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2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
PRESIDENT'S LETTER
CONVERSATIONS
REPORTS
DIRECTORS & OFFICERS
FINANCIALS & MORE
Housing May Have Finally
Turned Around in 2012
Read more
Unemployment Did Not Reach a
Hoped-For Turning Point in 2012
Read more
Small Business Had
Few Turning Points in 2012
Read more
Monetary Policy Tools Used on
Fed’s Balance Sheet
Read more
Inflation Did Not
Follow a Straight Path
Read more
No Absolute Turning Point for the
European Sovereign Debt Crisis
Read more
https://www.frbatlanta.org/about/publications/annual-reports/2012.aspx
Fiscal Policy Uncertainty Pivoted
on the Actions of Congress
Read more
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Letter from the President and Introduction - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
LETTER FROM
THE PRESIDENT
and Introduction
Atlanta Fed President
Dennis Lockhart and Vice
President Bobbie
McCrackin discuss some
key turning points in the
U.S. economy in 2012.
In looking back at the economy in 2012, this annual report examines hoped for and actual
turning points on various issues that influenced monetary policy. Through seven critical
conversations, we look at the year in review as it affected and was affected by monetary policy.
The national economy in 2012 did not live up to expectations. The economy grew slowly in the face of several
persistent challenges, some of which we discuss in this report. As a result, employment expanded only gradually. As
the year drew to a close, some sectors of the economy had finally reached a turning point. Others were still waiting
for a sustained recovery to take hold.
Related Links
Financial statements
The critical
conversations
The critical conversations that follow reflect the complexities of the underlying issues and warrant thoughtful
deliberation. These conversations are enhanced by a series of video interviews with Atlanta Fed research economists
and analysts. Their insights lend a unique perspective to the discussion. In addition to monetary policy, this year's
annual report examines key issues in the Bank's two other core functions—bank supervision and regulation and the
national Retail Payments Office, which is headquartered in Atlanta. We also recap the Bank's major milestones in
2012.
Monetary policy responded aggressively in 2012, as it has for several years. Certainly, its effects were not confined to
one realm of the economy. Indeed, the broad influence of monetary policy could be seen in the nation's housing and
labor markets, as well as the subdued inflation picture. At the same time, monetary policy is not a one-way street—
the Fed's monetary actions throughout the year also responded to changes in economic circumstances.
that follow reflect
the complexities
of the underlying
economic issues
The seven critical conversations tap into a few of the most important ways in which monetary policy interacted with
the economy. I see these conversations as a starting point from which readers can explore in greater depth key
turning points that occurred in 2012 and the ways in which monetary policy worked to address the challenges that
remained. By way of an overview, here is a brief summary of these critical conversations.
and warrant
thoughtful
deliberation.
Dennis
Lockhart,
President and
Chief Executive
Housing: The housing collapse was the catalyst for the financial crisis and Great Recession. As such, I think it is
appropriate that we start our conversation by exploring this key sector. Several indicators suggest that housing
reached a turning point in 2012. Indeed, housing may finally be poised to act as a tailwind to economic growth.
Labor markets: Meanwhile, improvement in U.S. labor markets was frustratingly slow. A true turning point remained
elusive. The Federal Open Market Committee (FOMC) took bold action in 2012 to support a more robust recovery,
which it tied to "substantial improvement" in the outlook for labor markets. The annual report shows how a
"dashboard approach" to monitoring progress toward this goal may be more meaningful than focusing on a single
indicator.
Officer
Small business: No conversation about the U.S. economy is complete without mentioning small business and the
critical role it plays in fostering economic dynamism. The Atlanta Fed's understanding of the small business
landscape and the role of small business in job creation has evolved over the years, a process that continued in
2012.
Inflation: Monetary policy is primarily responsible for influencing the rate of inflation over the longer term. Perhaps,
then, it is no surprise that inflation is one of our critical conversations. Although inflation was subdued in 2012, it is
one of the potential risks that the FOMC monitors as part of our cost-benefit framework. With that said, I am confident
that we have the tools and the will to act if needed.
Sovereign debt: The European debt crisis was a persistent source of uncertainty in 2012, even though it seemed to
reach a turning point. We discuss how spillovers from the crisis affected the U.S. economy and factored into the
FOMC's outlook.
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Letter from the President and Introduction - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
Fiscal policy: Uncertainty surrounding fiscal policy weighed heavily on the economy in 2012 and challenged the
Fed's efforts to support the recovery. The annual report discusses the negative effects of this uncertainty and also
explores fiscal matters at the state and local level.
Monetary policy tools: The Federal Reserve's unconventional policy tools are the topic of this conversation. Since
the federal funds rate has been near zero since late 2008, the FOMC has resorted to balance sheet measures and
enhanced communications to support the recovery. These policies have placed us in somewhat uncharted territory
and raised legitimate concerns about the longer-term consequences. For that reason, my FOMC colleagues and I will
continue to weigh the cost and efficacy of further asset purchases.
Looking forward, I believe 2013 will be a pivotal year for monetary policy, and national economic policy more broadly.
Several key challenges to recovery loom large, including fiscal policy issues and still-weak labor markets. The
economic recovery reached some beneficial turning points in 2012, but there are more ahead before we can be
satisfied with the outcome. Monetary policy helped bring us to this point, and it will continue to influence the economy
—and vice versa—in the coming year.
As you read through the annual report, I invite you to consider these seven critical conversations and others. And in
the true spirit of conversation, let us know what you think.
Dennis P. Lockhart
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Housing May Have Finally Turned Around in 2012 - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atl…
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
Housing May Have
Finally Turned Around
in 2012
The Atlanta Fed's
Kristopher Gerardi and
Jessica Dill discuss the
encouraging trends and
persistent headwinds in
the U.S. housing market in
2012.
Related Links
EconSouth article on South
Florida housing
Atlanta Fed working paper on
foreclosure externalities
NAR's existing-home sales
report
2012 SouthPoint post on
Southeast housing
U.S. Census Bureau's new
residential construction report
After six years in the doldrums, the U.S. housing market finally appeared to reach a turning
point last year. Several key indicators trended up, including house prices, home sales, and
construction activity. Despite these and other encouraging trends, the road to recovery is long.
The housing market still faces numerous headwinds, including tight lending conditions, slow
economic growth, and high unemployment. In addition, millions of homeowners are still
"underwater," meaning they owe more on their mortgages than the value of their homes.
Nevertheless, many indicators were at least moving in the right direction at year's end. The general consensus
among housing experts, including those at the Atlanta Fed, is that the market ended 2012 on the mend and was
finally poised to act as a tailwind to economic growth. Indeed, residential fixed investment was one of the contributing
factors to the 2.2 percent increase in real gross domestic product in 2012. The recovery under way in housing
engages what has typically been a powerful engine of recovery, even if not at full throttle.
House prices turn the corner
By mid-2012, house prices had become a bright spot in the economy—a welcome development after suffering a 30
percent decline from their 2006 peak. National home price indexes, including the closely watched S&P/Case-Shiller
House Price Index, began to show annual gains in June
(see chart 1). That increase sparked a six-month run of
year-over-year increases in home prices, lending support to the claims that house prices had finally reached a
bottom.
Rising prices are a key ingredient to the housing market recovery, an improvement that has been slow to manifest.
According to Atlanta Fed research economist and associate policy adviser Kristopher Gerardi, a sustainable increase
in home prices could help fend off several headwinds plaguing housing markets, including the negative equity
problem. Falling home prices and negative equity damaged household balance sheets and sapped an important
source of housing demand by preventing current homeowners from "trading up" to larger or more expensive homes.
Rising prices more generally help boost consumer confidence and spending through the so-called wealth effect
(see the video).
Other housing indicators, including home sales and construction activity, have also shown gains. The National
Association of Realtors (NAR) reported that existing-home sales totaled 4.65 million in 2012. Sales of new homes,
tracked by the U.S. Census Bureau, ended the year on a positive note. An estimated 367,000 new homes were sold
during the year, the most since 2009.
Meanwhile, construction activity also improved, albeit
from depressed levels. Residential construction was
up 37 percent in 2012 from the previous year. It
remained low by historical standards, which
contributed to the tight supply of homes seen in some
markets. Indeed, a smaller supply of homes for sale
contributed to the price increases in 2012. The
inventory of existing homes for sale totaled 1.82
million in December, the NAR reported. That figure
amounted to a roughly 4.4-month supply, the lowest
since May 2005.
In addition to still-weak construction activity, other factors helped hold down the supply of new homes. Many potential
sellers were waiting for house prices to increase further, and millions more were still underwater.
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Fed lends a monetary policy hand
To support the housing recovery and stimulate economic growth more generally, the Federal Reserve announced in
September that it would purchase mortgage-backed securities at a pace of $40 billion per month. Those purchases,
along with the Fed's previous large-scale asset purchases (LSAP), were intended to put downward pressure on
longer-term interest rates and support the housing recovery by encouraging people to finance home purchases with
mortgages.
Mortgage interest rates had trended downward for several years. The average interest rates on 30-year and 15-year
fixed-rate mortgages reached historically low levels in the latter part of 2012. Low rates, combined with lower prices,
helped make homeownership more affordable than it had been in decades. However, tight lending conditions and
still-weak household balance sheets meant that existing homeowners were the biggest beneficiaries of the low rates.
Refinance activity was strong in 2012, which allowed those homeowners to free up precious disposable income.
Meanwhile, mortgage applications for home purchases came in at a slow pace. Mortgage lenders tightened
standards in 2007 and had yet to ease them significantly. Borrowers with lower credit scores and smaller down
payments were the most affected by tighter standards.
Long road ahead
The year 2012 may have marked a turning point for housing markets, but the recovery still faced several risks. The
tight credit standards combined with a still-weak economic recovery suppressed demand for housing. Further, the
weak job market and depressed home values mean that the risk of foreclosure remains high. Although the pace of
foreclosures peaked in 2010 and has decelerated in many markets, a steady stream of foreclosures continued to
work its way through the pipeline. According to data from LPS Applied Analytics, about 3.3 percent of all first liens
were in foreclosure as of December 2012—slightly below year-ago levels. The share of all first liens that were
seriously delinquent (90 or more days past due, plus foreclosures) stood at 6.4 percent—also slightly below year-ago
levels
(see chart 2).
A Southeastern Perspective
The Southeast was hit hard by the bursting of the housing bubble and the Great Recession. The pain was
especially acute in markets that experienced a dramatic run-up in construction and home prices during the
boom years. Since the slump, the region's housing markets have recovered at a slower pace than the
nation's.
Much like the housing recovery elsewhere in the nation, progress in the Southeast has been uneven. Some
markets last year were still exhibiting early signs of stabilization, while others were experiencing a more solid
recovery. The south Florida market, for instance, proved to be a bright spot in the region as the year ended.
Among other factors, sales of condominiums and single-family homes in the area benefited from strong
demand from foreign investors.
Feedback from the Atlanta Fed's monthly poll of residential brokers and builders supported the claim that
southeastern housing markets were recovering. According to the December poll, brokers and builders ended
the year with positive reports of increasing sales, declining inventories, and rising home prices.
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Unemployment Did Not Reach a Hoped-For Turning Point in 2012 - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Res…
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
Unemployment Did Not
Reach a Hoped-For
Turning Point in 2012
Atlanta Fed economists
John Robertson and
Melinda Pitts discuss how
the Atlanta Fed is
measuring labor market
progress.
Related Links
SouthPoint on labor markets
Jobs Calculator
macroblog on the meaning of
substantial economic
improvement
"Fed @ Issue," on the labor
market
The labor market recovery continued in 2012, albeit at a frustratingly slow pace. Weak
economic conditions were a primary impediment to more robust job growth. The Federal
Reserve took aggressive policy actions to help improve the nation's employment situation.
The U.S. labor market continued to recover very slowly in 2012, and with a few hiccups. On average, the economy
gained about 181,000 nonfarm jobs a month—not many more than in 2011, according to the U.S. Bureau of Labor
Statistics. Meanwhile, by year's end, the unemployment rate, one of the most closely watched measures of progress,
edged down slightly to 7.8 percent—well below the late-2009 peak of 10 percent and a modest improvement from
earlier in the year. Despite these small signs of progress, labor markets ended the year facing a long recovery ahead.
As in recent years, the main impediment to more robust improvement in the labor market appeared to be relatively
weak economic conditions more broadly. Other factors likely played a role at the margin, including uncertainty
surrounding the outcome of the U.S. elections and impending fiscal policy decisions, the European debt crisis, and
health care and regulatory costs.
At the same time, some economists worried that instead of insufficient demand, structural factors were at work,
meaning that job growth would not accelerate even if demand were to pick up. Of particular concern were the
"summer slump" conditions that prevailed as Federal Open Market Committee (FOMC) members prepared to meet in
June. The U.S. economy had added jobs at a relatively healthy pace of 255,000 a month, on average, in the first
quarter, according to the BLS. However, the recovery hit a soft patch in the second quarter, and the average monthly
pace of job growth slowed significantly, to 67,000. Meanwhile, the unemployment rate hovered around 8.2 percent,
well above the prerecession rate of 5 percent or lower, according to the BLS.
Structural versus cyclical—the debate continued
Questions about how much of the employment situation was the result of structural factors or cyclical factors
complicated efforts to gauge improvement in unemployment. In fact, the differences between the two can be hard to
define. The Atlanta Fed devised a rough working definition, which describes structural impediments as those that
demand-boosting policies cannot ameliorate. Cyclical impediments, on the other hand, result largely from a shortfall
in aggregate demand and should ease as economic activity strengthens.
Importantly, the differences between structural and cyclical impediments determine, to a certain extent, whether
additional monetary policy treatment can mitigate the lackluster pace of job growth. The Atlanta Fed's take on the
situation is that the impediments to a more robust recovery in the labor market are largely tied to weak growth in the
broader economy, but economists are keeping close tabs on incoming data and probing more deeply.
Federal Reserve continued to take action to boost demand and job creation
The FOMC responded to the midyear slowdown with several actions aimed at putting a floor of sorts under the fragile
economy. Absent stronger economic growth, the unemployment rate would likely remain at higher-than-desired levels
for some time.
In June, following the disappointing decline in job creation, the committee voted to extend the maturity extension
program (popularly called "Operation Twist") until the end of the year. By lengthening the average maturity of the
Fed's balance sheet, the program helped push down longer-term interest rates, which in turn helped support the
economic recovery.
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In September, the FOMC launched a third round of
large-scale asset purchases, or quantitative easing
(QE—or, in this case, QE3). The program involved
monthly purchases of $40 billion in mortgage-backed
securities. Unlike previous programs, this latest round
of bond buying was not bounded by explicit amounts
or timeframes. Instead, the purchases were
contingent on "substantial improvement in the outlook
for labor markets." (For a discussion of the FOMC's
December 2012 decision to tie the fed funds rate to
specific thresholds in the unemployment rate (6 1/2
percent) and inflation (2 1/2 percent), see the
discussion on monetary policy in this report.)
By hinging continued asset purchases on significant progress in the labor market, the committee signaled its firm
commitment to improving the nation's employment situation.
Measuring "substantial improvement"
Defining, much less measuring, substantial improvement is a challenging task. The turning point—what constitutes
substantial improvement—can be open to interpretation. Further, the U.S. labor market is complex and dynamic, with
many moving pieces that interact in sometimes-unpredictable ways. The health of the labor market cannot be
summed up in a tidy figure, such as the unemployment rate. Indeed, a truly comprehensive gauge of progress must
take into account other indicators, such as the flow of job seekers into employment, business and employer
confidence measures, and measures of labor force utilization (see the
spider chart, and the explanation in the
next section, for some measures of labor force underutilization).
In 2012, Atlanta Fed economists set about forming a working concept of "substantial improvement." The result was a
dashboard approach by which policymakers can monitor progress across a variety of key labor market indicators.
The graphical representation of the dashboard resembles a spider web. Atlanta Fed economists also keep tabs on
movements in the labor force participation rate, especially in terms of how it affects the unemployment rate. However,
it is not included among the 13 indicators in the spider chart. This is in large part because it is difficult to interpret
changes in labor force participation, which can be driven by demographic shifts—an aging population, for example—
and behavioral shifts.
How Many Jobs Does It Take?
The Atlanta Fed's online Jobs Calculator makes answering that question a little easier than it used to be. The
calculator allows users to plug in assumptions in order to learn the monthly pace of job growth needed to
reach a target unemployment rate. Users can choose the time frame, labor force participation rate, and
population growth rate.
The Jobs Calculator, which debuted in March 2012, helps people better understand the various moving parts
that make up one of the most closely watched economic indicators. The unemployment rate seems like a
relatively straightforward concept on the surface. However, it has much more to it than simply a calculation of
the percentage of adults in the labor force who are actively seeking work. Factors such as population growth
and labor force participation also have to be taken into account.
Reading the chart
The spider chart is divided into four segments, each of which contains various labor market indicators that fall into
that category. Indicators in the employer behavior segment measure the hiring activities of employers. The
confidence segment measures employer and employee confidence in the labor market. Data in the utilization
category measure how labor market resources are being used. Last, the leading indicators segment contains data
that typically provide insight into where the labor market is headed.
The chart, described in greater detail by Atlanta Fed economist and associate policy adviser Melinda Pitts in this
video
(see the video), tracks the labor market's progression in each of the four categories. Progress is measured
by comparing current conditions to those that existed prerecession—roughly late 2007—and to the state of affairs
when payroll employment reached its trough in late 2009.
As 2012 drew to a close, the chart indicated the economy still had to travel a long path toward substantial
improvement. The employer behavior and confidence measures were slowly moving toward, but were still far from,
prerecession levels. Labor utilization measures remained weak—having hardly improved over the past two years.
The only category that was even close to prerecession levels was the leading indicators series. So, while the chart
painted a cloudy picture of the labor market recovery, it may have yet contained a silver lining. Leading indicators
may have been signaling improvements to come.
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A Regional Conversation
Employment in the Southeast has been slower to recover from the recession, in part because the region was
hit harder than the nation overall. The region's dependence on population growth and the booming
construction industry made it particularly vulnerable to the housing crash. The road to recovery has been
longer as a result.
Unemployment rates in Florida and Georgia—two states bruised by the housing crisis—and in Mississippi
were well above the national average in 2012. And across all the southeastern states except Louisiana,
jobless rates remained elevated compared to prerecession levels. There were signs of progress, too. Jobless
rates in all six states fell over the year. And as a whole, regional employment grew by more than 202,000,
according to data from the U.S. Bureau of Labor Statistics (see the table).
EMPLOYMENT CHANGES, JANUARY–DECEMBER 2012
Georgia
74,100
Florida
54,900
Tennessee
36,400
Louisiana
23,500
Alabama
10,200
Mississippi
3,500
Sixth District (net)
202,600
Note: Data are seasonally adjusted.
Source: U.S. Bureau of Labor Statistics
The Atlanta Fed's conversations with regional business contacts suggest that weak sales expectations and a
murky outlook were the strongest factors holding firms back from hiring. Despite continued economic and
labor market weakness through much of the region, there were some bright spots. Louisiana and the Gulf
Coast region benefited from a strong energy sector as energy exploration and extraction firms added to their
workforces or planned to do so, explained Atlanta Fed Vice President Michael Chriszt. The region's auto
assembly plants were another source of strength, thanks to strong light-vehicle sales nationwide.
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https://www.frbatlanta.org/~/media/media/pubs/annualreport/12ar/charts/AR2012_Unemployment_SpiderPlotTemplate.html
Labor market recovery spider plot
Payroll
Temporary help
services employment
Vacancies (JOLTS)
Leading Indicators
Employer Behavior
Hires (JOLTS)
Difficult to fill (NFIB)
NFIB Hiring Plans
Initial Claims
Work part time for
economic reasons
Conference Board
Job Availability
Job finding rate
Quits (JOLTS)
Utilization
Confidence
Marginally attached
workers
Oct-07Dec-07
= 100
Oct-09Dec-09
=0
Unemployed
Oct-12Dec-12
Oct-11Dec-11
Oct-10Dec-10
Source: U.S. Bureau of Labor Statistics, U.S. Department of Labor, National Federation of Independent Business, and The Conference Board
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Small Business Segments Had Few Turning Points in 2012 - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve B…
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
Small Business
Had Few Turning
Points in 2012
Watch as John Robertson
and Karen Leone de Nie,
both with the Atlanta Fed's
Research department,
discuss small business
and economic
development.
Related Links
macroblog posts on small
business
Kauffman Foundation report
on high-growth firms and the
U.S. economy
Young, fast-growing small businesses were in the spotlight in 2012 for their role in job creation.
The Atlanta Fed honed in on the high-growth element, recognizing that both young and mature
firms play important roles in job creation.
Small businesses have long been a symbol of America's independent spirit, innovation, and economic dynamism.
Because they are regarded as such, people often hold them up as a solution to the nation's growth and employment
challenges.
This focus on small business, though perhaps overstated, is understandable. Small businesses account for a large
share of all U.S. firms and employ millions of workers. Because of this important role, the Atlanta Fed has taken a
natural interest in how small businesses contribute to economic growth and job creation. Over time, the Atlanta Fed's
understanding of this critical role has evolved in response to a complex and nuanced reality: when it comes to
boosting American entrepreneurship, there is no silver bullet.
The sources of job creation are complex
Determining which business segments contribute the most to job creation can be difficult. Small businesses, young
businesses, and high-growth firms have all been on the Atlanta Fed's radar as important sources of job growth. In
2012, the intersection of these three—young, fast-growing small firms, often called "gazelles"—was in the spotlight.
The Atlanta Fed's study of the small business landscape suggests that the high-growth aspect is what matters most.
Most high-growth firms are young and small, but the larger, older ones tend to play an outsized role in job creation.
Simply put, young, fast-growing firms matter, and so do the mature ones. Indeed, in 2011, only 1.5 percent of all firms
grew fast enough over the previous three years to be considered high growth, but together they were responsible for
nearly 33.7 percent of all gross jobs gains by expanding firms. Those 10 years or older had a greater-than-average
contribution to employment growth, representing 30 percent of high-growth firms but contributing 43 percent to the
job gains of all high-growth firms, according to research by U.S. Bureau of Labor Statistics economists Akban
Sadeghi, James Spletzer, and David Talan. Because high-growth firms occur in nearly every industry, concentrating
policy efforts on one business segment—or even one industry—would be a misdirected strategy.
Supporting entrepreneurship at all levels
All firms, whether large or small, high-growth or family business, have to start somewhere. Indeed, start-ups and
entrepreneurship more generally are part of the solution to the growth and employment challenges facing the nation.
In this regard, a broad range of policies could help foster growth, innovation, and job creation. On one side of the coin
are policies aimed at removing obstacles to growth, such as the fiscal policy uncertainty that clouded the outlook in
2012. On the flip side are growth-promoting policies, including those intended to encourage investments in human
capital and infrastructure. Monetary policy also plays a role in supporting entrepreneurship by fostering price stability
and moderate longer-term interest rates. When these conditions prevail, the other policies can better do their jobs.
Factors other than policy also help encourage the emergence of high-growth firms. The Atlanta Fed has identified a
handful of critical factors through its conversations with entrepreneurs, business incubators, financiers, and others.
One of these influences is the presence of an entrepreneurial culture. This aspect, which varies by location, is
reflected in attitudes toward such concepts as innovation, experimentation, failure, and success. Areas with lots of
entrepreneurs tend to spur even more entrepreneurship. Other factors include access to external capital, the
availability of skilled workers, and the ability of entrepreneurs to form networks or strategic alliances. (See the sidebar
for further discussion about the unique challenges facing high-growth firms.)
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A Roundtable Gathered Information on Challenges to Growth-Oriented Businesses
Anecdotal information about the U.S. economy played an integral role in the monetary
policy process. This grassroots economic intelligence helps Fed policymakers form a
comprehensive, current view of how the economy is faring.
So, when Federal Reserve Chairman Ben Bernanke met with members of the Atlanta
Fed's research staff and entrepreneurs, professional advisers, and financiers in the fall
of 2012, they were able to gather insight into the unique challenges facing high-potential start-ups and
growth-oriented new businesses.
Atlanta Fed vice president and senior economist John Robertson explained that this segment of the small
business landscape, often called gazelles for their high-growth status, contributes disproportionately to U.S.
job creation and economic growth. At the same time, gazelles also face a different set of challenges than
other small businesses. "They don't yet have an established track record, and may not have all the talent they
need or strong relationships with key customers, advisers, and financiers," Robertson noted.
Financing still a challenge in 2012
Financing was a key theme around the table. In particular, leaders of these firms noted that access to
financing was a persistent challenge in 2012. Many of them relied on personal savings, credit cards, funds
from family and friends, and home equity lines of credit to fund their start-up costs. This process was made
even tougher due to the housing crisis and tighter credit standards, they said. Additionally, many growthoriented young businesses have technology or intellectual property as their source of collateral, noted
Robertson. These hard-to-value assets make it difficult to qualify for a traditional bank loan, leading such
firms to seek other funding sources such as equity-based financing.
Angel investors and venture capitalists, who have traditionally served as alternative sources of funding for
entrepreneurial businesses, also did not make it easy for these businesses to obtain financing. Angel
investors, many of whom are themselves former entrepreneurs, tend to fund smaller deals on a more local
basis. At the other end of the spectrum is venture capital, an industry that has become more concentrated.
Venture capitalists have tended to go after larger deals and thus are focused on more mature investments.
This dichotomy creates a so-called "middle space," where financing can be hard to find, roundtable
participants said.
Chart 1 shows where businesses, young and mature, report having gotten the money to start up
chart).
(see the
No turning point in sight for small business
As 2012 progressed, the optimism of small businesses declined. The National Federation of Independent Business
(NFIB) small business optimism index fell from 93.9 in January to end the year at 88, the second-lowest reading
since March 2010. Similarly, the Atlanta Fed Small Business Survey highlighted declining expectations among
southeastern small businesses. According to the third-quarter 2012 survey, most small businesses lowered their
expectations for improvements in the coming year. The outlook worsened from the first-quarter readings; optimism
levels for sales fell to third-quarter 2011 levels. Interestingly, however, the survey revealed the bifurcation between
young and mature firms. In comparison to the first-quarter survey, firms less than five years old reported more
positive outlooks, while mature firms downgraded theirs.
Difficult conditions for small businesses
The Great Recession affected large and small businesses alike. In 2012, more than three years into the recovery,
small businesses continued to face significant headwinds to growth. Perhaps as a result, the rate of new start-ups
declined during the recession and has remained low. At the same time, new start-ups have made a smaller
contribution to job creation than before the downturn. According to data from the Bureau of Labor Statistics, there
were roughly one-third fewer fast-growing firms in the U.S. economy than there were in the mid-2000s, and they
added about half as many jobs as they did then.
Some of the headwinds to growth in 2012 included
weak sales and widespread uncertainty on a host of
issues, including the new health care laws, fiscal
policy, and the European sovereign debt crisis.
According to a November survey by the NFIB, nearly
20 percent of small-business owners listed weak
sales as a top concern. Regulation and taxes also
ranked high on the list of challenges.
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Additionally, small businesses faced tight lending
conditions throughout 2012, although demand for
credit was also weak. According to the Atlanta Fed's
Small Business Survey (Atlanta Fed), southeastern
small businesses—particularly younger firms—had a
difficult time securing financing. Of the one-third of
small businesses that sought loans in the third
quarter, 39 percent of mature firms reported securing
the full amount of requested financing. In
comparison, just 25 percent of young firms received
the entire amount.
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Source of Start-Up Financing
Personal savings
Family/Friends
Home equity
Private equity
Personal credit card
Business credit card
Small Business
Association (SBA)
Loan (not SBA)
Line of credit (not SBA)
Other
0%
10%
20%
30%
Source: Atlanta Fed Q3 2012 Small Business Survey
40%
50%
60%
70%
80%
Young
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90%
100%
Mature
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Inflation Did Not Follow a Straight Path - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
Inflation Did Not
Follow a Straight Path
The Atlanta Fed's Mike
Bryan and Nick Parker
discuss inflation trends in
2012 and the outlook for
2013.
Related Links
Inflation Project: Business
Inflation Expectations
Inflation Project: Sticky Price
CPI
Inflation took a bit of a rollercoaster ride in 2012, but overall price levels remained under the
Fed's 2 percent inflation target. Although inflation is projected to stay at or below 2 percent, Fed
policymakers remained vigilant on price pressures.
The headline rate of inflation went on a bit of rollercoaster ride over the year. (Headline inflation includes all prices,
including volatile energy and food prices.) Price levels were up in the first quarter, driven largely by a rise in energy
prices. Then in the second quarter, headline inflation plunged when the price of energy fell. The personal
consumption expenditure (PCE) price index, produced by the U.S. Bureau of Economic Analysis, rose at a 2.5
percent annual rate in the first quarter, then fell 0.7 percent in the second quarter, and rose at a 1.6 percent rate in
the third and fourth quarters. Overall, at 1.6 percent on a year-over-year basis , inflation remained under the 2
percent target set by the Federal Open Market Committee (FOMC). Looking through the monthly and quarterly
fluctuations in prices, the overall trend for inflation in 2012 seemed to be one of disinflation.
