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The Federal Reserve
Bank of Dallas
Financial Statements as of and for the Years Ended
December 31, 2010 and 2009 and
Independent Auditors' Report
All table units in this document are in millions of U.S. Dollars unless otherwise noted.
THE FEDERAL RESERVE BANK OF DALLAS
Table of Contents
Management's Report On Internal Control Over Financial Reporting
Independent Auditors' Report
Abbreviations
Page
1
Pages
2-3
Page
4
Financial Statements:
Statements of Condition as of December 31, 2010 and December 31, 2009
Page
5
Statements of Income and Comprehensive Income for the years ended December 31, Page 6
2010 and December 31, 2009
Statements of Changes in Capital for the years ended December 31, 2010 and Page 7
December 31, 2009
Notes to Financial Statements
Pages
8-32
F E D E R A L R E S E R V E B A N K OF D A L L A S
2200 N. PEARL ST.
DALLAS, TX 75201-2272
March 22,2011
To the Board of Directors of the
Federal Reserve Bank of Dallas:
The management of the Federal Reserve Bank of Dallas (FRBD) is responsible for the
preparation and fair presentation of the Statements of Condition as of December 31, 2010 and 2009, and the
Statements of Income and Comprehensive Income, and Statements of Changes in Capital for the years then
ended (the Financial Statements). The Financial Statements have been prepared in conformity with the
accounting principles, policies, and practices established by the Board of Governors of the Federal Reserve
System as set forth in the Financial Accounting Manual for Federal Reserve Banks (FAM), and, as such,
include some amounts that are based on management judgments and estimates. To our knowledge, the
Financial Statements are, in all material respects, fairly presented in conformity with the accounting principles,
policies and practices documented in the FAM and include all disclosures necessary for such fair presentation.
The management of the FRBD is responsible for establishing and maintaining effective
internal control over financial reporting as it relates to the Financial Statements. Such internal control is
designed to provide reasonable assurance to management and to the Board of Directors regarding the
preparation of the Financial Statements in accordance with the FAM. Internal control contains self-monitoring
mechanisms, including, but not limited to, divisions of responsibility and a code of conduct. Once identified,
any material deficiencies in internal control are reported to management and appropriate corrective measures
are implemented.
Even effective internal control, no matter how well designed, has inherent limitations,
including the possibility of human error, and therefore can provide only reasonable assurance with respect to
the preparation of reliable financial statements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
die degree of compliance with the policies or procedures may deteriorate.
The management of the FRBD assessed its internal control over financial reporting reflected in
the Financial Statements, based upon the criteria established in the "Internal Control -- Integrated Framework"
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
we believe that the FRBD maintained effective internal control over financial reporting as it relates to the
Financial Statements.
Federal Reserve Bank of Dallas
(signed by M. Bleu)
(signed by ) Helen E. Holcomb,
First Vice President
RichardCohen,President
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Governors of the Federal Reserve System
and the Board of Directors of the Federal Reserve Bank of Dallas:
Deloitte & Touche LLP
2200 Ross Ave.
Suite 1600
Dallas, TX 75201
USA
Tel: +1 214 840 7000
Fax: +1 214 840 7050
www.deloitte.com
We have audited the accompanying Statements of Condition of the Federal Reserve Bank of
Dallas ("FRB Dallas") as of December 31, 2010 and 2009 and the related Statements of Income and
Comprehensive Income, and of Changes in Capital for the years then ended, which have been prepared in
conformity with accounting principles established by the Board of Governors of the Federal Reserve
System. We also have audited the internal control over financial reporting of the FRB Dallas as of
December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. The FRB Dallas's
management is responsible for these Financial Statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on these Financial Statements and an opinion on the FRB Dallas's
internal control over financial reporting based on our audits.
We conducted our audits in accordance with generally accepted auditing standards as established
by the Auditing Standards Board (United States) and in accordance with the auditing standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Financial Statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the Financial Statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the Financial Statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
The FRB Dallas's internal control over financial reporting is a process designed by, or under the
supervision of, the FRB Dallas's principal executive and principal financial officers, or persons performing
similar functions, and effected by the FRB Dallas's board of directors, management, and other personnel to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of
Financial Statements for external purposes in accordance with the accounting principles established by the
Board of Governors of the Federal Reserve System. The FRB Dallas's internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the FRB
Dallas; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of Financial Statements in accordance with the accounting principles established by the Board of
Governors of the Federal Reserve System, and that receipts and expenditures of the FRB Dallas are being
made only in accordance with authorizations of management and directors of the FRB Dallas; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the FRB Dallas's assets that could have a material effect on the Financial Statements.
Member of
Deloitte Touche Tohmatsu Limited
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to error
or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
As described in Note 4 to the Financial Statements, the FRB Dallas has prepared these Financial
Statements in conformity with accounting principles established by the Board of Governors of the Federal
Reserve System, as set forth in the Financial Accounting Manual for Federal Reserve Banks, which is a
comprehensive basis of accounting other than accounting principles generally accepted in the United
States of America. The effects on such Financial Statements of the differences between the accounting
principles established by the Board of Governors of the Federal Reserve System and accounting principles
generally accepted in the United States of America are also described in Note 4.
In our opinion, such Financial Statements present fairly, in all material respects, the financial
position of the FRB Dallas as of December 31, 2010 and 2009, and the results of its operations for the
years then ended, on the basis of accounting described in Note 4. Also, in our opinion, the FRB Dallas
maintained, in all material respects, effective internal control over financial reporting as of December 31,
2010, based on the criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
(signedbyDeloitte&Touche,LLP)March 22, 2011
FEDERAL RESERVE BANK OF DALLAS
Abbreviations:
ABCP
ACH
AMLF
ASC
BEP
Bureau
ESF
Dodd-Frank Act
Asset-backed commercial paper
Automated clearinghouse
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility
Accounting Standards Codification
Benefit Equalization Retirement Plan
Bureau of Consumer Financial Protection
Exchange Stabilization Fund
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
FAM
Financial Accounting Manual for Federal Reserve Banks
FASB
Fannie Mae
Freddie Mac
FOMC
FRBA
FRBNY
GAAP
GSE
IMF
MBS
OEB
OFR
SDR
SERP
SFAS
SOMA
STRIP
TAF
TBA
TDF
TIPS
TSLF
TOP
Financial Accounting Standards Board
Federal National Mortgage Association
Federal Home Loan Banks Mortgage Corporation
Federal Open Market Committee
Federal Reserve Bank of Atlanta (as applicable)
Federal Reserve Bank of New York (as applicable)
Accounting principles generally accepted in the United States of America
Government-sponsored enterprise
International Monetary Fund
Mortgage-backed securities
Office of Employee Benefits of the Federal Reserve System
Office of Financial Research
Special drawing rights
Supplemental Retirement Plan for Select Officers of the Federal Reserve Banks
Statement of Financial Accounting Standards
System Open Market Account
Separate Trading of Registered Interest and Principal of Securities
Term Auction Facility
To be announced
Term Deposit Facility
Treasury Inflation-Protected Securities
Term Securities Lending Facility
Term Securities Lending Facility Options Program
FEDERAL RESERVE BANK OF DALLAS
STATEMENTS OF CONDITION
As of December 31, 2010 and December 31, 2009
(in millions)
header row col 1: Assets col 2: 2010 col 3: 2009 end header row
Assets:Gold certificates 2010:$652 :2009:$621
Assets:Special drawing rights certificates 2010:$282 2009:$282
Assets:Coin: 2010 $239:2009 $214
Assets:Items in process of collection:2010,$21:2009 $33
Assets:Loans:Depository institutions: 2010:$Blank :2009 $392
Assets:Loans:System Open Market Account:Treasury securities,net 2010:$44,802:2009 $38,970
Assets:Loans:System Open Market Account:Government-sponsored enterprise debt securities,net 2010:$6,423 $2009:$8,092
Assets:Loans:System Open Market Account:Federal agency and government-sponsored enterprise mortgage-backed securities,net 2010 $42,188 :2009:$44,432
Assets:Loans:System Open Market Account:Foreign currency denominated assets, net 2010:$358
2009:$325
Assets:Loans:System Open Market Account:Central bank liquidity swaps:2010:$1:2009:$132
Assets:Loans:System Open Market Account:Accrued interest receivable:2010,$597:2009 $610
Assets:Loans:System Open Market Account:Bank premises and equipment,net:2010:$270,2009:$276
Assets:Loans:System Open Market Account:Other assets:2010,$37,2009:$37
Assets:Loans:System Open Market Account:Total assets:2010,$95,870,:2009,$94,416
header row col 1: Liabilities and Capital col 2: 2010 col 3: 2009 end header row
Liabilities and Capital:Federal Reserve notes outstanding,net:2010,$64,174,2009:$49,642
Liabilities and Capital:System Open Market Account:Securities sold under agreements to repurchase:2010,$2,507:2009,$3,758
Liabilities and Capital:System Open Market Account: Other liabilities:2010,$Blank:2009 $29
Liabilities and Capital:Deposits:Depository institutions:2010 $25,112:2009 $22,826
Liabilities and Capital:Deposits:Other deposits:2010,1 :2009,1
Liabilities and Capital:Deposits:Interest payable to depository institutions:2010,3:2009,2
Liabilities and Capital:Deposits:Accrued benefit costs:2010,$105:2009,$103
Liabilities and Capital:Deposits:Deferred credit items:2010,$73:2009,$109
Liabilities and Capital:Deposits:Accrued interest on Federal Reserve notes:2010,$69:2009,$51
Liabilities and Capital:Deposits:Interdistrict settlement account:2010,$3,007:2009,$17,174
Liabilities and Capital:Deposits:Other liabilities:2010,$15:2009 $15
Liabilities and Capital:Deposits:Total liabilities:2010,$95,066:2009,$93,710
header row col 1: Capital Paid In: col 2: 2010 col 3: 2009 end header row
Capital Paid In: 2010 $402:2009 $353
Capital Paid In: Surplus (including accumulated other comprehensive loss of $37 million and $19 million at December 31, 2010 and 2009, respectively):2010,
Capital Paid In:Total capital:2010 $804: 2009,$706
Capital Paid In:Total liabilities and capital:2010,$95,870 :2009,$94,416
The accompanying notes are an integral part of these financial statements.
