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The Federal Reserve
Bank of Atlanta
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 ATLANTA
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
FEDERAL
RESERVE
BANK
of ATLANTA
March 22, 2011
1000 Peachtree Street N.E.
Atlanta, Georgia 30309-4470
404.498.8500
www.frbatlanta.org
To the Board of Directors of the Federal Reserve Bank of Atlanta:
The management of the Federal Reserve Bank of Atlanta (FRB Atlanta) is responsible for the preparation
and fair presentation of the Statements of Condition, Statements of Income and Comprehensive Income,
and Statements of Changes in Capital as of December 31, 2010 (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 FRB Atlanta 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 the degree of compliance with the policies or procedures may deteriorate.
The management of the FRB Atlanta 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 FRB Atlanta maintained effective internal control over financial
reporting as it relates to the Financial Statements.
Federal Reserve Bank of Atlanta
(Signedby)Dennis P. Lockhart, President and Chief Executive Officer
(Signedby):Anne M. DeBeer, Senior Vice President and Chief Financial Officer
Deloitte & Touche LLP
Suite 2000
191 Peach tree Street NE
Atlanta, GA 30303-1943
USA
Tel: +1 404 220 1500
www.deloitte.com
INDEPENDENT AUDITORS' REPORT
To the Board of Governors of the Federal Reserve System
and the Board of Directors of the Federal Reserve Bank of Atlanta:
We have audited the accompanying Statements of Condition of the Federal Reserve Bank of Atlanta
("FRB Atlanta") 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 Atlanta 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 Atlanta'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 Atlanta'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 Atlanta's internal control over financial reporting is a process designed by, or under the
supervision of, the FRB Atlanta's principal executive and principal financial officers, or persons
performing similar functions, and effected by the FRB Atlanta'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 Atlanta'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 Atlanta; (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 Atlanta
are being made only in accordance with authorizations of management and directors of the FRB Atlanta;
Member of
Deloitte Touche Tohmatsu Limited
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the FRB Atlanta's assets that could have a material effect on the
financial statements.
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 Atlanta 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 Atlanta 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 Atlanta 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.
(Signed
by2011
) Deloitte & Touche, LLP
March 22,
FEDERAL RESERVE BANK OF ATLANTA
Abbreviations:
ACH
AMLF
ASC
BEP
Bureau
Dodd-Frank Act
FAM
FASB
Fannie Mae
Freddie Mac
FOMC
FRBC
FRBNY
GAAP
GSE
IMF
MBS
OEB
OFR
SDR
SERP
SOMA
STRIP
TAF
TBA
TDF
TIPS
TSLF
TOP
Automated clearinghouse
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility
Accounting Standards Codification
Benefit Equalization Retirement Plan
Bureau of Consumer Financial Protection
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Financial Accounting Manual for Federal Reserve Banks
Financial Accounting Standards Board
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Federal Open Market Committee
Federal Reserve Bank of Chicago
Federal Reserve Bank of New York
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
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 ATLANTA
STATEMENTS OF CONDITION
As of December 31, 2010 and December 31, 2009
(in millions)
header
Gold
certificates
row
col 1:2009
2010
Assets
$1,385
col 2:2010
2009
2010
$col
1,356
3:
2009
end$654
header row
20 10
2009
Special
drawing
rights
certificates
2010
$654
2009
Coin
2010
$188
$220
Items
process
of
collection
$149
2009
$178
Loans:
institutions
2010
14 securities,
2009
537
SysteminDepository
Open
Market
Account:Treasury
securities,
net2010
2010$14,475
$100,963
2009
$97,108
Government-sponsored
enterprise
debt
net
2009
$20,165
Federal
agency
and
government-sponsored
enterprise
mortgage-backed
securities,
net 2010 $95,072 2009 $110,718
Foreign
currency
denominated
assets,
net
2010
$1,606
2009
$1,933
Central
bank
liquidity
swaps
2010
5
2009
785
Other
investments
2010
Blank
2009
1 2009
Accrued
interest
receivable
2010
1,346
1,520249
Bank
and
equipment,
2010
248
2009
Other
assets
2010
78
2009
72
Total premises
assets
2010
$216,183
2009
$235,496
header
row
col
1:notes
Liabilities
andnet
Capital
col
2010 agreements
col2009
3: 2009
endrepurchase
header row
Federal
Reserve
outstanding,
2010
$121,807
$103,851
System
Open
Market
Account:Securities
sold2:
under
to
2010 $5,650 2009 $9,366
Other
2010
Blank
2009
72net37,040
Deposits:Depository
2010
2009
34,951
Other liabilities
deposits
2010
4institutions
200998
3Reserve
Interest
payable
to
depository
institutions
2010
4$248
2009
4 $176
Deferred
Accrued
benefit
interest
credit
items
costs
on
Federal
2010
2010
141
2009
2009
218
notes
139
2010
2009
Inter district