Watch senior economist Mike Bryan and senior economic research analyst Nick Parker discuss the ups and downs of
inflation.
(see the video)
The core PCE price index, which excludes the volatile food and energy components, was steadier but ultimately took
the same road as headline inflation. Core inflation moderated over the year, ending the year at 1.6 percent, a little
under the Fed's longer-term objective.
Despite the sometimes wide fluctuations in price levels, inflation expectations remained well-grounded in 2012,
according to survey findings and financial market measures. Monetary policymakers closely monitor the public's
inflation expectations because those expectations can influence actual inflation rates.
Considerable slack in the economy contributed to low inflation, as did relatively stable commodity and import prices
later in the year.
The Fed became an inflation-targeting central bank
Early in 2012, the FOMC formalized what had been an implicit inflation objective when it set an explicit 2 percent
objective to the PCE price index over the longer term. In doing so, the Federal Reserve joined the ranks of many
other central banks, including the Bank of England and the Bank of Canada, that have made explicit an inflation
objective. The 2 percent inflation objective represents the level of inflation over the longer term that FOMC members
view as most consistent with stable prices. Having an explicit target should help "keep longer-term inflation
expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates," explained the
committee in its January 2012 statement. Firm inflation expectations also enhance the central bank's ability to pursue
maximum employment "in the face of significant economic disturbances," the statement continued.
Fed remains vigilant on inflation risks
Inflation made the news again in December 2012, when the FOMC said it would keep the benchmark federal funds
rate near zero as long as the unemployment rate remains above 6.5 percent, inflation over a one- or two-year period
ahead is below 2.5 percent, and longer-term inflation expectations remain well-anchored. In his December 2012
news conference, Chairman Bernanke noted that policy under the Fed's new guidance "will be fully consistent with
continued progress against unemployment and with inflation remaining close to the Committee's 2 percent objective
over the longer term."
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Inflation Did Not Follow a Straight Path - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
In December 2012, the FOMC released its
projections for inflation over the next two to three
years. Most committee members anticipated that
headline and core PCE inflation from 2013 to 2015
would be at or below the Fed's 2 percent target.
Meanwhile, committee members' longer-run
projections for core PCE inflation remained at 2
percent. Despite the relatively benign outlook for
inflation, the Federal Reserve continues to closely
monitor inflation and longer-term expectations.
Inflation remains a longer-term risk factor that FOMC
members consider when weighing the potential costs
and benefits of FOMC policy decisions. For instance, a common concern related to the expansion in the Fed's
balance sheet is that this expansion could cause inflation expectations to become untethered. Despite those
concerns, however, FOMC members projected that inflation will stay at or below the Fed's longer-term objective.
BIE survey digs deeper into inflation issues
In addition to economic forecasts, household survey data, and information gleaned from financial markets, the
Federal Reserve Bank of Atlanta has recently introduced a new measure of inflation expectations—a monthly
Business Inflation Expectations Survey that polls a panel of approximately 350 southeastern business leaders
representing every sector of the economy about their current business conditions, expectations for inflation
over the short and long term, and the factors driving cost changes. Introduced in late 2011, this survey was
created to shed light on the inflationary views of businesses, a constituency not previously polled for their
inflation expectations.
Each month, in addition to standard questions, the BIE survey poses a "special question" that further explores
aspects of the panels' pricing decisions or general business conditions.
The August and September 2012 special questions delved into the measurement of economic slack. The
amount of economic slack matters to Fed policymakers because it provides an indication of how the economy
is performing relative to its potential, which is instructive when crafting policies that encourage maximum
employment and price stability.
The August 2012 question asked panel members about their ability to pass on a cost increase to consumers.
Sixty percent of firms said they could pass along most of a 6 percent increase in unit costs, a significant
change over the measure taken 10 months prior, when 37 percent of firms gave this response. These results
could be interpreted multiple ways, but they seem to suggest a decrease in the amount of slack, a positive
sign.
The September 2012 survey approached the measurement of slack more directly, asking the panel members
to estimate how far their current sales levels were from "normal," which could be viewed as an individual
firm's output gap. On average, panel members estimated that their sales levels were 7.5 percent below
normal, just slightly above the Congressional Budget Office's (CBO) 6 percent estimate of the output gap.
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No Absolute Turning Point for the European Sovereign Debt Crisis - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Re…
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
No Absolute Turning
Point for the European
Sovereign Debt Crisis
Stephen Kay and Galina
Alexeenko, both with the
Atlanta Fed's Research
department, discuss the
European debt crisis and
how it affected the U.S.
economy in 2012.
Related Links
2012 Q4 EconSouth,
"Uncertainty Weighs on
Global Growth"
Senior Loan Officer Survey
Press Release about Liquidity
Swap Arrangements
The crisis in Europe cast a shadow on the U.S. recovery last year. Concerns of a Greek exit
from the euro zone intensified, and the larger economies of Spain and Italy were engulfed in
the crisis. The United States was not immune from events overseas—it felt the impact in
financial markets, trade activity, and business and consumer sentiment.
As the European debt crisis dragged into its third year, events across the Atlantic again cast a shadow over the U.S.
economy's fragile recovery. The crisis, which began in 2009 with Greece at its epicenter, spread to other heavily
indebted economies, including Ireland and Portugal, and engulfed the larger economies of Spain and Italy
(see
the interactive timeline).
The crisis appeared to subside early in 2012 following moves by the European Central Bank to provide low-interest
loans to euro area banks. However, within months the crisis intensified anew as political developments in Greece
jeopardized the country's €130 billion (roughly $169 billion) bailout and continued membership in the euro zone.
Renewed concerns about a Greek exit, coupled with Spain's banking and fiscal troubles, also heightened worries
about the euro's future and caused investor sentiment to plummet.
Meltdown averted
A watershed in the European sovereign debt crisis finally came in late July, when European Central Bank President
Mario Draghi pledged that the central bank would, within its mandate, do "whatever it takes" to preserve the euro. His
statement shored up confidence in the common currency, causing an upswing in global stock markets and the cost of
Spain's borrowing to fall from precipitously high levels
(see the chart). In September, the European Central Bank
followed through with a commitment to buy unlimited amounts of government bonds from ailing euro zone countries.
The terms of the Outright Monetary Transactions program required that countries first subscribe to one of the euro
zone's two rescue funds. Governments would also have to agree to reforms and external oversight of their fiscal
matters.
Sentiment about the European situation improved over the second half of the year and strains on global financial
markets eased somewhat. Strong action by the European Central Bank averted a euro zone meltdown and gave
European policymakers breathing room to push through necessary reforms. For more on the European debt crisis,
listen to a conversation with the Atlanta Fed's Galina Alexeenko and Stephen Kay
(see the video).
European crisis became a global concern
The global economy was ultimately spared the shock
of a Greek exit from the euro zone in 2012—but it
was not immune from the crisis. Nor was the U.S.
economy; it felt the impact of developments in
Europe through several channels, including exports,
business and consumer sentiment, and financial
markets.
Roughly 20 percent of U.S. exports are destined for
Europe, so it was perhaps not surprising that U.S.
exports suffered. As European economies weakened
and entered into recession, U.S. exports to the euro
area were flat in 2012, after the previous year's double-digit growth. The drop in sales to Europe also played a key
role in the notable deceleration of U.S. export growth in 2012, noted Galina Alexeenko, director of the Regional
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Economic Information Network at the Atlanta Fed's Nashville Branch. The slowdown was a particularly discouraging
turn of events because exports had previously been one of the few bright spots in the U.S. economic recovery.
The crisis also weighed heavily on U.S. consumer and business sentiment. The uncertainty surrounding the situation
in Europe clouded the outlook for U.S. firms. Many of the Atlanta Fed's business contacts in the Southeast noted that
the anxiety over European stability added yet another layer of uncertainty to their hiring and investment decisions,
Alexeenko explained. The August issue of the Atlanta Fed's Southeastern Insights captured this sentiment when it
noted that many firms were having a difficult time forecasting, in part due to the European debt crisis. The report,
which is typically released in the days following each FOMC meeting, stated that "limited visibility is resulting in a
reduction or postponement in capital investment and hiring plans for several large businesses that represent most
sectors of the economy."
U.S. financial markets, which are closely intertwined with those in Europe, also felt the spillover effects of the crisis.
Developments across the Atlantic affected the prices of U.S. financial assets, including equities, Treasury debt
securities, and the exchange value of the dollar. As Alexeenko explained, negative news from Europe would usually
result in a decline in U.S. equities (along with European stock markets) and falling yields on Treasuries as investors
flocked to less-risky assets. Heightened concerns about the situation in Europe also tended to strengthen the
exchange value of the dollar.
Worries about the European situation also showed up in the lending decisions of U.S. and foreign banks operating in
the United States. Respondents to the Federal Reserve's quarterly survey of senior loan officers reported tightening
lending standards for borrowers with significant exposure to Europe. Concern among U.S. banks appeared to peak in
the July survey, when a significantly higher share of banks than in the previous quarter reported tightening standards
on loans to European banks and their affiliates. Several months later, in the October survey, the number of banks
responding that way dropped.
Considering the many opportunities for negative spillovers from the European crisis, it is perhaps no surprise that
events across the Atlantic ranked among the top risks to the U.S. economic outlook. Federal Reserve Chairman Ben
Bernanke highlighted those concerns in his July testimony before Congress. He noted that U.S. banks had
strengthened their capital and liquidity positions and stood in a stronger position to weather a crisis, but "European
developments that resulted in a significant disruption in global financial markets would inevitably pose significant
challenges to our financial system and economy."
The Fed responded
In response to the crisis, the Fed and other foreign central banks took coordinated actions to ease strains in financial
markets. Going back to 2010, the Fed established temporary U.S. dollar swap lines with five foreign central banks.
The swap arrangements provided liquidity to global money markets and helped minimize the risk of strains in
financial markets overseas spreading to U.S. markets. In December 2012, the Fed extended the swap arrangements
through February 1, 2014.
Concerns about spillovers from the European situation seemed to dissipate somewhat as the year drew to a close.
By the end of the year, there were glimmers of hope that the worst had passed. The feared Greek exit did not
materialize, and the European common currency remained intact. However, the United States by then faced its own
impending crisis—in the form of the so-called fiscal cliff. The showdown over the looming automatic spending cuts
and tax increases shifted to the forefront after the November elections and gave U.S. consumers and businesses yet
another source of uncertainty with which to contend.
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ecnarF ,lagutroP ,KU ,dnalerI ,niapS ,ylatI yliad ,tnecreP
European Bond Yields
25
50
20
40
15
30
10
20
5
10
0
0
Source: Bloomberg
Ireland
UK
Portugal
https://www.frbatlanta.org/~/media/media/pubs/annualreport/12ar/charts/AR2013_Europeandebt_Chart2.html
France
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Fiscal Policy Uncertainty Pivoted on the Actions of Congress - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve …
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
Fiscal Policy Uncertainty
Pivoted on the Actions
of Congress
Watch as the Atlanta Fed's
Paula Tkac and Chris
Cunningham discuss the
factors contributing to an
improvement in state and
local government finances.
U.S. fiscal policy uncertainty put a damper on economic growth. Meanwhile, state and local
government finances improved somewhat, driven by an improving economy and improved
housing market. Some states began to tackle the longer-term problem of underfunded public
pensions.
Lack of clarity about the future course of U.S. fiscal policy kept many businesses and consumers on the sidelines in
2012. This decision paralysis weighed heavily on economic activity and proved a barrier to more robust growth and
job creation.
Related Links
CBO report on the economic
effects of reducing fiscal
restraint
Census Bureau's Quarterly
Summary of State & Local Tax
Revenue
GAO's State and Local
Governments' Fiscal Outlook,
April 2012
Fiscal policy does not fall within the central bank's purview, and Federal Reserve officials typically refrain from
commenting on such matters (see the sidebar). But as the headwinds to economic growth became apparent, Fed
policymakers voiced their concerns about the negative impact of fiscal policy uncertainty on the fragile economic
recovery. Economic intelligence gathered from the Atlanta Fed's business contacts in 2012 echoed those sentiments.
For instance, the August edition of the Atlanta Fed online newsletter Southeastern Insights noted that "limited
visibility is resulting in a reduction or postponement in capital investment and hiring plans for several very large
businesses that represent most sectors of the economy." Further, fiscal uncertainty surrounding future tax rates and
the fiscal cliff at the end of 2012 clouded the forecasting abilities of southeastern firms, the report noted. These
effects are not limited to firms in the Southeast.
Monetary versus Fiscal Policy
"Slower State Tax Revenue
Growth Is the 'New Normal'"
Chairman Bernanke's
Semiannual Monetary Policy
Report to the Congress
Pew Center report: The
Widening Gap Update
Atlanta Fed President
Lockhart on "Monetary Policy
and Emerging Challenges"
Fiscal policy and monetary policy were frequently in the 2012 headlines. Both types of policy can affect the
economy's short-run performance, but they are quite different and are conducted independently by separate
government entities.
As the central bank of the United States, the Federal Reserve is solely responsible for conducting monetary
policy. Simply put, monetary policy describes the central bank's actions to influence the volume and price of
money and credit in the economy. The Fed conducts monetary policy in support of two objectives set forth by
Congress—price stability and maximum employment.
The Federal Open Market Committee (FOMC) has traditionally conducted monetary policy by adjusting the
target for the federal funds rate—the interest rate on overnight loans between banks. The committee can
lower the target rate to make monetary policy more accommodative. Conversely, raising the federal funds
rate tightens policy. That rate has been near zero since late 2008. The FOMC could not lower it any further,
so it has used some unconventional tools, including large-scale asset purchases (LSAP) , to influence longerterm interest rates and key asset prices.
The Fed's monetary policy decisions are insulated from short-term political pressures. Indeed, monetary
policy independence is a key characteristic of modern central banks—one that empirical studies have shown
brings about better outcomes for price stability.
Fiscal policy, on the other hand, generally describes the taxation and spending decisions made by the federal
government—namely Congress and the presidential administration. For instance, when Congress votes to
increase taxes or approves an increase in spending, it is conducting fiscal policy. By affecting aggregate
demand, those decisions can boost or dampen economic growth in the short run. Stimulative fiscal policy
includes tax cuts and spending increases, such as those put in place during the 2007–09 recession. Tax
increases and spending cuts, in contrast, tighten fiscal policy.
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Fiscal cliff a significant source of uncertainty
In his July 2012 monetary policy report to Congress, Fed Chairman Ben Bernanke identified the U.S. fiscal situation
as a primary source of risk to economic growth. The chairman warned that sudden tax increases and spending cuts
would likely thwart the fragile recovery while still recognizing the need to put the country's fiscal matters on a more
sustainable longer-term path. Atlanta Fed President Dennis Lockhart also weighed in during a November speech,
warning that monetary policy would not be able to counteract the damage to the economy that going over the cliff
would cause. Indeed, a widely cited report by the Congressional Budget Office (CBO) offered this sobering
assessment: failure to avert the cliff would send the U.S. economy into a mild recession and dampen job creation by
roughly 1.25 million jobs.
State of the states
While federal fiscal matters weighed heavily on the
U.S. economy in 2012, the budget situation for state
and local governments improved somewhat. (See the
video for a discussion of state and local government
finances.) Revenues were helped along by
improvements in the broader economy, the
employment situation, and housing markets. Fortyfour states reported year-over-year growth in
revenues for the 2012 fiscal year, according to a
report by the National Conference of State
Legislatures. Despite rebounding to prerecession
levels, state revenues remained sluggish. "The year
2012 looked like the start of a slow-growth era for
state governments," said Chris Cunningham, a research economist and assistant policy advisor in the Atlanta Fed's
research department. Income taxes accounted for much of the rebound, although sales tax revenues also improved,
he noted.
Meanwhile, municipal government budgets experienced a bit of relief as property taxes—their biggest source of
revenue—stopped declining later in the year. Property assessments are not expected to rebound quickly. More
generally, the story for local governments in 2012 "was mostly about what didn't happen," Cunningham said. Notably,
the feared wave of municipal bankruptcies failed to materialize despite a few high-profile bankruptcy filings.
Even so, the fiscal situation in 2012 for state and local governments remained vulnerable. Unemployment rates
remained elevated across much of the nation, which constrained tax revenues and increased demand for
government services. States and municipalities also grappled with the uncertainty stemming from federal fiscal policy,
new health care laws, and the overall economic outlook.
State and local governments tackle "the other debt problem"
Several states and municipalities made efforts in 2012 to deal with the longer-term risks posed by underfunded public
pensions. Although not an immediate threat, the severely underfunded state of many public pension systems
represents a potential source of financial instability.
Public pensions in the United States provide retirement benefits for roughly 23 million current and retired public
employees and control between $2.5 trillion and $3 trillion in assets
(see chart 1). The funding ratio, or the
difference between the market value of the pension's assets and the present value of the benefits promised to
employees and retirees, declined significantly during the recent financial crisis and subsequent recession
(see
chart 2). Many public pension systems suffered dramatic losses in their asset portfolios beginning with the financial
crisis, but promised liabilities did not decline.
With interest rates expected to remain low for some time, no one was forecasting a quick return to healthier funding
ratios. (Depending on the assumed rate of return on assets, public pensions in 2011 faced a funding gap that ranged
from $800 billion on the low end to $3 trillion to $4 trillion on the high end.) Fund sponsors generally have three
options to remedy funding gaps, explained Paula Tkac, a vice president and senior economist in the Atlanta Fed's
research department. They can step up contributions (either from taxpayers or employees, or both), decrease future
promised benefits to new employees, or shift their portfolios toward riskier, higher-return assets. The promised
benefits to current employees and retirees are difficult to reduce because they carry legal protections that vary by
state. Some state and municipal governments began to take action on the politically difficult task of reforming their
pension systems. Louisiana, New Jersey, and Tennessee, for example, took initial steps in 2012 to reform their
pensions.
Public pensions did not pose an immediate risk to the U.S. economy or financial system, but they were headed down
an unsustainable path in 2012. Further, the market discipline imposed by bond markets can make this longer-term
problem more pressing, Tkac noted. The Federal Reserve, as one of the agencies charged with monitoring potential
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Fiscal Policy Uncertainty Pivoted on the Actions of Congress - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve …
sources of financial instability, has made efforts in recent years to evaluate and more deeply understand how public
pensions and their roughly $3 trillion in assets are integrated into financial markets.
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Chart 1: Earnings on Public Pension Plan Investments
$200
$100
srallod fo snoilliB
$0
-$100
-$200
-$300
2007 Q2
Q1
Q3
Source: U.S. Census Bureau
Q4 2008 Q2
Q1
Q3
Q4 2009 Q2
Q1
Q3
Q4 2010 Q2
Q1
Q3
Q4 2011 Q2
Q1
Q3
Q4 2012 Q2
Q1
Q3
Earnings on Investments $billions
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Source: PEW Center on the States
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Monetary Policy Tools Used on Fed's Balance Sheet - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of …
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
Monetary Policy
Tools Used on
Fed's Balance Sheet
The Atlanta Fed's Laurel
Graefe, REIN director, and
Dave Altig, director of
research, discuss
monetary policy and the
U.S. economy.
The Federal Reserve's balance sheet was central to monetary policy in 2012 as policymakers
sought to boost economic growth and job creation. At the same time, the Fed continued to
enhance its communications as a policy tool.
U.S. monetary policy remained extremely accommodative in 2012 as the Federal Open Market Committee (FOMC)
continued its aggressive efforts to put some wind in the sails of the recovery. With the federal funds rate near zero for
nearly four years, the committee relied heavily on balance sheet tools and other unconventional policies to jump-start
growth and ease financial market conditions.
Related Links
Balance sheet programs in 2012
Chairman Bernanke on
"Monetary Policy since the
Onset of the Crisis"
Factors Affecting Reserve
Balances
Vice Chair Janet Yellen on
"Revolution and Evolution in
Central Bank
Communications"
FOMC Press Release on
Monetary Policy Strategy,
Goals
Two Fed balance sheet measures—the maturity extension program and large-scale asset purchases (LSAP) —were
central to the FOMC's monetary policy in 2012. The former, technically referred to as the maturity extension program
but popularly known as "Operation Twist," was slated to expire in June. However, the committee decided to extend
the program after seeing signs that the economic recovery had lost momentum in the second quarter.
Then in September, the committee announced that it would purchase mortgage-backed securities (MBS) at a pace of
$40 billion a month until the outlook for labor markets improved substantially. The Fed's asset purchases are often
called quantitative easing, or QE for short. (The most recent round of bond buying is popularly called QE3.) The
open-ended nature of the program differs from previous asset purchases, which were bound by either dates or fixed
amounts. The FOMC also announced in December that it would replace the expiring maturity extension program with
outright purchases of longer-term Treasury securities in the amount of $45 billion a month. The purchases are aimed
at lowering longer-term interest rates, boosting asset prices, and supporting economic growth more generally.
See
see chart 1 and
chart 2 for details on the Federal Reserve's assets and liabilities.
Is it working?
In an August 31 speech, Fed Chairman Ben Bernanke cited several empirical studies that support the view that the
Fed's balance sheet measures helped to keep yields on long-term Treasuries, corporate bond rates, and mortgage
rates lower than they would have been otherwise. Despite the difficulty in quantifying the effects, the bottom line is
this: absent the Federal Reserve's balance sheet policies, U.S. output and job growth would likely have been lower.
QE3 is not QE infinity
The open-ended nature of the latest round of asset purchases does not mean they will continue indefinitely. Indeed,
they came with a caveat of sorts. In addition to assessing labor market conditions, the FOMC said that it would also
consider the efficacy and costs of additional purchases.
The committee's cost-benefit framework took into consideration several potential risks. For instance, the central
bank's large share of Treasury and MBS markets could impair market functioning. In addition, reinforcing low interest
rates creates a potential for asset purchases to fuel speculative behavior, with potentially harmful effects on financial
stability. Though these sorts of developments represented only potential problems, the committee committed to an
ongoing review of both costs and benefits to assess whether to adjust or halt its asset purchase programs.
A conversation about Fed communications
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Last year, the FOMC built on its previous efforts to communicate to the public its expectation for the future course of
monetary policy. These communications, sometimes called forward guidance, were based on the idea that monetary
policy works better if it is well understood. The FOMC felt that this forward guidance adds a level of predictability,
which can also help consumers and businesses make better-informed decisions about spending and investment.
The FOMC marked an important communication
milestone early in the year when it released its first
"Statement of Longer-Run Goals and Monetary
Policy Strategy." The statement provided a new level
of clarity around the committee's interpretation of its
dual mandate, which is maximum employment and
stable prices. For starters, the statement made
explicit what formerly had been an implicit inflation
goal of 2 percent. The statement also shed light on
committee members' estimates of the longer-term
"normal" rate of unemployment, which then ranged
from 5.2 to 6 percent.
The committee's communications regarding the
future path of the federal funds rate and its large-scale asset purchases (LSAP) also evolved over the course of the
year. Back in 2011, the committee had begun communicating a time frame during which it anticipated that extremely
low levels for the federal funds rate would be appropriate. Last year, the time frame was extended from late 2014 to
mid-2015. In December, the committee provided even more clarity around the future path of the fed funds rate when
it said that the benchmark rate would remain near zero as long as:
The unemployment rate remains above 6.5 percent.
Inflation over a one- to two-year period is projected to be no more than 2.5 percent.
Longer-term inflation expectations remain well-anchored.
The FOMC's latest round of bond buying also employed forward guidance, although this guidance is more qualitative
than the guidance on the federal funds rate. As mentioned previously, the committee said in September that it would
continue its asset purchases until the outlook for labor markets improves substantially. Despite the challenges
associated with defining "substantial improvement," this conditionality also provides additional clarity around the
committee's intention and expectations for the purchases.
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Chart 1: Federal Reserve Liabilities (Uses of Funds)
3,000
srallod fo snoilliB
2,000
1,000
0
2008
2009
2010
2011
2012
2013
Source: Federal Reserve Board of Governors
Currency swaps
Agency debt and mortgage-backed securities
Short-term lending to markets
Other
Treasuries
Lending to nonbank credit markets
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Chart 2: Federal Reserve Liabilities (Sources of Funds)
4,000
3,000
srallod fo snoilliB
2,000
1,000
0
Jan 2008
Jul 2008
Jan 2009
Jul 2009
Jan 2010
Jul 2010
Jan 2011
Jul 2011
Jan 2012
Jul 2012
Note: Data are through December 2012.
Source: Federal Reserve Board of Governors
Treasury SFP
Other
Bank reserves balances
Currency in circulation
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Mobile Payments Surviving but Obstacles Remain - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of At…
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
Mobile Payments
Surging but Obstacles
Remain
Related Links
2012 Portals and Rails post
on mobile payments
Atlanta Fed President
Lockhart on payments as a
potential source of financial
instability
Boston Fed research paper
on mobile payments
Federal Reserve Board of
Governors mobile financial
services survey
The Retail Payments Risk
Forum's Technology in Retail
Payments Innovations
conference
Payments continued going mobile in 2012. Consumers spent roughly $13 billion via mobile
payments last year, according to the research firm Forrester. That total still is a small fraction of
all consumer payments, as the mobile channel has not caught on in the United States as
quickly as it has in some other parts of the world.
But the dollar volume of mobile consumer payments in the U.S. climbed substantially last year and figures to continue
growing quickly. Mobile payments by dollar volume are increasing about 48 percent annually and will reach $90
billion by 2017, Forrester predicted. These statistics reflected transactions in which a person sent money using
software on a mobile phone. The numbers did not include payments made through a simple phone call.
Mobile payments drew big money, interest
Corporations took notice of the increased adoption of mobile payments during 2012. Banks, mobile communications
carriers, hardware and software makers, payments processors, and large retailers positioned themselves to take
advantage of the rise of mobile payments. Ranging from start-ups to household names, companies formed
partnerships, made acquisitions, and introduced mobile payments products and services. A stored-value mobile
application, or "app," from the coffee retailer Starbucks took in $2 billion in deposits in 2012, Brett King, an author of
books on technology and consumer behavior, said at an Atlanta Fed banking conference. That $2 billion is more than
what 65 percent of banks in the United States accepted in deposits, King said.
In 2012, a mobile payments start-up company, Square Inc., secured the largest venture capital infusion of any U.S.
information technology firm, according to PricewaterhouseCoopers and the National Venture Capital Association.
Numerous commercial trials of mobile payments products and services started. One market test, for instance,
allowed consumers to buy a soft drink by tapping their smartphone on a vending machine.
Yet for all the activity in mobile payments, 2012 saw no obvious breakthrough. No single development, neither
technological nor commercial, set the industry on a clear path forward. Various technological platforms for conducting
mobile payments continued to compete for market space, including systems based on cloud computing, near-field
communications, and QR codes. No neat technological categories—like Windows and Mac, for example—emerged,
as technological standards remained unsettled. Data security also remained a hurdle to wider use of mobile
payments, as mobile payments remained more widespread overseas than in the United States. In a 2012 Federal
Reserve Board of Governors survey, 42 percent of consumers said they were concerned about the security of mobile
payments. (See
see chart 1 and
chart 2)
The Fed's interest in mobile payments
The growth of mobile payments matters to the Fed,
particularly the Atlanta Fed-based Retail Payments
Office (RPO), because of the central bank's role in
the payments system. For one, the Fed is charged by
Congress with ensuring the integrity, reliability,
security, and efficiency of the nation's payments
systems. In the Fed's view, the U.S. payments
system is an element of vital national infrastructure,
analogous to the electrical grid or communications
systems.
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The growth of mobile payments last year affected the
payments system in various ways, but especially in
terms of security. Security, and in turn data privacy,
was of particular interest to the Federal Reserve
System's Retail Payments Risk Forum, a group
housed at the Atlanta Fed. The Risk Forum serves as
a convener, research center, and information
clearinghouse for the retail payments industry
pertaining to matters of risk.
Mobile payments featured prominently in a
technology conference the Risk Forum held in
October. Conference discussions reiterated the notion
that technology continued to shape the payments industry, creating enormous opportunities and equally large
challenges. For example, regarding ongoing development of mobile payments solutions, "the focus at the point of
sale will be the convergence of innovation and security," according to an Atlanta Fed summary of the October
conference.
Security a major issue
Consumers sought to protect personally identifiable information, such as account numbers, PINs, security codes, and
passwords. Smartphones, the main tool for conducting mobile payments, made this sensitive data more vulnerable. A
2012 study by Javelin Strategy & Research found a 33 percent higher incidence of identity fraud among smartphone
users than among the general public. To be sure, smartphone users were a large portion of the public. During the
fourth quarter of 2012, smartphone owners in the United States numbered 126 million, more than half of all
Americans 16 and older, according to comScore, a market research firm specializing in digital technology.