header row col 1: Loans col 2: 2010 col 3: 2009 end header row
INTEREST INCOME: Loans: Depository institutions 2010:$1 2009:$10
INTEREST INCOME Loans:System Open Market Account: Securities purchased under agreements to resell 2010:$Blank:2009,$1
INTEREST INCOME:Treasury securities, net 2010 $1,155, 2009:$1,073
INTEREST INCOME:Government-sponsored enterprise debt securities, net 2010:$154:2009 $97
INTEREST INCOME:Federal agency and government-sponsored enterprise mortgage-backed securities, net:2010:$1,965 2009:$977
INTEREST INCOME:Foreign currency denominated assets,net:2010:$3:2009,$4
INTEREST INCOME:Central bank liquidity swaps:2010,$Blank:2009,$32
INTEREST INCOME:Total interest income:2010:$55:2009,$40
INTEREST INCOME:Net interest income: 2010:$3,223, 2009:$2,154
header row col 1: Interest Expense col 2: 2010 col 3: 2009 end header row
INTEREST EXPENSE System Open Market Account: Securities sold under agreements to repurchase: 2010:$4:2009:$4
INTEREST EXPENSE System Open Market Account:Deposits:Depository institutions:2010:$51:2009,$36
INTEREST EXPENSE System Open Market Account:Total interest expense 2010 108 2009 90
INTEREST EXPENSE System Open Market Account:Net interest income 2010 7,535 2009 5,448
header row col 1: Non-Interest Income (loss): col 2: 2010 col 3: 2009 end header row
NON-INTEREST INCOME System Open Market Account:
Non-Interest Income (loss):Federal agency and government-sponsored enterprise mortgage-backed securities gains,net:
2010:$35,2009:$44
Non-Interest Income (loss):Foreign currency gains, net: 2010,$8:2009,$3
Non-Interest Income (loss):Income from services:2010,$13:2009:$28
Non-Interest Income (loss):Reimbursable services to government agencies:2010,$14:2009, $14
Non-Interest Income (loss):Other income:2010,$4:2009,$10
Non-Interest Income (loss):Total non-interest income:2010,$74:2009,$93
header row col 1: Operating Expenses: col 2: 2010 col 3: 2009 end header row
OPERATING EXPENSES:Salaries and benefits:2010:$125:2009 $126
Operating Expenses:Occupancy:2010,$23:2009,$25
Operating Expenses:Equipment:2010,$10:2009,$12
Assessments:
Assessments:Board of Governors operating expenses and currency costs:2010,$48:2009,$33 Assessments:Bureau of Consumer Financial Protectio
Assessments:Other:2010,$30:2009,$29Assessments:Total operating expenses:2010,$237:2009,$225Assessments:Net income prior to distribution:2
funded status of benefit plans:2010,$4:2009 $(3)
Assessments:Comprehensive income prior to distribution:2010,$3,064:2009,$2,019
Distribution of comprehensive income:
Dividends paid to member banks:2010,$24:2009,$17
Transferred from surplus and change in accumulated other comprehensive loss:2010,$49,2009:$82
Payments to Treasury as interest on Federal Reserve notes:2010,$2,991:2009,$1,920
Total distribution:2010,$3,064:2009 $2,019
T h e a c c o m p a n y i n g notes are a n integral part of these financial
statements.
T h e a c c o m p a n y i n g notes are a n integral part of these financial
statements.
FEDERAL RESERVE BANK OF DALLAS
NOTES TO FINANCIAL STATEMENTS
1.
STRUCTURE
The Federal Reserve Bank of Dallas (Bank) is part of the Federal Reserve System (System) and is one of the 12
Federal Reserve Banks (Reserve Banks) created by Congress under the Federal Reserve Act of 1913 (Federal
Reserve Act), which established the central bank of the United States. The Reserve Banks are chartered by the
federal government and possess a unique set of governmental, corporate, and central bank characteristics. The
Bank serves the Eleventh Federal Reserve District which includes Texas and portions of Louisiana and New
Mexico.
In accordance with the Federal Reserve Act, supervision and control of the Bank is exercised by a board of
directors. The Federal Reserve Act specifies the composition of the board of directors for each of the Reserve
Banks. Each board is composed of nine members serving three-year terms: three directors, including those
designated as chairman and deputy chairman, are appointed by the Board of Governors of the Federal Reserve
System (Board of Governors) to represent the public, and six directors are elected by member banks. Banks
that are members of the System include all national banks and any state-chartered banks that apply and are
approved for membership. Member banks are divided into three classes according to size. Member banks in
each class elect one director representing member banks and one representing the public. In any election of
directors, each member bank receives one vote, regardless of the number of shares of Reserve Bank stock it
holds.
In addition to the 12 Reserve Banks, the System also consists, in part, of the Board of Governors and the Federal
Open Market Committee (FOMC). The Board of Governors, an independent federal agency, is charged by the
Federal Reserve Act with a number of specific duties, including general supervision over the Reserve Banks.
The FOMC is composed of members of the Board of Governors, the president of the Federal Reserve Bank of
New York (FRBNY), and, on a rotating basis, four other Reserve Bank presidents.
2.
OPERATIONS AND SERVICES
The Reserve Banks perform a variety of services and operations. These functions include participating in
formulating and conducting monetary policy; participating in the payment system, including large-dollar
transfers of funds, automated clearinghouse (ACH) operations, and check collection; distributing coin and
currency; performing fiscal agency functions for the U.S. Department of the Treasury (Treasury), certain
Federal agencies, and other entities; serving as the federal government's bank; providing short-term loans to
depository institutions; providing loans to individuals, partnerships, and corporations in unusual and exigent
circumstances; serving consumers and communities by providing educational materials and information
regarding financial consumer protection rights and laws and information on community development programs
and activities; and supervising bank holding companies, state member banks, and U.S. offices of foreign
banking organizations. Certain services are provided to foreign and international monetary authorities,
primarily by the FRBNY.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), which was signed
into law and became effective on July 21, 2010, changed the scope of some services performed by the Reserve
Banks. Among other things, the Dodd-Frank Act establishes a Bureau of Consumer Financial Protection
(Bureau) as an independent bureau within the Federal Reserve System that will have supervisory authority
over some institutions previously supervised by the Reserve Banks under delegated authority from the Board
of Governors in connection with those institutions' compliance with consumer protection statutes; limits the
Reserve Banks' authority to provide loans in unusual and exigent circumstances to lending programs or
facilities with broad-based eligibility; and vests the Board of Governors with all supervisory and rule-writing
authority for savings and loan holding companies.
The FOMC, in conducting monetary policy, establishes policy regarding domestic open market operations,
oversees these operations, and issues authorizations and directives to the FRBNY to execute transactions. The
FOMC authorizes and directs the FRBNY to conduct operations in domestic markets, including the direct
FEDERAL RESERVE BANK OF DALLAS
NOTES TO FINANCIAL STATEMENTS
purchase and sale of Treasury securities, Federal agency and government-sponsored enterprise (GSE) debt
securities, Federal agency and GSE mortgage-backed securities (MBS), the purchase of these securities under
agreements to resell, and the sale of these securities under agreements to repurchase. The FRBNY holds the
resulting securities and agreements in a portfolio known as the System Open Market Account (SOMA). The
FRBNY is authorized to lend the Treasury securities and Federal agency and GSE debt securities that are held
in the SOMA.
In addition to authorizing and directing operations in the domestic securities market, the FOMC authorizes the
FRBNY to conduct operations in foreign markets in order to counter disorderly conditions in exchange
markets or to meet other needs specified by the FOMC to carry out the System's central bank responsibilities.
Specifically, the FOMC authorizes and directs the FRBNY to hold balances of, and to execute spot and
forward foreign exchange and securities contracts for, 14 foreign currencies and to invest such foreign
currency holdings, while maintaining adequate liquidity. The FRBNY is authorized and directed by the
FOMC to maintain reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico and to
"warehouse" foreign currencies for the Treasury and the Exchange Stabilization Fund (ESF).
Although the Reserve Banks are separate legal entities, they collaborate in the delivery of certain services to
achieve greater efficiency and effectiveness. This collaboration takes the form of centralized operations and
product or function offices that have responsibility for the delivery of certain services on behalf of the Reserve
Banks. Various operational and management models are used and are supported by service agreements
between the Reserve Banks. In some cases, costs incurred by a Reserve Bank for services provided to other
Reserve Banks are not shared; in other cases, the Reserve Banks are reimbursed for costs incurred in providing
services to other Reserve Banks. Major services provided by the Bank on behalf of the System and for which
the costs were not reimbursed by the other Reserve Banks include Check Automation Services; National
Examination Data System; Desktop Services Center; Lawson Central Business Administration Function;
Accounts, Risk and Credit System; and Go Direct®.
3.
FINANCIAL STABILITY ACTIVITIES
The Reserve Banks have implemented the following programs that support the liquidity of financial institutions
and foster improved conditions in financial markets.
Large-Scale Asset Purchase Programs
The FOMC authorized and directed the FRBNY to purchase $300 billion of longer-term Treasury securities to
help improve conditions in private credit markets. The FRBNY began the purchases of these Treasury
securities in March 2009 and completed them in October 2009. On August 10, 2010, the FOMC announced
that the Federal Reserve will maintain the level of domestic securities holdings in the SOMA portfolio by
reinvesting principal payments from GSE debt securities and Federal agency and GSE MBS in longer-term
Treasury securities. On November 3, 2010, the FOMC announced its intention to expand the SOMA portfolio
holdings of longer-term Treasury securities by an additional $600 billion by June 2011. The FOMC will
regularly review the pace of these securities purchases and the overall size of the asset purchase program and
will adjust the program as needed to best foster maximum employment and price stability.
The FOMC authorized and directed the FRBNY to purchase GSE debt securities and Federal agency and GSE
MBS, with a goal to provide support to mortgage and housing markets and to foster improved conditions in
financial markets more generally. The FRBNY was authorized to purchase up to $175 billion in fixed-rate,
non-callable GSE debt securities and $1.25 trillion in fixed-rate Federal agency and GSE MBS. Purchases of
GSE debt securities began in November 2008, and purchases of Federal agency and GSE MBS began in
January 2009. The FRBNY completed the purchases of GSE debt securities and Federal agency and GSE
MBS in March 2010. The settlement of all Federal agency and GSE MBS transactions was completed by
August 2010.
