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March 2010 Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet Board of Governors of the Federal Reserve System Purpose The Federal Reserve prepares this monthly report as part of its efforts to enhance transparency about the range of programs and tools that have been implemented in response to the financial crisis and to ensure appropriate accountability to the Congress and the public. The Federal Reserve’s statutory mandate in conducting monetary policy is to foster maximum employment and stable prices. Financial stability is a critical prerequisite for achieving sustainable economic growth and price stability, and the steps taken since the summer of 2007 were necessary to support the liquidity of important financial markets and institutions in light of the extraordinary strains in financial markets. Note: Financial information in this report has not been audited. Financial data are audited annually and are available at www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm. This report provides detailed information on the policy tools that have been implemented since the summer of 2007. It also provides financial reporting for 2009 through the third quarter. Figures for the full year of 2009 will be published in this report following the release of the audited financial statements of the Federal Reserve System. In fulfillment of Section 129 of the Emergency Economic Stabilization Act of 2008, additional information on the status of certain credit facilities implemented in response to the financial crisis is included as Appendix A of this report. Information related to the Federal Reserve’s temporary liquidity programs and facilities that have closed or expired is included in Appendix B of this report. For prior editions of this report and other resources, please visit the Board’s public website at www.federalreserve.gov/monetarypolicy/ bst_reports.htm. Contents Overview...............................................................................................................................................1 Recent Developments .............................................................................................................................1 System Open Market Account (SOMA) ...............................................................................................4 Recent Developments .............................................................................................................................4 Lending Facilities to Support Overall Market Liquidity .....................................................................7 Lending to Depository Institutions............................................................................................................7 Commercial Paper Funding Facility (CPFF) ...............................................................................................9 Term Asset-Backed Securities Loan Facility (TALF)..................................................................................10 Lending in Support of Specific Institutions ........................................................................................15 Quarterly Developments ........................................................................................................................15 Bear Stearns and Maiden Lane LLC .......................................................................................................15 American International Group (AIG) .......................................................................................................16 Maiden Lane II LLC ............................................................................................................................18 Maiden Lane III LLC ...........................................................................................................................20 Federal Reserve Banks’ Financial Tables ...........................................................................................22 Quarterly Developments ........................................................................................................................22 Combined Statement of Income and Comprehensive Income.......................................................................22 SOMA Financial Summary ....................................................................................................................23 Loan Programs Financial Summary.........................................................................................................24 Consolidated Variable Interest Entities (VIEs) Financial Summary ...............................................................24 Appendix A .........................................................................................................................................27 Additional Information Provided Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008 ...........................................................................................................................................27 Appendix B .........................................................................................................................................29 Information about Closed and Expired Credit and Liquidity Facilities and Programs.......................................29 Tables and Figures Overview...............................................................................................................................................1 Table 1. Assets, Liabilities, and Capital of the Federal Reserve System .........................................................1 Figure 1. Credit and Liquidity Programs and the Federal Reserve’s Balance Sheet...........................................2 System Open Market Account (SOMA) ...............................................................................................4 Table 2. System Open Market Account (SOMA) Securities Holdings ............................................................4 Lending Facilities to Support Overall Market Liquidity .....................................................................7 Table 3. Discount Window Credit Outstanding to Depository Institutions ......................................................7 Table 4. Concentration of Discount Window Credit Outstanding to Depository Institutions ...............................7 Table 5. Lendable Value of Collateral Pledged by Borrowing Depository Institutions ......................................8 Table 6. Lendable Value of Securities Pledged by Depository Institutions by Rating ........................................8 Table 7. Discount Window Credit Outstanding to Borrowing Depository Institutions— Percent of Collateral Used ..................................................................................................................9 Table 8. Concentration of CPFF Issuers ...................................................................................................9 Table 9. CPFF Commercial Paper Holdings by Type ................................................................................10 Table 10. CPFF Commercial Paper Holdings by Rating ............................................................................10 Table Table Table Table Table Table 11. TALF: Number of Borrowers and Loans Outstanding ..................................................................10 12A. Issuers of Non-CMBS that Collateralize Outstanding TALF Loans .............................................12 12B. Issuers of Newly Issued CMBS that Collateralize Outstanding TALF Loans .................................12 12C. Issuers of Legacy CMBS that Collateralize Outstanding TALF Loans .........................................12 13. TALF Collateral by Underlying Loan Type ................................................................................14 14. TALF Collateral by Rating .....................................................................................................14 Lending in Support of Specific Institutions ........................................................................................15 Table 15. Fair Value Asset Coverage ......................................................................................................15 Table 16. Maiden Lane LLC Outstanding Principal Balance of Loans .........................................................15 Table 17. Maiden Lane LLC Summary of Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities .........................................................................................................15 Table 18. Maiden Lane LLC Securities Distribution by Sector and Rating ...................................................16 Figure 2. Maiden Lane LLC Securities Distribution as of September 30, 2009...............................................16 Table 19A. AIG Revolving Credit Facility ..............................................................................................16 Table 19B. Preferred Interests in AIA Aurora LLC and ALICO Holdings LLC .............................................16 Figure 3. AIG Revolving Credit .............................................................................................................18 Table 20. Maiden Lane II LLC Outstanding Principal Balance of Senior Loan and Fixed Deferred Purchase Price .................................................................................................................................19 Table 21. Maiden Lane II LLC Summary of RMBS Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities .........................................................................................................19 Table 22. Maiden Lane II LLC Securities Distribution by Sector and Rating ................................................19 Figure 4. Maiden Lane II LLC Securities Distribution as of September 30, 2009 ...........................................19 Table 23. Maiden Lane III LLC Outstanding Principal Balance of Senior Loan and Equity Contribution ..........20 Table 24. Maiden Lane III LLC Summary of Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities .........................................................................................................20 Table 25. Maiden Lane III LLC Securities Distribution by Sector, Vintage, and Rating ..................................21 Figure 5. Maiden Lane III LLC Securities Distribution as of September 30, 2009 ..........................................21 Federal Reserve Banks’ Financial Tables ...........................................................................................22 Table Table Table Table 26. 27. 28. 29. Federal Reserve Banks’ Combined Statement of Income and Comprehensive Income ......................23 SOMA Financial Summary .....................................................................................................24 Loan Programs Financial Summary ..........................................................................................25 Consolidated Variable Interest Entities Financial Summary ..........................................................25 1 Overview Recent Developments • On February 24, 2010, Chairman Ben Bernanke presented the Federal Reserve’s semiannual Monetary Policy Report to the Congress and discussed the outlook for the economy and monetary policy, as well as several other important issues. In his testimony, Chairman Bernanke stated that the Federal Reserve would welcome a review by the U.S. Government Accountability Office (GAO) of the Federal Reserve’s management of all facilities created to help address the financial crisis under the emergency authority of section 13(3) of the Federal Reserve Act. In particular, the Federal Reserve would support Table 1. Assets, Liabilities, and Capital of the Federal Reserve System Billions of dollars Item Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected assets Securities held outright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury securities1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal agency debt securities1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memo: Term Securities Lending Facility3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memo: Overnight securities lending3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memo: Net commitments to purchase mortgage-backed securities4 . . . . . Current February 24, 2010 Change from January 27, 2010 Change from February 25, 2009 2,290 40 372 1,976 777 167 1,033 0 5 112 66 −* 3 63 0 1 −21 1,394 302 129 964 −111 +* 112 30 15 15 0 −24 −1 −24 0 −518 −51 −433 −25 0 0 −10 Central bank liquidity swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 −* −375 Lending through other credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of Commercial Paper Funding Facility LLC6 . . . . Term Asset-Backed Securities Loan Facility, net . . . . . . . . . . . . . . . . . . . . . . . . 54 8 46 −1 −1 0 −189 −235 46 Support for specific institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit extended to American International Group, Inc., net7 . . . . . . . . . . . . Net portfolio holdings of Maiden Lane LLC8 . . . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of Maiden Lane II LLC8 . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of Maiden Lane III LLC8 . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of TALF LLC9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred interests in AIA Aurora LLC and ALICO Holdings LLC10 . . . . 