"The spread of smartphones means billions of people (worldwide) are carrying powerful computers, creating a
proliferation of opportunities to practice unsafe computing," said Mary Kepler, executive director of the Retail
Payments Risk Forum. This in turn affects the security of mobile payments.
This risk environment has major implications for payments industry participants. In devising new products and
services, the industry must satisfy the concerns not only of consumers, but also of merchants and regulators. Industry
practitioners worked, and must continue to work, to address concerns over consumers' personal financial information
being intercepted "over the air" or stolen along with a mobile phone, according to researchers at the Federal Reserve
Banks of Atlanta and Boston.
Mobile payments also concern the Federal Reserve because payments involve banks. Payment settlements, the final
exchange of funds between parties to a transaction, often involve a bank account. In terms of regulation, settlements
between bank accounts over existing payments systems are subject to the statutes, rules, or procedures already in
place, such as Fed regulation E that covers electronic fund transfers between accounts at financial institutions,
Stephanie Martin, associate general counsel of the Board of Governors, told the U.S. House Committee on Financial
Services at a June 2012 hearing on mobile payments. The Federal Reserve regulates bank holding companies and
member banks, so transactions that can affect the safety and soundness of financial institutions are of great interest
to the Fed.
Fed changed with the times
The locus of innovation in payments moved in recent years from the underlying settlement systems to the end-user
level, helping to fuel mobile payments. In response to this shift, the Federal Reserve instituted a broader view of the
payments ecosystem, paying greater attention to developments throughout the payments chain from consumers and
merchants to banks and payments processors. This view was codified in 2012 in a new Federal Reserve Financial
Services strategic direction. That direction sets a foundation for Fed initiatives aimed at streamlining payment
transactions from origination to settlement.
Embracing the new did not mean abandoning the old. As the Fed took a holistic approach to the payments system, it
did not ignore the so-called legacy clearing and settlement systems, such as the ACH (automated clearinghouse),
checks, and funds transfer networks. Those systems are as critical as ever in the nation's payments infrastructure,
not least because they still handled a large number of electronic—including mobile—payments. "We are looking
forward to determining what we need to do to enhance our legacy systems to support these innovations happening at
the point where payments originate," said Cheryl Venable, senior vice president of the Atlanta Fed and retail
payments product manager for the RPO.
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Chart 1: Used Mobile Payments in Last 12 Months
Overall survey respondents
15%15%
Overall survey respondents
24%
Smartphone users
Traditional mobile phone
(feature phone) users
5%
0%
3%
5%
8%
10%
13%
15%
Percent of respondents
18%
20%
23%
25%
Source: Federal Reserve Board of Governors. Consumers and Mobile Financial Services survey, published March 2013
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Chart 2: Concerns about Mobile Payments
36%
Easier to pay with another method
Don't see benefits of using mobile
payments
35%
Don't have necessary features on my
phone
30%
Don't trust the technology to process
payments
16%
Don't understand all the different
options
14%
Don't need to make any payments
10%
Cost of data access on wireless plan is
too high
10%
Don't know of stores that allow mobile
payments
9%
7%
Other
Difficult or time consuming to set up
mobile payments
5%
Places I shop don't accept mobile
payments
4%
0%
5%
10%
15%
20%
25%
Percent of respondents
30%
35%
40%
Source: Federal Reserve Board of Governors. Consumers and Mobile Financial Services survey, published March 2013
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A Turning Point for Southeast Banks - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
Conversations
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Directors & Officers
Financials & More
A Turning Point
for Southeast Banks
Related Links
"ViewPoint," an Atlanta Fed
column on banks
More on Southeast bank
earnings
FDIC statistics on depository
institutions
Census Bureau's Building
Permits Survey
After several bruising years, 2012 was a pivotal one in the broad health and performance of
depository institutions both in the Southeast and across the nation. "Last year really was a
turning point, to a degree," said Michael Johnson, senior vice president and head of
Supervision and Regulation at the Atlanta Fed. "In general, banks in the Sixth Federal Reserve
District and across the nation gradually returned to health."
Issues remained, however, and further challenges likely await. The performance of southeastern banks continued to
lag behind that of institutions nationally, as banks in this region collectively had further to go to regain a strong
footing. Nevertheless, last year brought improving trends for the region's financial institutions in most important
performance measures, including earnings, loan quality, and bank failures
(see chart 1).
Importantly, there were signs that those trends should continue to improve.
Earnings highest since before financial crisis
Cumulative Southeast bank earnings in 2012 climbed to their highest level since 2007. Some of the improvement in
bank earnings resulted from lower loan-loss provision expenses. But for Southeast banks with assets less than $10
billion—the bulk of the region's financial institutions—return on average assets (ROAA), a key profitability measure,
improved as 2012 progressed. More than 80 percent of the banks in the region posted a positive ROAA, compared
with 70 percent in 2011 and 57 percent in 2010.
For 2012, some 30 percent of Southeast banks reported ROAA above 1 percent, generally viewed as a benchmark
for strong profitability. That figure is nearly double the level from each of the two previous years.
Banks' interest income for several quarters had been pressured by nonperforming loans and a low interest-rate
environment. However, aggregate interest income stabilized in 2012, a hopeful sign that banking conditions in the
Southeast have solidified.
As the year came to a close, low interest rates and weak loan demand pressured banks' interest margins. As the
economic recovery strengthens, results should improve.
Capital also reached pre-crisis level
Meanwhile, capital levels at Southeast institutions
reached a four-year high. In fact, capital levels
exceeded those in place at the onset of the financial
crisis, according to bank call reports and Atlanta Fed
research. Tier 1 capital—or core capital—levels at
Southeast banks in 2012 reached parity with banks
outside the region. Improved earnings from key
actions such as cost containment and lower provision
expenses pushed capital ratios higher. In addition,
during the third quarter, banks gained some clarity
about how new capital standards, known as Basel III,
might be implemented. Some banks, Atlanta Fed
analysts concluded, may have started devising plans to achieve these new standards.
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A Turning Point for Southeast Banks - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
Improved bank performance was further highlighted by positive trends in asset quality, as well as slow but broadening
loan growth across bank portfolios. Loan growth was evident in nearly every category except construction and
development loans. These loans were a source of considerable trouble during the recession and did not rebound
strongly as a category during 2012.
Commercial, industrial lending rose at healthy pace
Commercial and industrial loans continued double-digit growth during the year, and residential loans expanded more
rapidly as housing markets recovered in many metropolitan areas. Although earnings and loan growth improved,
charge offs trended higher, suggesting that some banks still had more problem loans to work through.
Another factor contributing to improved aggregate bank performance numbers last year was attrition. Many of the
most troubled banks failed before 2012. During 2012, 22 institutions in the Southeast failed, bringing to 164 the
number of failures in the region since the end of 2007
(see chart 2). The number of failures last year was the
lowest since 2008. In another encouraging sign, the number of southeastern banks on the Federal Deposit Insurance
Corporation's problem bank list declined in each quarter.
Underlying real estate conditions improved
In the Southeast especially, the condition of the banking industry has traditionally been closely tied to the health of
real estate markets. One of the underlying reasons banking conditions improved last year was that real estate
conditions improved. Across numerous categories—single-family houses, undeveloped land, multifamily properties,
retail centers, office buildings—the value of real estate essentially stopped falling in many Southeast markets during
2011. Last year saw an accelerated pace of improvement, Johnson noted.
There were exceptions. But the region's largest property markets generally showed promising signs. Miami's
residential market was particularly strong. Last year, the number of residential building permits issued in the MiamiFort Lauderdale-Miami Beach metropolitan statistical area increased 68 percent from 2011, according to the U.S.
Census Bureau. This number was more than triple the level of 2009, which marked the trough of the Miami housing
market.
Even metropolitan Atlanta's housing market, among the slowest in the nation to recover, showed signs of stabilizing
in certain areas by year's end. Permit issuance was up nearly two-thirds from 2011, and was more than double the
level of 2009. However, the permit numbers in Miami and Atlanta remained far below the levels of the years
immediately preceding the recession.
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)tnecrep ni( stessa egareva no nruter etagerggA
U.S. Bank Performance
2
1.5
1
0.5
0
-0.5
2010
Q2
2010
Q3
Source: Bank call reports
2010
Q4
2011
Q1
Assets < $1 billion
2011
Q2
2011
Q3
2011
Q4
Assets $1 to $10 billion
2012
Q1
2012
Q2
Assets > $10 billion
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2012
Q3
2012
Q4
Average
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Southeastern Bank Failures
60
seruliaf fo rebmuN
40
20
0
2007
2008
2009
2010
2011
2012
Source: Federal Deposit Insurance Corporation
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2012 Milestones - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
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Directors & Officers
Financials & More
2012 Milestones
Research/Monetary Policy
The Atlanta Fed Research Department published 20 working papers on topics
ranging from postrecession structural changes in the labor market to the wage
impact of undocumented workers, and from the reason people made bad decisions
regarding their mortgages during the housing boom to the effect of workers' housing
wealth on wage bargaining.
The Atlanta Fed held nine major policy and research conferences exploring such
timely topics as the employment consequences of the Great Recession, the future
of workforce development, U.S.-Mexico economic ties, the "shadow banking"
system, money market funds, and mortgage finance.
The Regional Economic Information Network (REIN) continued to gather economic
intelligence from southeastern business leaders and other sources in the region to
help inform monetary policymaking. REIN broadened regional economic inputs by
targeting regional universities, professional associations, and women- and minorityowned businesses.
Atlanta Fed staff conducted research on the implications of the financial stability of
state and local pensions.
Researchers deepened the Atlanta Fed's analysis of young, high-growth companies
through focus groups and interviews with entrepreneurs. Such firms can be
important job generators.
A repository of all Federal Reserve research on labor markets and an online "Jobs
Calculator" were made available on frbatlanta.org to inform the public about the U.S.
economy. The Jobs Calculator enables site visitors to determine the number of jobs
needed over time to achieve a target unemployment rate.
Supervision and Regulation
The Atlanta Fed's Supervision and Regulation division led Federal Reserve System
efforts to complete capital adequacy reviews for certain financial institutions.
The Supervision and Regulation division held its annual Banking Outlook
Conference in March. More than 200 bankers and regulators addressed a number
of questions the banking industry faces. For example, they discussed whether, as
the economy improves, banks are finally poised for a turnaround. They also
addressed the changing regulatory environment that was reshaped by the DoddFrank Act.
The Atlanta Fed hosted a banker outreach forum in August. The conference, which
was held in Chattanooga, Tennessee, was designed to stimulate dialogue among
bankers on profitability drivers and risk management.
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2012 Milestones - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
Retail Payments Office/Payments
The Federal Reserve System's Retail Payments Office (RPO), headquartered at the
Atlanta Fed, completed a four-year technology upgrade to more efficiently and
inexpensively process payments for 7,000-plus financial institutions across the
nation.
Under Atlanta Fed leadership, the Federal Reserve System's check and ACH
services nationwide met cost recovery targets in all retail payments processing
operations, as required by the Monetary Control Act.
In partnership with the Department of the Treasury, the RPO implemented
technology to electronically process savings bonds, eliminating one of the last
vestiges of paper processing for banks.
The Atlanta Fed initiated tools to help prevent fraudulent automated clearinghouse
(ACH) and check payments.
The Atlanta Fed's Financial Services unit helped the Federal Reserve Bank of New
York process $1.3 billion in international payments to customers in the Northeast
who were affected by Hurricane Sandy.
The Federal Reserve System completed the consolidation of paper-checkprocessing operations, when the last processing site moved to the Atlanta Fed from
the Cleveland Fed.
The Atlanta Fed's Retail Payments Risk Forum held a major conference on
technological innovations in payments. It also published research papers on the
regulatory landscape for mobile payments and the experiences of countries that
have adopted microchip-enabled payment cards.
Public Outreach
The Atlanta Fed launched The Fed Explained, an online feature highlighting
animated videos describing economic concepts and the Fed's role in the economy.
The video series received several awards, including a Strategic Video Award from
content marketing firm McCurry and three Aurora Awards: two Platinum Best of
Show awards and one Gold Award.
Atlanta Fed President and Chief Executive Officer Dennis Lockhart delivered more
than two dozen speeches in 2012. Major themes of the speeches included monetary
policy in economically challenging times, the complexity and dynamics of labor
markets, the economic outlook, and potential sources of financial instability.
The Bank's economic and financial education team conducted workshops for
teachers from middle and high schools around the Southeast, and made
presentations to local, state, and national teacher conferences. Between workshops
and presentations, the program reached more than 8,000 teachers, who in turn
reached more than 635,000 students.
Atlanta Fed-produced podcasts and videocasts covered such topics as the interplay
between monetary and fiscal policy, the economic importance of women
entrepreneurs, the government's role in housing finance, and the state of the
regional, national, and global economies.
The Atlanta Fed increased public accessibility to Federal Reserve information by
offering more online videos from conferences and presentations by senior leaders.
In addition to conferences, Atlanta Fed events included Public Affairs Forums
featuring distinguished speakers on entrepreneurship, the economics of health care,
the U.S. role in global economic cooperation, and the value of traditional economic
statistics.
The Atlanta Fed published its first online-only annual report and annual report iPad
app.
Corporate Citizenship
More than 40 percent of Atlanta Fed employees volunteered through workplacebased programs, contributing 4,200 hours to charities throughout the Southeast.
Employees also donated nearly $500,000 to nonprofit organizations through
workplace giving programs.
The Atlanta Fed won a prestigious Impact Award from the Corporate Volunteer
Council of Atlanta.
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2012 Milestones - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
Forty-six employees served on the boards of directors of 98 nonprofit agencies,
most of them focused on education, workplace development, and community
building.
The Office of Minority and Women Inclusion (OMWI) submitted to the U.S.
Congress the Atlanta Fed's first annual report on progress in meeting requirements
of the Dodd-Frank Wall Street Reform and Consumer Protection Act pertaining to
supplier diversity, workforce diversity, and financial literacy instruction.
As part of the Atlanta Fed's effort to operate in an environmentally sustainable
manner, the Miami cash processing operation began sending shredded currency to
a composting facility that uses it to make landscaping materials. This change will
divert 524 tons of waste a year from landfills.
The Birmingham and New Orleans branches earned BOMA360 certification,
recognizing that the buildings exceed best practices for environmental sustainability,
law enforcement, and community outreach.
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Atlanta Board of Directors - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
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Atlanta Board of Directors
Mouse over director for more information.
1. Left to right: Rogers,
2. Fanning,
3. Glover,
4. Tomé,
5. Humphries,
6. Barkin,
7. Suquet,
8. Schupp.
9. Not shown: Otis
Sixth Federal Reserve District Directors
Federal Reserve Banks each have a board of nine directors. Directors provide economic information, have broad
oversight responsibility for their bank's operations, and, with the Board of Governors approval, appoint the bank's
president and first vice president.
Six directors—three class A, representing the banking industry, and three class B—are elected by banks that are
members of the Federal Reserve System. Three class C directors (including the chair and deputy chair) are
appointed by the Board of Governors. Class B and C directors represent agriculture, commerce, industry, labor,
and consumers in the district; they cannot be officers, directors, or employees of a bank; class C directors cannot
be bank stockholders.
Fed branch office boards have five or seven directors; the majority are appointed by head-office directors and the
rest by the Board of Governors.
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Birmingham Board of Directors - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
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Birmingham Board of Directors
Macke B. Mauldin
F. Michael Reilly
Howard Leroy Nicholson
John A. Langloh
Thomas R. Stanton
Mouse over director for more information.
1. Left to right: Mauldin,
2. Reilly,
3. Nicholson,
4. Langloh,
5. Stanton.
6. Not shown: Lyons,
7. Moore
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Miami Board of Directors - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
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Miami Board of Directors
Mouse over director for more information.
1. Left to right: Hurley,
2. Tice,
3. Abess,
4. Lang,
5. Bacardi.
6. Not shown: Jackson,
7. Padrón
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Nashville Board of Directors - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
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Nashville Board of Directors
Cordia W. Harrington
Kathleen Calligan
William Y. Carroll Jr.
Jennifer S. Banner
Dan W. Hogan
Mouse over director for more information.
1. Left to right: Harrington,
2. Calligan,
3. Carroll,
4. Banner,
5. Hogan.
6. Not shown: Krueger,
7. McWilliams
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2012 ANNUAL REPORT
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New Orleans Board of Directors
Robert S. Boh
Carl J. Chaney
T. Lee Robinson Jr.
Terrie P. Sterling
Gerard R. Host
Mouse over director for more information.
1. Left to right: Boh,
2. Chaney,
3. Robinson,
4. Sterling,
5. Host.
6. Not shown: Conley,
7. Stuller
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Management Committee - 2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
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Management Committee
Mouse over director for more information. Left to right:
1. Bowling,
2. Venable,
3. Mandel,
4. Altig,
5. Johnson,
6. Jones,
7. Debeer,
8. Gooding,
9. Lockhart,
10. Davenport,
11. Anderson
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2012 Annual Report: Federal Reserve Bank of Atlanta Officers - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
Conversations
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Federal Reserve
Bank of Atlanta
Officers 2012
Senior Vice Presidents
Lois C. Berthaume
Senior Vice President
James M. McKee
Senior Vice President
William J. Tignanelli
Senior Vice President
Scott H. Dake
Senior Vice President
Robert J. Musso
Senior Vice President and
Regional Executive
New Orleans
Julius Weyman
Senior Vice President
Amy S. Goodman
Vice President and
Assistant Branch Manager
Christopher Oakley
Vice President and
Regional Executive
Jacksonville
Brian D. Egan
Senior Vice President
Vice Presidents
John S. Branigin
Vice President
Michael F. Bryan
Vice President
Joan H. Buchanan
Vice President, Director of OMWI
Annella D. Campbell-Drake
Vice President
Cynthia C. Goodwin
Vice President
Todd H. Greene
Vice President
Michael J. Chriszt
Vice President
Lee C. Jones
Vice President and
Regional Executive
Nashville
Suzanna J. Costello
Vice President
Mary M. Kepler
Vice President
Thomas J. Cunningham
Vice President and
Regional Executive
Atlanta
Jacquelyn Lee
Vice President
Juan del Busto
Vice President and
Regional Executive
Miami
William J. Devine
Vice President
Richard M. Fraher
Vice President and Counsel
Robert A. Love
Vice President
Lesley A. McClure
Vice President and
Regional Executive
Birmingham
Bobbie McCrackin
Vice President and
Public Affairs Officer
Cynthia L. Rasche
Vice President
John C. Robertson
Vice President
Juan C. Sanchez
Vice President
Robert M. Schenck
Vice President
Adrienne L. Slack
Vice President and
Regional Executive
New Orleans
Timothy R. Smith
Vice President and
Regional Executive
Miami
David E. Tatum
Vice President
Paula A. Tkac
Vice President
Stephen W. Wise
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2012 Annual Report: Federal Reserve Bank of Atlanta Officers - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
Vice President
Assistant Vice Presidents
Christopher N. Alexander
Assistant Vice President
Kathryn G. Hinton
Assistant Vice President
Doris Quiros
Assistant Vice President
Daniel Baum
Assistant Vice President
Susan Hoy
Assistant Vice President
Robin R. Ratliff
Assistant Vice President
S. Dwight Blackwood
Assistant Vice President and
Assistant General Counsel
Amelia L. Johnson
Assistant Vice President
Princeton G. Rose
Assistant Vice President
Evette H. Jones
Assistant Vice President
Jeffrey F. Schiele
Assistant Vice President
Torion L. Kent
Assistant Vice President
Maria Smith
Assistant Vice President
John A. Kolb Jr.
Assistant Vice President
Allen D. Stanley
Assistant Vice President
Stephen A. Levy
Assistant Vice President
Jeffrey W. Thomas
Assistant Vice President
Duncan Blake Lyons
Assistant Vice President
Joel E. Warren
Assistant Vice President
M. Darlene Martin
Assistant Vice President
Charles L. Weems
Assistant Vice President
Daniel A. Maslaney
Assistant Vice President
William R. Wheeler
Assistant Vice President
Lantanya N. Mauriello
Assistant Vice President
Kenneth Wilcox
Assistant Vice President
David R. McDermitt
Assistant Vice President
Molly T. Willison
Assistant Vice President
Huston McKinney
Assistant Vice President
Christina M. Wilson
Assistant Vice President
D. Pierce Nelson
Assistant Vice President
G. Edward Young
Assistant Vice President
Kim Blythe
Assistant Vice President
Anita F. Brown
Assistant Vice President
Karen W. Clayton
Assistant Vice President
Chapelle D. Davis
Assistant Vice President
Angela H. Dirr
Assistant Vice President and
Corporate Secretary
Patrick E. Dyer
Assistant Vice President
Greg S. Fuller
Assistant Vice President
Jennifer L. Gibilterra
Assistant Vice President
Paul W. Graham
Assistant Vice President
Paige B. Harris
Assistant Vice President
Robert D. Hawkins
Assistant Vice President
J. Elaine Phifer
Assistant Vice President
Carolyn Ann Healy
Assistant Vice President
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Federal Reserve
Bank of Atlanta
Advisory Councils
Federal Advisory Council Representative
Daryl G. Byrd
President and Chief Executive Officer
IBERIABANK Corporation
Regional Economic Information Network (REIN) Advisory Councils
Agriculture
Bill Boone
Entrepreneur Outreach Specialist
University of Georgia
Small Business Development Center
Douglas Bournique
Executive Vice President and General Manager
Indian River Citrus League
John Estes Jr.
Vice President
J. E. Estes Wood Company
Gaylon Lawrence Jr.
Partner
The Lawrence Group
Larkin Martin
Owner
Martin Farms
Gilbert Sellers
President
Sellers Inc.
Thomas Paulk
President and CEO
Alabama Farmers’ Cooperative, Inc.
Jill Stuckey
Chief Executive Officer
Herty Advanced Materials
Development Center
Dr. William Powell
Executive Vice President
Alabama Cattlemen’s Association
James Sanford
Chairman of the Board
HOME Place Farms
Robert Thomas
President
Two Rivers Ranch Inc.
David Kahn
President and Chief Executive Officer
Yogurt Mountain
Energy
Donald T. Bollinger
President and Chief Executive Officer
Bollinger Shipyards
Charles Goodson
Chief Executive Officer
PetroQuest Energy
Deloy Miller
Chairman and Chief Executive Officer
Miller Petroleum
W. Paul Bowers
President and Chief Executive Officer
Georgia Power Company
John Hollowell
Executive Vice President
Shell Energy Resources
Upstream Americas, Deep Water
Earl Shipp
Vice President
Dow Texas Operations
Kerry Chauvin
Chairman of the Board and
Chief Executive Officer
Gulf Island Fabrication Inc.
Mark Maisto
President Commodities and Retail Markets
Nextera energy
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Stephen Toups
Corporate Vice President
Turner Industries
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Trade and Transportation
Reid Dove
President and COO
AAA Cooper Transportation
John Giles
President and Chief Executive Officer
RailAmerica
Clarence Gooden
Executive Vice President
CSX Corporation
Myron Gray
President, U.S. Operations
United Parcel Service of America Inc.
John Hourihan
Senior Vice President and General Manager
Latin America Services
Crowley Maritime Corporation
Deborah A. McDowell
Director of Customer Service and
Business Development
Seaonus
Bill Johnson
Port Director
Port of Miami
Clifford K. Otto
President
Saddle Creek Logistics Services
Gary Lagrange
President and Chief Executive Officer
Port of New Orleans
David Parker
Chairman, President, and
Chief Executive Officer
Covenant Transportation
Chris Mangos
Director, Marketing Division
Miami-Dade Aviation Department
Miami International Airport
Travel and Tourism
David Bernstein
Senior Vice President,
Chief Financial Officer
Carnival Cruise Lines
Nicki Grossman
President and Chief Executive Officer
Greater Fort Lauderdale Convention
and Visitors Bureau
William D. Talbert III
President and Chief Executive Officer
Greater Miami Convention and
Visitors Bureau
Robert Dearden
Chief Operating Officer
The Florida Restaurant and
Lodging Association
David Kloeppel
President
Gaylord Entertainment Company
Chris Thompson
Executive Director,
President/Chief Executive Officer
VISIT FLORIDA
Tony Quintero
Associate Aviation Director
Government Affairs
Miami-Dade Aviation
Miami International Airport
Mark Vaughn
Executive Vice President,
Chief Sales and Marketing Officer
Atlanta Convention and Visitors Bureau
Brian Rice
Executive Vice President and
Chief Financial Officer
Royal Caribbean Cruises Ltd.
Jack Wert
Executive Director
Naples, Marco Island, Everglades
Convention and Visitors Bureau
Catalina Amuedo-Dorantes
Professor
Department of Economics
San Diego State University
Martin Eichenbaum
Ethel and John Lindgren
Professor of Economics
Northwestern University
Susan Kaufman Purcell
Director
Center for Hemispheric Policy
University of Miami
Kenneth Coates
Economist
Jeffry Frieden
Stanfield Professor of International Peace
Department of Government
Harvard University
Patricia Denechaud
President and Chief Executive Officer
Crescent City Consultants
Cynthia Flowers
Executive Manager
Alabama Bureau of Tourism and Travel
Other Advisory Councils
Americas Center Advisory Council
Center for Quantitative Economic Research Advisory Group
Lawrence Christiano
Department of Economics
Northwestern University
Martin Eichenbaum
Ethel and John Lindgren
Sergio Rebelo
Department of Economics
Kellogg School of Management
Northwestern University
Richard Rogerson
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Thomas Sargent
Department of Economics
New York University
Chris Sims
Department of Economics
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Professor of Economics
Northwestern University
2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
Department of Economics and
Public Affairs
Woodrow Wilson School of Public
and International Affairs
Princeton University
Princeton University
Community Depository Institutions Advisory Council
Austin H. Adkins
Chief Executive Officer
First National Bank, Hamilton, AL
Milton H. Jones Jr.
Executive Chairman
CertusBank N.A.
Earl O. Bradley III
Chief Executive Officer
First Federal Savings Bank,
Clarksville, TN
Fred Miller
President and Chief Executive Officer
Bank of Anguilla, Anguilla, MS
Claire W. Tucker
(National Council Representative)
President and Chief Executive Officer
CapStar Bank, Nashville, TN
Agustin Velasco
President
InterAmerican Bank, FSB, Miami, FL
Thomas A. Broughton III
President and Chief Executive Officer
ServisFirst Bank, Birmingham, AL
Joseph F. Quinlan III
President and Chief Executive Officer
First National Bankers Bank,
Baton Rouge, LA
Douglas L. Williams
President and Chief Executive Officer
Atlantic Capital Bank, Atlanta, GA
Calvin L. Cearley
President and Chief Executive Officer
Palm Beach Community Bank,
Boynton Beach, FL
Mark E. Rosa
President and Chief Executive Officer
Jefferson Financial Credit Union,
Metairie, LA
James Woodward
President and Chief Executive Officer
SunState Federal Credit Union,
Gainesville, FL
Labor, Education, and Health Advisory Council
Jay Berkelhamer
Past President
American Academy of Pediatrics
Joseph Kilkenny
General Manager
CSX Transportation
Harve Mogul
President and Chief Executive Officer
United Way of Miami-Dade
Neal Berte
President Emeritus
Birmingham-Southern College
James D. King
Vice Chancellor
Tennessee Technology Centers
Rolando Montoya
Provost
Miami Dade College
Stephen Dolinger
President
Georgia Partnership for
Excellence in Education
Susan Krohn
Chief Executive Officer
Brooke Companies
Stephen Newman
Chief Operating Officer (retired)
Tenet Healthcare Corporation
Lindsay (Jerry) Lee
Past President
Tennessee AFL-Chief Information Officer
Les Range
Deputy Executive Director
Mississippi Department of
Employment Security
Michael Hecht
President and Chief Executive Officer
Greater New Orleans Inc.
Richard Hobbie
Executive Director
National Association of
State Workforce Agencies
Jeff Hubbard
Former President
Georgia Association of Educators
Rob Kight
Vice President
Global Human Resources Services
and Labor Relations
Delta Air Lines
Denise Mcleod
Vice President and Chief Operating Officer
Landrum Staffing Services
Wayne Riley
President and Chief Executive Officer
Meharry Medical College
Rhonda Medows
Chief Medical Officer and
Executive Vice President
United Healthcare
Carolyn Meyers
President
Jackson State University
Real Estate Advisory Council
David Auld
President–East Division
Keith Horowitz
Managing Director
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Hugh Rowden
Senior Vice President,
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2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
D.R. Horton
Citi Investment Research
Sam Chandan
President and Chief Economist
Chandan Economics
Ken McIntyre
Managing Director
PassPort Real Estate LLC
Sally Gordon
Managing Director
BlackRock Inc.
Egbert Perry
Chairman and Chief Executive Officer
The Integral Group
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Regional Servicing Director
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2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
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Financials & More
Financial Statements
The Board of Governors and the Federal Reserve Banks annually prepare and release audited financial statements reflecting balances (as of December 31) and
income and expenses for the year then ended. Links to the financial and audit statements of the Federal Reserve Bank of Atlanta are below.