settlement
account
2010
$48,131
2009
$83,531
Other
liabilities
2010
20
2009
23
Total
liabilities
2010
213,143
2009
232,334
header
row
col
1:
Capital
Paid
In
col
2:
2010
col
3:
2009
end
header
row and $19 million at
Surplus
(including
accumulated
other
comprehensive
loss
of
$14
million
December
31,
2010
and
2009,
respectively)2010
1,520
2009
1,581
Total liabilities
capital 2010
2009
3,162
Total
and3,040
capital
2010
$216,183 2009 $235,496
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
Title
of
thissurplus
table
Surplus
and deals
with
capital
paidInin,
income
retained,
loss,col
total
and total
ca
header
row
col
1: is
Surplus
Balance
col
2:header
Capital
Paid
colnet
3:Net
Income
Retained
4:surplus
Accumulated
other
col5:
total
col6:total
capital
end
row
Balance
at January
1, stock
2009,
(32,233,431
shares)
$1,612
$1,630
$(18)
$1,612
$3,224
Net
change
in
capital
redeemed
(612,129
shares)
(31)
blank
blank
blank
(31)
Transferred
from
surplus
and
change
in
accumulated
other
comprehensive
loss
Blank
(30)
(1)
(31)
(31)
Balance
at
December
31,
2009
(31,621,302
shares)
$
1,581
$1,600
$(19)
$1,581
$3,162
Net
change
in
capital
stock
redeemed
(1,221,975
shares)
(61)
Blank(14)
Blank
Blank
(61) (66) 5(61) (61)
Transferred
from
surplus
and
change
in
accumulated
other
comprehensive
loss$3,040
Blank
Balance
at December
31, 2010
(30,399,327
shares)
$1,520
$1,534
$1,520
The accompanying notes are an integral part of these financial statements.
1.
STRUCTURE
The Federal Reserve Bank of Atlanta (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 Sixth Federal Reserve District, which includes Georgia, Florida, Alabama, and portions of
Louisiana, Tennessee, and Mississippi.
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
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.
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 the Retail Payments Office and accounting
related projects.
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 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 $488 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: 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, 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 $20,851 million and $32,645 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 and Compensation Paid for Service Costs Incurred
The Bank 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. 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. Similarly, the Federal Reserve Bank of
Chicago (FRBC) has overall responsibility for managing the Reserve Banks' provision of electronic
access services to depository institutions and, as a result, recognizes total System revenue for these
services on its Statements of Income and Comprehensive Income. The Bank, the FRBNY, and the FRBC
compensate the applicable Reserve Banks for the costs incurred to provide these services. Compensation
received by the Bank for providing Fedwire funds, securities and electronic access services is reported as
"Other income" in the Statements of Income and Comprehensive Income. Compensation paid by the
Bank for check and ACH services is reported as "Compensation paid for service costs incurred" 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 for each of the years ended December 31, 2010 and 2009, 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. 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. Costs and liabilities associated with enhanced postretirement benefits are discussed in Note 12.
u. Recently Issued Accounting Standards
In June 2009, FASB issued Statement of Financial Accounting Standards 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
The remaining maturity distribution of loans outstanding at December 31, 2010, and total loans outstanding at
December 31, 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
requirements for these programs.
borrower no longer qualifies for
outstanding loan or, for primary or
monitored daily to ensure that borrowers continue to meet eligibility
The financial condition of borrowers is monitored by the Bank and, if a
these programs, the Bank will generally request full repayment of the
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 9.463 percent and 12.049 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,
excluding accrued interest, held in the SOMA at December 31 was as follows (in millions):
The total of the Treasury securities, GSE debt securities, and Federal agency and GSE MBS, net, excluding accrued
interest, held in the SOMA at December 31 was as follows (in millions):
The fair value amounts in the above tables are presented solely for informational purposes. Although the fair value
of security holdings can be substantially greater than or less than the recorded value at any point in time, these
unrealized gains or losses have no effect on the ability of the Reserve Banks, as the central bank, to meet their
financial obligations and responsibilities. The fair value of Federal agency and GSE MBS was determined
using a model-based approach that considers observable inputs for similar securities; fair value for all other
SOMA security holdings was determined by reference to quoted prices for identical securities.