Central Bank Liquidity Swaps
The FOMC authorized and directed the FRBNY to establish central bank liquidity swap arrangements, which could
be structured as either U.S. dollar liquidity or foreign currency liquidity swap arrangements. U.S. dollar
liquidity swap arrangements were authorized with 14 foreign central banks to provide liquidity in U.S. dollars
to overseas markets. The authorization for these swap arrangements expired on February 1, 2010. In May
2010, U.S. dollar liquidity swap arrangements were reestablished with the Bank of Canada, the Bank of
England, the European Central Bank, the Bank of Japan, and the Swiss National Bank; these arrangements will
expire on August 1, 2011.
Foreign currency liquidity swap arrangements provided the Reserve Banks with the capacity to offer foreign
currency liquidity to U.S. depository institutions. The authorization for these swap arrangements expired on
February 1, 2010.
Lending to Depository Institutions
The Term Auction Facility (TAF) promoted the efficient dissemination of liquidity by providing term funds to
depository institutions. The last TAF auction was conducted on March 8, 2010, and the related loans matured
on April 8, 2010.
Lending to Primary Dealers
The Term Securities Lending Facility (TSLF) promoted liquidity in the financing markets for Treasury securities.
Under the TSLF, the FRBNY could lend up to an aggregate amount of $200 billion of Treasury securities held
in the SOMA to primary dealers on a secured basis for a term of 28 days. The authorization for the TSLF
expired on February 1, 2010.
The Term Securities Lending Facility Options Program (TOP) offered primary dealers the opportunity to purchase
an option to draw upon short-term, fixed-rate TSLF loans in exchange for eligible collateral. The program was
suspended effective with the maturity of the June 2009 TOP options, and authorization for the program expired
on February 1, 2010.
Other Lending Facilities
The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) provided funding to
depository institutions and bank holding companies to finance the purchase of eligible high-quality assetbacked commercial paper (ABCP) from money market mutual funds. The Federal Reserve Bank of Boston
administered the AMLF and was authorized to extend these loans to eligible borrowers on behalf of the other
Reserve Banks. The authorization for the AMLF expired on February 1, 2010.
4.
SIGNIFICANT ACCOUNTING POLICIES
Accounting principles for entities with the unique powers and responsibilities of a nation's central bank have not
been formulated by accounting standard-setting bodies. The Board of Governors has developed specialized
accounting principles and practices that it considers to be appropriate for the nature and function of a central
bank. These accounting principles and practices are documented in the Financial Accounting Manual for
Federal Reserve Banks (FAM), which is issued by the Board of Governors. The Reserve Banks are required to
adopt and apply accounting policies and practices that are consistent with the FAM and the financial
statements have been prepared in accordance with the FAM.
Limited differences exist between the accounting principles and practices in the FAM and accounting principles
generally accepted in the United States (GAAP), due to the unique nature of the Bank's powers and
responsibilities as part of the nation's central bank and given the System's unique responsibility to conduct
monetary policy. The primary differences are the presentation of all SOMA securities holdings at amortized
cost and the recording of such securities on a settlement-date basis. The cost basis of Treasury securities, GSE
debt securities, and foreign government debt instruments is adjusted for amortization of premiums or accretion
of discounts on a straight-line basis, rather than using the interest method required by GAAP. Amortized cost,
rather than the fair value presentation, more appropriately reflects the Bank's securities holdings given the
System's unique responsibility to conduct monetary policy. Accounting for these securities on a settlementdate basis, rather than the trade-date basis required by GAAP, more appropriately reflects the timing of the
transaction's effect on the quantity of reserves in the banking system. Although the application of fair value
measurements to the securities holdings may result in values substantially greater or less than their carrying
values, these unrealized changes in value have no direct effect on the quantity of reserves available to the
banking system or on the prospects for future Bank earnings or capital. Both the domestic and foreign
components of the SOMA portfolio may involve transactions that result in gains or losses when holdings are
sold before maturity. Decisions regarding securities and foreign currency transactions, including their
purchase and sale, are motivated by monetary policy objectives rather than profit. Accordingly, fair values,
earnings, and gains or losses resulting from the sale of such securities and currencies are incidental to open
market operations and do not motivate decisions related to policy or open market activities.
In addition, the Bank does not present a Statement of Cash Flows as required by GAAP because the liquidity and
cash position of the Bank are not a primary concern given the Reserve Banks' unique powers and
responsibilities. Other information regarding the Bank's activities is provided in, or may be derived from, the
Statements of Condition, Income and Comprehensive Income, and Changes in Capital. There are no other
significant differences between the policies outlined in the FAM and GAAP.
Preparing the financial statements in conformity with the FAM requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. Unique accounts and significant accounting
policies are explained below.
a Consolidation
The Dodd-Frank Act established the Bureau as an independent bureau within the Federal Reserve System, and
section 1017 of the Dodd-Frank Act provides that the financial statements of the Bureau are not to be
consolidated with those of the Board of Governors or the Federal Reserve System. Section 152 of the
Dodd-Frank Act established the Office of Financial Research (OFR) within the Treasury. The Board of
Governors funds the Bureau and OFR through assessments on the Reserve Banks as required by the
Dodd-Frank Act. The Reserve Banks reviewed the law and evaluated the design of and their relationships
to the Bureau and the OFR and determined that neither should be consolidated in the Reserve Banks'
combined financial statements.
b. Gold and Special Drawing Rights Certificates
The Secretary of the Treasury is authorized to issue gold and special drawing rights (SDR) certificates to the
Reserve Banks. Upon authorization, the Reserve Banks acquire gold certificates by crediting equivalent
amounts in dollars to the account established for the Treasury. The gold certificates held by the Reserve
Banks are required to be backed by the gold owned by the Treasury. The Treasury may reacquire the gold
certificates at any time and the Reserve Banks must deliver them to the Treasury. At such time, the
Treasury's account is charged, and the Reserve Banks' gold certificate accounts are reduced. The value of
gold for purposes of backing the gold certificates is set by law at $42 2/9 per fine troy ounce. The Board
of Governors allocates the gold certificates among the Reserve Banks once a year based on the average
Federal Reserve notes outstanding at each Reserve Bank.
SDR certificates are issued by the International Monetary Fund (IMF) to its members in proportion to each
member's quota in the IMF at the time of issuance. SDR certificates serve as a supplement to
international monetary reserves and may be transferred from one national monetary authority to another.
Under the law providing for U.S. participation in the SDR system, the Secretary of the Treasury is
authorized to issue SDR certificates to the Reserve Banks. When SDR certificates are issued to the
Reserve Banks, equivalent amounts in U.S. dollars are credited to the account established for the Treasury
and the Reserve Banks' SDR certificate accounts are increased. The Reserve Banks are required to
purchase SDR certificates, at the direction of the Treasury, for the purpose of financing SDR acquisitions
or for financing exchange stabilization operations. At the time SDR transactions occur, the Board of
Governors allocates SDR certificate transactions among the Reserve Banks based upon each Reserve
Bank's Federal Reserve notes outstanding at the end of the preceding year. SDRs are recorded by the
Bank at original cost. In 2009, the Treasury issued $3 billion in SDR certificates to the Reserve Banks, of
which $184 million was allocated to the Bank. There were no SDR transactions in 2010.
c. Coin
The amount reported as coin in the Statements of Condition represents the face value of all United States coin
held by the Bank. The Bank buys coin at face value from the U.S. Mint in order to fill depository
institution orders.
d. Loans
Loans to depository institutions are reported at their outstanding principal balances, and interest income is
recognized on an accrual basis.
Loans are impaired when current information and events indicate that it is probable that the Bank will not
receive the principal and interest that is due in accordance with the contractual terms of the loan
agreement. Impaired loans are evaluated to determine whether an allowance for loan loss is required. The
Bank has developed procedures for assessing the adequacy of any allowance for loan losses using all
available information to identify incurred losses. This assessment includes monitoring information
obtained from banking supervisors, borrowers, and other sources to assess the credit condition of the
borrowers and, as appropriate, evaluating collateral values. Generally, the Bank would discontinue
recognizing interest income on impaired loans until the borrower's repayment performance demonstrates
principal and interest would be received in accordance with the terms of the loan agreement. If the Bank
discontinues recording interest on an impaired loan, cash payments are first applied to principal until the
loan balance is reduced to zero; subsequent payments are applied as recoveries of amounts previously
deemed uncollectible, if any, and then as interest income.
e. Securities Purchased Under Agreements to Resell, Securities Sold Under Agreements to Repurchase, and
Securities Lending
The FRBNY may engage in purchases of securities with primary dealers under agreements to resell
(repurchase transactions). These repurchase transactions are settled through a tri-party arrangement. In a
tri-party arrangement, two commercial custodial banks manage the collateral clearing, settlement, pricing,
and pledging, and provide cash and securities custodial services for and on behalf of the Bank and
counterparty. The collateral pledged must exceed the principal amount of the transaction by a margin
determined by the FRBNY for each class and maturity of acceptable collateral. Collateral designated by
the FRBNY as acceptable under repurchase transactions primarily includes Treasury securities (including
TIPS and STRIP Treasury securities); direct obligations of several Federal agency and GSE-related
agencies, including Fannie Mae and Freddie Mac; and pass-through MBS of Fannie Mae, Freddie Mac,
and Ginnie Mae. The repurchase transactions are accounted for as financing transactions with the
associated interest income recognized over the life of the transaction. Repurchase transactions are
reported at their contractual amount as "System Open Market Account: Securities purchased under
agreements to resell," and the related accrued interest receivable is reported as a component of "Accrued
interest receivable" in the Statements of Condition.
The FRBNY may engage in sales of securities under agreements to repurchase (reverse repurchase
transactions) with primary dealers and, beginning August 2010, with selected money market funds, as an
open market operation. These reverse repurchase transactions may be executed through a tri-party
arrangement, similar to repurchase transactions. Reverse repurchase transactions may also be executed
with foreign official and international account holders as part of a service offering. Reverse repurchase
agreements are collateralized by a pledge of an amount of Treasury securities, GSE debt securities, and
Federal agency and GSE MBS that are held in the SOMA. Reverse repurchase transactions are accounted
for as financing transactions, and the associated interest expense is recognized over the life of the
transaction. These transactions are reported at their contractual amounts as "System Open Market
Account: Securities sold under agreements to repurchase" and the related accrued interest payable is
reported as a component of "Other liabilities" in the Statements of Condition.