2012 Financial Statements
PDF icon
2012 Audit Statement
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The Federal Reserve
Bank of Atlanta
Financial Statements as of and for the Years Ended
December 31, 2012 and 2011 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- 4
page
5
Financial Statements:
Statements of Condition as of December 31, 2012 and December 31, 2011
page
6
Statements of Income and Comprehensive Income for the years ended December 31, page 7
2012 and December 31, 2011
Statements of Changes in Capital for the years ended December 31, 2012 and page 8
December 31, 2011
Notes to Financial Statements
pages
9 - 39
FEDERAL
BANK
of ATLANTA
RESERVE
[image of logo]
March 14, 2013
1000 Peachtree Street, N.E.
Atlanta, GA 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 (Bank) is responsible for the preparation and fair presentation
of the Statements of Condition as of December 31, 2012 and 2011, 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 Bank is responsible for establishing and maintaining effective internal control over financial
reporting as it relates to the financial statements. The Bank's internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with the FAM. The Bank's internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the Bank's assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with FAM, and that
the Bank's receipts and expenditures are being made only in accordance with authorizations of its management and
directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Bank's assets that could have a material effect on its financial statements.
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 Bank assessed its internal control over financial reporting 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 Bank maintained effective internal control over financial
reporting.
Federal Reserve Bank of Atlanta
(signedby)Dennis P. Lockhart, President and Chief Executive Officer
(signedby)Marie C. Gooding, First Vice President and Chief Operating Officer
(signedby)Anne M. DeBeer, Senior Vice President and Chief Financial Officer
Deloitte.
Deloitte & Touche LLP
Suite 2000
191 Peachtree 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 financial statements of the Federal Reserve Bank of Atlanta
("FRB Atlanta"), which are comprised of the statements of condition as of December 31, 2012 and
2011, and the related statements of income and comprehensive income, and of changes in capital for
the years then ended, and the related notes to the financial statements. We also have audited the FRB
Atlanta's internal control over financial reporting as of December 31, 2012, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Management's Responsibility
The FRB Atlanta's management is responsible for the preparation and fair presentation of these
financial statements in accordance with accounting principles established by the Board of Governors
of the Federal Reserve System (the "Board") as described in Note 3 to the financial statements. The
Board has determined that this basis of accounting is an acceptable basis for the preparation of the
FRB Atlanta's financial statements in the circumstances. The FRB Atlanta's management is also
responsible for the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error. The FRB Atlanta's management is also responsible for its assertion of
the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control Over Financial Reporting.
Auditors' Responsibility
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 of the
financial statements in accordance with auditing standards generally accepted in the United States of
America and in accordance with the auditing standards of the Public Company Accounting Oversight
Board (United States) ("PCAOB") and we conducted our audit of internal control over financial
reporting in accordance with attestation standards established by the American Institute of Certified
Public Accountants and in accordance with the auditing standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement and whether effective internal control over financial
reporting was maintained in all material respects.
An audit of the financial statements involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures selected depend on the
auditor's judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the FRB Atlanta's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances. An audit of
the financial statements also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements. An audit of internal control over financial reporting
involves obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary
in the circumstances.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinions.
Definition of Internal Control Over Financial Reporting
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. 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, 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; and (3) provide reasonable assurance regarding
prevention or timely detection and correction of unauthorized acquisition, use, or disposition of the
FRB Atlanta's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Control Over Financial Reporting
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 and corrected 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.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the FRB Atlanta as of December 31, 2012 and 2011, and the results of its
operations for the years then ended in accordance with the basis of accounting described in Note 3 to
the financial statements. Also, in our opinion, the FRB Atlanta maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2012, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Basis of Accounting
We draw attention to Note 3 to the financial statements, which describes the basis of accounting. The
FRB Atlanta has prepared these financial statements in conformity with accounting principles
established by the Board, as set forth in the Financial Accounting
Manual for Federal Reserve
Banks,
which is a 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 and accounting principles generally accepted in the United States
of America are also described in Note 3 to the financial statements. Our opinion is not modified with
respect to this matter.
(signed) Deloitte & Touche LLP [Member of Deloitte Touche Tohmatsu Limited]
March 14, 2013
FEDERAL RESERVE BANK OF ATLANTA
Abbreviations:
ACH
Automated clearinghouse
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
BEP
Benefit Equalization Retirement Plan
Bureau
Bureau of Consumer Financial Protection
FAM
Financial Accounting Manual for Federal Reserve Banks
FASB
Financial Accounting Standards Board
Fannie Mae
Federal National Mortgage Association
Freddie Mac
Federal Home Loan Mortgage Corporation
FOMC
Federal Open Market Committee
FRBNY
Federal Reserve Bank of New York
GAAP
Accounting principles generally accepted in the United States of America
GSE
Government-sponsored enterprise
IMF
International Monetary Fund
MBS
Mortgage-backed securities
OEB
Office of Employee Benefits of the Federal Reserve System
OFR
Office of Financial Research
SDR
Special drawing rights
SERP
Supplemental Retirement Plan for Select Officers of the Federal Reserve Banks
SOMA
System Open Market Account
TBA
To be announced
TDF
Term Deposit Facility
FEDERAL RESERVE B A N K OF ATLANTA
STATEMENTS OF CONDITION
As of December 31, 2012 and December 31, 2011
Header row column 1: category, column 2: 2012, column 3: 2011, end of header row.
ASSETS.
ASSETS: Gold certificates, 2012: 1,337, 2011: 1,394.
ASSETS: Special drawing rights certificates, 2012: 654, 2011: 654.
ASSETS: Coin, 2012: 209, 2011: 205.
ASSETS: Loans to depository institutions, 2012: 4, 2011: -.
ASSETS: System Open Market Account.
ASSETS: System Open Market Account: Treasury securities, net (of which $551 and $1,124 is lent as of December 31, 2012
and 2011, respectively), 2012: 109,082, 2011: 130,120.
ASSETS: System Open Market Account: Government-sponsored enterprise debt securities, net (of which $42 and $95 is lent
as of December 31, 2012 and 2011, respectively), 2012: 4,792, 2011: 8,016.
ASSETS: System Open Market Account: Federal agency and government-sponsored enterprise mortgage-backed securities,
net, 2012: 57,298, 2011: 63,062.
ASSETS: System Open Market Account: Foreign currency denominated assets, net, 2012: 1,428, 2011: 1,487.
ASSETS: System Open Market Account: Central bank liquidity swaps, 2012: 508, 2011: 5,720.
ASSETS: System Open Market Account: Other investments, 2012: 1, 2011: -.
ASSETS: Accrued interest receivable, 2012: 1,141, 2011: 1,465.
ASSETS: Bank premises and equipment, net, 2012: 241, 2011: 240.
ASSETS: Items in process of collection, 2012: 208, 2011: 31.
ASSETS: Interdistrict settlement account, 2012: 36,287, 2011: -.
ASSETS: Other assets, 2012: 79, 2011: 81.
Total assets, 2012: 213,269, 2011: 212,475.
LIABILITIES AND CAPITAL.
LIABILITIES AND CAPITAL: Federal Reserve notes outstanding, net, 2012: 149,849, 2011: 116,694.
LIABILITIES AND CAPITAL: System Open Market Account.
LIABILITIES AND CAPITAL: System Open Market Account: Securities sold under agreements to repurchase, 2012: 6,463,
2011: 7,427.
LIABILITIES AND CAPITAL: System Open Market Account: Other liabilities, 2012: 192, 2011: 102.
LIABILITIES AND CAPITAL: Deposits.
LIABILITIES AND CAPITAL: Deposits: Depository institutions, 2012: 52,776, 2011: 40,223.
LIABILITIES AND CAPITAL: Deposits: Other deposits, 2012: 10, 2011: 5.
LIABILITIES AND CAPITAL: Interest payable to depository institutions, 2012: 7, 2011: 5.
LIABILITIES AND CAPITAL: Accrued benefit costs, 2012: 195, 2011: 160.
LIABILITIES AND CAPITAL: Deferred credit items, 2012: 553, 2011: 57.
LIABILITIES AND CAPITAL: Accrued interest on Federal Reserve notes, 2012: 90, 2011: 171.
LIABILITIES AND CAPITAL: Interdistrict settlement account, 2012: -, 2011: 44,538.
LIABILITIES AND CAPITAL: Other liabilities, 2012: 16, 2011: 17.
LIABILITIES AND CAPITAL: Total liabilities, 2012: 210,151, 2011: 209,399.
LIABILITIES AND CAPITAL: Capital paid-in, 2012: 1,559, 2011: 1,538.
LIABILITIES AND CAPITAL: Surplus (including accumulated other comprehensive loss of $48 and $26 at December 31,
2012 and 2011, respectively), 2012: 1,559, 2011: 1,538.
LIABILITIES AND CAPITAL: Total capital, 2012: 3,118, 2011: 3,076.
Total liabilities and capital, 2012: 213,269, 2011: 212,475.
The accompanying notes are an integral part of these financial statements.
FEDERAL RESERVE B A N K OF ATLANTA
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31, 2012 and December 31, 2011
Header row column 1: category, column 2: 2012, column 3: 2011, end of header row.
INTEREST INCOME.
INTEREST INCOME: System Open Market Account:.
INTEREST INCOME: System Open Market Account: Treasury securities, net, 2012: 2,982, 2011: 3,349.
INTEREST INCOME: System Open Market Account: Government-sponsored enterprise debt securities, net, 2012: 170,
2011: 247.
INTEREST INCOME: System Open Market Account: Federal agency and government-sponsored enterprise
mortgage-backed securities, net, 2012: 2,034, 2011: 3,083.
INTEREST INCOME: System Open Market Account: Foreign currency denominated assets, net, 2012: 8, 2011: 14.
INTEREST INCOME: System Open Market Account: Central bank liquidity swaps, 2012: 14, 2011: 2.
Total interest income, 2012: 5,208, 2011: 6,695.
INTEREST EXPENSE.
INTEREST EXPENSE: System Open Market Account:.
INTEREST EXPENSE: System Open Market Account: Securities sold under agreements to repurchase, 2012: 9, 2011: 4.
INTEREST EXPENSE: Deposits:.
INTEREST EXPENSE: Deposits: Depository institutions, 2012: 114, 2011: 109.
Total interest expense, 2012: 123, 2011: 113.
Net interest income, 2012: 5,085, 2011: 6,582.
NON-INTEREST INCOME.
NON-INTEREST INCOME: System Open Market Account:.
NON-INTEREST INCOME: System Open Market Account: Treasury securities gains, net, 2012: 840, 2011: 168.
NON-INTEREST INCOME: System Open Market Account: Federal agency and government-sponsored enterprise
mortgage-backed securities gains, net, 2012: 16, 2011: 1.
NON-INTEREST INCOME: System Open Market Account: Foreign currency translation (losses) gains, net, 2012: (64),
2011: 9.
NON-INTEREST INCOME: Income from services, 2012: 290, 2011: 327.
NON-INTEREST INCOME: Compensation received for service costs provided, 2012: 1, 2011: -.
NON-INTEREST INCOME: Reimbursable services to government agencies, 2012: 19, 2011: 16.
NON-INTEREST INCOME: Other, 2012: 7, 2011: 6.
Total non-interest income, 2012: 1,109, 2011: 527.
OPERATING EXPENSES.
OPERATING EXPENSES: Salaries and benefits, 2012: 199, 2011: 193.
OPERATING EXPENSES: Occupancy, 2012: 21, 2011: 21.
OPERATING EXPENSES: Equipment, 2012: 13, 2011: 15.
OPERATING EXPENSES: Compensation paid for service costs incurred, 2012: 140, 2011: 158.
OPERATING EXPENSES: Assessments:.
OPERATING EXPENSES: Assessments: Board of Governors operating expenses and currency costs, 2012: 131, 2011: 122.
OPERATING EXPENSES: Assessments: Bureau of Consumer Financial Protection, 2012: 22, 2011: 14.
OPERATING EXPENSES: Assessments: Office of Financial Research, 2012: -, 2011: 2.
OPERATING EXPENSES: Other, 2012: 80, 2011: 86.
Total operating expenses, 2012: 606, 2011: 611.
Net income before interest on Federal Reserve notes expense remitted to Treasury, 2012: 5,588, 2011: 6,498.
Interest on Federal Reserve notes expense remitted to Treasury, 2012: 5,453, 2011: 6,378.
Net income, 2012: 135, 2011: 120.
Change in prior service costs and actuarial losses related to benefit plans, 2012: (22), 2011: (12).
Total other comprehensive loss, 2012: (22), 2011: (12).
Comprehensive income, 2012: 113, 2011: 108.
The accompanying notes are an integral part of these financial statements.
FEDERAL RESERVE B A N K OF ATLANTA
S T A T E M E N T S OF C H A N G E S IN CAPITAL
For the years ended December 31, 2012 and December 31, 2011
(in millions, except share data)
Header row column 1: category, column 2: Capital paid-in, column 3: Surplus: Net income retained,
column 4: Surplus: Accumulated other comprehensive loss, column 5: Total surplus, column 6: Total capital, end of header row.
Balance at December 31, 2010 (30,399,327 shares), Capital paid-in: 1,520, Surplus: Net income retained: 1,534,
Surplus: Accumulated other comprehensive loss: (14), Total surplus: 1,520, Total capital: 3,040.
2011 Net change in capital stock issued (362,196 shares), Capital paid-in: 18, Surplus: Net income retained: -,
Surplus: Accumulated other comprehensive loss: -, Total surplus: -, Total capital: 18.
2011 Comprehensive income.
2011 Comprehensive income: Net income, Capital paid-in: -, Surplus: Net income retained: 120,
Surplus: Accumulated other comprehensive loss: -, Total surplus: 120, Total capital: 120.
2011 Comprehensive income: Other comprehensive loss, Capital paid-in: -, Surplus: Net income retained: -,
Surplus: Accumulated other comprehensive loss: (12), Total surplus: (12), Total capital: (12).
2011 Dividends on capital stock, Capital paid-in: -, Surplus: Net income retained: (90),
Surplus: Accumulated other comprehensive loss: -, Total surplus: (90), Total capital: (90).
2011 Net change in capital, Capital paid-in: 18, Surplus: Net income retained: 30,
Surplus: Accumulated other comprehensive loss: (12), Total surplus: 18, Total capital: 36.
Balance at December 31, 2011 (30,761,523 shares), Capital paid-in: 1,538, Surplus: Net income retained: 1,564,
Surplus: Accumulated other comprehensive loss: (26), Total surplus: 1,538, Total capital: 3,076.
2012 Net change in capital stock issued (410,559 shares), Capital paid-in: 21, Surplus: Net income retained: -,
Surplus: Accumulated other comprehensive loss: -, Total surplus: -, Total capital: 21.
2012 Comprehensive income.
2012 Comprehensive income: Net income, Capital paid-in: -, Surplus: Net income retained: 135,
Surplus: Accumulated other comprehensive loss: -, Total surplus: 135, Total capital: 135.
2012 Comprehensive income: Other comprehensive loss, Capital paid-in: -, Surplus: Net income retained: -,
Surplus: Accumulated other comprehensive loss: (22), Total surplus: (22), Total capital: (22).
2012 Dividends on capital stock, Capital paid-in: -, Surplus: Net income retained: (92),
Surplus: Accumulated other comprehensive loss: -, Total surplus: (92), Total capital: (92).
2012 Net change in capital, Capital paid-in: 21, Surplus: Net income retained: 43,
Surplus: Accumulated other comprehensive loss: (22), Total surplus: 21, Total capital: 42.
Balance at December 31, 2012 (31,172,082 shares), Capital paid-in: 1,559, Surplus: Net income retained: 1,607,
Surplus: Accumulated other comprehensive loss: (48), Total surplus: 1,559, Total capital: 3,118.
The accompanying notes are an integral part of these financial statements.
FEDERAL RESERVE BANK OF ATLANTA
NOTES TO 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 participants in programs or facilities with broad-based eligibility 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, savings
and loan holding companies, U.S. offices of foreign banking organizations, and designated financial market
utilities pursuant to authority delegated by the Board of Governors. Certain services are provided to foreign
and international monetary authorities, primarily by the FRBNY.
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, 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 and directed to lend the Treasury securities and federal agency and GSE debt securities that are held
in the SOMA.
To counter disorderly conditions in foreign exchange markets or to meet other needs specified by the FOMC to
carry out the System's central bank responsibilities, the FOMC has authorized and directed the FRBNY to
execute spot and forward foreign exchange transactions in 14 foreign currencies, to hold balances in those
currencies, and to invest such foreign currency holdings, while maintaining adequate liquidity. The FOMC has
also authorized the FRBNY to maintain reciprocal currency arrangements with the Bank of Canada and the
Bank of Mexico in the maximum amounts of $2 billion and $3 billion, respectively, and to warehouse foreign
currencies for the Treasury and the Exchange Stabilization Fund.
Because of the global character of funding markets, the System has at times coordinated with other central banks to
provide temporary liquidity. In May 2010, the FOMC authorized and directed the FRBNY to establish
temporary U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the
European Central Bank, the Bank of Japan, and the Swiss National Bank through January 2011. Subsequently,
the FOMC authorized and directed the FRBNY to extend these arrangements through February 1, 2013. In
December 2012, the FOMC authorized and directed the FRBNY to extend these arrangements through
February 1, 2014. In addition, in November 2011, as a contingency measure, the FOMC authorized the
FRBNY to establish temporary bilateral foreign currency liquidity swap arrangements with the Bank of
Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank so
that liquidity can be provided to U.S. institutions in any of their currencies if necessary. In December 2012,
the FOMC authorized the FRBNY to extend these temporary bilateral foreign currency liquidity swap
arrangements through February 1, 2014.
Although the Reserve Banks are separate legal entities, they collaborate on 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 Central
Billing Services.
3.
SIGNIFICANT ACCOUNTING POLICIES
Accounting principles for entities with the unique powers and responsibilities of the 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 of America (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 all SOMA securities on a settlement-date basis. 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. 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
ability of the Reserve Banks, as the central bank, to meet their financial obligations and responsibilities. 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. Accounting for these securities on a settlement-date basis, rather than the trade-date basis required
by GAAP, better reflects the timing of the transaction's effect on the quantity of reserves in the banking
system. The cost bases of Treasury securities, GSE debt securities, and foreign government debt instruments
are adjusted for amortization of premiums or accretion of discounts on a straight-line basis, rather than using
the interest method required by GAAP. SOMA securities holdings are evaluated for credit impairment
periodically.
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 as a central bank. 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, and
the accompanying notes to the financial statements. Other than those described above, there are no 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.
Certain amounts relating to the prior year have been reclassified to conform to the current-year presentation. The
presentation of "Dividends on capital stock" and "Interest on Federal Reserve notes expense remitted to
Treasury" in the Statements of Income and Comprehensive Income for the year ended December 31, 2011 has
been revised to conform to the current year presentation format. In addition, the presentation of
"Comprehensive income" and "Dividends on capital stock" in the Statements of Changes in Capital for the
year ended December 31, 2011 have been revised to conform to the current year presentation format. The
revised presentation of "Dividends on capital stock" and "Interest on Federal Reserve notes expense remitted
to Treasury" better reflects the nature of these items and results in a more consistent treatment of the amounts
presented in the Statements of Income and Comprehensive Income and the related balances presented in the
Statements of Condition. As a result of the change to report "Interest on Federal Reserve Notes expense
remitted to Treasury" as an expense, the amount reported as "Comprehensive income" for the year ended
December 31, 2011 has been revised. Significant accounts and accounting policies are explained below.
a. Consolidation
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) established the
Bureau of Consumer Financial Protection (Bureau) as an independent bureau within the System that has
supervisory authority over some institutions previously supervised by the Reserve Banks in connection
with those institutions' compliance with consumer protection statutes. 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 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 Bank's 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. Gold
certificates are recorded by the Banks at original cost. The Board of Governors allocates the gold
certificates among the Reserve Banks once a year based on each Reserve Bank's average Federal Reserve
notes outstanding during the preceding calendar year.
SDRs 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. SDRs 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 certificate transactions occur, the Board of Governors allocates the SDR
certificates among the Reserve Banks based upon each Reserve Bank's Federal Reserve notes outstanding
at the end of the preceding calendar year. SDR certificates are recorded by the Banks at original cost.
There were no SDR certificate transactions during the years ended December 31, 2012 and 2011.
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 are 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 triparty arrangement. In a
triparty 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 FRBNY 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
Treasury Inflation-Protected Securities and Separate Trading of Registered Interest and Principal of
Securities Treasury securities); direct obligations of several federal and GSE-related agencies, including
Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation
(Freddie Mac); and pass-through MBS of Fannie Mae, Freddie Mac, and Government National Mortgage
Association. The repurchase transactions are accounted for as financing transactions with the associated
interest income recognized over the life of the transaction. These transactions are reported at their
contractual amounts as "System Open Market Account: Securities purchased under agreements to resell"
and the related accrued interest receivable is reported as a component of "Other assets" in the Statements
of Condition.
The FRBNY may engage in sales of securities under agreements to repurchase (reverse repurchase
transactions) with primary dealers and selected money market funds. The list of eligible counterparties
was expanded to include GSEs, effective in July 2011, and bank and savings institutions, effective in
December 2011. These reverse repurchase transactions may be executed through a triparty arrangement
as an open market operation, 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. The amortized cost basis of securities lent
continues to be reported as "Treasury securities, net" and "Government-sponsored enterprise debt
securities, net," as appropriate, in the Statements of Condition. 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 "Non-interest income: Other" 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 the second quarter of 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 or accreted 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. 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 in the Statements of Condition and interest income on those securities is
reported net of the amortization of premiums and accretion of discounts in 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
enters 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. During the years ended December 31,
2012 and 2011, the FRBNY executed dollar rolls primarily to facilitate settlement of outstanding
purchases of federal agency and GSE MBS. The FRBNY accounts for dollar roll transactions as
purchases or sales on a settlement-date basis. In addition, TBA MBS transactions may be paired off or
assigned prior to settlement. Net gains resulting from dollar roll transactions are reported as "Non-interest
income: System Open Market Account: Federal agency and government-sponsored enterprise mortgagebacked securities gains, net" in the Statements of Income and Comprehensive Income.
Foreign currency denominated assets, which can include foreign currency deposits, securities purchased under
agreements to resell, and government debt instruments, are revalued daily at current foreign currency
market exchange rates in order to report these assets in U.S. dollars. Foreign currency translation gains
and losses that result from the daily revaluation of foreign currency denominated assets are reported as
"Non-interest income: System Open Market Account: Foreign currency translation (losses) 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 the second
quarter 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 the Reserve Banks' 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. 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 the Reserve Banks' 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 the Reserve Banks' aggregate
capital and surplus at the preceding December 31. The foreign currency amounts associated with these
central bank liquidity swap arrangements are revalued daily 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 are
reported as "System Open Market Account: Central bank liquidity swaps" in 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 Bank's allocated portion of the amount of compensation received during the term of the
swap transaction is reported as "Interest income: System Open Market Account: 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. 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 is generally five years. Maintenance costs related to software are charged to operating 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.
i. 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.
An annual settlement of the interdistrict settlement account occurs in the second quarter of each year. As a
result of the annual settlement, the balance in each Bank's interdistrict settlement account is adjusted by
an amount equal to the average balance in the account during the previous twelve month period ended
March 31. An equal and offsetting adjustment is made to each Bank's allocated portion of SOMA assets
and liabilities.
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 $26,016 million and $29,109 million at
December 31, 2012 and 2011, respectively.
At December 31, 2012 and 2011, all Federal Reserve notes issued to the Reserve Banks were fully
collateralized. At December 31, 2012, all gold certificates, all special drawing rights certificates, and
$1,110 billion of domestic securities held in the SOMA were pledged as collateral. At December 31,
2012, no investments denominated in foreign currencies were pledged as collateral.
k. Deposits
Depository Institutions
Depository institutions' deposits represent the reserve and service-related balances, such as required clearing
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 FOMCestablished target range for the federal funds rate. Interest payable is reported as a component of "Interest
payable to depository institutions" in 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 a component of "Interest payable to depository institutions" in the
Statements of Condition. There were no deposits held by the Bank under the TDF at December 31, 2012
and 2011.
Other
Other deposits include the Bank's allocated portion of foreign central bank and foreign government deposits
held at the FRBNY. Other deposits also include cash collateral held by 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" is 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 six 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 six percent on the
paid-in capital stock. This cumulative dividend is paid semiannually.
n. Surplus
The Board of Governors requires the Reserve Banks to maintain a surplus equal to the amount of capital paidin. On a daily basis, surplus is adjusted to equate the balance to capital paid-in. 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 9 and 10.
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 "Interest on
Federal Reserve notes expense remitted to Treasury" 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. See Note 12 for additional information on interest on Federal Reserve notes.
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, remittances 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 the Treasury resume. This deferred asset is periodically reviewed for impairment.
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, 2012 and 2011, the Bank was reimbursed
for all services provided to the Treasury as its fiscal agent.
q. Income from Services, 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, reports total System revenue for these services as "Income from
services" in its Statements of Income and Comprehensive Income. The Bank compensates the applicable
Reserve Banks for the costs incurred to provide these services and reports the resulting compensation paid
as "Operating expenses: Compensation paid for service costs incurred" in its Statements of Income and
Comprehensive Income.
The FRBNY has overall responsibility for managing the Reserve Banks' provision of Fedwire funds and
securities services, and the Federal Reserve Bank of Chicago has overall responsibility for managing the
Reserve Banks' provision of electronic access services to depository institutions. The Reserve Bank that
has overall responsibility for managing these services recognizes the related total System revenue in its
Statements of Income and Comprehensive Income. The Bank is compensated for costs incurred to
provide these services. In 2012 and 2011, this compensation was reported as "Non-interest income:
Compensation received for service costs provided" and "Non-interest income: Other" in its Statements of
Income and Comprehensive Income, respectively.
r. Assessments
The Board of Governors assesses the Reserve Banks to fund its operations, the operations of the Bureau and,
for a two-year period following the July 21, 2010 effective date of the Dodd-Frank Act, the OFR. These
assessments are allocated to each Reserve Bank based on each Reserve Bank's capital and surplus
balances. The Board of Governors also assesses each Reserve Bank for expenses related to producing,
issuing, and retiring 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 before the Bureau transfer date of July 21, 2011, there was no limit on the funding provided
to the Bureau and assessed to the Reserve Banks; the Board of Governors was required to 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. The Dodd-Frank Act requires that, after the
transfer date, the Board of Governors fund the Bureau in an amount not to exceed a fixed percentage of
the total operating expenses of the System as reported in the Board of Governors' 2009 annual report,
which totaled $4.98 billion. The fixed percentage of total 2009 operating expenses of the System is 10
percent ($498.0 million) for 2011, 11 percent ($547.8 million) for 2012, and 12 percent ($597.6 million)
for 2013. After 2013, the amount will be adjusted in accordance with the provisions of the Dodd-Frank
Act. The Bank's assessment for Bureau funding is reported as "Assessments: Bureau of Consumer
Financial Protection" in the Statements of Income and Comprehensive Income.
The Board of Governors assessed the Reserve Banks to fund the operations of the OFR for the two-year period
ended July 21, 2012, following enactment of the Dodd-Frank Act; thereafter, the OFR is funded by fees
assessed on bank holding companies and nonbank financial companies that meet the criteria specified in
the Dodd-Frank Act.
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, 2012 and 2011, 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 11 describes the Bank's restructuring initiatives and provides information about the costs and liabilities
associated with employee separations. The costs associated with the impairment of certain Bank assets
are discussed in Note 6. 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 9.
The Bank had no significant restructuring activities in 2012 and 2011.
u. Recently Issued Accounting Standards
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled
Debt Restructuring, which clarifies accounting for troubled debt restructurings, specifically clarifying
creditor concessions and financial difficulties experienced by borrowers. This update is effective for the
Bank for the year ended December 31, 2012, and did not have a material effect on the Bank's financial
statements.
In April 2011, the FASB issued ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of
Effective Control for Repurchase Agreements, which reconsidered the effective control for repurchase
agreements. This update prescribes when the Bank may or may not recognize a sale upon the transfer of
financial assets subject to repurchase agreements. This determination is based, in part, on whether the
Bank has maintained effective control over the transferred financial assets. This update is effective for the
Bank for the year ended December 31, 2012, and did not have a material effect on the Bank's financial
statements.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting
Assets and Liabilities. This update will require a reporting entity to present enhanced disclosures for
financial instruments and derivative instruments that are offset or subject to master netting agreements or
similar such agreements. This update is effective for the Bank for the year ending December 31, 2013,
and is not expected to have a material effect on the Bank's financial statements.