The fair value of the fixed-rate Treasury securities, GSE debt securities, and Federal agency and GSE MBS in the
SOMA's holdings is subject to market risk, arising from movements in market variables, such as interest rates
and securities prices. The fair value of Federal agency and GSE MBS is also affected by the rate of
prepayments of mortgage loans underlying the securities.
The following table provides additional information on the amortized cost and fair values of the Federal agency and
GSE MBS portfolio at December 31, 2010 and 2009 (in millions):
Financial information related to securities purchased under agreements to resell and securities sold under
agreements to repurchase for the years ended December 31, was as follows (in millions):
header row col 1: Allocated to the Bank col 2: Securities purchased under agreements to resell 2010 col 3:
Securities purchased under
col 4:Securities sold under agreements to repurchase 2010 col5: Securities sold under agreements to repurchase 2009
Total end header row
Allocated to the Bank:Contract amount outstanding, end of year $Blank $Blank $5,650
Average daily amount outstanding, during the year $Blank 360 5,964 7,733
Maximum balance outstanding, during the year $Blank 7,960 9,366 9,366
Securities pledged (par value), end of year $Blank $Blank 4,130 9,381
header row col 1: SOMA col 2: Securities purchased under agreements to resell 2010 c
under agreements to resell 2009col 4:Securities sold under agreements to repurchase 20
sold under agreements to repurchase 2009 Total end header row
Contract amount outstanding, end of year $Blank $Blank $59,703 $77,732
Average daily amount outstanding, during the year $Blank 3,616 58,476 67,837
Maximum balance outstanding, during the year Blank 80,000 77,732 89,525
Securities pledged (par value), end of year $Blank $Blank 43,642 77,860
The contract amounts for securities purchased under agreements to resell and securities sold under agreements to
repurchase approximate fair value. The FRBNY executes transactions for the purchase of securities under
agreements to resell primarily to temporarily add reserve balances to the banking system. Conversely,
to sell securities under agreements to repurchase are executed primarily to temporarily drain
reserve balances from the banking system.
The remaining maturity distribution of Treasury securities, GSE debt securities, Federal agency and GSE MBS
bought outright, and securities sold under agreements to repurchase that were allocated to the Bank at
December 31, 2010 was as follows (in millions):
header row col 1: Treasury Securities bought and sold under agreements col 2: Within 1
col 4: 91 days to 1 year col5: Over 1 year to 5 years col6:Over 5 years to 10 years
col 7: Over 10 years col8: Total Total end header row
Treasury securities (par value)$927 $2,348 $5,134 $41,598 $31,601 $15,053 $96,661
GSE debt securities (par value) 107 1,309 2,697 6,723 2,896 222 $13,954
Federal agency and GSE MBS (par value) Blank Blank Blank 2 2 93,880 $93,884
Securities sold under agreements to repurchase (contract amount) 5,650 Blank Blank B
Federal agency and GSE MBS are reported at stated maturity in the table above. The estimated weighted average
life of these securities at December 31, 2010, which differs from the stated maturity primarily because the
weighted average life factors in prepayment assumptions, is approximately 4.2 years.
The par value of Treasury and GSE debt securities that were loaned from the SOMA at December 31, was as
follows (in millions):
Other investments consist of cash and short-term investments related to the Federal agency and GSE MBS
portfolio. Other liabilities, which are related to purchases of Federal agency and GSE MBS, arise from the
failure of a seller to deliver securities to the FRBNY on the settlement date. Although the Bank has ownership
of and records its investments in the MBS as of the contractual settlement date, it is not obligated to make
payment until the securities are delivered, and the amount reported as other liabilities represents the Bank's
obligation to pay for the securities when delivered. The amount of other investments and other liabilities
allocated to the Bank and held in the SOMA at December 31, was as follows
(inmillions):headerrowcol1:Othercol2:AllocatedtotheB
col 3: Allocated to the Bank 2009
col 4: Total SOMA 2010 col5: Total SOMA 2009 Total end
Other investments $Blank $1 $Blank $5
Other liabilities $Blank $72 $Blank $601
A
The FRBNY enters into commitments to buy Treasury and GSE debt securities and records the related securities on
a settlement-date basis. There were no commitments to buy Treasury and GSE debt securities as of December
31, 2010.
