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FEDERAL RESERVE BANK
OF NEW YORK
rti -\cmuic)
November 3, 1994
VALUATION OF DEFINITIVE COLLATERAL
To the Chief Executive Officers o f All Depository
Institutions in the Second Federal Reserve District:
During 1995, the Federal Reserve System and the U.S. Treasury will implement
a change in the methodology used to determine the collateral value o f assets that are
pledged to secure certain funds held by or loaned to depository institutions. The revised
collateral valuation practices will apply to definitive assets beginning in January 1995 and
will be implemented for book-entry collateral in approximately two years. Under the
revised methodology, collateral values will be based on available market prices to which
margins will be applied. The value o f collateral for which market prices are not available
will not change at this time.
The revised valuation methodology applies to collateral pledged for Treasury Tax
and Loan, Discount Window, and Payment System Risk accounts. Collateral pledged for
Government Deposits in Agency Accounts ("Circular 176") and Obligations as Security
in Lieu o f Surety Bonds ("Circular 154") will not be subject to the revised methodology
until the book-entry collateral phase is implemented.
The margins that will be applied to definitive collateral where market prices are
available will be the same as those currently applied to the current outstanding value o f
the pledged asset. Collateral valuation methodology will continue to be reviewed and
adjusted where appropriate. Where market prices are not available, a uniform valuation
system is being developed by the Federal Reserve.
If your institution currently has securities pledged to any o f the affected
programs, your securities/investment officer will receive a separate package, providing
more detailed information on the collateral valuation methodology. Please inform all
other applicable departments o f this change in methodology.
(Over)
To resolve any questions or to obtain additional information, please contact the
appropriate program representative:
Discount W indow and Payment System Risk:
William A. Walsh (212) 720-5394
Staff Director, Discount Division
Treasury Tax and Loan (TT&L):
Michael J. Falkowski (212) 720-6623
Assistant Chief, Accounting Operations Division
Safekeeping:
Thomas F. Curry (212) 720-6366
Staff Director, Fiscal Services Function
M ichele S. G odfrey
Vice President and Secretary
@FedFRASER