In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the
Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other
Comprehensive Income in Accounting Standards Update No. 2011-05. This update indefinitely deferred
the requirements of ASU 2011-05, which required an entity to report the effect of significant
reclassifications out of accumulated other comprehensive income on the respective net income line items.
Subsequently, in February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220):
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which established
an effective date for the requirements of ASU 2011-05 related to reporting of significant reclassification
adjustments from accumulated other comprehensive income. These presentation requirements of ASU
2011-05 are effective for the Bank for the year ending December 31, 2013, and will be reflected in the
Bank's 2013 financial statements.
In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities. This update clarifies that the scope of ASU 2011-11
applies to derivatives accounted for in accordance with Topic 815. This update is effective for the Bank
for the year ending December 31, 2013, and is not expected to have a material effect on the Bank's
financial statements.
4.
LOANS
Loans to Depository Institutions
The Bank offers primary, secondary, and seasonal loans 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 loans are extended on a short-term basis, typically overnight, whereas seasonal loans may be
extended for a period of up to nine months.
Primary, secondary, and seasonal loans are 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. 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
loans, 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.
Loans to depository institutions were $4 million as of December 31, 2012 with a remaining maturity within 15
days. The Bank had no loans outstanding as of December 31, 2011.
At December 31, 2012 and 2011, the Bank did not have any loans that were impaired, past due, or on non-accrual
status, and no allowance for loan losses was required. There were no impaired loans during the years ended
December 31, 2012 and 2011.
5.
SYSTEM OPEN MARKET ACCOUNT
a.
Domestic Securities Holdings
The FRBNY conducts domestic open market operations and, on behalf of the Reserve Banks, holds the resulting
securities in the SOMA.
During the years ended December 31, 2012 and 2011, the FRBNY continued the purchase of Treasury securities
and federal agency and GSE MBS under the large-scale asset purchase programs authorized by the FOMC. In
August 2010, the FOMC announced that the Federal Reserve would 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. In November 2010, the FOMC announced its
intention to expand the SOMA portfolio holdings of longer-term Treasury securities by an additional $600
billion and completed these purchases in June 2011. In September 2011, the FOMC announced that the
Federal Reserve would reinvest principal payments from the SOMA portfolio holdings of GSE debt securities
and federal agency and GSE MBS in federal agency and GSE MBS. In June 2012, the FOMC announced that
it would continue the existing policy of reinvesting principal payments from the SOMA portfolio holdings of
GSE debt securities and federal agency and GSE MBS in federal agency and GSE MBS, and suspended the
policy of rolling over maturing Treasury securities into new issues at auction. In September 2012, the FOMC
announced that the Federal Reserve would purchase additional federal agency and GSE MBS at a pace of $40
billion per month and maintain its existing policy of reinvesting principal payments from its holdings of
agency debt and federal agency and GSE MBS in federal agency and GSE MBS. In December 2012, the
FOMC announced that the Federal Reserve would purchase longer-term Treasury securities at a pace of $45
billion per month after its program to extend the average maturity of its holdings of Treasury securities is
completed at the end of 2012.
During the years ended December 31, 2012 and 2011, the FRBNY also continued the purchase and sale of SOMA
portfolio holdings under the maturity extension programs authorized by the FOMC. In September 2011, the
FOMC announced that the Federal Reserve would extend the average maturity of the SOMA portfolio
holdings of securities by purchasing $400 billion par value of Treasury securities with maturities of six to
thirty years and selling or redeeming an equal par amount of Treasury securities with remaining maturities of
three years or less by the end of June 2012. In June 2012, the FOMC announced that the Federal Reserve
would continue through the end of 2012 its program to extend the average maturity of securities by purchasing
$267 billion par value of Treasury securities with maturities of six to thirty years and selling or redeeming an
equal par amount of Treasury securities with maturities of three and a quarter years or less by the end of 2012.
In September 2012, the FOMC announced it would continue its program to extend the average maturity of its
holdings of securities as announced in June 2012.
The Bank's allocated share of activity related to domestic open market operations was 6.029 percent and 7.434
percent at December 31, 2012 and 2011, respectively.
The Bank's allocated share of 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):
Header row column 1: category, column 2: 2012 Par, column 3: 2012 Unamortized premiums,
column 4: 2012 Unaccreted discounts, column 5: 2012 Total amortized cost, end of header row.
Bills, 2012 Par: -, 2012 Unamortized premiums: -, 2012 Unaccreted discounts: -, 2012 Total amortized cost: -.
Notes, 2012 Par: 66,949, 2012 Unamortized premiums: 1,962, 2012 Unaccreted discounts: (43),
2012 Total amortized cost: 68,868.
Bonds, 2012 Par: 33,508, 2012 Unamortized premiums: 6,714, 2012 Unaccreted discounts: (8),
2012 Total amortized cost: 40,214.
Total Treasury securities, 2012 Par: 100,457, 2012 Unamortized premiums: 8,676, 2012 Unaccreted discounts: (51),
2012 Total amortized cost: 109,082.
GSE debt securities, 2012 Par: 4,629, 2012 Unamortized premiums: 163, 2012 Unaccreted discounts: -,
2012 Total amortized cost: 4,792.
Federal agency and GSE MBS, 2012 Par: 55,871, 2012 Unamortized premiums: 1,469, 2012 Unaccreted discounts: (42),
2012 Total amortized cost: 57,298.
Header row column 1: category, column 2: 2011 Par, column 3: 2011 Unamortized premiums,
column 4: 2011 Unaccreted discounts, column 5: 2011 Total amortized cost, end of header row.
Bills, 2011 Par: 1,370, 2011 Unamortized premiums: -, 2011 Unaccreted discounts: -, 2011 Total amortized cost: 1,370.
Notes, 2011 Par: 95,630, 2011 Unamortized premiums: 1,993, 2011 Unaccreted discounts: (92),
2011 Total amortized cost: 97,531.
Bonds, 2011 Par: 26,665, 2011 Unamortized premiums: 4,560, 2011 Unaccreted discounts: (6),
2011 Total amortized cost: 31,219.
Total Treasury securities, 2011 Par: 123,665, 2011 Unamortized premiums: 6,553, 2011 Unaccreted discounts: (98),
2011 Total amortized cost: 130,120.
GSE debt securities, 2011 Par: 7,731, 2011 Unamortized premiums: 286, 2011 Unaccreted discounts: (1),
2011 Total amortized cost: 8,016.
Federal agency and GSE MBS, 2011 Par: 62,275, 2011 Unamortized premiums: 864, 2011 Unaccreted discounts: (77),
2011 Total amortized cost: 63,062.
The FRBNY executes transactions for the purchase of securities under agreements to resell primarily to temporarily
add reserve balances to the banking system. Conversely, transactions to sell securities under agreements to
repurchase are executed to temporarily drain reserve balances from the banking system and as part of a service
offering to foreign official and international account holders.
There were no material transactions related to securities purchased under agreements to resell during the years
ended December 31, 2012 and 2011. Financial information related to securities sold under agreements to
repurchase for the years ended December 31 was as follows (in millions):
Header row column 1: category, column 2: Allocated to the Bank: 2012, column 3: Allocated to the Bank: 2011,
column 4: Total SOMA: 2012, column 5: Total SOMA: 2011, end of header row.
Contract amount outstanding, end of year, Allocated to the Bank: 2012: 6,463, Allocated to the Bank: 2011: 7,427,
Total SOMA: 2012: 107,188, Total SOMA: 2011: 99,900.
Average daily amount outstanding, during the year, Allocated to the Bank: 2012: 5,903, Allocated to the Bank: 2011: 5,705,
Total SOMA: 2012: 91,898, Total SOMA: 2011: 72,227.
Maximum balance outstanding, during the year, Allocated to the Bank: 2012: 7,427, Allocated to the Bank: 2011: 9,257,
Total SOMA: 2012: 122,541, Total SOMA: 2011: 124,512.
Securities pledged (par value), end of year, Allocated to the Bank: 2012: 5,640, Allocated to the Bank: 2011: 6,400,
Total SOMA: 2012: 93,547, Total SOMA: 2011: 86,089.
Securities pledged (market value), end of year, Allocated to the Bank: 2012: 6,463, Allocated to the Bank: 2011: 7,427,
Total SOMA: 2012: 107,188, Total SOMA: 2011: 99,900.
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, 2012 and 2011 was as follows (in millions):
Header row column 1: category, column 2: Within 15 days, column 3: 16 days to 90 days, column 4: 91 days to 1 year,
column 5: Over 1 year to 5 years, column 6: Over 5 years to 10 years, column 7: Over 10 years, column 8: Total, end of header row.
December 31, 2012.
December 31, 2012: Treasury securities (par value), Within 15 days: -, 16 days to 90 days: -, 91 days to 1 year: 1,
Over 1 year to 5 years: 22,820, Over 5 years to 10 years: 51,997, Over 10 years: 25,639, Total: 100,457.
December 31, 2012: GSE debt securities (par value), Within 15 days: 94, 16 days to 90 days: 169, 91 days to 1 year: 917,
Over 1 year to 5 years: 3,185, Over 5 years to 10 years: 123, Over 10 years: 141, Total: 4,629.
December 31, 2012: Federal agency and GSE MBS (par value) [see footnote 1], Within 15 days: -, 16 days to 90 days: -,
91 days to 1 year: -, Over 1 year to 5 years: -, Over 5 years to 10 years: 143, Over 10 years: 55,728, Total: 55,871.
December 31, 2012: Securities sold under agreements to repurchase (contract amount), Within 15 days: 6,463, 16 days to 90 days: -,
91 days to 1 year: -, Over 1 year to 5 years: -, Over 5 years to 10 years: -, Over 10 years: -, Total: 6,463.
December 31, 2011.
December 31, 2011: Treasury securities (par value), Within 15 days: 1,208, 16 days to 90 days: 2,015, 91 days to 1 year: 6,684,
Over 1 year to 5 years: 48,300, Over 5 years to 10 years: 48,316, Over 10 years: 17,142, Total: 123,665.
December 31, 2011: GSE debt securities (par value), Within 15 days: 186, 16 days to 90 days: 373, 91 days to 1 year: 1,464,
Over 1 year to 5 years: 4,505, Over 5 years to 10 years: 1,028, Over 10 years: 175, Total: 7,731.
December 31, 2011: Federal agency and GSE MBS (par value) [see footnote 1], Within 15 days: -, 16 days to 90 days: -,
91 days to 1 year: -, Over 1 year to 5 years: 1, Over 5 years to 10 years: 2, Over 10 years: 62,272, Total: 62,275.
December 31, 2011: Securities sold under agreements to repurchase (contract amount), Within 15 days: 7,427, 16 days to 90 days: -,
91 days to 1 year: -, Over 1 year to 5 years: -, Over 5 years to 10 years: -, Over 10 years: -, Total: 7,427.
[footnote] 1
The par amount shown for federal agency and GSEMBS is the remaining principal balance of the securities.[endfootnote.]
Federal agency and GSE MBS are reported at stated maturity in the table above. The estimated weighted average
life of these securities, which differs from the stated maturity primarily because it factors in scheduled
payments and prepayment assumptions, was approximately 3.3 and 2.4 years as of December 31, 2012, and
2011, respectively.
The amortized cost and par value of Treasury securities and GSE debt securities that were loaned from the SOMA
at December 31 were as follows (in millions):
Header row column 1: category, column 2: Allocated to the Bank 2012, column 3: Allocated to the Bank 2011,
column 4: Total SOMA 2012, column 5: Total SOMA 2011, end of header row.
Treasury securities (amortized cost), Allocated to the Bank 2012: 551, Allocated to the Bank 2011: 1,124,
Total SOMA 2012: 9,139, Total SOMA 2011: 15,121.
Treasury securities (par value), Allocated to the Bank 2012: 510, Allocated to the Bank 2011: 1,039,
Total SOMA 2012: 8,460, Total SOMA 2011: 13,978.
GSE debt securities (amortized cost), Allocated to the Bank 2012: 42, Allocated to the Bank 2011: 95,
Total SOMA 2012: 697, Total SOMA 2011: 1,276.
GSE debt securities (par value), Allocated to the Bank 2012: 41, Allocated to the Bank 2011: 90,
Total SOMA 2012: 676, Total SOMA 2011: 1,216.
The FRBNY enters into commitments to buy and sell Treasury securities and records the related securities on a
settlement-date basis. As of December 31, 2012, there were no outstanding commitments.
The FRBNY enters into commitments to buy and sell federal agency and GSE MBS and records the related
securities on a settlement-date basis. As of December 31, 2012, the total purchase price of the federal agency
and GSE MBS under outstanding purchase commitments was $118,215 million, of which $10,164 million was
related to dollar roll transactions. The total purchase price of outstanding purchase commitments allocated to
the Bank was $7,128 million, of which $613 million was related to dollar roll transactions. As of December
31, 2012, there were no outstanding sales commitments for federal agency and GSE MBS. These
commitments, which had contractual settlement dates extending through February 2013, are for the purchase
of TBA MBS for which the number and identity of the pools that will be delivered to fulfill the commitment
are unknown at the time of the trade. These commitments are subject to varying degrees of off-balance-sheet
market risk and counterparty credit risk that result from their future settlement. The FRBNY requires the
posting of cash collateral for commitments as part of the risk management practices used to mitigate the
counterparty credit risk.
Other investments consist of cash and short-term investments related to the federal agency and GSE MBS
portfolio. Other liabilities, which are related to federal agency and GSE MBS purchases and sales, includes
the FRBNY's obligation to return cash margin posted by counterparties as collateral under commitments to
purchase and sell federal agency and GSE MBS. In addition, other liabilities includes obligations that arise
from the failure of a seller to deliver securities to the FRBNY on the settlement date. Although the FRBNY
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 included in other liabilities
represents the FRBNY'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 (in millions):
Header row column 1: category, column 2: Allocated to the Bank 2012, column 3: Allocated to the Bank 2011,
column 4: Total SOMA 2012, column 5: Total SOMA 2011, end of header row.
Other investments, Allocated to the Bank 2012: 1, Allocated to the Bank 2011: -, Total SOMA 2012: 23,
Total SOMA 2011: -.
Other liabilities.
Other liabilities: Cash margin, Allocated to the Bank 2012: 187, Allocated to the Bank 2011: 95, Total SOMA 2012: 3,092,
Total SOMA 2011: 1,271.
Other liabilities: Obligations from MBS transaction fails, Allocated to the Bank 2012: 5, Allocated to the Bank 2011: 7,
Total SOMA 2012: 85, Total SOMA 2011: 97.
Total other liabilities, Allocated to the Bank 2012: 192, Allocated to the Bank 2011: 102, Total SOMA 2012: 3,177,
Total SOMA 2011: 1,368.
Information about transactions related to Treasury securities, GSE debt securities, and federal agency and GSE
MBS during the years ended December 31, 2012 and 2011, is summarized as follows (in millions):
Allocated to the Bank.
Header row column 1: category, column 2: Allocated to the Bank: Bills, column 3: Allocated to the Bank: Notes,
column 4: Allocated to the Bank: Bonds, column 5: Allocated to the Bank: Total Treasury securities,
column 6: Allocated to the Bank: GSE debt securities, column 7: Allocated to the Bank: Federal agency and GSE MBS, end of header row.
Balance December 31, 2010, Bills: 1,743, Notes: 74,432, Bonds: 24,788, Total Treasury securities: 100,963,
GSE debt securities: 14,475, Federal agency and GSE MBS: 95,072.
2011 Purchases [see footnote 1], Bills: 19,171, Notes: 61,195, Bonds: 13,034, Total Treasury securities: 93,400,
GSE debt securities: -, Federal agency and GSE MBS: 3,133.
2011 Sales [see footnote 1], Bills: -, Notes: (10,239), Bonds: -, Total Treasury securities: (10,239),
GSE debt securities: -, Federal agency and GSE MBS: -.
2011 Realized gains, net [see footnote 2], Bills: -, Notes: 168, Bonds: -, Total Treasury securities: 168,
GSE debt securities: -, Federal agency and GSE MBS: -.
2011 Principal payments and maturities, Bills: (19,172), Notes: (5,330), Bonds: -, Total Treasury securities: (24,502),
GSE debt securities: (3,567), Federal agency and GSE MBS: (15,643).
2011 Amortization of premiums and accretion of discounts, net, Bills: 1, Notes: (350), Bonds: (395), Total Treasury securities: (744),
GSE debt securities: (137), Federal agency and GSE MBS: (256).
2011 Inflation adjustment on inflation-indexed securities, Bills: -, Notes: 102, Bonds: 86, Total Treasury securities: 188,
GSE debt securities: -, Federal agency and GSE MBS: -.
2011 Annual reallocation adjustment [see footnote 4], Bills: (373), Notes: (22,447), Bonds: (6,294), Total Treasury securities: (29,114),
GSE debt securities: (2,755), Federal agency and GSE MBS: (19,244).
Balance December 31, 2011, Bills: 1,370, Notes: 97,531, Bonds: 31,219, Total Treasury securities: 130,120,
GSE debt securities: 8,016, Federal agency and GSE MBS: 63,062.
2012 Purchases [see footnote 1], Bills: 8,115, Notes: 25,859, Bonds: 16,985, Total Treasury securities: 50,959,
GSE debt securities: -, Federal agency and GSE MBS: 27,460.
2012 Sales [see footnote 1], Bills: -, Notes: (32,646), Bonds: (746), Total Treasury securities: (33,392),
GSE debt securities: -, Federal agency and GSE MBS: -.
2012 Realized gains, net, Bills: -, Notes: 760, Bonds: 80, Total Treasury securities: 840,
GSE debt securities: -, Federal agency and GSE MBS: -.
2012 Principal payments and maturities, Bills: (9,226), Notes: (4,451), Bonds: -, Total Treasury securities: (13,677),
GSE debt securities: (1,764), Federal agency and GSE MBS: (20,566).
2012 Amortization of premiums and accretion of discounts, net, Bills: -, Notes: (351), Bonds: (481), Total Treasury securities: (832),
GSE debt securities: (74), Federal agency and GSE MBS: (330).
2012 Inflation adjustment on inflation-indexed securities, Bills: -, Notes: 40, Bonds: 65, Total Treasury securities: 105,
GSE debt securities: -, Federal agency and GSE MBS: -.
2012 Annual reallocation adjustment [see footnote 4], Bills: (259), Notes: (17,874), Bonds: (6,908), Total Treasury securities: (25,041),
GSE debt securities: (1,386), Federal agency and GSE MBS: (12,328).
Balance December 31, 2012, Bills: -, Notes: 68,868, Bonds: 40,214, Total Treasury securities: 109,082,
GSE debt securities: 4,792, Federal agency and GSE MBS: 57,298.
Year ended December 31, 2011: Supplemental information - par value of transactions: Purchases [see footnote 3], Bills: 19,172,
Notes: 59,834, Bonds: 10,322, Total Treasury securities: 89,328, GSE debt securities: -, Federal agency and GSE MBS: 3,045.
Year ended December 31, 2011: Supplemental information - par value of transactions: Sales [see footnote 3], Bills: -,
Notes: (10,024), Bonds: -, Total Treasury securities: (10,024), GSE debt securities: -, Federal agency and GSE MBS: -.
Year ended December 31, 2012: Supplemental information - par value of transactions: Purchases [see footnote 3], Bills: 8,115,
Notes: 24,864, Bonds: 13,207, Total Treasury securities: 46,186, GSE debt securities: -, Federal agency and GSE MBS: 26,306.
Year ended December 31, 2012: Supplemental information - par value of transactions: Sales [see footnote 3], Bills: -,
Notes: (31,682), Bonds: (578), Total Treasury securities: (32,260), GSE debt securities: -, Federal agency and GSE MBS: -.
[footnote]1
Purchases and sales are reported on a settlement-date basis and may include payments and receipts related to principal, premiums, discounts, and
inflation compensation adjustments to the basis of inflation-indexed securities. The amount reported as sales includes the realized gains and losses on
such transactions. Purchases and sales exclude MBS TBA transactions that are settled on a net basis.[endfootnote1]
2
Realized gains, net offset the amount of realized gains and losses included in the reported sales amount.[endfootnote2]
[footnote]3
Includes inflation compensation[endfootnote3]
[footnote]
[footnote]4
Reflects the annual adjustment to the Bank's allocated portion of the related SOMA securities that results from the annual settlement of the
interdistrict settlement account, as discussed in Note 3i.[endfootnote4]
Total SOMA.
Header row column 1: category, column 2: Total SOMA: Bills, column 3: Total SOMA: Notes, column 4: Total SOMA: Bonds,
column 5: Total SOMA: Total Treasury securities, column 6: Total SOMA: GSE debt securities,
column 7: Total SOMA: Federal agency and GSE MBS, end of header row.
Balance December 31, 2010, Bills: 18,422, Notes: 786,575, Bonds: 261,955, Total Treasury securities: 1,066,952,
GSE debt securities: 152,972, Federal agency and GSE MBS: 1,004,695.
2011 Purchases [see footnote 1], Bills: 239,487, Notes: 731,252, Bonds: 161,876, Total Treasury securities: 1,132,615,
GSE debt securities: -, Federal agency and GSE MBS: 42,145.
2011 Sales [see footnote 1], Bills: -, Notes: (137,734), Bonds: -, Total Treasury securities: (137,734),
GSE debt securities: -, Federal agency and GSE MBS: -.
2011 Realized gains, net [see footnote 2], Bills: -, Notes: 2,258, Bonds: -, Total Treasury securities: 2,258,
GSE debt securities: -, Federal agency and GSE MBS: -.
2011 Principal payments and maturities, Bills: (239,494), Notes: (67,273), Bonds: -, Total Treasury securities: (306,767),
GSE debt securities: (43,466), Federal agency and GSE MBS: (195,413).
2011 Amortization of premiums and accretion of discounts, net, Bills: 8, Notes: (4,445), Bonds: (4,985),
Total Treasury securities: (9,422), GSE debt securities: (1,678), Federal agency and GSE MBS: (3,169).
2011 Inflation adjustment on inflation-indexed securities, Bills: -, Notes: 1,284, Bonds: 1,091, Total Treasury securities: 2,375,
GSE debt securities: -, Federal agency and GSE MBS: -.
Balance December 31, 2011, Bills: 18,423, Notes: 1,311,917, Bonds: 419,937, Total Treasury securities: 1,750,277,
GSE debt securities: 107,828, Federal agency and GSE MBS: 848,258.
2012 Purchases [see footnote 1], Bills: 118,886, Notes: 397,999, Bonds: 263,991, Total Treasury securities: 780,876,
GSE debt securities: -, Federal agency and GSE MBS: 431,487.
2012 Sales [see footnote 1], Bills: -, Notes: (507,420), Bonds: (11,727), Total Treasury securities: (519,147),
GSE debt securities: -, Federal agency and GSE MBS: -.
2012 Realized gains, net, Bills: -, Notes: 12,003, Bonds: 1,252, Total Treasury securities: 13,255,
GSE debt securities: -, Federal agency and GSE MBS: -.
2012 Principal payments and maturities, Bills: (137,314), Notes: (67,463), Bonds: -, Total Treasury securities: (204,777),
GSE debt securities: (27,211), Federal agency and GSE MBS: (324,181).
2012 Amortization of premiums and accretion of discounts, net, Bills: 5, Notes: (5,460), Bonds: (7,531),
Total Treasury securities: (12,986), GSE debt securities: (1,138), Federal agency and GSE MBS: (5,243).
2012 Inflation adjustment on inflation-indexed securities, Bills: -, Notes: 643, Bonds: 1,047, Total Treasury securities: 1,690,
GSE debt securities: -, Federal agency and GSE MBS: -.
Balance December 31, 2012, Bills: -, Notes: 1,142,219, Bonds: 666,969, Total Treasury securities: 1,809,188,
GSE debt securities: 79,479, Federal agency and GSE MBS: 950,321.
Year ended December 31, 2011: Supplemental information - par value of transactions: Purchases [see footnote 3],
Bills: 239,494, Notes: 713,878, Bonds: 127,802, Total Treasury securities: 1,081,174, GSE debt securities: -, Federal agency and GSE M
Year ended December 31, 2011: Supplemental information - par value of transactions: Sales [see footnote 3],
Bills: -, Notes: (134,829), Bonds: -, Total Treasury securities: (134,829), GSE debt securities: -, Federal agency and GSE MBS: -.
Year ended December 31, 2012: Supplemental information - par value of transactions: Purchases [see footnote 3],
Bills: 118,892, Notes: 383,106, Bonds: 205,115, Total Treasury securities: 707,113, GSE debt securities: -, Federal agency and GSE MB
Year ended December 31, 2012: Supplemental information - par value of transactions: Sales [see footnote 3],
Bills: -, Notes: (492,234), Bonds: (9,094), Total Treasury securities: (501,328), GSE debt securities: -, Federal agency and GSE MBS: -.
[footnote] 1
Purchases and sales are reported on a settlement-date basis and may include payments and receipts related to principal, premiums, discounts, and inflation
compensation adjustments to the basis of inflation-indexed securities. The amount reported as sales includes the realized gains and losses on such
transactions. Purchases and sales exclude MBS TBA transactions that are settled on a net basis.[endfootnote1]
[footnote] 2
Realized gains, net offset the amount of realized gains and losses included in the reported sales amount.[endfootnote2]
[footnote] 3
b.
Includes inflation compensation[endfootnote3]
Foreign Currency Denominated Assets
The FRBNY conducts foreign currency operations and, on behalf of the Reserve Banks, holds the resulting foreign
currency denominated assets in the SOMA.
The FRBNY holds foreign currency deposits with foreign central banks and the Bank for International Settlements
and invests in foreign government debt instruments of Germany, France, and Japan. 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 activity related to foreign currency operations was 5.718 percent and 5.731 percent at
December 31, 2012 and 2011, respectively.
Information about 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):
Header row column 1: category, column 2: Allocated to Bank 2012, column 3: Allocated to Bank 2011, column 4: Total SOMA 2012,
column 5: Total SOMA 2011, end of header row.
Euro.
Euro: Foreign currency deposits, Allocated to Bank 2012: 510, Allocated to Bank 2011: 537, Total SOMA 2012: 8,925,
Total SOMA 2011: 9,367.
Euro: Securities purchased under agreements to resell, Allocated to Bank 2012: 38, Allocated to Bank 2011: -, Total SOMA 2012: 659,
Total SOMA 2011: -.
Euro: German government debt instruments, Allocated to Bank 2012: 125, Allocated to Bank 2011: 108, Total SOMA 2012: 2,178,
Total SOMA 2011: 1,884.
Euro: French government debt instruments, Allocated to Bank 2012: 141, Allocated to Bank 2011: 151, Total SOMA 2012: 2,470,
Total SOMA 2011: 2,635.
Japanese yen.
Japanese yen: Foreign currency deposits, Allocated to Bank 2012: 203, Allocated to Bank 2011: 228, Total SOMA 2012: 3,553,
Total SOMA 2011: 3,986.
Japanese yen: Japanese government debt instruments, Allocated to Bank 2012: 411, Allocated to Bank 2011: 463, Total SOMA 2012: 7,187,
Total SOMA 2011: 8,078.
Total allocated to the Bank, Allocated to Bank 2012: 1,428, Allocated to Bank 2011: 1,487, Total SOMA 2012: 24,972,
Total SOMA 2011: 25,950.
The remaining maturity distribution of foreign currency denominated assets that were allocated to the Bank at
December 31, 2012, and 2011, was as follows (in millions):
Header row column 1: category, column 2: Within 15 days, column 3: 16 days to 90 days, column 4: 91 days to 1 year,
column 5: Over 1 year to 5 years, column 6: Total, end of header row.
December 31, 2012.
December 31, 2012: Euro, Within 15 days: 377, 16 days to 90 days: 99, 91 days to 1 year: 124,
Over 1 year to 5 years: 214, Total: 814.
December 31, 2012: Japanese yen, Within 15 days: 218, 16 days to 90 days: 28, 91 days to 1 year: 122,
Over 1 year to 5 years: 246, Total: 614.
December 31, 2012: Total, Within 15 days: 595, 16 days to 90 days: 127, 91 days to 1 year: 246,
Over 1 year to 5 years: 460, Total: 1,428.
December 31, 2011.
December 31, 2011: Euro, Within 15 days: 307, 16 days to 90 days: 168, 91 days to 1 year: 121,
Over 1 year to 5 years: 200, Total: 796.
December 31, 2011: Japanese yen, Within 15 days: 239, 16 days to 90 days: 38, 91 days to 1 year: 180,
Over 1 year to 5 years: 234, Total: 691.
December 31, 2011: Total, Within 15 days: 546, 16 days to 90 days: 206, 91 days to 1 year: 301,
Over 1 year to 5 years: 434, Total: 1,487.
There were no foreign exchange contracts related to open market operations outstanding as of December 31, 2012.
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, 2012, there were no outstanding commitments to
purchase foreign government debt instruments. During 2012, there were purchases and maturities of foreign
government debt instruments of $4,959 million and $4,840 million, respectively, of which $284 million and
$277 million, respectively, were allocated to the Bank. During 2012, there were no sales of foreign
government debt instruments.