Treasury securities and GSE debt securities held in the SOMA may be lent to primary dealers to facilitate the
effective functioning of the domestic securities markets. Overnight securities lending transactions are
fully collateralized by Treasury securities that have fair values in excess of the securities lent. The
FRBNY charges the primary dealer a fee for borrowing securities, and these fees are reported as a
component of "Other income" in the Statements of Income and Comprehensive Income.
Activity related to securities purchased under agreements to resell, securities sold under agreements to
repurchase, and securities lending is allocated to each of the Reserve Banks on a percentage basis derived
from an annual settlement of the interdistrict settlement account that occurs in April each year.
f. Treasury Securities; Government-Sponsored Enterprise Debt Securities; Federal Agency and GovernmentSponsored Enterprise Mortgage-Backed Securities; Foreign Currency Denominated Assets; and
Warehousing Agreements
Interest income on Treasury securities, GSE debt securities, and foreign currency denominated assets
comprising the SOMA is accrued on a straight-line basis. Interest income on Federal agency and GSE
MBS is accrued using the interest method and includes amortization of premiums, accretion of discounts,
and gains or losses associated with principal paydowns. Premiums and discounts related to Federal
agency and GSE MBS are amortized over the term of the security to stated maturity, and the amortization
of premiums and accretion of discounts are accelerated when principal payments are received. Paydown
gains and losses represent the difference between the principal amount paid and the amortized cost basis
of the related security. Gains and losses resulting from sales of securities are determined by specific issue
based on average cost. Treasury securities, GSE debt securities, and Federal agency and GSE MBS are
reported net of premiums and discounts on the Statements of Condition and interest income on those
securities is reported net of the amortization of premiums and accretion of discounts on the Statements of
Income and Comprehensive Income.
In addition to outright purchases of Federal agency and GSE MBS that are held in the SOMA, the FRBNY
entered into dollar roll transactions (dollar rolls), which primarily involve an initial transaction to purchase
or sell "to be announced" (TBA) MBS for delivery in the current month combined with a simultaneous
agreement to sell or purchase TBA MBS on a specified future date. The FRBNY also executed a limited
number of TBA MBS coupon swap transactions, which involve a simultaneous sale of a TBA MBS and
purchase of another TBA MBS of a different coupon rate. The FRBNY's participation in the dollar roll
and coupon swap markets furthers the MBS purchase program goal of providing support to the mortgage
and housing markets and fostering improved conditions in financial markets more generally. The FRBNY
accounts for outstanding commitments under dollar roll and coupon swaps on a settlement-date basis.
Based on the terms of the FRBNY dollar roll and coupon swap transactions, transfers of MBS upon
settlement of the initial TBA MBS transactions are accounted for as purchases or sales in accordance with
FASB ASC Topic 860 (ASC 860), Transfers and Servicing, and the related outstanding commitments are
accounted for as sales or purchases upon settlement. Net gains resulting from dollar roll and coupon swap
transactions are reported as "Non-interest income (loss): System Open Market Account: Federal agency
and government-sponsored enterprise mortgage-backed securities gains, net" in the Statements of Income
and Comprehensive Income.
Foreign currency denominated assets are revalued daily at current foreign currency market exchange rates in
order to report these assets in U.S. dollars. Realized and unrealized gains and losses on foreign currency
denominated assets are reported as "Foreign currency gains (losses), net" in the Statements of Income and
Comprehensive Income.
Activity related to Treasury securities, GSE debt securities, and Federal agency and GSE MBS, including the
premiums, discounts, and realized gains and losses, is allocated to each Reserve Bank on a percentage
basis derived from an annual settlement of the interdistrict settlement account that occurs in April of each
year. Activity related to foreign currency denominated assets, including the premiums, discounts, and
realized and unrealized gains and losses, is allocated to each Reserve Bank based on the ratio of each
Reserve Bank's capital and surplus to aggregate capital and surplus at the preceding December 31.
Warehousing is an arrangement under which the FOMC has approved the exchange, at the request of the
Treasury, of U.S. dollars for foreign currencies held by the Treasury over a limited period of time. The
purpose of the warehousing facility is to supplement the U.S. dollar resources of the Treasury for
financing purchases of foreign currencies and related international operations. Warehousing agreements
are designated as held-for-trading purposes and are valued daily at current market exchange rates.
Activity related to these agreements is allocated to each Reserve Bank based on the ratio of each Reserve
Bank's capital and surplus to aggregate capital and surplus at the preceding December 31.
g. Central Bank Liquidity Swaps
Central bank liquidity swaps, which are transacted between the FRBNY and a foreign central bank, can be
structured as either U.S. dollar liquidity or foreign currency liquidity swap arrangements.
Central bank liquidity swaps activity, including the related income and expense, is allocated to each Reserve
Bank based on the ratio of each Reserve Bank's capital and surplus to aggregate capital and surplus at the
preceding December 31. The foreign currency amounts associated with these central bank liquidity swap
arrangements are revalued at current foreign currency market exchange rates.
U.S. dollar liquidity swaps
At the initiation of each U.S. dollar liquidity swap transaction, the foreign central bank transfers a specified
amount of its currency to a restricted account for the FRBNY in exchange for U.S. dollars at the
prevailing market exchange rate. Concurrent with this transaction, the FRBNY and the foreign central
bank agree to a second transaction that obligates the foreign central bank to return the U.S. dollars and the
FRBNY to return the foreign currency on a specified future date at the same exchange rate as the initial
transaction. The Bank's allocated portion of the foreign currency amounts that the FRBNY acquires is
reported as "Central bank liquidity swaps" on the Statements of Condition. Because the swap transaction
will be unwound at the same U.S. dollar amount and exchange rate that were used in the initial
transaction, the recorded value of the foreign currency amounts is not affected by changes in the market
exchange rate.
The foreign central bank compensates the FRBNY based on the foreign currency amounts it holds for the
FRBNY. The FRBNY recognizes compensation during the term of the swap transaction and reports it as
"Interest income: Central bank liquidity swaps" in the Statements of Income and Comprehensive Income.
Foreign currency liquidity swaps
The structure of foreign currency liquidity swap transactions involves the transfer by the FRBNY, at the
prevailing market exchange rate of a specified amount of U.S. dollars to an account for the foreign central
bank in exchange for its currency. The foreign currency amount received would be reported as a liability
by the Bank.
h. Interdistrict Settlement Account
At the close of business each day, each Reserve Bank aggregates the payments due to or from other Reserve
Banks. These payments result from transactions between the Reserve Banks and transactions that involve
depository institution accounts held by other Reserve Banks, such as Fedwire funds and securities
transfers and check and ACH transactions. The cumulative net amount due to or from the other Reserve
Banks is reflected in the "Interdistrict settlement account" in the Statements of Condition.
i. Bank Premises, Equipment, and Software
Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, which range from 2 to 50 years. Major
alterations, renovations, and improvements are capitalized at cost as additions to the asset accounts and are
depreciated over the remaining useful life of the asset or, if appropriate, over the unique useful life of the
alteration, renovation, or improvement. Maintenance, repairs, and minor replacements are charged to
operating expense in the year incurred.
Costs incurred for software during the application development stage, whether developed internally or
acquired for internal use, are capitalized based on the purchase cost and the cost of direct services and
materials associated with designing, coding, installing, and testing the software. Capitalized software
costs are amortized on a straight-line basis over the estimated useful lives of the software applications,
which generally range from two to five years. Maintenance costs related to software are charged to
expense in the year incurred.
Capitalized assets, including software, buildings, leasehold improvements, furniture, and equipment, are
impaired and an adjustment is recorded when events or changes in circumstances indicate that the carrying
amount of assets or asset groups is not recoverable and significantly exceeds the assets' fair value.
j. 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 Bank's assets are eligible to be
pledged as collateral. The collateral value is equal to the book value of the collateral tendered with the
exception of securities, for which the collateral value is equal to the par value of the securities tendered.
The par value of securities sold under agreements to repurchase is deducted from the eligible collateral
value.
The Board of Governors may, at any time, call upon a Reserve Bank for additional security to adequately
collateralize outstanding Federal Reserve notes. To satisfy the obligation to provide sufficient collateral
for outstanding Federal Reserve notes, the Reserve Banks have entered into an agreement that provides for
certain assets of the Reserve Banks to be jointly pledged as collateral for the Federal Reserve notes issued
to all Reserve Banks. In the event that this collateral is insufficient, the Federal Reserve Act provides that
Federal Reserve notes become a first and paramount lien on all the assets of the Reserve Banks. Finally,
Federal Reserve notes are obligations of the United States government.
"Federal Reserve notes outstanding, net" in the Statements of Condition represents the Bank's Federal Reserve
notes outstanding, reduced by the Bank's currency holdings of $11,980 million and $13,731 million at
December 31, 2010 and 2009, respectively.
At December 31, 2010 and 2009, all Federal Reserve notes issued to the Reserve Banks were fully
collateralized. At December 31, 2010, all gold certificates, all special drawing right certificates, and $925
billion of domestic securities held in the SOMA were pledged as collateral. At December 31, 2010, no
investments denominated in foreign currencies were pledged as collateral.
k. Deposits
Depository Institutions
Depository institutions deposits represent the reserve and service-related balances in the accounts that
depository institutions hold at the Bank. The interest rates paid on required reserve balances and excess
balances are determined by the Board of Governors, based on an FOMC-established target range for the
federal funds rate. Interest payable is reported as "Interest payable to depository institutions" on the
Statements of Condition.
The Term Deposit Facility (TDF) consists of deposits with specific maturities held by eligible institutions at
the Reserve Banks. The Reserve Banks pay interest on these deposits at interest rates determined by
auction. Interest payable is reported as "Interest payable to depository institutions" on the Statements of
Condition. There were no deposits held by the Bank under the TDF at December 31, 2010.
Other
Other deposits include foreign central bank and foreign government deposits held at the FRBNY that are
allocated to the Bank.
l. Items in Process of Collection and Deferred Credit Items
"Items in process of collection" primarily represents amounts attributable to checks that have been deposited
for collection and that, as of the balance sheet date, have not yet been presented to the paying bank.