The FRBNY enters into commitments to buy Federal agency and GSE MBS and records the related MBS on a
settlement-date basis. There were no commitments to buy or sell Federal agency or GSE MBS as of December
31, 2010.
During the years ended December 31, 2010 and 2009, the Reserve Banks recorded net gains from dollar roll and
coupon swap related transactions of $782 million and $879 million, respectively, of which $83 million and
$113 million, respectively, was allocated to the Bank. These net gains are reported as "Non-interest income:
Federal agency and government-sponsored enterprise mortgage-backed securities gains, net" in the
Statements of Income and Comprehensive Income.
.
FOREIGN CURRENCY DENOMINATED ASSETS
The FRBNY holds foreign currency deposits with foreign central banks and the Bank for International Settlements
and invests in foreign government debt instruments. These foreign government debt instruments are
guaranteed as to principal and interest by the issuing foreign governments. In addition, the FRBNY enters into
transactions to purchase Euro-denominated government debt securities under agreements to resell for which
the accepted collateral is the debt instruments issued by the governments of Belgium, France, Germany, Italy,
the Netherlands, and Spain.
The Bank's allocated share of foreign currency denominated assets was approximately 6.166 percent and 7.647
percent at December 31, 2010 and 2009, respectively.
The Bank's allocated share of foreign currency denominated assets, including accrued interest, valued at amortized
cost and foreign currency market exchange rates at December 31, was as follows (in millions):
hea
Totalend header row
Euro:Foreign currency deposits $435 $566
Securities purchased under agreements to resell 152 198
Government debt instruments 284 378
Japanese yen: Foreign currency deposits 239 260
Government debt instruments 496 531
TotalallocatedtotheBank$1,606$1,933AtDecember 31, 2010 and 2009, the fair value of foreign currency denominated assets, including
allocated to the Bank was $1,616 million and $1,948 million, respectively. The fair value of government debt
instruments was determined by reference to quoted prices for identical securities. The cost basis of foreign
currency deposits and securities purchased under agreements to resell, adjusted for accrued interest,
approximates fair value. Similar to the Treasury securities, GSE debt securities, and Federal agency and GSE
MBS discussed in Note 6, unrealized gains or losses have no effect on the ability of a Reserve Bank, as the
central bank, to meet its financial obligations and responsibilities. The fair value is presented solely for
informational purposes.
Total Reserve Bank foreign currency denominated assets were $26,049 million and $25,272 million at December
31, 2010 and 2009, respectively. At December 31, 2010 and 2009, the fair value of the total Reserve Bank
foreign currency denominated assets, including accrued interest, was $26,213 million and $25,480 million,
respectively.
The remaining maturity distribution of foreign currency denominated assets that were allocated to the Bank at
December 31, 2010, was as follows (in millions):
At December 31, 2010 and 2009, the authorized warehousing facility was $5 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 $13 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 6.166 percent and 7.647 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 $5 million and $785 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.
BANK PREMISES, EQUIPMENT, AND SOFTWARE
Bank premises and equipment at December 31 were as follows (in millions):
The Bank leases space to outside tenants with remaining lease terms ranging from one to nine years. Rental
income from such leases was $4 million for each of the years ended December 31, 2010 and 2009, and is
reported as a component of "Other income" in the Statements of Income and Comprehensive Income. Future
minimum lease payments that the Bank will receive under noncancelable lease agreements in existence at
December 31, 2010 are as follows (in millions):
2011
2012
2013
2014
2015
Thereafter
Total
$
1.6
0.9
0.6
0.6
0.5
0.4
$ 4.6
The Bank had capitalized software assets, net of amortization, of $5 million and $6 million at December 31, 2010
and 2009, respectively. Amortization expense was $1 million and $3 million for the years ended December
31, 2010 and 2009, respectively. Capitalized software assets are reported as a component of "Other assets" in
the Statements of Condition and the related amortization is reported as a component of "Operating expenses:
Other" in the Statements of Income and Comprehensive Income.
0. COMMITMENTS AND CONTINGENCIES
Conducting its operations, the Bank enters into contractual commitments, normally with fixed expiration dates or
termination provisions, at specific rates and for specific purposes.
At December 31, 2010, the Bank was obligated under noncancelable leases for premises and equipment with
remaining terms ranging from one to approximately five years. These leases provide for increased rental
payments based upon increases in real estate taxes and operating costs.