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.
At December 31, 2012 and 2011, 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, 2012 and 2011.
c.
Central Bank Liquidity Swaps
U.S. Dollar Liquidity Swaps
The Bank's allocated share of U.S. dollar liquidity swaps was approximately 5.718 percent and 5.731 percent at
December 31, 2012 and 2011, respectively.
The total foreign currency held under U.S. dollar liquidity swaps in the SOMA at December 31, 2012 and 2011,
was $8,889 million and $99,823 million, respectively, of which $508 million and $5,720 million, respectively,
was allocated to the Bank.
The remaining maturity distribution of U.S. dollar liquidity swaps that were allocated to the Bank at December 31
was as follows (in millions):
Header row column 1: category, column 2: 2012: Within 15 days, column 3: 2012: 16 days to 90 days,
column 4: 2012: Total, column 5: 2011: Within 15 days, column 6: 2011: 16 days to 90 days, column 7: 2011: Total, end of header row.
Euro, 2012: Within 15 days: 99, 2012: 16 days to 90 days: 409, 2012: Total: 508, 2011: Within 15 days: 1,969,
2011: 16 days to 90 days: 2,927, 2011: Total: 4,896.
Japanese yen, 2012: Within 15 days: -, 2012: 16 days to 90 days: -, 2012: Total: -, 2011: Within 15 days: 518,
2011: 16 days to 90 days: 284, 2011: Total: 802.
Swiss franc, 2012: Within 15 days: -, 2012: 16 days to 90 days: -, 2012: Total: -, 2011: Within 15 days: 18,
2011: 16 days to 90 days: 4, 2011: Total: 22.
Total, 2012: Within 15 days: 99, 2012: 16 days to 90 days: 409, 2012: Total: 508, 2011: Within 15 days: 2,505,
2011: 16 days to 90 days: 3,215, 2011: Total: 5,720.
Foreign Currency Liquidity Swaps
There were no transactions related to the foreign currency liquidity swaps during the years ended December 31,
2012 and 2011.
d.
Fair Value of SOMA Assets
The fair value amounts presented below are solely for informational purposes. Although the fair value of SOMA
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 the fixed-rate Treasury securities, GSE debt securities, federal agency and GSE MBS, and foreign
government debt instruments in the SOMA's holdings is subject to market risk, arising from movements in
market variables such as interest rates and credit risk. The fair value of federal agency and GSE MBS is also
affected by the expected rate of prepayments of mortgage loans underlying the securities. The fair value of
foreign government debt instruments is affected by currency risk. Based on evaluations performed as of
December 31, 2012, there were no credit impairments of SOMA securities holdings as of that date.
The following table presents the amortized cost and fair value of the Treasury securities, GSE debt securities,
federal agency and GSE MBS, and foreign currency denominated assets, net, held in the SOMA at December
31 (in millions):
Allocated to the Bank.
Header row column 1: category, column 2: Allocated to the Bank 2012: Amortized cost,
column 3: Allocated to the Bank 2012: Fair value, column 4: Allocated to the Bank 2012: Fair value greater than amortized cost,
column 5: Allocated to the Bank 2011: Amortized cost, column 6: Allocated to the Bank 2011: Fair value,
column 7: Allocated to the Bank 2011: Fair value greater than amortized cost, end of header row.
Treasury securities.
Treasury securities: Bills, 2012: Amortized cost: -, 2012: Fair value: -, 2012: Fair value greater than amortized cost: -,
2011: Amortized cost: 1,370, 2011: Fair value: 1,370, 2011: Fair value greater than amortized cost: -.
Treasury securities: Notes, 2012: Amortized cost: 68,868, 2012: Fair value: 73,146,
2012: Fair value greater than amortized cost: 4,278,
2011: Amortized cost: 97,531, 2011: Fair value: 103,294, 2011: Fair value greater than amortized cost: 5,763.
Treasury securities: Bonds, 2012: Amortized cost: 40,214, 2012: Fair value: 45,891,
2012: Fair value greater than amortized cost: 5,677,
2011: Amortized cost: 31,219, 2011: Fair value: 37,817, 2011: Fair value greater than amortized cost: 6,598.
GSE debt securities, 2012: Amortized cost: 4,792, 2012: Fair value: 5,125, 2012: Fair value greater than amortized cost: 333,
2011: Amortized cost: 8,016, 2011: Fair value: 8,493, 2011: Fair value greater than amortized cost: 477.
Federal agency and GSEMBS, 2012: Amortized cost: 57,298, 2012: Fair value: 59,931,
2012: Fair value greater than amortized cost: 2,633,
2011: Amortized cost: 63,062, 2011: Fair value: 66,573, 2011: Fair value greater than amortized cost: 3,511.
Foreign currency denominated assets, 2012: Amortized cost: 1,428, 2012: Fair value: 1,438,
2012: Fair value greater than amortized cost: 10,
2011: Amortized cost: 1,487, 2011: Fair value: 1,497, 2011: Fair value greater than amortized cost: 10.
Total SOMA portfolio securities holdings, 2012: Amortized cost: 172,600, 2012: Fair value: 185,531,
2012: Fair value greater than amortized cost: 12,931, 2011: Amortized cost: 202,685, 2011: Fair value: 219,044,
2011: Fair value greater than amortized cost: 16,359.
Total SOMA. - Commitments for:
Memorandum
Header row column
1: category,
2: Total
SOMA 2012:
Amortized
column
3: Total
SOMA
Memorandum
- Commitments
for column
Purchases
of Treasury
securities,
2012: cost,
Amortized
cost:
-, 2012:
Fair 2012:
value: Fair
-, value,
column
4: value
Total SOMA
Fair valuecost:
greater
than amortized
5: Total
SOMA238,
2011: Amortized cost,
2012:
Fair
greater2012:
than amortized
-, 2011:
Amortized cost,
cost: column
238, 2011:
Fair value:
column
6: value
Total SOMA
Fair value,cost:
column
2011:
Fair
greater2011:
than amortized
-. 7: Total SOMA 2011: Fair value greater than amortized cost, end of header row.
Treasury securities.
Memorandum
- Commitments for Purchases of Federal agency and GSEMBS, 2012: Amortized cost: 7,128,
Treasury
Bills,
2012:
Amortized
cost: than
-, 2012:
Fair value:
2012:
FairAmortized
value greater
amortized
cost:
-, 2011:
2012:
Fairsecurities:
value: 7,139,
2012:
Fair
value greater
amortized
cost:-,11,
2011:
cost:than
3,085,
2011: Fair
value:
3,113,
Amortized
cost: 18,423,
2011:amortized
Fair value:
18,423,
2011:
Fair value
greater than
cost:
28. 2011: Fair value greater than amortized cost: -.
Treasury securities:
Notes, 2012:
Amortized
cost: 1,142,219,
Fair value:
2012:-,Fair
value
than amortized
Memorandum
- Commitments
for Sales
of Federal
agency and2012:
GSEMBS,
2012: 1,213,177,
Amortized cost:
2012:
Fairgreater
value: -,
cost: 70,958,
2011:
Amortized
cost: 1,311,917,
2011:Amortized
Fair value:cost:
1,389,429,
2011:
Fair
value333,
greater than amortized cost: 77,512.
2012:
Fair value
greater
than amortized
cost: -, 2011:
329, 2011:
Fair
value:
Treasury
Bonds,
Amortized
cost: 666,969, 2012: Fair value: 761,138, 2012: Fair value greater than amortized
2011:
Fairsecurities:
value greater
than2012:
amortized
cost: 4.
cost: 94,169, 2011:
Amortizedfor
cost:
419,937,of2011:
Fair
value: 508,694,
2011: Fair value
thancost:
amortized
cost:
Memorandum
- Commitments
Purchases
foreign
government
debt instruments,
2012:greater
Amortized
-, 2012:
Fair88,757.
value: -,
GSE debt
securities,
2012:
Fair value:
85,004,
Fair value
2012:
Fair value
greater
thanAmortized
amortizedcost:
cost:79,479,
-, 2011:2012:
Amortized
cost: 12,
2011:2012:
Fair value:
12, greater than amortized cost: 5,525,
2011: Fair
Amortized
cost: 107,828,
2011: Fair
value:
2011:
value greater
than amortized
cost:
-. 114,238, 2011: Fair value greater than amortized cost: 6,410.
Federal agency and GSEMBS, 2012: Amortized cost: 950,321, 2012: Fair value: 993,990, 2012: Fair value greater than amortized
cost: 43,669, 2011: Amortized cost: 848,258, 2011: Fair value: 895,495, 2011: Fair value greater than amortized cost: 47,237.
Foreign currency denominated assets, 2012: Amortized cost: 24,972, 2012: Fair value: 25,141, 2012: Fair value greater than
amortized cost: 169, 2011: Amortized cost: 25,950, 2011: Fair value: 26,116, 2011: Fair value greater than amortized cost: 166.
Total SOMA portfolio securities holdings, 2012: Amortized cost: 2,863,960, 2012: Fair value: 3,078,450, 2012: Fair value greater
than amortized cost: 214,490, 2011: Amortized cost: 2,732,313, 2011: Fair value: 2,952,395, 2011: Fair value greater than amortized
cost: 220,082.
Memorandum - Commitments for:
Memorandum - Commitments for Purchases of Treasury securities, 2012: Amortized cost: -, 2012: Fair value: -, 2012: Fair value
greater than amortized cost: -, 2011: Amortized cost: 3,200, 2011: Fair value: 3,208, 2011: Fair value greater than amortized cost: 8.
Memorandum - Commitments for Purchases of Federal agency and GSEMBS, 2012: Amortized cost: 118,215,
2012: Fair value: 118,397, 2012: Fair value greater than amortized cost: 182, 2011: Amortized cost: 41,503, 2011: Fair value:
41,873, 2011: Fair value greater than amortized cost: 370.
Memorandum
- Commitments
for Salessecurities,
of FederalGSE
agency
GSEMBS,
Amortized
cost: debt
-, 2012:
Fair value:
-, 2012: Fair value
The fair
value of Treasury
debtand
securities,
and2012:
foreign
government
instruments
was
greater than amortized cost: -, 2011: Amortized cost: 4,430, 2011: Fair value: 4,473, 2011: Fair value greater than amortized cost: 43.
using for
pricing
services
that provide
market debt
consensus
prices based
on indicative
quotes
fromFair value: -,
Memorandumdetermined
- Commitments
Purchases
of foreign
government
instruments,
2012: Amortized
cost:
-, 2012:
various
market
The -,
fair
valueAmortized
of federalcost:
agency
and2011:
GSE Fair
MBSvalue:
was determined
a pricing
2012: Fair value
greater
thanparticipants.
amortized cost:
2011:
216,
216, 2011:using
Fair value
greater than
amortized cost:
service
-.
that utilizes a model-based approach that considers observable inputs for similar securities. The cost
basis of foreign currency deposits adjusted for accrued interest approximates fair value. The contract amount
for euro-denominated securities sold under agreements to repurchase approximates fair value.
The cost basis of securities purchased under agreements to resell, securities sold under agreements to repurchase,
and other investments held in the SOMA approximate fair value.
Because the FRBNY enters into commitments to buy Treasury securities, federal agency and GSE MBS, and
foreign government debt instruments and records the related securities on a settlement-date basis in accordance
with the FAM, the related outstanding commitments are not reflected in the Statements of Condition.
The following table provides additional information on the amortized cost and fair value of the federal agency and
GSE MBS portfolio at December 31 (in millions):
Header row column 1: Distribution of MBS holdings by coupon rate, column 2: 2012 Amortized cost, column 3: 2012 Fair value,
column 4: 2011 Amortized cost, column 5: 2011 Fair value, end of header row.
Allocated to the Bank.
Allocated to the Bank: 2.0%, 2012 Amortized cost: 51, 2012 Fair value: 51, 2011 Amortized cost: -, 2011 Fair value: -.
Allocated to the Bank: 2.5%, 2012 Amortized cost: 2,265, 2012 Fair value: 2,277, 2011 Amortized cost: -, 2011 Fair value: -.
Allocated to the Bank: 3.0%, 2012 Amortized cost: 9,684, 2012 Fair value: 9,753, 2011 Amortized cost: 98, 2011 Fair value: 99.
Allocated to the Bank: 3.5%, 2012 Amortized cost: 10,828, 2012 Fair value: 11,139, 2011 Amortized cost: 1,443, 2011 Fair value: 1,462.
Allocated to the Bank: 4.0%, 2012 Amortized cost: 8,306, 2012 Fair value: 8,800, 2011 Amortized cost: 12,005, 2011 Fair value: 12,620.
Allocated to the Bank: 4.5%, 2012 Amortized cost: 15,826, 2012 Fair value: 17,014, 2011 Amortized cost: 30,218, 2011 Fair value: 32,054.
Allocated to the Bank: 5.0%, 2012 Amortized cost: 7,543, 2012 Fair value: 7,972, 2011 Amortized cost: 13,567, 2011 Fair value: 14,323.
Allocated to the Bank: 5.5%, 2012 Amortized cost: 2,410, 2012 Fair value: 2,521, 2011 Amortized cost: 4,966, 2011 Fair value: 5,209.
Allocated to the Bank: 6.0%, 2012 Amortized cost: 340, 2012 Fair value: 355, 2011 Amortized cost: 680, 2011 Fair value: 715.
Allocated to the Bank: 6.5%, 2012 Amortized cost: 45, 2012 Fair value: 49, 2011 Amortized cost: 85, 2011 Fair value: 91.
Allocated to the Bank: Total, 2012 Amortized cost: 57,298, 2012 Fair value: 59,931, 2011 Amortized cost: 63,062, 2011 Fair value: 66,573.
Total SOMA.
Total SOMA: 2.0%, 2012 Amortized cost: 845, 2012 Fair value: 846, 2011 Amortized cost: -, 2011 Fair value: -.
Total SOMA: 2.5%, 2012 Amortized cost: 37,562, 2012 Fair value: 37,766, 2011 Amortized cost: -, 2011 Fair value: -.
Total SOMA: 3.0%, 2012 Amortized cost: 160,613, 2012 Fair value: 161,757, 2011 Amortized cost: 1,313, 2011 Fair value: 1,336.
Total SOMA: 3.5%, 2012 Amortized cost: 179,587, 2012 Fair value: 184,752, 2011 Amortized cost: 19,415, 2011 Fair value: 19,660.
Total SOMA: 4.0%, 2012 Amortized cost: 137,758, 2012 Fair value: 145,955, 2011 Amortized cost: 161,481, 2011 Fair value: 169,763.
Total SOMA: 4.5%, 2012 Amortized cost: 262,484, 2012 Fair value: 282,181, 2011 Amortized cost: 406,465, 2011 Fair value: 431,171.
Total SOMA: 5.0%, 2012 Amortized cost: 125,107, 2012 Fair value: 132,214, 2011 Amortized cost: 182,497, 2011 Fair value: 192,664.
Total SOMA: 5.5%, 2012 Amortized cost: 39,970, 2012 Fair value: 41,819, 2011 Amortized cost: 66,795, 2011 Fair value: 70,064.
Total SOMA: 6.0%, 2012 Amortized cost: 5,642, 2012 Fair value: 5,888, 2011 Amortized cost: 9,152, 2011 Fair value: 9,616.
Total SOMA: 6.5%, 2012 Amortized cost: 753, 2012 Fair value: 812, 2011 Amortized cost: 1,140, 2011 Fair value: 1,221.
Total SOMA: Total, 2012 Amortized cost: 950,321, 2012 Fair value: 993,990, 2011 Amortized cost: 848,258, 2011 Fair value: 895,495.
The following tables present the realized gains and the change in the unrealized gain position of the domestic
securities holdings during the year ended December 31, 2012 (in millions):
Header row column 1: category, column 2: Allocated to Bank: Total portfolio holdings realized gains [see footnote 1], column 3:
Allocated to Bank: Fair value changes in unrealized gains [see footnote 2], column 4: Total SOMA: Total portfolio holdings realized gains,
column 5: Total SOMA: Fair value changes in unrealized gains, end of header row.
Treasury securities, Allocated to Bank: Total portfolio holdings realized gains: 840, Allocated to Bank: Fair value changes in unrealized
gains: (250), Total SOMA: Total portfolio holdings realized gains: 13,255, Total SOMA: Fair value changes in unrealized gains: (1,142).
GSE debt securities, Allocated to Bank: Total portfolio holdings realized gains: -, Allocated to Bank: Fair value changes in unrealized
gains: (58), Total SOMA: Total portfolio holdings realized gains: -, Total SOMA: Fair value changes in unrealized gains: (885).
Federal agency and GSE MBS, Allocated to Bank: Total portfolio holdings realized gains: 16, Allocated to Bank: Fair value changes in
unrealized gains: (194), Total SOMA: Total portfolio holdings realized gains: 241, Total SOMA: Fair value changes in unrealized
gains: (3,568).
Total, Allocated to Bank: Total portfolio holdings realized gains: 856, Allocated to Bank: Fair value changes in unrealized gains: (502),
Total SOMA: Total portfolio holdings realized gains: 13,496, Total SOMA: Fair value changes in unrealized gains: (5,595).
[footnote] 1
Total portfolio holdings realized gains are reported in "Non-interest income: System Open Market Account" in the Statements of
Income and Comprehensive Income.[endfootnote1]
[footnote]
2
Because SOMA securities are recorded at amortized cost, unrealized gains (losses) are not reported in the Statements of Income
and Comprehensive Income.[endfootnote2]
The amount of change in unrealized gains, net related to foreign currency denominated assets was an increase of $3
million for the year ended December 31, 2012, of which $148 thousand was allocated to the Bank.
Accounting Standards Codification (ASC) Topic 820 (ASC 820) defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. ASC 820 establishes a three-level fair value hierarchy that distinguishes between
assumptions developed using market data obtained from independent sources (observable inputs) and the
Bank's assumptions developed using the best information available in the circumstances (unobservable
inputs). The three levels established by ASC 820 are described as follows:
•
Level 1 - Valuation is based on quoted prices for identical instruments traded in active markets.
•
Level 2 - Valuation is based on quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market.
•
Level 3 - Valuation is based on model-based techniques that use significant inputs and assumptions
not observable in the market. These unobservable inputs and assumptions reflect the Bank's
estimates of inputs and assumptions that market participants would use in pricing the assets and
liabilities. Valuation techniques include the use of option pricing models, discounted cash flow
models, and similar techniques.
The following tables present the classification of SOMA financial assets at fair value as of December 31 by ASC
820 hierarchy (in millions):
Header row column 1: category, column 2: 2012 Level 2, column 3: 2011 Level 2, end of header row.
Assets.
Assets: Treasury securities, 2012 Level 2: 1,974,315, 2011 Level 2: 1,916,546.
Assets: GSE debt securities, 2012 Level 2: 85,004, 2011 Level 2: 114,238.
Assets: Federal agency and GSE MBS, 2012 Level 2: 993,990, 2011 Level 2: 895,495.
Assets: Foreign government debt instruments, 2012 Level 2: 12,003, 2011 Level 2: 12,762.
Total assets, 2012 Level 2: 3,065,312, 2011 Level 2: 2,939,041.
The SOMA financial assets are classified as Level 2 in the table above because the fair values are based on
indicative quotes and other observable inputs obtained from independent pricing services that, in accordance
with ASC 820, are consistent with the criteria for Level 2 inputs. Although information consistent with the
criteria for Level 1 classification may exist for some portion of the SOMA assets, all securities in each asset
class were valued using the inputs that are most applicable to the securities in the asset class. The inputs used
for valuing the SOMA financial assets are not necessarily an indication of the risk associated with those assets.
6.
BANK PREMISES, EQUIPMENT, AND SOFTWARE
Bank premises and equipment at December 31 were as follows (in millions):
Header row column 1: category, column 2: 2012, column 3: 2011, end of header row.
Bank premises and equipment.
Bank premises and equipment: Land and land improvements, 2012: 38, 2011: 38.
Bank premises and equipment: Buildings, 2012: 236, 2011: 233.
Bank premises and equipment: Building machinery and equipment, 2012: 37, 2011: 39.
Bank premises and equipment: Construction in progress, 2012: 2, 2011: 2.
Bank premises and equipment: Furniture and equipment, 2012: 72, 2011: 85.
Bank premises and equipment: Subtotal, 2012: 385, 2011: 397.
Accumulated depreciation, 2012: (144), 2011: (157).
Bank premises and equipment, net, 2012: 241, 2011: 240.
Depreciation expense, for the years ended December 31, 2012: 12, 2011: 14.
The Bank leases space to outside tenants with remaining lease terms ranging from one to nine years. Rental
income from such leases was $2 million and $3 million for the years ended December 31, 2012 and 2011,
respectively, and is reported as a component of "Non-interest income: Other" 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, 2012, are as follows (in thousands):
2013: 1,126.
2014: 862.
2015: 804.
2016: 548.
2017: 350.
Thereafter: 318.
Total: 4,008.
The Bank had capitalized software assets, net of amortization, of $27 million and $8 million at December 31, 2012
and 2011, respectively. Amortization expense was $3 million and $2 million for the years ended December
31, 2012 and 2011, 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.
Assets impaired as a result of the Bank's restructuring plan, as discussed in Note 11, include cash processing
equipment. Asset impairment losses of $1 million for the year ended December 31, 2011 were determined
using fair values based on quoted fair values or other valuation techniques and are reported as a component of
"Operating expenses: Equipment" in the Statements of Income and Comprehensive Income. The Bank had no
impairment losses in 2012.
7.
COMMITMENTS AND CONTINGENCIES
In 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, 2012, the Bank was obligated under noncancelable leases for premises and equipment with
remaining terms ranging from one to approximately three 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, 2012 and 2011.
Future minimum rental payments under noncancelable operating leases, net of sublease rentals, with remaining
terms of one year or more, at December 31, 2012, were not material.
At December 31, 2012, there were no material unrecorded unconditional purchase commitments or obligations in
excess of one year.
Under the Insurance Agreement of the Reserve Banks, each of the Reserve Banks has agreed to bear, on a per
incident basis, a share of certain losses in excess of one 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, 2012 and
2011.
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 legal actions and claims will be resolved without material adverse effect on the financial position
or results of operations of the Bank.
8.
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). Under the Dodd-Frank Act, newly hired Bureau
employees are eligible to participate in the System Plan and transferees from other governmental organizations
can elect to participate in the 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 Banks (SERP).
The System Plan provides retirement benefits to employees of the Reserve Banks, Board of Governors, OEB, and
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, 2012 and 2011, certain costs associated with the System Plan were reimbursed by the
Bureau.
The Bank's projected benefit obligation, funded status, and net pension expenses for the BEP and the SERP at
December 31, 2012 and 2011, 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 100 percent of the first six percent of employee contributions from
the date of hire and provides an automatic employer contribution of one percent of eligible pay. The Bank's
Thrift Plan contributions totaled $8 million for each of the years ended December 31, 2012 and 2011, and are
reported as a component of "Operating expenses: Salaries and benefits" in the Statements of Income and
Comprehensive Income.
9.
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 and life insurance benefits 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 row column 1: category, column 2: 2012, column 3: 2011, end of header row.
Accumulated postretirement benefit obligation at January 1, 2012: 142.1, 2011: 124.2.
Service cost benefits earned during the period, 2012: 5.6, 2011: 4.4.
Interest cost on accumulated benefit obligation, 2012: 6.6, 2011: 6.5.
Net actuarial loss, 2012: 23.8, 2011: 11.7.
Special termination benefits loss, 2012: 0.1, 2011: 0.2.
Contributions by plan participants, 2012: 2.1, 2011: 2.0.
Benefits paid, 2012: (8.2), 2011: (7.3).
Medicare Part D subsidies, 2012: 0.4, 2011: 0.4.
Accumulated postretirement benefit obligation at December 31, 2012: 172.5, 2011: 142.1.
At December 31, 2012 and 2011, the weighted-average discount rate assumptions used in developing the
postretirement benefit obligation were 3.75 percent and 4.50 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.
Following is a reconciliation of the beginning and ending balance of the plan assets, the unfunded postretirement
benefit obligation, and the accrued postretirement benefit costs (in millions):
Header row column 1: category, column 2: 2012, column 3: 2011, end of header row.
Fair value of plan assets at January 1, 2012: -, 2011: -.
Contributions by the employer, 2012: 5.7, 2011: 4.9.
Contributions by plan participants, 2012: 2.1, 2011: 2.0.
Benefits paid, 2012: (8.2), 2011: (7.3).
Medicare Part D subsidies, 2012: 0.4, 2011: 0.4.
Fair value of plan assets at December 31, 2012: -, 2011: -.
Unfunded obligation and accrued postretirement benefit cost, 2012: 172.5, 2011: 142.1.
Amounts included in accumulated other comprehensive loss are shown below:
Header row column 1: category, column 2: 2012, column 3: 2011, end of header row.
Prior service cost, 2012: 0.8, 2011: 0.8.
Net actuarial loss, 2012: (48.6), 2011: (26.4).
Total accumulated other comprehensive loss, 2012: (47.8), 2011: (25.6).
Accrued postretirement 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 column 1: category, column 2: 2012, column 3: 2011, end of header row..
Health-care cost trend rate assumed for next year, 2012: 7.00%, 2011: 7.50%.
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate), 2012: 5.00%, 2011: 5.00%.
Year that the rate reaches the ultimate trend rate, 2012: 2018, 2011: 2017.
Assumed health-care cost trend rates have a significant effect on the amounts reported for health-care plans. A one
percentage point change in assumed health-care cost trend rates would have the following effects for the year
ended December 31, 2012 (in millions):
Header row column 1: category, column 2: One percentage point increase, column 3: One percentage point decrease, end of
header row.
Effect on aggregate of service and interest cost components of net periodic postretirement benefit costs, One percentage point
increase: 2.4, One percentage point decrease: (1.9).
Effect on accumulated postretirement benefit obligation, One percentage point increase: 28.5, One percentage point decrease: (23.3).
The following is a summary of the components of net periodic postretirement benefit expense for the years ended
December 31 (in millions):
Header row column 1: category, column 2: 2012, column 3: 2011, end of header row..
Service cost-benefits earned during the period, 2012: 5.6, 2011: 4.4.
Interest cost on accumulated benefit obligation, 2012: 6.6, 2011: 6.5.
Amortization of prior service cost, 2012: -, 2011: 0.1.
Amortization of net actuarial loss, 2012: 1.6, 2011: -.
Total periodic expense, 2012: 13.8, 2011: 11.0.
Special termination benefits loss, 2012: 0.1, 2011: 0.2.
Net periodic postretirement benefit expense, 2012: 13.9, 2011: 11.2.
Estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic
postretirement benefit expense in 2013 are shown below:
Prior service cost: (0.3).
Net actuarial loss: 4.0.
Total: 3.7.
Net postretirement benefit costs are actuarially determined using a January 1 measurement date. At January 1,
2012 and 2011, the weighted-average discount rate assumptions used to determine net periodic postretirement
benefit costs were 4.50 percent and 5.25 percent, respectively.
Net periodic postretirement benefit expense is reported as a component of "Operating expenses: Salaries and
benefits" in the Statements of Income and Comprehensive Income.
The recognition of special termination benefit losses is primarily the result of enhanced retirement benefits
provided to employees during the restructuring described in Note 11.
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 $328 thousand and $320 thousand in the years ended December 31,
2012 and 2011, respectively. Expected receipts in 2013, related to benefits paid in the years ended December
31, 2012 and 2011, are $269 thousand.
Following is a summary of expected postretirement benefit payments (in millions):
Header row column 1: period, column 2: Without subsidy, column 3: With subsidy, end of header row.
2013, Without subsidy: 7.3, With subsidy: 6.9.
2014, Without subsidy: 7.6, With subsidy: 7.1.
2015, Without subsidy: 7.9, With subsidy: 7.4.
2016, Without subsidy: 8.3, With subsidy: 7.7.
2017, Without subsidy: 8.8, With subsidy: 8.1.
2018 - 2022, Without subsidy: 50.5, With subsidy: 46.2.
Total, Without subsidy: 90.4, With subsidy: 83.4.
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 providing disability; medical,
dental, and vision insurance; survivor income benefits; and self-insured workers' compensation expenses. The
accrued postemployment benefit costs recognized by the Bank at December 31, 2012 and 2011 were $13
million and $10 million, respectively. This cost is included as a component of "Accrued benefit costs" in the
Statements of Condition. A net periodic postemployment benefit expense of $3 million and a net periodic
postemployment benefit credit of $222 thousand were included in 2012 and 2011 operating expenses,
respectively, and are recorded as a component of "Operating expenses: Salaries and benefits" in the Statements
of Income and Comprehensive Income.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME A N D OTHER COMPREHENSIVE INCOME
Following is a reconciliation of beginning and ending balances of accumulated other comprehensive loss as of
December 31 (in millions):
Amount related to postretirement benefits other than retirement plans.