"Deferred credit items" are the counterpart liability to items in process of collection. The amounts in this
account arise from deferring credit for deposited items until the amounts are collected. The balances in
both accounts can vary significantly.
m. Capital Paid-in
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. As a member bank's capital and
surplus changes, its holdings of Reserve Bank stock must be adjusted. Currently, only one-half of the
subscription is paid in and the remainder is subject to call. A member bank is liable for Reserve Bank
liabilities up to twice the par value of stock subscribed by it.
By law, each Reserve Bank is required to pay each member bank an annual dividend of 6 percent on the paidin capital stock. This cumulative dividend is paid semiannually. To meet the Federal Reserve Act
requirement that annual dividends be deducted from net earnings, dividends are presented as a distribution
of comprehensive income in the Statements of Income and Comprehensive Income.
n. Surplus
The Board of Governors requires the Reserve Banks to maintain a surplus equal to the amount of capital paidin as of December 31 of each year. Accumulated other comprehensive income is reported as a component
of "Surplus" in the Statements of Condition and the Statements of Changes in Capital. Additional
information regarding the classifications of accumulated other comprehensive income is provided in Notes
12 and 13.
o. Interest on Federal Reserve Notes
The Board of Governors requires the Reserve Banks to transfer excess earnings to the Treasury as interest on
Federal Reserve notes after providing for the costs of operations, payment of dividends, and reservation of
an amount necessary to equate surplus with capital paid-in. This amount is reported as "Payments to
Treasury as interest on Federal Reserve notes" in the Statements of Income and Comprehensive Income.
The amount due to the Treasury is reported as "Accrued interest on Federal Reserve notes" in the
Statements of Condition.
If earnings during the year are not sufficient to provide for the costs of operations, payment of dividends, and
equating surplus and capital paid-in, payments to the Treasury are suspended. A deferred asset is recorded
that represents the amount of net earnings a Reserve Bank will need to realize before remittances to
Treasury resume. This deferred asset is periodically reviewed for impairment.
In the event of a decrease in capital paid-in, the excess surplus, after equating capital paid-in and surplus at
December 31, is distributed to the Treasury in the following year.
p. Income and Costs Related to Treasury Services
When directed by the Secretary of the Treasury, the Bank is required by the Federal Reserve Act to serve as
fiscal agent and depositary of the United States Government. By statute, the Treasury has appropriations
to pay for these services. During the years ended December 31, 2010 and 2009, the Bank was reimbursed
for all services provided to the Treasury as its fiscal agent.
q. Compensation Received for Service Costs Provided
The Federal Reserve Bank of Atlanta (FRBA) has overall responsibility for managing the Reserve Banks'
provision of check and ACH services to depository institutions and, as a result, recognizes total System
revenue for these services on its Statements of Income and Comprehensive Income. Similarly, the
FRBNY manages the Reserve Banks' provision of Fedwire funds and securities services and recognizes
total System revenue for these services on its Consolidated Statements of Income and Comprehensive
Income. The FRBA and the FRBNY compensate the applicable Reserve Banks for the costs incurred to
provide these services. The Bank reports this compensation as "Compensation received for service costs
provided" in the Statements of Income and Comprehensive Income.
r. Assessments
The Board of Governors assesses the Reserve Banks to fund its operations and the operations of the Bureau
and, for a two-year period, the OFR. These assessments are allocated to each Reserve Bank based on each
Reserve Bank's capital and surplus balances as of December 31 of the prior year for the Board of
Governor's operations and as of the most recent quarter for the Bureau and OFR operations. The Board of
Governors also assesses each Reserve Bank for the expenses incurred by the Treasury to produce and
retire Federal Reserve notes based on each Reserve Bank's share of the number of notes comprising the
System's net liability for Federal Reserve notes on December 31 of the prior year.
During the period prior to the Bureau transfer date of July 21, 2011, there is no fixed limit on the funding that
can be provided to the Bureau and that is assessed to the Reserve Banks; the Board of Governors must
provide the amount estimated by the Secretary of the Treasury needed to carry out the authorities granted
to the Bureau under the Dodd-Frank Act and other federal law. After the transfer date, the Dodd-Frank
Act requires the Board of Governors to fund the Bureau in an amount not to exceed a fixed percentage of
the total operating expenses of the Federal Reserve System as reported in the Board of Governors' 2009
annual report. The fixed percentage of total operating expenses of the System is 10% for 2011, 11% for
2012, and 12% for 2013. After 2013, the amount will be adjusted in accordance with the provisions of the
Dodd-Frank Act.
The Board of Governors assesses the Reserve Banks to fund the operations of the OFR for the two-year period
following enactment of the Dodd-Frank Act; thereafter, the OFR will be funded by fees assessed on
certain bank holding companies.
s. Taxes
The Reserve Banks are exempt from federal, state, and local taxes, except for taxes on real property. The
Bank's real property taxes were $3 million and $4 million for the years ended December 31, 2010 and
2009, respectively, and are reported as a component of "Operating expenses: Occupancy" in the
Statements of Income and Comprehensive Income.
t. Restructuring Charges
The Reserve Banks recognize restructuring charges for exit or disposal costs incurred as part of the closure of
business activities in a particular location, the relocation of business activities from one location to
another, or a fundamental reorganization that affects the nature of operations. Restructuring charges may
include costs associated with employee separations, contract terminations, and asset impairments.
Expenses are recognized in the period in which the Bank commits to a formalized restructuring plan or
executes the specific actions contemplated in the plan and all criteria for financial statement recognition
have been met.
Note 14 describes the Bank's restructuring initiatives and provides information about the costs and liabilities
associated with employee separations and contract terminations. The costs associated with the impairment
of certain Bank assets are discussed in Note 9. Costs and liabilities associated with enhanced pension
benefits in connection with the restructuring activities for all of the Reserve Banks are recorded on the
books of the FRBNY.
u. Recently Issued Accounting Standards
In June 2009, FASB issued Statement of Financial Accounting Standards (SFAS) 166, Accounting for
Transfers of Financial Assets - an amendment to FASB Statement No. 140, (codified in ASC 860). The
new standard revises the criteria for recognizing transfers of financial assets as sales and clarifies that the
transferor must consider all arrangements when determining if the transferor has surrendered control. The
adoption of this accounting guidance was effective for the Bank for the year beginning on January 1,
2010, and did not have a material effect on the Bank's financial statements.
In July 2010, the FASB issued Accounting Standards Update 2010-20, Receivables (Topic 310), which
requires additional disclosures about the allowance for credit losses and the credit quality of loan
portfolios. The additional disclosures include a rollforward of the allowance for credit losses on a
disaggregated basis and more information, by type of receivable, on credit quality indicators, including the
amount of certain past due receivables and troubled debt restructurings and significant purchases and
sales. The adoption of this accounting guidance is effective for the Bank on December 31, 2011, and is
not expected to have a material effect on the Bank's financial statements.
5.
LOANS
Loans outstanding at December 31, 2010 and 2009 were as follows (in millions):
Loans to Depository Institutions
The Bank offers primary, secondary, and seasonal credit to eligible borrowers, and each program has its own
interest rate. Interest is accrued using the applicable interest rate established at least every 14 days by the
Bank's board of directors, subject to review and determination by the Board of Governors. Primary and
secondary credit are extended on a short-term basis, typically overnight, whereas seasonal credit may be
extended for a period of up to nine months.
Primary, secondary, and seasonal credit lending is collateralized to the satisfaction of the Bank to reduce credit
risk. Assets eligible to collateralize these loans include consumer, business, and real estate loans; Treasury
securities; GSE debt securities; foreign sovereign debt; municipal, corporate, and state and local government
obligations; asset-backed securities; corporate bonds; commercial paper; and bank-issued assets, such as
certificates of deposit, bank notes, and deposit notes. Collateral is assigned a lending value that is deemed
appropriate by the Bank, which is typically fair value reduced by a margin.
Depository institutions that are eligible to borrow under the Bank's primary credit program were eligible to
participate in the TAF program. Under the TAF program, the Reserve Banks conducted auctions for a fixed
amount of funds, with the interest rate determined by the auction process, subject to a minimum bid rate. TAF
loans were extended on a short-term basis, with terms ranging from 28 to 84 days. All advances under the
TAF program were collateralized to the satisfaction of the Bank. All TAF loan principal and accrued interest
was fully repaid.
Loans to depository institutions are monitored daily to ensure that borrowers continue to meet eligibility
requirements for these programs. The financial condition of borrowers is monitored by the Bank and, if a
borrower no longer qualifies for these programs, the Bank will generally request full repayment of the
outstanding loan or, for primary or seasonal credit lending, may convert the loan to a secondary credit loan.
Collateral levels are reviewed daily against outstanding obligations and borrowers that no longer have sufficient
collateral to support outstanding loans are required to provide additional collateral or to make partial or full
repayment.
Allowance for loan loss
At December 31, 2010 and 2009, the Bank did not have any impaired loans and no allowance for loan losses was
required. There were no impaired loans during the years ended December 31, 2010 and 2009.
6.
TREASURY SECURITIES; GOVERNMENT-SPONSORED ENTERPRISE DEBT SECURITIES; FEDERAL AGENCY AND
GOVERNMENT-SPONSORED ENTERPRISE MORTGAGE-BACKED SECURITIES; SECURITIES PURCHASED UNDER
AGREEMENTS TO RESELL; SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE; AND SECURITIES
LENDING
The FRBNY, on behalf of the Reserve Banks, holds securities bought outright in the SOMA. The Bank's allocated
share of SOMA balances was approximately 4.199 percent and 4.835 percent at December 31, 2010 and 2009,
respectively.
The
Bank's
allocated
share
of
Treasury
securities,
GSE
debt
securities,
and
Federal
agency
and
GSE
MBS,
e x c l u d i n g a c c r u e d i n t e r e s t , h e l d i n t h e S O M A a t D e c e m b e r 3 1 w a s a s f o l l o w s ( i n m i l l i o n s ) :headerrowcol1:TotalSecurityHeldbyReserveBanksCol2:Par2010co
Unaccreted discounts 2010col 5:Total Amortized cost 2010 col6: fair value 2010 Total end header row Bills: Par 2010: $773, UnAmortized Premiums:$Blank,
Unaccreted discounts 2010:$Blank,Total Amortized Cost 2010: $773, Fair value 2010:$773Notes:Par 2010:$32,471, UnAmortized
Premiums 2010:$590, Unaccreted discounts 2010:$(32),Total
T h e total of the Treasury securities, G S E debt securities, a n d Federal a g e n c y a n d G S E M B S , net, e x c l u d i n g
accrued
interest, held in the S O M A at D e c e m b e r 31 w a s as follows (in millions):
The f a i r v a l u e a m o u n t s i n t h e a b o v e t a b l e s a r e p r e s e n t e d s o l e l y f o r i n f o r m a t i o n a l p u r p o s e s .