Rental expense under operating leases for certain operating facilities, warehouses, and office equipment (including
taxes, insurance, and maintenance when included in rent), net of sublease rentals, was $1 million for each of
the years ended December 31, 2010 and 2009.
Future minimum rental payments under noncancelable operating leases, net of sublease rentals, with remaining
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.
The Bank is involved in certain legal actions and claims arising in the ordinary course of business. Although it is
difficult to predict the ultimate outcome of these actions, in management's opinion, based on discussions with
counsel, the aforementioned litigation and claims will be resolved without material adverse effect on the
financial position or results of operations of the Bank.
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 $8 million and $7 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. POSTRETIREMENT BENEFITS OTHER THAN RETIREMENT PLANS AND POSTEMPLOYMENT BENEFITS
Postretirement Benefits Other Than Retirement Plans
In addition to the Bank's retirement plans, employees who have met certain age and length-of-service requirements
are eligible for both medical benefits and life insurance coverage during retirement.
The Bank funds benefits payable under the medical and life insurance plans as due and, accordingly, has no plan
assets.
Following is a reconciliation of the beginning and ending balances of the benefit obligation (in millions):
header ro
Total end
Accumul
Service c
Interest c
Net actua
Special te
Contribut
Benefits p
Medicare
Accumul
At December 31, 2010 and 2009, the weighted-average discount rate assumptions used in developing the
postretirement benefit obligation were 5.25 percent and 5.75 percent, respectively.
Discount rates reflect yields available on high-quality corporate bonds that would generate the cash flows necessary
to pay the plan's benefits when due.
header row
Total end header row
Accumulated post retirement benefit obligation at January 1 $122.9 $115.6
Service cost benefits earned during the period 4.5 3.9
Interest cost on accumulated benefit obligation 7.1 7.1
Net actuarial (gain) loss (5.2) 1.2
Special termination benefits loss 0.1 Blank
Contributions by plan participants 1.7 1.5
Benefits paid (7.3) (6.8)
Medicare Part D subsidies 0.4 0.4
Accumulated post retirement benefit obligation at December 31 $124.2 $122.9
Fair value of plan assets at December 31 $Blank $Blank
Unfunded obligation and accrued post retirement benefit cost $124,2 $122.9
Amounts included in accumulated other comprehensivelossareshownbelow:
Prior service cost
$
0.7
Net actuarial loss
Total accumulated other comprehensive loss
$
(14.7)
(14.0)
$
1.8
$
(21.1)
(19.3)
Accrued post retirement benefit costs are reported as a component of "Accrued benefit costs" in the Statements of
Condition.
:For measurement purposes, the assumed health care cost trend rates at December 31 are as follows
header row
Total end h
Health care
Rate to whi
Year that th
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A 1
percentage point change in assumed health care cost trend rates would have the following effects for the year
ended December 31, 2010 (in millions):
header row col 1:Heath care cost trends col 2:1 percentage point increase col 3:1 percentage point decrease
Total end header row
Effect on aggregate of service and interest cost components of net periodic post retirement benefit costs $2.0 $(1.6)
Effect on accumulated post retirement benefit obligation 15.8 (13.1)
The following is a summary of the components
of net periodic postretirement benefit expense for the years ended
December 31 (in millions):
header ro
Total end
Service c
Interest c
Amortiza
Amortiza
Total per
Curtailme
Special te
Net perio
Estimated amounts that will be amortized from accumulated other comprehensive loss into
p o s t r e t i r e m e n t b e n e f i t e x p e n s e in 2011 are s h o w n b e l o w :
Prior s e r v
N e t postr e t i r e m e n t b e n e f i t costs are actuarially d e t e r m i n e d u s i n g a January 1 m e a s u r e m e n t date. A t 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 d i s c o u n t rate a s s u m p t i o n s u s e d to d e t e r m i n e net periodic p o s t r e t i r e m e n t
b e n e f i t costs w e r e 5.75 p e r c e n t a n d 6.00 percent, respectively.
N e t periodic p o s t retirement b e n e f i
componen
T h e r e c o g n i t i o n of special t e r m i n a t i o n b e n e f i t l o s s e s is primarily t h e result of e n h a n c e d r e t i r e m e n t b e n e f i t s
p r o v i d e d to e m p l o y e e s d u r i n g t h e restructuring d e s c r i b e d in N o t e 14.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 established a prescription drug
benefit under Medicare (Medicare Part D) and a federal subsidy to sponsors of retiree health care benefit plans
that provide benefits that are at least actuarially equivalent to Medicare Part D. The benefits provided under
the Bank's plan to certain participants are at least actuarially equivalent to the Medicare Part D prescription
drug benefit. The estimated effects of the subsidy are reflected in actuarial loss in the accumulated
postretirement benefit obligation and net periodic postretirement benefit expense.
