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l l★K

Federal Reserve Bank
of Dallas

HELEN E. HOLCOMB
FIRST VICE PRESIDENT AND
CHIEF OPERATING OFFICER

September 18, 2002

DALLAS, TEXAS
75265-5906

Notice 02-50

TO: The Chief Operating Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
New Margins for the Valuation of Collateral
DETAILS
The Federal Reserve System (FRS) periodically reassesses the margins that are used
in the valuation of collateral pledged to the U.S. Treasury and the Federal Reserve for Treasury
Programs, Discount Window, and Payments System Risk purposes. This reassessment helps to
ensure that the collateral margins reflect current market conditions. These margins are used to
account for various risks and are applied both to priced and to nonpriced pledged collateral.
In the recent reevaluation, the FRS has enhanced its valuation process for securities
that are priced by the FRS’s pricing vendor. The FRS margins have always been based on the
interest rate sensitivity of the security, which is also known as the duration of the security.
However, in this reassessment, margins were created for each type of priced security based upon
three levels/buckets of duration (0 to 5, >5 to 10, >10). To illustrate, when a security is pledged
as collateral, the FRS will obtain the price and duration of the security from its pricing vendor
and apply the margin according to the duration bucket within which the security falls.
The updated margins for priced and nonpriced collateral will be effective September
30, 2002. The current Discount Window and Payments System Risk margin table is posted on
the Federal Reserve System’s web site at www.frbdiscountwindow.org. Please reference the
table at the web site periodically, as it will contain the most current version of the margin table,
reflecting any changes in the acceptable asset types and associated margins. The collateral
margins for Treasury purposes will be distributed under separate cover by the St. Louis Federal
Reserve Bank. The margin tables for Treasury Programs can be found on the Bureau of Public
Debt web site at www.publicdebt.treas.gov/gsr/gsrttl.htm#ttl.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

-2MORE INFORMATION
If your institution has questions regarding valuation or acceptability of assets as
collateral for Discount Window or Payments System Risk purposes or regarding any of the
information contained in this notice, please contact the Discount Window at (877) 682-3256.
Paper copies of this notice or previous Federal Reserve Bank notices can be printed
from our web site at http://www.dallasfed.org/banking/notices/index.html.
Sincerely,


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102