||
| Supplemental information--par value of transactions: | ||||||
| Purchases 3 | $ 167,497 | $ 83,739 | $ 251,236 | $ -- | $ 450,633 | |
| Sales | -- | -- | -- | -- | (29) | |
| Nine months ended September 30, 2015 | ||||||
| Supplemental information--par value of transactions | ||||||
| Purchases3 | $ 2,503 | $ 684 | $ 3,187 | $ -- | $ 269,034 | |
| 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 September 30, 2015, and December 31, 2014, was as follows:
| September 30, 2015 | December 31, 2014 | |
|---|---|---|
| Euro: | ||
| Foreign currency deposits | $6,395 | $ 6,936 |
| German government debt instruments | 2,328 | 2,494 |
| French government debt instruments | 3,406 | 3,687 |
| Japanese yen: | ||
| Foreign currency deposits | 2,578 | 2,576 |
| Japanese government debt instruments | 5,212 | 5,207 |
| Total | $19,919 | $ 20,900 |
The remaining maturity distribution of foreign currency denominated investments, by currency, as of September 30, 2015, and December 31, 2014, 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 | Total | |
|---|---|---|---|---|---|---|
| September 30, 2015: | ||||||
| Euro | $ 2,358 | $ 4,266 | $ 1,219 | $ 3,928 | $ 358 | $ 12,129 |
| Japanese yen | 2,749 | 334 | 1,556 | 3,151 | -- | 7,790 |
| Total | $ 5,107 | $ 4,600 | $ 2,775 | $ 7,079 | $ 358 | $ 19,919 |
| 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 September 30, 2015, and December 31, 2014, the fair value of foreign currency denominated investments was $19,980 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 September 30, 2015, and December 31, 2014, was as follows:
| September 30, 2015 Within 15 days |
December 31, 2014 Within 15 days |
|
|---|---|---|
| Euro | $ 142 | $ -- |
| Japanese yen | 539 | 1,528 |
| Total | $ 681 | $ 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 September 30, 2015, and September 30, 2014:
| Nine months ended September 30, 2015 |
Nine months ended September 30, 2014 |
|||
|---|---|---|---|---|
| Realized gains 1 | Change in cumulative unrealized gains (losses) 2 | Realized gains1 | Change in cumulative unrealized gains (losses)2 | |
| Treasury securities | $ -- | $ (4,632) | $ -- | $ 90,314 |
| GSE debt securities | -- | (677) | -- | (535) |
| Federal agency and GSE MBS | 46 | (3,480) | 73 | 44,171 |
| Total | $ 46 | $ (8,789) | $ 73 | $ 133,950 |
1. Realized gains are reported in "Non-interest 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
(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 September 30, 2015, and December 31, 2014, was as follows:
| Maiden Lane LLC | ||
|---|---|---|
| September 30, 2015 | December 31, 2014 | |
| Assets | ||
| Short-term investments | $ 1,499 | $ 1,399 |
| Swap contracts | 98 | 124 |
| Other investments | 13 | 11 |
| Subtotal | $ 1,610 | $ 1,534 |
| Cash, cash equivalents, accrued interest receivable, and other receivables | 204 | 277 |
| Total investments held by consolidated VIEs | $ 1,814 | $ 1,811 |
| Liabilities | ||
| Swap contracts | 22 | 41 |
| Cash collateral on swap contracts | 77 | 85 |
| Other liabilities | 1 | 1 |
| Total liabilities held by consolidated VIEs | $ 100 | $ 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. Distributions were made in the form of contingent interest to FRBNY totaling $53 million and to AIG totaling $11 million during the year ended December 31, 2014. 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. Distributions were made in the form of contingent interest to FRBNY totaling $14 million and to AIG totaling $7 million during the year ended December 31, 2014. 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. 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.
(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, 2015, and December 31, 2014, all Federal Reserve notes were fully collateralized.
(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.
(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. 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.