Header row column 1: category, column 2: 2012 Amount related to postretirement benefits other than retirement plans,
column 3: 2011 Amount related to postretirement benefits other than retirement plans, end of header row.
Balance at January 1, 2012: (25.6), 2011: (14.0).
Change in funded status of benefit plans: Prior service costs arising during the year, 2012: -, 2011: -.
Amortization of prior service cost, 2012: -, 2011: 0.1.
Change in prior service costs related to benefit plans, 2012: -, 2011: 0.1.
Net actuarial loss arising during the year, 2012: (23.8), 2011: (11.7).
Amortization of net actuarial loss, 2012: 1.6, 2011: -.
Change in actuarial losses related to benefit plans, 2012: (22.2), 2011: (11.7).
Change in funded status of benefit plans - other comprehensive loss, 2012: (22.2), 2011: (11.6).
Balance at December 31, 2012: (47.8), 2011: (25.6).
Additional detail regarding the classification of accumulated other comprehensive loss is included in Note 9.
11. BUSINESS RESTRUCTURING CHARGES
The Bank had no business restructuring charges in 2012 or 2011.
In years prior to 2011, 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 paper and electronic check processing at the Bank. In addition, 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 were consolidated into Atlanta.
Following is a summary of financial information related to the restructuring plans (in millions):
Header row column 1: Information related to restructuring plans as of December 31, 2012, column 2: 2010 and
prior restructuring plans, end of header row.
Total expected costs related to restructuring activity, 2010 and prior restructuring plans: 5.4.
Expected completion date, 2010 and prior restructuring plans: 2011.
Header row column 1: Reconciliation of liability balances, column 2: 2010 and prior restructuring plans, end of
header row.
Balance at December 31, 2010, 2010 and prior restructuring plans: 3.7.
2011 Adjustments, 2010 and prior restructuring plans: (0.4).
2011 Payments, 2010 and prior restructuring plans: (1.6).
Balance at December 31, 2011, 2010 and prior restructuring plans: 1.7.
2012 Adjustments, 2010 and prior restructuring plans: (1.5).
Balance at December 31, 2012, 2010 and prior restructuring plans: 0.2.
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 "Operating expenses: 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.
Restructuring costs associated with the impairment of certain Bank assets, including equipment, are discussed in
Note 6. Costs associated with enhanced pension benefits for all Reserve Banks are recorded on the books of
the FRBNY as discussed in Note 8. Costs associated with enhanced postretirement benefits are disclosed in
Note 9.
12. DISTRIBUTION OF COMPREHENSIVE INCOME
In accordance with Board policy, Reserve Banks remit excess earnings, after providing for dividends and the
amount necessary to equate surplus with capital paid-in, to the U.S. Treasury as interest on Federal Reserve
notes. The following table presents the distribution of the Bank's comprehensive income in accordance with
the Board's policy for the years ended December 31 (in millions):
Header row column 1: category, column 2: 2012, column 3: 2011, end of header row.
Dividends on capital stock, 2012: 92, 2011: 90.
Transfer to surplus - amount required to equate surplus with capital paid-in, 2012: 21, 2011: 18.
Interest on Federal Reserve notes expense remitted to Treasury, 2012: 5,453, 2011: 6,378.
Total Distribution, 2012: 5,566, 2011: 6,486.
13. SUBSEQUENT EVENTS
There were no subsequent events that require adjustments to or disclosures in the financial statements as of
December 31, 2012. Subsequent events were evaluated through March 14, 2013, which is the date that the
Bank issued the financial statements.
4/19/2018
2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
OMWI Report
to Congress
Each year, the Office of Minority and Women Inclusion (OMWI) at the Federal Reserve Bank of Atlanta provides a congressional report summarizing the office's
actions with regard to the requirements under Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This report highlights the
work OMWI performed in the previous year to take the affirmative steps that the Dodd-Frank Act addresses—specifically, ensuring workforce and supplier
diversity, as well as advancing financial literacy in inner-city, majority/minority, and girls' schools. The Atlanta Fed undertakes these efforts in the Sixth Federal
Reserve District.
2012 OMWI Congressional Report
PDF icon
https://www.frbatlanta.org/about/publications/annual-reports/2012/omwi
1/1
Report to Congress:
Office of Minority and Women Inclusion
March 2013
Submitted by: Joan Buchanan
Director of the Office of Minority and Women Inclusion
This document contains an annual summary of the actions of the Office of Minority and Women Inclusion with regard to
the requirements under Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Contents
Federal Reserve Bank of Atlanta/ Office of Minority and Women Inclusion Congressional Report 2012 ...............1
Executive Summary .................................................................................................................................................1
Overview ...................................................................................................................................................................3
Background ..........................................................................................................................................................3
Geography Covered ..............................................................................................................................................3
Unique District Activities and System Responsibilities ....................................................................................3
The Americas Center .........................................................................................................................................3
The Atlanta Census Research Data Center......................................................................................................4
Regional Economic Information Network.........................................................................................................4
Retail Payments Office ......................................................................................................................................4
Retail Payments Risk Forum ............................................................................................................................4
Employment of Minorities and Women...................................................................................................................5
Successes ..............................................................................................................................................................5
Challenges ............................................................................................................................................................9
Next Steps ............................................................................................................................................................9
Inclusion of Minority- and Woman-Owned Business Enterprises (M/WBEs) ..................................................... 11
Amounts Paid to Contractors ............................................................................................................................ 11
Second-Tier Spend ............................................................................................................................................. 11
Successes ............................................................................................................................................................ 11
Challenges .......................................................................................................................................................... 13
Next Steps .......................................................................................................................................................... 14
Financial Literacy Activities (Outreach Programs).............................................................................................. 15
Successes ............................................................................................................................................................ 15
Challenges .......................................................................................................................................................... 17
Next Steps .......................................................................................................................................................... 17
Conclusions and Recommendations from the Director of the Office of Minority and Women Inclusion ................ 18
Appendices .................................................................................................................................................................. 19
Appendix A: OMWI Atlanta Organizational Structure ........................................................................................ 19
Appendix B: Federal Reserve Bank of Atlanta Workforce Representation as of December 31, 2012 ................ 20
Appendix C: OMWI Schools in the Sixth Federal Reserve District ..................................................................... 21
Federal Reserve Bank of Atlanta Office of Minority and Women Inclusion
Congressional Report 2012
Executive Summary
The Federal Reserve Bank of Atlanta established
the Office of Minority and Women Inclusion
(OMWI) on November 1, 2010, in compliance with
Section 342 of the Dodd–Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act).
Like the Offices of Minority and Women Inclusion
at the 11 other regional Federal Reserve Banks and
the Federal Reserve’s Board of Governors, OMWI
Atlanta is responsible for all matters relating to
diversity in management, employment, and
business activities, including ensuring workforce
and supplier diversity and advancing financial
literacy throughout the Sixth Federal Reserve
District. Under the guidance and direction of the
Atlanta Fed president and CEO, Dennis Lockhart,
and the Chief Diversity Officer, Joan Buchanan, 1
OMWI Atlanta makes certain that the workplace
and culture at the Atlanta Fed is inclusive and
maximizes the talents of the Bank’s diverse staff.
OMWI Atlanta also works to ensure that the staff,
business partners, and community outreach
opportunities reflect the environment in which we
do business.
The Atlanta Fed’s commitment to diversity and
inclusion starts at the top of the organization and is
reflected at all levels. Since the creation of OMWI
Atlanta, the Atlanta Fed has continued to advance
and strengthen its diversity and inclusion efforts.
This report highlights the specific work that OMWI
Atlanta has completed during 2012 and the progress the Atlanta Fed has made to meet the affirmative steps in Section 342 of the DoddFrank Act.
The Federal Reserve Bank of Atlanta has initiated
new activities and sustained existing activities with
regard to workforce diversity, supplier diversity,
Refer to Appendix A for an organizational chart
depicting the OMWI organizational structure.
1
and financial literacy. To strengthen its rich and
diverse workforce, the Atlanta Fed continued to
attend and support national diversity recruiting
fairs, maintain relationships with diverse organizations that serve minorities and women, sponsor
students through college internship opportunities,
and provide internal mentoring to staff, along with
expanded training and development opportunities.
This year, as an additional effort to attract and
retain a dynamic workforce, the Atlanta Fed
endorsed and established Employee Resource
Networks (ERNs). These cross-functional groups
are formed around shared characteristics or
professional interests for the purpose of supporting
diversity and inclusion and other strategic
initiatives.
The Federal Reserve Bank of Atlanta identified
some ongoing challenges regarding recruiting,
hiring, and retaining minorities and women in its
workforce. The challenges cited do not necessarily
represent current deficiencies but are reflective of
ongoing efforts to continuously improve the workplace and leverage opportunities to have a more
inclusive environment. The report provides
additional details.
With regard to supplier diversity, the Atlanta Fed
upholds its commitment to providing opportunities
to qualified vendors, inviting diverse vendors to
participate in and compete for bids, and ensuring
that no vendor is disadvantaged in the process. The
Procurement Department, in partnership with
OMWI Atlanta, expanded its efforts to increase
diversity spend by implementing and continuing
procedures and practices that support the inclusion
and use of diverse suppliers, increasing awareness
throughout the organization, conducting outreach
to diverse national and local suppliers, and hiring
an experienced, full-time Supplier Diversity
Program Manager. The Atlanta Fed also operationalized the procedures for making good-faitheffort compliance determination on the vendors’
2 Congressional Report 2012
efforts to include women and minorities in their
workplaces.
The Atlanta Fed made progress in M/WBE spend
compared to last year. However, we see a need for
continued efforts around identifying qualified
diverse suppliers for certain unique acquisitions
and in obtaining competitive bids from these
diverse suppliers. The Atlanta Fed is addressing
these challenges by developing and implementing a
more sustainable supplier diversity program
infrastructure through its hiring of the Supplier
Diversity Program Manager.
The financial literacy program continues to effecttively reach District high schools. The Atlanta Fed
successfully reached—and exceeded— its goal of
providing financial education programming
through teacher workshops to at least 40 percent of
OMWI high schools 2 by year’s end. The economic
education team continued to provide intensive
workshops and presentations to local high school
teachers, offered online programming, and made
outreach efforts supportive of locally and nationally
recognized diverse organizations. Teachers are
limited by growing budget restrictions for paid
training days and by major changes in school
system operations, issues that continue to challenge the rate at which they can make use of the
Atlanta Fed’s financial education.
Schools can be classified as OMWI schools if they
meet any of the following criteria. (See also
Appendix C.)
•
They are inner-city schools.
•
They are majority-minority schools.
•
They are girls’ schools.
2
3 Congressional Report 2012
Overview
Background
The United States, like most industrialized nations, has a central bank to meet certain needs of
its complex economy and financial system. The U.S.
Federal Reserve System is a decentralized central
bank. It consists of a Board of Governors in
Washington, D.C., 12 regional Federal Reserve
Banks and their branches, and the Federal Open
Market Committee. Each Federal Reserve Bank is
separately incorporated. Each has a president and
a board of nine directors.
The Federal Reserve Bank of Atlanta, along with
the 11 other Reserve Banks in the Federal Reserve
System, is supported by the National Procurement
Office (NPO). The NPO is a procurement function
within the Federal Reserve System that develops
and executes national contracts for certain goods
and services that, when sourced collectively,
provide the best value for multiple Reserve Banks.
The Office of Employee Benefits (OEB) is an unincorporated Federal Reserve entity that serves as
agent for the Committee on Plan Administration
and the Board of Governors. It administers benefits
to Federal Reserve System employees, retirees, and
their beneficiaries. The OEB provides leadership in
formulating and operating employee benefits programs. These programs include the “Thrift Plan” (a
defined-contribution plan), health benefits, longterm disability, personal accident insurance,
business travel accident insurance, group universal
life insurance, long-term care, group legal, auto and
homeowners’ insurance, and basic life insurance
plans.
In accordance with Section 342 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act of
2010, each Reserve Bank, along with the Board,
established an Office of Minority and Women
Inclusion (OMWI) that is responsible for all
matters relating to diversity in management,
employment, and business activities. The Atlanta
Fed established its office in November 2010 and
appointed Joan Buchanan, vice president and Chief
Diversity Officer, as OMWI director. Ms. Buchanan
reports directly to the Bank’s president and has a
staff of three full-time employees. A team of
strategic advisers, business partners, and the
Atlanta Fed’s Diversity Advisory Council also
support Atlanta OMWI. (Please refer to Appendix A
for an organizational chart depicting the OMWI
organizational structure.)
Geography Covered
The Atlanta Fed serves the Sixth Federal Reserve
District, which encompasses all of Alabama,
Florida, and
Georgia, as well as
sections of
Louisiana,
Mississippi, and
Tennessee. The
Sixth District,
headquartered in
Atlanta, GA, has
five branches: Birmingham, AL; Jacksonville, FL;
Miami, FL; Nashville, TN; and New Orleans, LA.
Unique District Activities and System
Responsibilities
Descriptions of activities and Reserve System
responsibilities that are unique to the Federal
Reserve Bank of Atlanta follow.
The Americas Center
The Americas Center is a joint initiative of the
Federal Reserve System’s Retail Payments Office
(see below), which is based in Atlanta, and the
Atlanta Fed departments of Supervision and
Regulation, Research, and Administrative Services.
It serves as a vehicle for collaboration among staff
whose responsibilities involve them in issues
concerning the Americas (North, Central, and
South). The Americas Center also provides the
means for the Atlanta Fed to deliver coordinated
outreach to regional, national, and international
audiences through its presentations, research, and
other forms of service.
The Americas Center helps the Federal Reserve
Bank of Atlanta achieve several of its key initiatives through some of the following activities
described below.
The Americas Center:
• Develops knowledge centers that position the
Atlanta Fed to contribute significantly to key
Federal Reserve System objectives.
4 Congressional Report 2012
• Increases the Atlanta Fed's contribution to
supervisory policy in Latin America and the
Caribbean.
• Influences the evolution of retail payments
toward a more electronic environment.
The Atlanta Census Research Data Center
The Atlanta Census Research Data Center (RDC),
which primarily houses U.S. Census Bureau data,
opened in the Atlanta main office in mid-September
2011. Georgia State University's Andrew Young
School of Policy Studies led the effort to secure the
RDC, and several organizations in the region joined
the Atlanta Fed in its creation. These organizations
include the Centers for Disease Control and Prevention, Emory University, the Georgia Institute of
Technology, the University of Georgia, and the
University of Alabama at Birmingham.
The Atlanta Census RDC offers approved researchers access to highly confidential economic,
demographic, and health data collected by the
Census Bureau and other government agencies.
Access to this information is available only through
RDCs. A Federal Reserve Bank of Atlanta research
economist serves as executive director.
Regional Economic Information Network
Established in 2008, the Regional Economic
Information Network (REIN) enhances the Federal
Reserve Bank of Atlanta’s knowledge of regional,
national, and global economic issues through
formal contacts with a network of business,
nonprofit, and government entities representing
various sizes of enterprises with headquarters or
other significant presence in the Sixth Federal
Reserve District. This effort helps the Atlanta Fed
make full use of the diversity of its large geographic
footprint. Contacts are coordinated through the
Branches and the head office in Atlanta.
In addition, the Sixth Federal Reserve District has
established the Local Economic Analysis and Research Network (LEARN), which supplements the
Atlanta Fed’s understanding of economic conditions
through formal contacts with university researchers and economists throughout the Southeast.
Members of the boards of directors of the head
office and the Branches also bring a variety of
perspectives to the Atlanta Fed’s policy research
and deliberations.
Retail Payments Office
The Federal Reserve Retail Payments Office (RPO),
headquartered at the Atlanta Fed, employs a staff
of more than 260. The RPO carries out the Federal
Reserve’s mission—similar to its mission in all of
financial services—to foster the integrity, efficiency, and accessibility of U.S. retail payments
and settlement systems in support of financial
stability and economic growth. The RPO has broad
responsibility and authority to manage an integrated, nationwide Reserve Bank retail services
organization that both improves the nation's
payment system and meets the requirements of the
Monetary Control Act. 3
Retail Payments Risk Forum
Founded in 2008, the Retail Payments Risk Forum
brings together payments expertise residing within
the Federal Reserve System and financial institutions, as well as the expertise of other industry
participants, regulators, and law enforcement. The
forum facilitates collaboration among these diverse
parties, all of whom share a common interest in
improved detection and mitigation of emerging
risks and fraud in retail payments systems. The
forum provides resources to research issues and
also sponsors dialogue among these groups.
Other information about business activities and
responsibilities of the Sixth Federal Reserve
District are available at www.frbatlanta.org.
The Monetary Control Act of 1980 required
pricing of certain services offered by the Federal
Reserve Banks, thus bringing Reserve Banks into
competition with depository institutions offering
the same or similar services.
3
5 Congressional Report 2012
Employment of Minorities and
Women
External Hires for 2012
Officer positions
The Federal Reserve Bank of Atlanta is committed
to fostering an inclusive work environment where
diversity is respected and leveraged to better serve
its region. The Atlanta Fed continued to carry out
the standards and procedures for workforce
diversity developed in 2011 that were required
under the Dodd-Frank Act.
Management positions
Women as Minorities as
Percent of
Percent of
Total Hires Total Hires
100.0% 4
Professional positions
Internships
41.7%
33.3%
37.0%
48.1%
43.7%
• Recruiting as part of the Federal Reserve
System:
Successes
0.0%
52.1%
Participated in and supported national
diversity recruitment fairs and diversity
advertising. Since 2007, the Federal Reserve
System has collaborated to implement and
execute strategic national diversity recruiting
and advertising efforts across all 12 Reserve
Banks, the Board of Governors, and Federal
Reserve Information Technology. During
2012, the Sixth Federal Reserve District
supported System efforts to place diversity
advertising through online, print, and social
media vehicles to align with its national
conference presence and position the Federal
Reserve System as an employer of choice (see
table below).
In 2012, the Atlanta Fed experienced success in
four key areas with regard to workforce diversity
initiatives. Below are the successes and their
highlights.
1. Developed and communicated standards
for equal employment opportunity and
racial, ethnic, and gender diversity of the
workforce and senior management
• Regularly reported to the Atlanta Fed’s
executive office and senior management on
the status of diversity and inclusion
initiatives, actions, and outcomes.
• Widely communicated the status of OMWI
Atlanta initiatives to employees (for example,
posted its 2011 Congressional Report on the
Atlanta Fed’s internal and external websites).
2012 National Diversity Conferences attended
by the Federal Reserve System
• Conducted periodic meetings with business
units across the Atlanta Fed regarding
workforce representation to ensure Bank-wide
awareness, understanding, and commitment
to diversity efforts and outcomes.
National Black MBA Association (NBMBAA)
Association of Latino Professionals in Finance and
Accounting (ALPFA)
National Society of Hispanic MBAs (NSHMBA)
National Urban League (NUL)
• Served as an advisor to the Atlanta Fed’s
executive leadership team regarding diversity
and inclusion issues.
Thurgood Marshall College Fund Leadership and
Recruitment Fair (TGMCF)
• Established diversity as a core value in the
strategic plan.
By working closely with these nationally
recognized organizations and focusing on
advertising as part of recruitment efforts,
Federal Reserve System Banks successfully
made diverse hires. Altogether, in proactive
efforts to source diverse talent, the System
last year screened more than 1,000 resumes,
2. Recruited and retained a diverse workforce
The table shows external hires for women and
minorities.
Only one officer was hired from outside the Bank
in 2012.
4
6 Congressional Report 2012
interviewed more than 60 candidates during
phone and onsite interviews, used Twitter to
advertise opportunities, and generally increased visibility.
In addition, more than 20 Federal Reserve
System employees served as volunteer career
management coaches at the National Society
of Hispanic MBAs, helping more than 500
jobseekers by reviewing resumes, providing
career coaching, and conducting mock interviews. The Federal Reserve System also had
an opportunity to feature three of the System’s Latino executives in an NSHMBA
e-newsletter, highlighting our success stories
as a diverse employer.
Finally, the Professional Woman's Magazine
and Black EOE Journal recognized the System for its national diversity recruiting work,
naming it one of the top 10 employers among
financial institutions committed to diversity
and inclusion.
• Recruiting efforts specific to the Sixth Federal
Reserve District:
Piloted, with the National Urban League
Conference and Career Fair in New Orleans,
LA, an onsite interview day. Although no final
placements have resulted yet from this involvement, local recruiters successfully
identified six candidates from the NUL
database for open Law Enforcement positions
in the New Orleans Branch.
• Recruiting efforts in partnerships with other
institutions:
o With the Committee on the Status of
Women in the Economics Profession
(CSWEP), sponsored two summer economics fellowships, both of which were
filled by minority candidates.
o In a continuation of a multiyear partnership with Year Up, hired three minority
students for internship opportunities and
retained one minority student for a fulltime opportunity. Year Up is an intensive
training program that provides low-income
young adults with a combination of hands-
on skill development, college credits, and
corporate internships.
o Established a partnership with the
Morehouse Business Association at
Morehouse College (a historically black
college) to create a cooperative program
that matches students with organizations
to further the student’s understanding of 1)
specific organizations as possible employers
and 2) the general professional environment. One outcome of this program was the
Atlanta Fed sponsored three minority male
students to participate in an Economics Job
Shadow Day in the Research department.
o Hosted an annual speaking event and
reception in February for local NSHMBA
members and job candidates. In addition to
providing networking opportunities, this
event enhanced participants’ understanding about the roles of the Federal Reserve
Bank of Atlanta and the Federal Reserve
System as well as about current economic
conditions. More than 100 participants
attended, and the Atlanta Fed successfully
made a diverse hire for Supervision and
Regulation.
• College internship program:
Revised and launched a formal college internship recruiting program. Among the colleges
and universities where the Atlanta Fed
actively recruits are Agnes Scott College, a
women’s college, and Clark Atlanta University, a historically black university. The internship program serves several purposes for
the Atlanta Fed:
o Provides an opportunity to recruit and
retain new talent.
o Provides students with employment
experience and career development.
o Leverages the interns’ experience through
conversion to direct hires.
o Builds networks for future hires.
7 Congressional Report 2012
o Expands the Atlanta Fed’s public outreach
and education to thousands of college
students.
Fed’s culture, networking and relationship
building, career direction, career planning,
and transitioning into a manager’s position.
In addition to lunch and learns, advisors
were available to conduct one- to three-hour
one-on-one sessions with individual employees each month. This opportunity remains
open to all staff.
o Applies diversity of thought to business
processes.
The Atlanta Fed hired a total of 27 interns in
2012. Of these, 24 were in Atlanta and three
in the Branches. Nine of the 27 became
eligible for hire during 2012, and four of these
nine (or 44 percent) were retained full time,
including two minorities (or 50 percent of the
interns hired).
• Training and development:
Training and development opportunities are
available to all staff members. In 2012, the
Atlanta Fed continued to offer programming
on a variety of topics and in different formats
to reach diverse cross-sections of employees.
The Bank offered activities focused on key
development areas including leadership, communication, coaching and feedback, relationship building, and personal effectiveness. To
meet the diverse learning needs of all staff,
the Atlanta Fed provided learning and
development opportunities in a variety of
formats, including structured classroom instruction, on-the-job training, self-directed
learning, coaching and counseling, mentoring,
and attendance at outside courses, programs,
and degree-based education. In addition,
virtual meeting and distance-learning tools
such as video conference and enterprise
communication software were leveraged
where appropriate to enable remote staff an
opportunity to participate.
Many of our most successful hires over the
years have been multiyear interns. Consequently, the Atlanta Fed increased its recruiting efforts for rising juniors and seniors. Two
interns, both minorities, are still actively
employed as part-time interns and intend to
continue into 2013. In addition, we anticipate
that several of the 2012 summer interns, who
were unable to stay part time, will be returning to the Atlanta Fed for next year’s
internship program.
• Internal mentoring programs:
o Continued one-on-one mentoring
The Atlanta Fed’s mentoring program
provides an opportunity for employees to
obtain others’ perspectives on professional
growth and development, gain exposure to
other areas of the organization, and to
connect and build business relationships
that may not otherwise occur. In doing so,
the program serves as a platform for
leveraging the richness of the different
backgrounds, experiences, and styles of
thinking that exist in the workplace.
Program participation in 2012 included 53
percent women and 53 percent minorities.
o Developed the Career Advisor Network
The Atlanta Fed expanded its mentoring
program in 2012 with the creation of the
Career Advisor Network. At lunch-andlearn sessions throughout the year, advisors offered their insights into a series of
topics, including navigating the Atlanta
The table summarizes total development
offerings by employee level.
Women as
Percent of
Total
Attendees
Minorities as
Percent of
Total
Attendees
Management
51%
39%
High-potential
staff 5
61%
43%
Target Audience
Individual
contributors
All staff
5
47%
54%
48%
66%
Staff identified by Atlanta Fed leadership.
8 Congressional Report 2012
• (NEW) Employee Resource Networks:
In 2012, the Atlanta Fed initiated a program
that encouraged employees to establish three
Employee Resource Networks (ERN). ERNs
bring together a group of employees with
similar or shared experiences, backgrounds, or
skills, offering staff a unique opportunity to
support the Atlanta Fed’s diversity and
inclusion objectives as well as its talent and
people processes. The efforts and activities of
the ERNs support the Atlanta Fed’s goal to
foster an environment where diverse ideas
and perspectives are shared and discussed. In
addition, they contribute to broad continuous
improvement efforts and provide another
channel for sharing diverse perspectives and
open dialogue. Participation and membership
in ERNs are open to all employees.
The Bank structured the ERNs in such a way
that they provide leadership opportunities to
all staff and management. The ERNs, which
together have four executive sponsors, comprise about 50 percent women and 50 percent
minorities. Likewise, 33 percent of the staff
ERN chair positions are held by women and
33 percent are held by minorities.
The ERNs and their missions are listed below.
o The mission of the Employee Alliance for
Gay and Lesbian Employees (EAGLE) is to
help the Atlanta Fed engage and retain
lesbian, gay, bisexual, and transgender
(LGBT) staff and their allies and to ensure
that surrounding communities recognize
the Atlanta Fed as an open and welcoming
work environment.
o The mission of the Generations Promoting
Success (GPS) ERN is to engage staff from
all generations and levels of tenure to
support employees as they navigate various
career transitions. GPS accomplishes its
mission by focusing on the common interests, skills, and workplace goals of all
employees.
o The mission of the IDEA Network, which
focuses on technology, innovation, and
creativity, is to help staff create connections
between their creativity and their work by
helping to eliminate or reduce barriers and
enhance productivity.
• Diversity Advisory Council:
The DAC operates with a similar mission as
the ERNs – to serve as an employee resource
in support of the Bank’s objective to promote
fair and inclusive people practices. The Council is comprised of thirty members, serving
three-year terms, from a cross-section of
business lines that represent various aspects
of diversity and inclusion within the Bank.
This year the Council is 52 percent female and
55 percent minority.
• Awards and recognitions:
o The Atlanta Journal-Constitution, after an
Atlanta Fed staff member submitted a nomination, recognized the Atlanta Fed as a
“Top 100 Workplaces in Atlanta” in 2012.
The newspaper based its selection on feedback from employee surveys that a thirdparty vendor conducted on its behalf. The
paper ranked the Atlanta Fed number 9 of
20 in the Large Company Group.
o Top Workplaces (sponsored by Workforce
Dynamics) recognized the Atlanta Fed as
one of America’s Top 150 Workplaces. The
Bank ranked 113 among 872 organizations
that have more than 1,000 employees.
Survey results indicated that employees
want to work for organizations like the
Atlanta Fed because it sets a clear direction
for the staff’s future, executes well, and
brings real meaning to the staff’s work.
3. Developed and maintained partnerships
with diverse community organizations
The following efforts contributed to relationship
building between the Federal Reserve Bank of
Atlanta—as a diversity employer and a responsible corporate citizen—and specific local minority communities.
• Nonprofit board participation
o Provided senior leadership support through
memberships on nonprofit boards and
committees benefiting minorities and
9 Congressional Report 2012
women, including the Cuban-American
Bankers Association, First Coast Business
Leadership Network, Greater Women’s
Business Council, and Latin Builders
Association.
• Other partnership opportunities
o Provided skills-based job readiness training
via workshops and mock interviews to job
seekers at the Latin American Association.
The training focused on resume-writing and
interviewing skills. The Bank provided
thirty volunteers who served ninety clients
in preparation for the upcoming career fair.
o Provided mentoring, by way of informational interviews, resume critiques, and
career development conversations to students at the Andrew Young School of Policy
Studies at Georgia State University. (The
Andrew Young School’s undergraduate
enrollment is approximately 69 percent
minority; graduate enrollment is approximately 51 percent minority.) This event
provided students with the opportunity to
meet seasoned professionals and discuss
career aspirations. Also participated on the
Human Resource Director’s Panel, providing meaningful insight to potential
applicants regarding hiring trends, resume
enhancements, and interviewing tips.
o Sponsored a business to business breakfast
event for INROADS to discuss how the
Atlanta Fed and other local businesses can
support INROADS in their efforts to place
talented minority youth in business and
industry internships and prepare them for
corporate and community leadership.