A l t h o u g h t h e fair
value
of security holdings c a n b e substantially greater than or less than the recorded value at any point in time,
these
u n r e a l i z e d g a i n s or losses h a v e n o effect
financial
o n the ability of the Reserve B a n k s , as the central bank, to m e e t
obligations a n d responsibilities.
T h e fair v a l u e o f F e d e r a l
using a model-based approach that considers observable
S O M A
inputs for
agency
and
M B S
was
and
securities
prices.
Treasury securities, G S E debt securities, a n d Federal agency a n d G S E M B S
The
fair
value
of
Federal
agency
securities.
and
GSE
M B S
is
other
securities.
in
S O M A ' s h o l d i n g s is s u b j e c t to m a r k e t risk, arising f r o m m o v e m e n t s in m a r k e t variables, s u c h as interest
prepayments of mortgage loans underlying the
their
determined
similar securities; fair v a l u e for all
security holdings w a s d e t e r m i n e d b y reference to quoted prices for identical
T h e fair v a l u e o f the fixed-rate
GSE
also
affected
by
the
the
rates
rate
of
T h e f o l l o w i n g table p r o v i d e s additional i n f o r m a t i o n o n the a m o r t i z e d cost a n d fair v a l u e s o f the F e d e r a l a g e n c y
and
G S E M B S p o r t f o l i o a t D e c e m b e r 3 1 , 2 0 1 0 a n d 2 0 0 9 ( i n m i l l i o n s ) :headerrowcol1:Distributionof MBSholdingsbycouponrateAllocatedtotheBankcol2:Amortized cost2010
Financial
information
related
to
securities
purchased
under
agreements
to
resell
and
securities
sold
under
header row: Securities under Agreements to resell and repurchase col 1: col 2: Securities purchased under agreements to resell 2010 col 3:Securities purchased under
under agreements to repurchase 2010 col 5: Securities sold under agreements to repurchase 2009 Total end header row Securities under Agreements to resell and rep
Contract amount outstanding, end of year: Securities purchased under agreements to resell 2010:$Blank Securities
purchased under agreements to resell 2009:$Blank Securities sold under agreements to repurchase 2010:$2,507
Securities sold under agreements to repurchase 2009:$3,758 Securities under Agreements to resell and repurchase:
Average daily amount outstanding, during the year:Securities purchased under agreements to resell 2010:$Blank Securities purchased under agreements to resell 200
2010: $2,561Securities sold under agreements to repurchase 2009:$3,136Securities under Agreements to resell and repurchase:Allocated to the Bank:Maximum bala
under agreements to resell 2010:$Blank Securities purchased under agreements to resell 2009:$3,318 Securities sold under agreements to repurchase 2010:$3,758 Se
2009:$3,758 Securities under Agreements to resell and repurchase:Allocated to the Bank:Securities pledged (par value) end of year:Securities purchased under agre
under agreements to resell 2009:$Blank Securities sold under agreements to repurchase 2010:$1,833 Securities sold under agreements to repurchase 2009:$3,765 he
purchased under agreements to resell 2010 col 3:Securities purchased under agreements to resell 2009 Col 4:Securities sold under agreements to repurchase 2010 co
Total end header row SOMA:Contract amount outstanding, end of year: Securities purchased under agreements to resell 2010:$Blank Securities purchased under ag
under agreements to repurchase 2010:$59,703 Securities sold under agreements to repurchase 2009:$77,732 SOMA:Average daily amount outstanding, during the y
to resell 2010:$Blank Securities purchased under agreements to resell 2009: $3,616 Securities sold under agreements to repurchase 2010: $58,476 Securities sold un
SOMA:Maximum balance outstanding,during the year:Securities purchased under agreements to resell 2010:$Blank Securities purchased under agreements to resell
to repurchase 2010:$77,732 Securities sold under agreements to repurchase 2009:$89,525 SOMA:Securities pledged (par value) end of year:Securities purchased un
purchased under agreements to resell 2009:$Blank Securities sold under agreements to repurchase 2010:$43,642 Securities sold under agreements to repurchase 200
T h e contract a m o u n t s for securities p u r c h a s e d u n d e r a g r e e m e n t s to resell a n d securities sold u n d e r a g r e e m e n t s to
purchase
transactions
to
sell
securities
under
reserve balances from the banking
agreements
system.
to
repurchase
are
executed
primarily
to
of
securities u n d e r
temporarily
drain
The
remaining
maturity
distribution of Treasury
securities,
G S E
debt
securities,
Federal
agency
and
G S E
M B S
D e c e m b e r 31, 2 0 1 0 w a s as follows (in millions):
header row col 1: Treasury Securities bought and sold under agreements: col 2: Within 15 days col 3: 16 days to 90 days col 4: 91 days to 1 year col 5: Over 1 year to 5 years
col 6:Over 5 years to 10 years col 7: Over 10 years col 8: Total Total end header row Treasury Securities bought and sold under agreements:Treasury
securities (par value): Within 15 days:$412 16 days to 90 days:$1,042 91 days to 1 year: $2,278 Over 1 year to 5 years:$18,459 Over 5 years to 10 years:$14,023
Over 10 years: $6,679 Total: $42,893 Treasury Securities bought and sold under agreements:GSE debt securities (par value): Within 15 days: $47 16 days to 90 days:$581 91 days to
Over 1 year to 5 years:$2,983 Over 5 years to 10 years:$1,285 Over 10 years: $99 Total: $6,192 Treasury Securities bought and sold under agreements:Federal agency and GSE MB
Within 15 days: $Blank 16 days to 90 days: $Blank 91 days to 1 year: $Blank Over 1 year to 5 years: $1 Over 5 years to 10 years:$1 Over 10 years: $41,658 Total: $41,660
Treasury Securities bought and sold under agreements:Securities sold under agreements to repurchase (contract amount): Within 15 days: $2,507 16 days to 90 days: $Blank91 days
Over 1 year to 5 years: $Blank Over 5 years to 10 years:$Blank Over 10 years: $Blank Total:$2,507
Federal agency and G S E M B S are reported at stated maturity in the table above.
The estimated weighted average
w e i g h t e d a v e r a g e life f a c t o r s i n p r e p a y m e n t a s s u m p t i o n s , is a p p r o x i m a t e l y 4 . 2 y e a r s .
f o l l o w s ( i n m i l l i o n s ) :headerrowcol1:TreasurySecuritiesloanedfrom SOMA:col2:AllocatedtotheBank2010col3:AllocatedtotheBank2009col4:TotalSOMA2010col5:TotalSOMA2009Totalendheaderrow
Treasury Securities loaned from SOMA:Allocated to the Bank:2010:$9
O t h e r liabilities, w h i c h are related to p u r c h a s e s of F e d e r a l a g e n c y a n d G S E M B S ,
to the F R B N Y o n the settlement date.
arise f r o m the failure of a seller
Although the B a n k has ownership
of
a n d r e c o r d s its
delivered, a n d the a m o u n t reported as other liabilities represents the B a n k ' s obligation to p a y
the securities w h e n delivered.
for
T h e a m o u n t of other liabilities allocated to the B a n k a n d h e l d in the S O M A
at
header row col 1: Liabilities Allocated to the Bank:
col 2: Allocated to the Bank 2010
col 3: Allocated to the Bank 2009
col 4: Total SOMA 2010
col 5: Total SOMA 2009 Total end header row
Liabilities Allocated to the Bank:Other liabilities: Allocated to the Bank
Allocated to the Bank 2009:$29,Total SOMA 2010$Blank, Total SOMA
T h e F R B N Y enters into c o m m i t m e n t s to b u y Treasury and G S E debt securities a n d records the related securities o n
as of
31, 2010.
December
T h e s e c o m m i t m e n t s h a d contractual settlement dates e x t e n d i n g t h r o u g h J a n u a r y 4, 2 0 1 1 .
to b u y
settlement-date basis.
Federal
agency
During the years ended D e c e m b e r
and
GSE
M B S
and
records the related M B S
on
a
31, 2 0 1 0 a n d 2009, the Reserve B a n k s recorded net gains f r o m dollar
c o u p o n s w a p related transactions of $782 million and $879 million, respectively, of w h i c h $35 million and $44
w a s allocated to the Bank. These net gains are reported as
"
Non-interest
income
(loss):
T h e r e w e r e n o c o m m i t m e n t s to b u y or sell Federal a g e n c y or G S E M B S as of D e c e m b e r 31,
7.
F O R E I G N
C U R R E N C Y
The F R B N Y
and
D E N O M I N A T E D
2010.
A S S E T S
holds foreign currency deposits w i t h foreign central b a n k s a n d the B a n k for International
invests
in
foreign
government
debt
instruments.
These
foreign
guaranteed as to principal a n d interest b y the issuing foreign governments.
transactions to purchase
Euro-denominated
government
government
debt
Settlements
instruments
are
In addition, the F R B N Y enters
into
debt securities u n d e r agreements to resell for
which
t h e a c c e p t e d c o l l a t e r a l is t h e d e b t i n s t r u m e n t s i s s u e d b y t h e g o v e r n m e n t s o f B e l g i u m , F r a n c e , G e r m a n y ,
the Netherlands, and Spain.
The
Bank's
allocated
share of foreign
currency
denominated
Italy,
assets was
approximately
allocated share of foreign currency d e n o m i n a t e d assets, including a c c r u e d interest, v a l u e d at a m o r t i z e d
Foreign Currency assets col 2:2010 co
under agreements to resell:2010:$34 2
A t D e c e m b e r 31, 2 0 1 0 a n d 2 0 0 9 , the fair v a l u e o f foreign c u r r e n c y d e n o m i n a t e d assets, i n c l u d i n g a c c r u e d
allocated to the
Bank was $360
instruments was
determined by
currency
deposits
and
reference
securities
a p p r o x i m a t e s fair value.