(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, 2015 |
Nine months ended September 30, 2014 |
|
|---|---|---|
| Interest income: | ||
| Primary, secondary, and seasonal credit | * | * |
| TALF | -- | 2 |
| Total interest income | $ -- | $ 2 |
| Average daily loan balance: | ||
| Primary, secondary, and seasonal credit | $ 119 | $ 108 |
| TALF | -- | 68 |
| Average interest rate: | ||
| Primary, secondary, and seasonal credit | 0.26% | 0.21% |
| TALF | -- | 2.30% |
* Less than $500 thousand.
(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, 2015 |
Nine months ended September 30, 2014 |
|
|---|---|---|
| Interest income: | ||
| Treasury securities, net | $ 47,899 | $ 47,558 |
| GSE debt securities, net | 1,013 | 1,221 |
| Federal agency and GSE MBS, net | 36,282 | 38,203 |
| Foreign currency denominated investments, net | 26 | 62 |
| Central bank liquidity swaps | 1 | 1 |
| Total interest income | $ 85,221 | $ 87,045 |
| Average daily balance: | ||
| Treasury securities, net 1 | $ 2,589,864 | $ 2,494,299 |
| GSE debt securities, net1 | 37,324 | 47,961 |
| Federal agency and GSE MBS, net 2 | 1,790,877 | 1,674,670 |
| Foreign currency denominated investments, net 3 | 19,906 | 23,808 |
| Central bank liquidity swaps 4 | 187 | 237 |
| Average interest rate: | ||
| Treasury securities, net | 2.47% | 2.54% |
| GSE debt securities, net | 3.62% | 3.39% |
| Federal agency and GSE MBS, net | 2.70% | 3.04% |
| Foreign currency denominated investments, net | 0.17% | 0.35% |
| Central bank liquidity swaps | 0.64% | 0.56% |
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, 2015 |
Nine months ended September 30, 2014 |
|
|---|---|---|
| Interest expense: | ||
| Overnight and term reverse repurchase agreements 1 | $ 52 | $ 44 |
| Foreign official and international accounts 2 | 102 | 25 |
| Total interest expense | $ 154 | $ 69 |
| Average daily balance: | ||
| Overnight and term reverse repurchase agreements1 | $ 125,615 | $ 122,405 |
| Foreign official and international accounts2 | 146,285 | 103,976 |
| Average interest rate: | ||
| Overnight and term reverse repurchase agreements | 0.06% | 0.05% |
| Foreign official and international accounts | 0.09% | 0.03% |
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
(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 $2 million and $3 million for the nine months ended September 30, 2015, and September 30, 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 September 30, 2015, and September 30, 2014:
| ML | ML II | ML III | TALF LLC | Total | |
|---|---|---|---|---|---|
| Nine months ended September 30, 2015: | |||||
| Interest income: | |||||
| Portfolio interest income 1 | $ 9 | $ -- | $ -- | $ -- | $ 9 |
| Less: interest expense | -- | -- | -- | -- | -- |
| Net interest income | 9 | -- | -- | -- | 9 |
| Non-interest income: | |||||
| Portfolio holdings gains | 23 | -- | -- | -- | 23 |
| Less: realized and unrealized gains on beneficial interest in consolidated VIEs | -- | -- | -- | -- | -- |
| Net non-interest income | 23 | -- | -- | -- | 23 |
| Total net interest income and non-interest income | 32 | -- | -- | -- | 32 |
| Less: professional fees 2 | 2 | -- | -- | -- | 2 |
| Net income attributable to consolidated VIEs | $ 30 | $ -- | $ -- | $ -- | $ 30 |
| 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 losses on beneficial interest in consolidated VIEs | -- | -- | -- | -- | -- |
| Net non-interest income | 34 | -- | -- | -- | 34 |
| Total net interest income and non-interest income | 108 | -- | -- | -- | 108 |
| Less: professional fees2 | 3 | -- | -- | -- | 3 |
| Net income (loss) attributable to consolidated VIEs | $ 105 | $ -- | $ -- | $ -- | 105 |
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
(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.
(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.