• In addition, senior leadership or executive
speakers represented the Atlanta Fed at
conferences supporting various women and
minority communities, including:
o Girls of Promise Conference in Little Rock,
AK
o Operation Hope—Global Financial Dignity
Summit in Atlanta
o The Latin American Chamber of Commerce
and the World Affairs Council in Atlanta
4. Monitored progress toward meeting
strategic workforce objectives
• Provided semiannual reports to senior
management
Challenges
The Federal Reserve Bank of Atlanta identified
some ongoing challenges regarding recruiting,
hiring, and retaining women and minorities in its
workforce. The challenges cited do not necessarily
represent current deficiencies but are reflective of
ongoing efforts to continuously improve the
workplace and leverage opportunities to have a
more inclusive environment.
• Attracting and retaining the following groups:
o Females as managers, examiners, and law
enforcement
o Minorities as managers
• Identifying the national diversity fairs that
provide the best pools of candidates to ensure
a more successful hire conversion ratio.
• Managing the impact of salary and merit pay
constraints on retention of top talent. Enhancing focus on and making priority career
development and advancement for all staff.
• Ensuring effective and consistent onboarding
for new hires and new officer appointments.
Next Steps
The Atlanta Fed and OMWI Atlanta have
identified the following “next steps.”
• Adjust and refine attendance at and resources
dedicated to key recruiting events for target
audiences.
• Conduct a candidate qualification assessment
for conference attendees prior to the
recruitment fair from the databases provided
by the conference sponsors. Also, assess the
value of the conference after two years of
attendance.
10 Congressional Report 2012
• Increase focus on promotion and awareness of
development resources across the Sixth
Federal Reserve District through the
implementation of a “Development
Opportunities Fair” and “Individual
Development Planning” overview sessions.
• Encourage development related to current and
future roles through aligned activities such as
individual development plans and career
conversations.
• Continue to sponsor “lunch-and-learns”
through the Career Advisor Network. The
Atlanta Fed and OMWI Atlanta will leverage
feedback from 2012 activities to identify
opportunities for improving the current year’s
sessions.
• Expand new-hire orientation into a more
formal, consistent onboarding program
throughout the Atlanta Fed main office and
Branches.
• Define and launch the next level of diversity
training for management.
Although Section 342 focuses specifically on
minority and women inclusion in the workforce, the
Atlanta Fed’s workforce diversity efforts reach
organizations that include the LGBT community,
people with disabilities, and organizations for
veterans. For example, the Atlanta Fed has
partnered with Out and Equal, the Business
Leadership Network, and many other
organizations.
11 Congressional Report 2012
Inclusion of Minority- and WomanOwned Business Enterprises
(M/WBEs)
The Atlanta Fed’s support of diverse suppliers
promotes economic opportunities and contributes
to the local economies within our region. Our success as a financial services institution is directly
connected to the vitality of the communities we
serve. OMWI Atlanta continues to support and
influence the development and implementation of
strategic initiatives and procedures related to
this task at the level of the Sixth Federal Reserve District. Additional support is provided by
the National Procurement Office, which is responsible for managing and facilitating contracts that
any of the districts in the Federal Reserve System
can use.
In 2012, the procurement function expanded the
District-wide supplier diversity program to promote
the Atlanta Fed’s involvement in the inclusion and
participation of minority- and woman-owned
businesses in procurement and business activities.
As the Atlanta Fed continued to cultivate the
District-wide supplier diversity initiative, it
realized success because of its strategic focus on
including diverse suppliers. The results of these
concerted efforts resulted in an increase in the
Atlanta Fed’s M/WBE spend over 2011 by 22
percent.
Percentage of total spend paid to woman-owned
businesses: 7 2.3%, or $1,463,000
Notably, from 2011 to 2012, the amount spent for
minority-owned business enterprises more than
doubled.
Second-Tier Spend
In 2012, the Atlanta Fed initiated a pilot secondtier procurement focus, which included two prime
suppliers, and captured second-tier spend of
$49,729 for the year.
Successes
The Atlanta Fed recognizes four key areas of
success regarding its diverse procurement
initiatives. These areas are listed below, with
success highlights.
1. Implemented business procedures and
procurement practices to support the
inclusion and utilization of diverse
suppliers
• Continued the practice of inserting equal
opportunity language into new and renewed
procurement contracts. The language affirms
the Atlanta Fed’s commitment to nondiscrimination in the solicitation, award, and
administration of contracts and to ensuring
that all firms interested in doing business
with the Bank have the maximum practicable
opportunity.
Amounts Paid to Contractors
• Reviewed large bid contracts and researched
ways to be more inclusive of small minorityand woman-owned businesses during the
request for proposal (RFP) process.
Total spend, all of 2012: $62,722,000 6
Percentage of total spend paid to minority-owned
businesses: 3.8%, or $2,374,000
“Total spend” excludes the items that do not fall
within the definition of contractor under the DoddFrank Act. These excluded items include:
6
• Association memberships, dues, and fees
• Employee salaries, benefits, insurance, and
reimbursements
• Inter-company transfers
• Legal settlements (payments made to injured
parties, not outside counsel fees)
• U.S. Post Office fees
• Rent
• Taxes (property, payroll, income, state, local,
and federal)
• Utilities
• Collaborated with local and regional agencies
(see the chart) and used available tools to
locate qualified diverse-supplier pools for
RFPs and requests for quotes. Procurement
continued to provide assistance to business
units to identify diverse suppliers to solicit for
bids on products and services.
Minority woman-owned business spend is
captured in spend for minority-owned businesses
and is not double-counted in the woman-owned
business spend category.
7
12 Congressional Report 2012
• Implemented an automated process to monitor
and record bid opportunities provided to
diverse suppliers.
• Continued working with the National Procurement Office to implement standards and
procedures for self-assertions and determinations relative to supplier diversity.
• Fully operationalized (following development
and implementation in 2011) processes and
procedures for making good-faith-effort compliance determination on vendor efforts to
include minorities and women in their
workforce.
2. Increased awareness throughout the
organization to boost the pool of diverse
suppliers for all acquisitions
• Conducted meetings with key internal
stakeholders to emphasize the Federal
Reserve System’s commitment to supplier
diversity and to support Procurement’s
initiative to coordinate and manage the
procurement process.
The following areas were reviewed and
emphasized during each meeting:
o Adherence to Procurement policies on
contracting and guidelines on acquisition.
o Ensuring that assistance is available to
business units in identifying suppliers—
including diverse suppliers—when
conducting bids.
o Assistance available to monitor diversity
spend data and contract renewals.
• Procurement Director participated in the
System Supplier Diversity Standards and
Procedures workgroup. This workgroup
partners with System OMWIs on collaboration
efforts and tools for ensuring supplier
diversity.
• Participated in training seminars hosted by
the local Georgia Minority Supplier Development Conference (GMSDC), Greater Women’s
Business Council (GWBC), and the National
Minority Supplier Development Council
(NMSDC).
3. Conducted outreach to diverse suppliers
regionally and nationally
• Participated in local and national networking
activities and conference events, including the
National Minority Supplier Development
Council conference.
• Bank vice president continued GWBC board
membership as chair of the certification
committee. The GWBC certifies woman-owned
businesses and conducts site visits as part of
the certification process.
• Hosted the South Region Minority Supplier
Development Council (SRMSDC) Professional
Services Industry Day. The regional executive
of the Atlanta Fed’s Birmingham Branch
hosted this event, giving participants an
overview of the structure of the Federal
Reserve System and the goods and services
the Atlanta Fed procures.
• Hosted the first annual GMSDC Annual
Professional Services Day Symposium. Two
Atlanta Fed economists provided the M/WBE
attendees an overview of current trends in the
economy as well as small business conditions
in the region. In addition, the OMWI Director
and the Vendor Management Consultant
provided guidance to the M/WBEs on doing
business with the Fed. This collaboration
supported GMSDC’s efforts to strengthen
minority business communities economically
and to impact the communities served by
minority and woman-owned businesses.
• Conducted an onsite supplier diversity
business opportunity expo at the Atlanta
home office and the Jacksonville Branch.
Targeting minority- and woman–owned
businesses, these expos were designed to raise
awareness with internal business functions on
the goods and services that could help them
meet business requirements.
• Expanded the presence and visibility of Procurement both regionally and nationally by
exhibiting at several industry trade events
that foster supplier diversity outreach, offer
match-making, and provide technical assistance to M/WBE attendees. The table lists
these events.
13 Congressional Report 2012
Date
Event
Location
February 9
Pace Lunch and Learn Series
GWBC (Atlanta)
March 7
Annual Meeting / Business to Business Match
Making
GWBC (Atlanta)
February 28
April 17
May 16
May 24
June 7
August 14
August 16
August 27
September 13
October 9
October 29–
November 1
Professional Services Day
ShoWorks
Business Opportunity Expo
Miami Minority Chamber of
Commerce (Miami)
Supplier Outreach Conference
Jacksonville Branch of the Atlanta Fed
Supplier Outreach Conference
Atlanta Fed main office
Match Making & POP Marketing Event
Chamber Business Event
Annual Professional Services
Annual Conference
4. Strengthened the Supplier Diversity
Program
During the fourth quarter, established a
dedicated resource to strengthen the Bank’s
supplier diversity program by hiring a 20-year
industry veteran to manage it. The designated
Supplier Diversity Program Manager has
industry success in developing and maintaining
supplier diversity programs and in
strengthening the Bank’s supplier diversity
relationships with the local business community.
The Supplier Diversity Program Manager will
focus on enhancing outreach activities, focusing
the Bank’s efforts on increasing diverse
participation in the procurement process, and
maturing performance metrics to better identify
improvement opportunities.
Alliance South
GMSDC (Atlanta)
Contractor & Expo Conference
Trade Fair Event
SRMSDC / MBEIC (Birmingham)
FMSDC (Miami)
GWBC (Atlanta)
Georgia Hispanic Chamber of
Commerce (Atlanta)
Atlanta Fed main office GMSDC
NMSDC (Denver)
Challenges
The Atlanta Fed achieved success during 2012, but
also faced some challenges. These challenges
included:
• Identifying qualified, diverse suppliers for
certain unique acquisitions despite
substantial outreach efforts both with
organizations that count M/WBEs among its
members and with individual businesses.
• Providing clear and direct access to the
Atlanta Fed procurement process to possible
vendors by way of the external website.
• Obtaining competitive bids from diverse
suppliers.
• Ensuring certification of M/WBEs reported in
diversity spend. The Atlanta Fed relies on an
14 Congressional Report 2012
external source for verifying certification of
M/WBE suppliers. Various agencies certify
M/WBEs, but if the M/WBEs are not recorded
as certified in the system of record, they are
not captured as diversity spend.
Next Steps
During early 2013, the new Supplier Diversity
Program Manager will complete a Supplier
Diversity Action Plan. This plan will focus on
developing and implementing a sustainable
program infrastructure that will facilitate the
effective identification and utilization of minorityowned and woman-owned businesses through the
internal procurement process. The program will
accomplish its goals by:
• Expanding sources to identify qualified,
minority and woman-owned businesses and
categorizing those companies in accordance
with the Atlanta Fed’s business needs of the
Bank by:
o Creating a web page to help diverse
suppliers establish direct contact with the
Supplier Diversity Program Manager.
o Developing a relationship-building forum
called “Show the Fed” with the purpose of
connecting Atlanta Fed procurement staff
with individual M/WBE suppliers, at the
M/WBE’s business location.
o Maximizing the use of tools and opportunities available through minority and
women business councils located throughout the region in order to identify potential
business partners.
o Broadening vendor registration on the
Atlanta Fed’s external website.
o Providing internal business areas a
supplemental list of diverse suppliers.
• Promoting opportunities for minority- and
woman-owned businesses by:
o Participating in Federal Reserve System
supplier diversity workgroup meetings to
assess, develop, and promote initiatives
that strengthen the supplier diversity
process throughout the System.
o Hosting three or more vendor fairs and
inviting diverse suppliers to present their
goods and services.
o Attending additional supplier outreach and
networking events to identify more
suppliers.
o Broadening the education of the community
about the Atlanta Fed’s supplier diversity
program.
o Expanding the second-tier reporting effort.
o Implementing a procedure to include at
least one minority-owned business and one
woman-owned business in the pool of
potential suppliers whenever possible.
Although Section 342 focuses specifically on the
inclusion of minority- and woman-owned
businesses, the Atlanta Fed’s supplier diversity
outreach also targets organizations whose owners
have disabilities or are veterans. Outreach also
includes qualified small-business owners. The
Procurement unit actively solicits diverse suppliers,
giving them an equal opportunity to compete for an
opportunity to provide the Atlanta Fed’s goods and
services.
15 Congressional Report 2012
Financial Literacy Activities
(Outreach Programs)
The Atlanta Fed is dedicated to enhancing the
economic and financial literacy of youth across the
Sixth Federal Reserve District, primarily through
programs aimed at middle school and high school
teachers. The financial literacy program offers
educators and students educational opportunities
and resources—including workshops, presentations, classroom curricula, publications, and more—
that teach about the Federal Reserve System and
about concepts of economics and personal finance.
Workshops and presentations aim to give teachers
both an enhanced understanding of the financial
literacy curriculum and strategies and resources for
use in the classroom. They also provide resources
for increased learning and development.
In 2012, the Atlanta Fed’s Economic Education
Team conducted a variety of programs to support
economic and financial literacy for secondary and
postsecondary teachers and students throughout
the region. Online educational offerings continued
to be a fast-growing segment last year because
many teachers who could not attend in-person
programs could access the material online.
Of the 1,927 public high schools in the Sixth
Federal Reserve District, 792 (or 41 percent) are
designated as OMWI high schools. Through
intensive workshops, the Atlanta Fed’s economic
education programs reached 41 percent (or 325) of
the region’s OMWI high schools, exceeding our
target of reaching 40 percent by year’s end. In
addition, 51 percent of schools in attendance at the
workshops were OMWI schools.
The Atlanta Fed’s impact on these schools was
measured in two ways: 1) Through the number or
percentage of OMWI schools that participated in
the Atlanta Fed’s economic education programs
(each school is counted only once), and 2) the actual
number or percentage of teachers from OMWI
schools who participated in programs. More than
one teacher from any given school may attend.
Successes
Ensured that financial literacy programs
reached inner-city high schools, girls’ high
schools, and other high schools serving
majority-minority populations
• Workshops
o Conducted more than 160 workshops, a 27
percent increase over last year.
o Attracted a higher percentage of OMWI
schools (51 percent) than the overall percentage of OMWI schools in the region (41
percent).
o Completed the second year of a five-year
partnership with Georgia State University
under a grant for improving the quality of
economics teachers at the Atlanta Public
Schools and Fulton County Public Schools.
Held a workshop on June 12, 2012, for 13
teachers from these school systems.
• Presentations
o Conducted more than 100 presentations at
teacher workday events and at state and
regional conferences.
o Reached more than 4,000 teachers through
presentations. These teachers will, in turn,
teach approximately 300,000 students
during the 2012–13 school year.
• Online programs
Provided online curricula to constituents
through the Atlanta Fed’s external website.
Online programming represents about 50
percent of total programming consumption.
One curriculum, Katrina’s Classroom, received more than 104,000 views in 2012.
Related lesson plans were accessed more than
260,000 times, more than double the frequency of 2011. (Transcripts of the Katrina’s
Classroom DVDs are also available in
Spanish.)
• Events
The Federal Reserve Banks and the Board of
Governors work jointly to identify educational
opportunities for the Federal Reserve System.
For example, they collaborate on financial
literacy programming, mentoring
opportunities, and other related activities for
16 Congressional Report 2012
inner-city high schools, girls’ high schools, and
high schools with majority-minority populations. In 2012, coordinated programming
included such events as the Congressional
Hispanic Caucus’s Ready to Lead sessions and
the Congressional Black Caucus’s Youth
Leadership Summit. The table details other
Atlanta Fed-specific events.
Events Held throughout the Sixth Federal Reserve District in 2012
Atlanta
•
•
Birmingham
•
•
Jacksonville
•
•
Miami
•
•
Nashville
•
•
New Orleans
•
•
Presented financial literacy materials at the Federal Agency Open
House at the Carter Center for 196 Atlanta high school students.
Conducted a financial literacy program in conjunction with the
Congressional Black Caucus’s Financial Education Summit for 75
students from two OMWI schools.
Presented at Capstone Entrepreneurial Camp for 33 students,
partnering with the University of Alabama–Birmingham, reaching
roughly 86 percent of its targeted area.
Participated, along with the Atlanta office, in the Congressional Black
Caucus’s Financial Education Summit and hosted 102 students.
Presented the “Basics of Personal Finance” to 42 minority students at
a local high school.
The economic education specialist continued to serve on the Board of
Directors of Ribault Academy of Finance, an OMWI high school, and
will serve as its chair next year.
Presented lessons on personal finance and participated in mentoring
sessions at the Congressional Hispanic Caucus’s Ready to Lead event
at Miami Dade College. About 250 minority students attended.
Hosted a conference with Teach for America (TFA) for more than 125
educators; provided professional development and educational
resources. TFA recruits a diverse group of recent graduates and
professionals to teach in low-income communities for two years.
Hosted teachers from the Metro Nashville Public Schools (MNPS)
Academies of Nashville Business, Marketing, and IT Partnership
Council. The MNPS accounts for 69 percent of OMWI high schools in
middle and east Tennessee. The teachers received financial literacy
materials.
Coordinated the Business, Marketing, and IT portion of the Metro
Nashville Public Schools’ (MNPS) Career Fair, which was attended by
more than 5,000 freshmen high school students from MNPS high
schools. The students learned about personal finance and about the
skills necessary to obtain a job.
Presented at the 2012 Louisiana Jump$tart Awards Conference,
attended by about 100 students.
Presented to curriculum coordinators and school administrators of
the Gulf Coast Education Initiative Consortium.
17 Congressional Report 2012
Challenges
The Atlanta Fed economic and financial education
initiatives experienced two main challenges in
2012.
• School budgets and teacher training days
continued to be negatively affected, so schools
increasingly cannot afford to pay substitutes
so teachers can attend workshops.
• Many school districts in the region are in the
midst of major challenges—including adopting
a teacher evaluation policy, changing the
method of testing students, and adopting new
curriculum standards—all of which also tend
to reduce the time teachers have available for
undertaking professional training in financial
literacy.
Next Steps
The Bank’s Financial Literacy Plan focuses on
further increasing the breadth of its financial
education outreach.
• In 2013, all Branches in the Sixth Federal
Reserve District will focus outreach on OMWI
schools, with the goal of increasing their
contact with underpenetrated OMWI districts
and schools.
• The Atlanta Fed plans to expand its online
program offerings, which will increase the
accessibility of educational materials for
schools that have difficulty sending teachers
to workshops.
• In 2013, the Classroom Economist series will
feature four personal finance modules from
the Katrina’s Classroom curriculum.
18 Congressional Report 2012
Conclusions and Recommendations
from the Director of the Office of Minority
and Women Inclusion
Many of the challenges that the Atlanta Fed and
OMWI Atlanta have faced over the past two years
are pervasive, such as the challenges that this
report’s workforce section describes, the capacity
limitations that M/WBEs are still experiencing
after a slow recovery from recession, and the many
successive years of school budget cuts that have
impeded the delivery of financial literacy programs.
The second year of OMWI Atlanta gave us an enhanced perspective regarding the effectiveness of
our efforts in the face of such challenges. We now
have a more seasoned perspective regarding the
amount of effort needed to lessen these challenges
or work around them, and we have gained insight
into where we can make adjustments or refinements or where to add focus in order to improve
progress.
We offer the following lessons that we gleaned from
the past two years, along with some related
recommendations.
• It is imperative that we nurture sustained and
meaningful relationships with community
partners, minorities, women, and M/WBEs.
We must continually refine and broaden the
Atlanta Fed’s opportunities to engage with
these entities. This means enhancing both the
significant outreach efforts we engaged in last
year and developing other creative avenues of
delivery.
Although Section 342 of the Dodd-Frank Act
does not refer specifically to certain groups,
our outreach efforts to and relationships with
people with disabilities, veterans, and LGBT
organizations have led to mutually rewarding
opportunities.
We welcome congressional perspective on
these types of outreach efforts in addition to
the focus on minorities and women, as well as
any expectations on or interest in including
these efforts in successive annual reports.
• As the report notes, OMWI Atlanta and
Procurement staff participated in several
M/WBE events this year to meet diverse
suppliers and to discuss the Atlanta Fed’s
procurement process. Our concerted effort
helped us increase our diversity spend by 22
percent. In particular, we increased our
minority spend by more than 100 percent. In
addition, this effort supported our outreach
efforts to the M/WBEs in the region. However,
the overall diversity spend did not increase
commensurate with expected progress. We
realized that we needed more expertise and
resources in this space. The Atlanta Fed’s
senior leadership approved the hire in the
fourth quarter of a dedicated and seasoned
Supplier Diversity Program Manager. This
manager will further expand the Atlanta
Fed’s outreach to a diverse supplier base and
provide technical assistance regarding
capacity building.
• The continued collaboration of the 12 Reserve
Banks and the Board of Governors provides
opportunities to leverage our collective
diversity and inclusion efforts and resources,
particularly as it relates to diversity
recruiting and supplier diversity.
We welcome congressional response to the
Atlanta Fed’s overall efforts to be responsive
to and comply with the requirements of the
Dodd-Frank Act.
19 Congressional Report 2012
Appendices
Appendix A: OMWI Atlanta Organizational Structure
20 Congressional Report 2012
Appendix B: Federal Reserve Bank of Atlanta Workforce Representation as of
December 31, 2012
By Number
Job Categories
Senior Managers/
Executives
First/Mid-level
Managers
Professionals
(exempt)
Admin Support
(nonexempt)
Craft workers
Operatives
Service workers
Total
Non-Hispanic Men
Men
Hispanic
Women
Hispanic
12
31
0
31
4
0
27
White
Black
10
127
42
14
25
52
1
40
0
0
105
1
Men
Hispanic
Women
Hispanic
3.6%
3.0%
66
4
250
30
0
37
473
2
Senior Managers/
Executives
First/Mid-level
Managers
Professionals
(exempt)
Admin Support
(nonexempt)
Craft workers
Operatives
Service workers
Percentage of
total workforce
•
•
•
0
2
70
3
28
0
1
0
224
0
1
8
0
50
Asian
2
0
5
By Percentage
Job Categories
Native
Hawaiian
0
3
4
43
Non-Hispanic Women
Native
American
0
1
0
2
1
1
0
5
0.0%
4.1%
11.3%
9.8%
0.0%
18.4%
6.7%
White
Black
8.3%
33.3%
16.7%
5.3%
33.2%
9.3%
5.1%
37.9%
9.1%
18.9%
0.0%
100.0%
0.0%
73.2%
0.7%
25.2%
0.0%
4.2%
12.5%
30.2%
12.2%
34.0%
14.3%
Asian
0.0%
0.0%
0.1%
3.7%
0.6%
0.0%
0.0%
0.0%
0.0%
0.2%
0.6%
2.9%
2.4%
0.0%
2.7%
2.7%
0
47
169
132
1
0
0
49
1
0
7
8
317
Non-Hispanic Men
Native
Hawaiian
Black
3
0
3
White
86
0
0
0
2 or
More
Races
85
0
Native
Hawaiian
0
0
282
0
2
0
24
0
0
0
0
0
1
2
752
0
41
1
147
0
0
0
0
34
12
0
1
0
Total
0
0
8
0
18
Asian
2 or
Native
More
American Races
2
2
335
1
275
0
3
6
1,565
Non-Hispanic Women
Native 2 or More
American Races
White
Black
0.0%
0.0%
0.0%
41.7%
0.1%
0.4%
22.5%
0.3%
0.4%
0.0%
0.0%
0.0%
0.2%
0.6%
0.0%
2.4%
0.0%
0.7%
0.4%
25.7%
14.0%
17.8%
30.9%
0.0%
0.0%
5.4%
17.6%
0.0%
0.0%
12.2%
Native
Hawaiian
Asian
0.0%
0.0%
0.0%
3.2%
0.0%
0.0%
0.0%
0.0%
0.0%
20.3% 18.0% 0.0%
0.6%
2.9%
0.0%
0.0%
0.0%
2.2%
2 or Percentage
Native
More
of Total
American
Races Workforce
1%
0.0%
0.0%
0.1%
0.3%
48%
0.0%
3%
0.7%
9%
0.0%
0.4%
0.0%
0.0%
0.0%
0.1%
0.6%
21%
0.4%
18%
0.0%
0%
0.4%
100%
The information in these tables reflects the Sixth Federal Reserve District’s staff representation by role or job group
(see table rows).
The totals for each job group in the top table represent the number of women/men in that job group by race.
The totals for each job group in the bottom table represent the percentage of women and men that fall into each job group.
Note: The Federal Reserve Bank of Atlanta follows a standard practice of annually reviewing our internal representation against
census occupational data (broken down by job group). Drawing comparisons against census population data would be misleading
because those data do not take into account the demographics of the internal and external resource pools that feed into each job
group.
21 Congressional Report 2012
Appendix C: OMWI Schools in the Sixth Federal Reserve District
Total Number of Public
High Schools in District
1,927
Total Number of OMWI
High Schools
Number
792
Percentage
41%
Majority-Minority
High Schools*
All-Girls High Schools
All-Girls High
Schools Not Also
MajorityMinority
790
7
2
*All majority-minority high schools have also been identified as inner-city schools.
Schools can be classified as OMWI schools for any one of the following reasons:
•
They are inner-city schools.
•
They are majority-minority schools.
•
They are girls’ schools.
Inner-city school
An inner city is a core urban area that currently has higher unemployment and poverty rates and lower median
income levels than the surrounding area. Inner cities have a 20 percent or higher poverty rate or at least two of
the following three criteria:
•
•
•
Poverty rate of 1.5 times or more than that of their region.
Median household income of ½ or less than that of their region.
Unemployment rate of 1.5 times or more than that of their region.
Minority
As specified in the Dodd-Frank Act, for the purposes of OMWI, minority is defined as any Black American,
Native American, Hispanic American or Asian American.
Majority-minority school
A majority-minority school has any minority (as defined above) or combination of minority groups that exceed
50 percent of a school’s total enrollment. If a school reports 51 percent minority, then it is a majority-minority
school
Girls’ schools
Girls’ schools are defined as those with a 100-percent-female student population.
22 Congressional Report 2012
Office of Minority and Women Inclusion
1000 Peachtree Street, N.E.
Atlanta, Georgia 30309-4470
4/19/2018
2012 Annual Report - Federal Reserve Bank of Atlanta - Federal Reserve Bank of Atlanta
2012 ANNUAL REPORT
President's Letter
Conversations
Reports
Directors & Officers
Financials & More
Credits
About the Atlanta Fed
The Federal Reserve Bank of Atlanta is one of 12 regional Reserve Banks in the United States that, with the Board of Governors in Washington, DC, make up the
Federal Reserve System—the nation's central bank. Since its establishment by an act of Congress in 1913, the Federal Reserve System's primary role has been
to foster a sound financial system and a healthy economy. To advance this goal, the Atlanta Fed helps formulate monetary policy, supervises banks and bank and
financial holding companies, and provides payment services to depository institutions and the federal government. Through its six offices in Atlanta, Birmingham,
Jacksonville, Miami, Nashville, and New Orleans, the Federal Reserve Bank of Atlanta serves the Sixth Federal Reserve District, which comprises Alabama,
Florida, and Georgia, and parts of Louisiana, Mississippi, and Tennessee.
Credits
The 2012 Federal Reserve Bank of Atlanta Annual Report was created and produced by the Public Affairs Department.
Bobbie H. McCrackin
Vice President and Public Affairs Officer
Robin Ratliff
Assistant Vice President, Public Affairs
Peter Hamilton
Darryl Kennedy
Odie Swanegan
Graphic Designers
Lynne Anservitz
Strategic Publishing Director
Charles Davidson
Lela Somoza
Writers
Carole Starkey
Web Communications Director
Nancy Condon
Editor
Flip Chalfant
Kendrick Disch
Photographer
Jason Palmer
Videographer
Howard Fore
Momolu Sancea
Leslie Williams
Michael Zavarello
Web Team
Branch Locations
Atlanta Office
1000 Peachtree Street N.E.
Atlanta, Georgia 30309-4470
Birmingham Branch
524 Liberty Parkway
Birmingham, Alabama 35242-7531
Jacksonville Branch
800 Water Street
Jacksonville, Florida 32204
Miami Branch
9100 N.W. 36th Street
Miami, Florida 33178-2425
Nashville Branch
301 Rosa L. Parks Avenue
Nashville, Tennessee 37203-4407
New Orleans Branch
525 St. Charles Avenue
New Orleans, Louisiana 70130-3480
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