M B S
million and $328
million,
respectively.
bank,
informational
to
meet
purchased
under
agreements
to
The cost basis of
adjusted
for
accrued
debt
foreign
interest,
Similar to the Treasury securities, G S E debt securities, a n d Federal agency a n d
its financial
obligations
and
GSE
o n the ability of a Reserve B a n k , as
responsibilities.
currency denominated assets were
31, 2 0 1 0 and 2009, respectively.
currency
respectively.
resell,
interest,
of government
The
fair
value
is p r e s e n t e d
solely
the
for
purposes.
Total Reserve B a n k foreign
foreign
fair v a l u e
to quoted prices for identical securities.
d i s c u s s e d i n N o t e 6, u n r e a l i z e d g a i n s o r losses h a v e n o effect
central
The
denominated
At December
assets,
including
$26,049 million a n d $25,272 million at
December
31, 2 0 1 0 a n d 2 0 0 9 , the fair v a l u e o f the total R e s e r v e
accrued
interest,
was
$26,213
million and
$25,480
Bank
million,
At December 31, 2010 and 2009, the authorized warehousing facility was $5.0 billion, with no balance
outstanding.
There were no transactions related to the authorized reciprocal currency arrangements with the Bank of Canada and
the Bank of Mexico during the years ended December 31, 2010 and 2009.
There were no foreign exchange contracts outstanding as of December 31, 2010.
The FRBNY enters into commitments to buy foreign government debt instruments and records the related
securities on a settlement-date basis. As of December 31, 2010, there were $209 million of outstanding
commitments to purchase Euro-denominated government debt instruments, of which $3 million was allocated
to the Bank. These securities settled on January 4, 2011, and replaced Euro-denominated government debt
instruments held in the SOMA that matured on that date.
In connection with its foreign currency activities, the FRBNY may enter into transactions that are subject to
varying degrees of off-balance-sheet market risk and counterparty credit risk that result from their future
settlement. The FRBNY controls these risks by obtaining credit approvals, establishing transaction limits,
receiving collateral in some cases, and performing daily monitoring procedures.
8.
CENTRAL BANK LIQUIDITY SWAPS
U.S. Dollar Liquidity Swaps
The Bank's allocated share of U.S. dollar liquidity swaps was approximately 1.375 percent and 1.286 percent at
December 31, 2010 and 2009, respectively.
The total foreign currency held under U.S. dollar liquidity swaps in the SOMA at December 31, 2010 and 2009,
was $75 million and $10,272 million, respectively, of which $1 million and $132 million, respectively, was
allocated to the Bank. All of the U.S. dollar liquidity swaps outstanding at December 31, 2010 were transacted
with the European Central Bank and had remaining maturity distributions of less than 15 days.
Foreign Currency Liquidity Swaps
There were no transactions related to the foreign currency liquidity swaps during the years ended December 31,
2010 and 2009.
9.
B A N K P R E M I S E S ,
E Q U I P M E N T , A N D
S O F T W A R E
B a n k premises a n d equipment at D e c e m b e r 3 1 were as follows (in millions):
The
Bank
leases space to outside tenants w i t h r e m a i n i n g lease t e r m s ranging f r o m
5 to 7 years.
Rental
f r o m s u c h leases w a s $ 2 million a n d $ 3 million for the years e n d e d D e c e m b e r 31, 2 0 1 0 a n d 2009,
a n d is r e p o r t e d as a c o m p o n e n t of " O t h e r i n c o m e "
income
respectively,
in the Statements of Income and Comprehensive
F u t u r e m i n i m u m l e a s e p a y m e n t s t h a t t h e B a n k w i l l r e c e i v e u n d e r n o nc a n c e l a b l e l e a s e a g r e e m e n t s i n
Income.
existence
at D e c e m b e r 31, 2 0 1 0 are as follows (in thousands):
2011
2 0 1 5$ 1 , 2 6 9,T h e r e a f t e r $ 1 , 5 5 3 ,T o t a l
$
1,428
,
$
2 0 1 2$ 1 , 4 6 2,2 0 1 3$ 1 , 4 6 2,
8,636~
Rental expense under operating leases for certain operating facilities, warehouses, and data processing and office
equipment (including taxes, insurance, and maintenance when included in rent), net of sublease rentals, was
$258 thousand and $231 thousand for the years ended December 31, 2010 and 2009, respectively. Certain of
the Bank's leases have options to renew.
Future minimum rental payments underNon-Cancelableoperating leases, net of sublease rentals, with terms of one
year or more, at December 31, 2010, were not material.
At December 31, 2010, there were no material unrecorded unconditional purchase commitments or obligations in
excess of one year.
Under the Insurance Agreement of the Federal Reserve Banks, each of the Reserve Banks has agreed to bear, on a
per incident basis, a share of certain losses in excess of 1 percent of the capital paid-in of the claiming Reserve
Bank, up to 50 percent of the total capital paid-in of all Reserve Banks. Losses are borne in the ratio of a
Reserve Bank's capital paid-in to the total capital paid-in of all Reserve Banks at the beginning of the calendar
year in which the loss is shared. No claims were outstanding under the agreement at December 31, 2010 or
2009.
11. RETIREMENT AND THRIFT PLANS
Retirement Plans
The Bank currently offers three defined benefit retirement plans to its employees, based on length of service and
level of compensation. Substantially all of the employees of the Reserve Banks, Board of Governors, and
Office of Employee Benefits of the Federal Reserve System (OEB) participate in the Retirement Plan for
Employees of the Federal Reserve System (System Plan). In addition, employees at certain compensation
levels participate in the Benefit Equalization Retirement Plan (BEP) and certain Reserve Bank officers
participate in the Supplemental Retirement Plan for Select Officers of the Federal Reserve Bank (SERP). In
addition, under the Dodd-Frank Act, employees of the Bureau can elect to participate in the System Plan.
There were no Bureau participants in the System Plan as of December 31, 2010.
The System Plan provides retirement benefits to employees of the Federal Reserve Banks, Board of Governors, and
OEB and in the future will provide retirement benefits to certain employees of the Bureau. The FRBNY, on
behalf of the System, recognizes the net asset or net liability and costs associated with the System Plan in its
consolidated financial statements. During the years ended December 31, 2010 and 2009, costs associated with
the System Plan were not reimbursed by other participating employers.
The Bank's projected benefit obligation, funded status, and net pension expenses for the BEP and the SERP at
December 31, 2010 and 2009, and for the years then ended, were not material.
Thrift Plan
Employees of the Bank participate in the defined contribution Thrift Plan for Employees of the Federal Reserve
System (Thrift Plan). The Bank matches employee contributions based on a specified formula. Effective
April 1, 2009, the Bank matches 100 percent of the first 6 percent of employee contributions from the date of
hire and provides an automatic employer contribution of 1 percent of eligible pay. For the first three months of
the year ended December 31, 2009, the Bank matched 80 percent of the first 6 percent of employee
contributions for employees with less than five years of service and 100 percent of the first 6 percent of
employee contributions for employees with five or more years of service. The Bank's Thrift Plan
contributions totaled $5 million and $4 million for the years ended December 31, 2010 and 2009, respectively,
and are reported as a component of "Salaries and benefits" in the Statements of Income and Comprehensive
Income.
12. POST RETIREMENT BENEFITS OTHER THAN RETIREMENT PLANS AND POST EMPLOYMENT BENEFITS
Post
retirement
Benefits
Other
Than
Retirement
Plans
In addition to the B a n k ' s retirement plans, employees w h o have m e t certain age and length-of-service
a r e e l i g i b l e f o r b o t h m e d i c a l b e n e f i t s a n d life i n s u r a n c e c o v e r a g e d u r i n g
requirements
retirement.
T h e B a n k f u n d s b e n e f i t s p a y a b l e u n d e r t h e m e d i c a l a n d life i n s u r a n c e p l a n s a s d u e a n d , a c c o r d i n g l y , h a s n o
plan
assets.
F o l l o w i n g is a r e c o n c i l i a t i o n o f t h e b e g i n n i n g a n d e n d i n g b a l a n c e s o f t h e b e n e f i t o b l i g a t i o n (in m i l l i o n s ) :
At
December
31,
2010
and
2009,
the
weighted-average
discount
rate
postretirement benefit obligation were 5.25 percent and 5.75 percent,
assumptions
used
in
developing
D i s c o u n t rates reflect yields available o n high-quality corporate b o n d s that w o u l d generate the c a s h flows
to pay the plan's benefits w h e n
due.
the
respectively.
necessary
F o l l o w i n g is a r e c o n c i l i a t i o n o f t h e b e g i n n i n g a n d e n d i n g b a l a n c e o f t h e p l a n assets, t h e u n f u n d e d
p o s tr e t i r e m e n t
benefit obligation, a n d the accrued postretirement benefit costs (in millions):
row c
Contr
Post R
Post R
Post R
Post R
Post R
2010:
Post R
show
Post R
show
Post R
show
A c c r u e d postretirement benefit costs are reported as a c o m p o n e n t of " A c c r u e d benefit costs" in the Statements
of
Condition.
F o r m e a s u r e m e n t purposes, the a s s u m e d health care cost trend rates at D e c e m b e r 3 1 are as follows:
row c
Healt
rate t
2010:
Year
A s s u m e d health care cost trend rates have a significant
effect
o n the a m o u n t s reported for health care plans.
effects
for the
A
1
year
e n d e d D e c e m b e r 3 1 , 2 0 1 0 ( i n m i l l i o n s ) :rowcol1:AssumedHealthCareCostTrendsyearendingDecember31,2010:col2:1percentagepointincreasecol3:1percentagepointdecreaseendheaderrow
Assum
1 per
1 per
1 per
T h e following is a s u m m a r y of t h e c o m p o n e n t s of n e t periodic p o s t r e t i r e m e n t benefit e x p e n s e for t h e y e a r s e n d e d
D e c e m b e r 31 (in millions):
header row col1: Components of net periodic post retirement benefits expenses:
Col2: 2010
col3:2009 total end header row
Components of net periodic post retirement benefits expenses:Service cost-benefits earned during the period 2010:$3.7, 2009:$3.0
Components of net periodic post retirement benefits expenses:Interest cost on accumulated benefit obligation:2010:$5.3, 2009:5.0
Components of net periodic post retirement benefits expenses:Amortization of prior service cost 2010:(0.3), 2009:(0.4)
Components of net periodic post retirement benefits expenses:Total periodic expense:2010:$9.9,
2009:$8.7
Components of net periodic post retirement benefits expenses:Curtailment gain:2010:$Blank,
2009:$(0.2)
Components of net periodic post retirement benefits expenses:Net periodic post retirement benefit expense:2010:$9.9, 2009:$8.5
Estimated amounts that will be amortized from accumulated other comprehensive loss into
net periodic postretirement benefit expense (credit) in 2011 are shown below:
Prior service cost
$
(0.2)
N e t postretirement benefit costs are actuarially determined u s i n g a January 1 m e a s u r e m e n t date.