Federal Medicare Part D subsidy receipts were $345 thousand and $484 thousand in the years ended December 31,
2010 and 2009, respectively. Expected receipts in 2011, related to benefits paid in the years ended December
31, 2010 and 2009, are $132 thousand.
Following is a summary of expected postretirement benefit payments (in millions):
header
row
col 1:Exp
Total
end
header
row
2011
$6.2
$5.8
2012
6.6
6.1
2013
7.1
6.5
2014
7.4
6.8
2015
7.8
7.0
2016-2020
45.5
40.3
Total:
$80.6
$72.5
Postemployment Benefits
The Bank offers benefits to former or inactive employees. Postemployment benefit costs are actuarially
determined using a December 31 measurement date and include the cost of medical and dental insurance,
survivor income, disability benefits, and self-insured workers' compensation expenses. The accrued
postemployment benefit costs recognized by the Bank at December 31, 2010 and 2009 were $11 million for
each of the years. This cost is included as a component of "Accrued benefit costs" in the Statements of
Condition. Net periodic postemployment benefit expense included in 2010 and 2009 operating expenses were
$102 thousand and $3 million, respectively, and are recorded as a component of "Salaries and benefits" in the
Statements of Income and Comprehensive Income.
13. ACCUMULATED OTHER COMPREHENSIVE INCOME AND OTHER COMPREHENSIVE INCOME
Following is a reconciliation of beginning and ending balances of accumulated other comprehensive loss (in
millions):header row col 1:Beginning and Ending Balances of accumulated other than comprehensive loss col 2:1
Amount related to post retirement ben
retirement plans Total end header row
Balance at January 1, 2009 $(18 3)
Change in funded status of benefit pla
Net actuarial loss arising during the y
Amortization of prior service cost (1.1
Amortization of net actuarial loss 1.7
Amortization of deferred curtailment
Change in funded status of benefit pla
Balance at December 31,2009 $(19.3)
Change in funded status of benefit pla
Amortization of prior service cost (1.1
Amortization of net actuarial loss 1.2
Change in funded status of benefit pla
Balance at December 31,2010 $(14.0)
Additional detail regarding the classification of accumulated other comprehensive loss is included in Note 12.
14. BUSINESS RESTRUCTURING CHARGES
In 2010, the Reserve Banks announced the consolidation of some of their currency processing operations. As a
result of this initiative, currency processing operations performed in Nashville will be consolidated into
Atlanta.
The Bank had no business restructuring charges in 2009.
Before 2009, the Reserve Banks announced the acceleration of their check restructuring initiatives to align the
check processing infrastructure and operations with declining check processing volumes. The new
infrastructure consolidated operations into two regional Reserve Bank processing sites; one in Cleveland, for
paper check processing, and one in Atlanta, for electronic check processing. Additional announcements prior
to 2009 included restructuring plans associated with the closure of the Retail Product Office's Check
Contingency Center in Birmingham and the consolidation of Check Adjustments to FRB Cleveland.
Following is a summary of financial information related to the restructuring plans (in millions):
Employee separation costs are primarily severance costs for identified staff reductions associated with the
announced restructuring plans. Separation costs that are provided under terms of ongoing benefit
arrangements are recorded based on the accumulated benefit earned by the employee. Separation costs that are
provided under the terms of one-time benefit arrangements are generally measured based on the expected
benefit as of the termination date and recorded ratably over the period to termination. Restructuring costs
related to employee separations are reported as a component of "Salaries and benefits" in the Statements of
Income and Comprehensive Income.
Adjustments to the accrued liability are primarily due to changes in the estimated restructuring costs and are shown
as a component of the appropriate expense category in the Statements of Income and Comprehensive Income.
Costs associated with enhanced pension benefits for all Reserve Banks are recorded on the books of the FRBNY as
discussed in Note 11. Costs associated with enhanced postretirement benefits are disclosed in Note 12.
15. SUBSEQUENT EVENTS
There were no subsequent events that require adjustments to or disclosures in the financial statements as of
December 31, 2010. Subsequent events were evaluated through March 22, 2011, which is the date that the
Bank issued the financial statements.
@FedFRASER