At January
1,
2 0 1 0 a n d 2009, the w e i g h t e d - a v e r a g e discount rate a s s u m p t i o n s u s e d to determine net periodic postretirement
benefit costs w ere 5.75 percent and 6.00 percent, respectively.
N e t p e r i o d i c p o s t r e t i r e m e n t benefit e x p e n s e is r e p o r t e d as a c o m p o n e n t of " S a l a r i e s a n d benefits" i n the S t a t e m e n t s
of Income and Comprehensive Income.
A c u r t a i l m e n t g a i n a s s o c i a t e d w i t h r e s t r u c t u r i n g p r o g r a m s t h a t a r e d e s c r i b e d i n N o t e 14 w a s r e c o g n i z e d i n n e t
i n c o m e in the y e a r e n d e d D e c e m b e r 31, 2009, related to e m p l o y e e s w h o t e r m i n a t e d e m p l o y m e n t d u r i n g 2009.
T h e Medicare Prescription Drug, Improvement and Modernization Act of 2003 established a prescription
drug
benefit u n d e r M e d i c a r e (Medicare Part D ) a n d a federal subsidy to sponsors of retiree health care benefit plans
that provide benefits that are at least actuarially equivalent to M e d i c a r e Part D.
T h e benefits provided under
the B a n k ' s p l a n to certain participants are at least actuarially equivalent to the M e d i c a r e Part D
d r u g benefit.
The
estimated
effects
of the
subsidy
are
reflected
in actuarial
gain in the
prescription
accumulated
postretirement benefit obligation and net periodic postretirement benefit expense.
Federal M e d i c a r e Part D subsidy receipts w e r e $0.3 million a n d $0.4 million in the years e n d e d D e c e m b e r 31, 2 0 1 0
and 2009, respectively.
E x p e c t e d receipts in 2011, related to benefits paid in the years ended D e c e m b e r 31,
2 0 1 0 a n d 2009, are $0.1 million.
Following is a summary of expected postretirement benefit payments (in millions):
header row col1:Expected
Expected Post Retiremen
Expected Post Retiremen
Expected Post Retiremen
Expected Post Retiremen
Expected Post Retiremen
Expected Post Retiremen
Total: $61.1 Without Sub
Post employment
Benefits
T h e B a n k offers benefits to former o r inactive e m p l o y e e s .
P o s t e m p l o y m e n t benefit costs are actuarially
d e t e r m i n e d a n d i n c l u d e the cost of m e d i c a l a n d dental insurance, survivor i n c o m e , disability benefits, a n d selfinsured w o r k e r s ' c o m p e n s a t i o n expenses. T h e a c c r u e d p o s t e m p l o y m e n t benefit costs r e c o g n i z e d b y t h e B a n k
at D e c e m b e r 31, 2 0 1 0 a n d 2 0 0 9 , w e r e $8 m i l l i o n a n d $9 million, respectively. T h i s cost is included as a
c o m p o n e n t of " A c c r u e d benefit c o s t s " in the Statements of Condition. N e t periodic p o s te m p l o y m e n t benefit
e x p e n s e i n c l u d e d in 2 0 1 0 a n d 2 0 0 9 o p e r a t i n g e x p e n s e s w e r e $1 m i l l i o n a n d $3 million, respectively, a n d are
r e c o r d e d as a c o m p o n e n t of "Salaries a n d benefits" in the Statements of I n c o m e a n d C o m p r e h e n s i v e I n c o m e .
13.
ACCUMULATED OTHER COMPREHENSIVE INCOME A N D OTHER COMPREHENSIVE
INCOME
Following
other
is
a
reconciliation
of
beginning
and
ending
balances
of
accumulated
comprehensive
loss
(in
m i l l i o n s ) :rowcol1:AmountRelatedtoPostRetirement benefits otherthanretirement plansendheaderrowBalanceatJanuary1,2009:
Amount Related to Post Retirement benefits other than retireme
A d d i t i o n a l detail r e g a r d i n g the classification of a c c u m u l a t e d other c o m p r e h e n s i v e loss is i n c l u d e d in N o t e 12.
14.
BUSINESS RESTRUCTURING
CHARGES
I n 2010, t h e R e s e r v e B a n k s a n n o u n c e d the c o n s o l i d a t i o n of s o m e of their currency p r o c e s s i n g operations. A s a
result of this initiative, currency p r o c e s s i n g o p e r a t i o n s performed b y t h e S a n A n t o n i o b r a n c h will b e
c o n s o l i d a t e d into the H o u s t o n b r a n c h .
I n 2 0 0 9 , the B a n k a n n o u n c e d that i n 2 0 1 0 it will eliminate its c h e c k print-site function, w h i c h is t h e only r e m a i n i n g
c h e c k o p e r a t i o n performed b y the B a n k .
Before 2009, the R e s e r v e B a n k s a n n o u n c e d t h e acceleration of their c h e c k restructuring initiatives to a l i g n the
c h e c k p r o c e s s i n g infrastructure a n d operations w i t h d e c l i n i n g c h e c k p r o c e s s i n g v o l u m e s .
The new
infrastructure c o n s o l i d a t e d o p e r a t i o n s into t w o regional R e s e r v e B a n k p r o c e s s i n g sites; o n e i n Cleveland, for
p a p e r c h e c k p r o c e s s i n g , a n d o n e i n Atlanta, for electronic c h e c k processing.
F o l l o w i n g i s a s u m m a r y o f f i n a n c i a l i n f o r m a t i o n r e l a t e d t o t h e r e s t r u c t u r i n g p l a n s ( i n m i l l i o n s ) :headerrowcol1:Information relatingtorestructuring plansasof Decem
2009 Restructuring Planscol2: 2008 and pr
2009 Restructuring Plans 2008 and prior Restructuring Plans Total 2010 Restructuring Plans 2009 Restructuring Plans 2008 and
prior Restructuring Plans Total Information relating to restructuring plans as of December 31, 2010:Total expected costs related to restructuring activity:2010 Restructuring Plans:$2.4,2009 Restructuring Plans $
and prior Restructuring Plans $2.9Total$6.3Information relating to restructuring plans as of December 31, 2010:Estimated future costs related to restructuring activity:2010 Restructuring Plans:$0.9, 2009 Restru
$Blank, 2008 and prior Restructuring Plans $Blank, Total $0.9Information relating to restructuring plans as of December 31, 2010:Expected completion date:2010 Restructuring Plans: Completed in 2011 2009 R
Plans Completed in 2010 2008 and prior Restructuring Plans:Completed in 2009 Total : Blank header row col1: Reconciliation of liability balances:col2: 2010 Restructuring Planscol2: 2009 Restructuring Plans
col2: 2008 and prior Restructuring Plans col2: Total Total end header row Reconciliation of liability balances:Balance at January 1, 2009: 2010 Restructuring Plans: $Blank 2009 Restructuring Plans:$Blank
2008 and prior Restructuring Plans:$2.5 Total: $2.5 Reconciliation of liability balances:Employee separation costs 2010 Restructuring Plans: $Blank 2009 Restructuring Plans:$1.0 2008 and prior Restructuring P
Total: $1.0 Reconciliation of liability balances:Adjustments 2010 Restructuring Plans: $Blank 2009 Restructuring Plans:$Blank2008 and prior Restructuring Plans:$(0.2)Total:$(0.2)Reconciliation of liability bal
2010 Restructuring Plans: $Blank2009 Restructuring Plans:$Blank2008 and prior Restructuring Plans:$(0.2)Total:$(0.2) Balance at December 31,2009: 2010 Restructuring Plans: $Blank2009 Restructuring Plans
2008 and prior Restructuring Plans:$0.3Total:$1.3Employee separation costs: 2010 Restructuring Plans: $1.4 2009 Restructuring Plans:$0.1 2008 and prior Restructuring Plans:$Blank
Total:$1.5Payments: 2010 Restructuring Plans: $Blank 2009 Restructuring Plans:$(0.2) 2008 and prior Restructuring Plans:$Blank Total:$(0.2) Balance at December 31, 2010:
2010 Restructuring Plans: $Blank 2009 Restructuring Plans:$(0.2) 2008 and prior Restructuring Plans:$Blank Total:$(0.2)
Employee
separation
announced
costs
are
restructuring
primarily
plans.
severance
Separation
costs
costs
for
that
identified
are
staff
provided
reductions
under
terms
arrangements are recorded based o n the accumulated benefit earned by the employee.
provided
benefit
under the
terms
of
as of the termination
related to e m p l o y e e
one-time
benefit
date
recorded
and
arrangements
ratably
are
measured
with
ongoing
the
benefit
Separation costs that are
based
over the period to termination.
separations are reported as a component
Income and Comprehensive
generally
associated
of
of "Salaries and benefits"
o n the
expected
Restructuring
in the
costs
Statements
A d j u s t m e n t s to the accrued liability are primarily d u e to c h a n g e s in the estimated restructuring costs a n d are
as a c o m p o n e n t of the appropriate expense category in the Statements of I n c o m e a n d Comprehensive
shown
Income.
Costs associated w i t h e n h a n c e d p e n s i o n benefits for all R e s e r v e B a n k s are r e c o r d e d o n the b o o k s o f the F R B N Y
discussed in Note
15.
S U B S E Q U E N T
There
were
no
December
of
Income.
as
11.
E V E N T S
subsequent
31, 2010.
events
that
require
adjustments
Subsequent events were
B a n k issued the financial
statements.
to
or
disclosures
evaluated through March
in the
financial
statements
as
22, 2 0 1 1 , w h i c h is the date that
of
the
@FedFRASER