90 25 27 15 22 * 25 −1 −1 +* 0 −* +* 0 −20 −13 1 −4 −6 +* 25 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected liabilities Federal Reserve notes in circulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits of depository institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury, general account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury, supplementary financing account . . . . . . . . . . . . . . . . . . . . . . . . . . . Other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,236 38 360 892 1,249 13 5 1 14 138 −114 0 1 33 548 −12 −195 −8 Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 1 11 Lending to depository and other financial institutions . . . . . . . . . . . . . . . . . . . . . . Primary, secondary, and seasonal credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Term auction credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Primary dealer and other broker-dealer credit . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Note: Unaudited. Components may not sum to totals because of rounding. * Less than $500 million. 1. Face value. 2. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value, which is the remaining principal balance of the underlying mortgages. Does not include unsettled transactions. 3. Securities loans under the Term Securities Lending Facility and the overnight facility are off-balance-sheet transactions. These loans are shown here as a memo item to indicate the portion of securities held outright that have been lent through these programs. 4. Current face value. These generally settle within 180 days and include commitments associated with outright transactions as well as dollar rolls. 5. Dollar value of the foreign currency held under these agreements valued at the exchange rate to be used when the foreign currency is returned to the foreign central bank. 6. Includes commercial paper holdings, net, and about $5 billion in other investments. 7. Excludes credit extended to Maiden Lane II and III LLCs. 8. Fair value, reflecting values as of December 31, 2009. Fair value reflects an estimate of the price that would be received upon selling an asset if the transaction were to be conducted in an orderly market on the measurement date. Fair values are updated quarterly. 9. As of February 24, 2010, TALF LLC had purchased no assets from the FRBNY. 10. Book value. 2 Credit and Liquidity Programs and the Balance Sheet Figure 1. Credit and Liquidity Programs and the Federal Reserve’s Balance Sheet March 2010 legislation authorizing the GAO to audit the operational integrity, collateral policies, use of third-party contractors, accounting, financial reporting, and internal controls of these special credit and liquidity facilities. The Chairman’s remarks are available on the Federal Reserve’s website at www. federalreserve.gov/newsevents/testimony/ bernanke20100224a.htm. • On March 1, 2010, the American International Group, Inc. (AIG) announced the signing of a definitive agreement for the sale of AIA Group, Limited (AIA), to Prudential plc for approximately $35.5 billion, including approximately $25 billion in cash, $8.5 billion in face value of equity and equity-linked securities, and $2.0 billion in face value of preferred stock of Prudential, subject to closing adjustments. On March 8, 2010, AIG announced the signing of a definitive agreement for the sale of American Life Insurance Company (ALICO) to MetLife, Inc. for approximately $15.5 billion, including $6.8 billion in cash and the remainder in equity securities of MetLife, subject to closing adjustments. AIG stated that the cash portion of the proceeds from each sale will be used to redeem the preferred interests held by the Federal Reserve Bank of New York (FRBNY) in the respective special purpose vehicles (SPVs) established to hold AIA and ALICO. Excess cash proceeds and proceeds from AIG’s efforts to monetize the securities received in each transaction will be used to redeem any outstanding preferred interests and then to repay outstanding amounts borrowed under the revolving credit facility with the FRBNY. AIG intends to monetize the securities received in the transaction over time, subject to market conditions, following the lapse of certain minimum holding periods set forth in the definitive agreements entered into with Prudential and Metlife. • The final Term Auction Facility (TAF) auction was conducted on March 8, 2010; $25 billion in 28-day credit was offered and $3.4 billion was extended at 3 the minimum bid rate of 1⁄2 percent. TAF credit will remain outstanding until April 8, 2010. • On March 8, 2010, the FRBNY announced the beginning of a program to expand its counterparties for conducting reverse repurchase agreement transactions (“reverse repos”). This expansion is intended to enhance the capacity of such operations to drain reserves beyond what could likely be conducted through primary dealers, the FRBNY’s traditional counterparties. This expansion of counterparties for the reverse repo program is a matter of prudent advance planning, and no inference should be drawn about the timing of any prospective monetary policy operation. Further program parameters will be decided and announced at future dates. The FRBNY statement is available online at www.ny.frb.org/markets/rrppolicy/ rrp_operating_policy_100308.html. • The U.S. Treasury announced on February 23, 2010, that the balance in the Supplementary Financing Program (SFP) would increase from its current level of $5 billion to $200 billion. The SFP was initiated in September 2008 as a tool to assist in offsetting the reserve impact of the Federal Reserve’s lending and liquidity initiatives. Increasing the SFP balance will restore the SFP to the level maintained between February and September 2009. The increase will occur across eight weekly $25 billion auctions, each with a 56-day maturity. • Information related to the Federal Reserve’s temporary liquidity programs and facilities that have closed or expired, including the temporary liquidity swap arrangements, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF), has been moved to a newly created Appendix B at the end of this report. 4 Credit and Liquidity Programs and the Balance Sheet System Open Market Account (SOMA) Recent Developments Background • The SOMA portfolio has continued to expand, although the Federal Open Market Committee (FOMC) continues to gradually slow the pace of purchases under the large-scale asset purchase programs (LSAPs) to facilitate a smooth transition in financial markets. • Under the FOMC’s LSAPs, as of February 24, 2010, the Federal Reserve held about $168 billion in agency debt and, in addition, had purchased a total of $1.21 trillion of agency mortgage-backed securities (MBS), of which $1.03 trillion had settled. Purchases of $1.25 trillion of agency MBS and about $175 billion of agency debt are expected to be executed by the end of March 2010. Open market operations (OMOs)—the purchase and sale of securities in the open market by a central bank—are a key tool used by the Federal Reserve in the implementation of monetary policy. Historically, the Federal Reserve has used OMOs to adjust the supply of reserve balances so as to keep the federal funds rate around the target federal funds rate established by the FOMC. OMOs are conducted by the Trading Desk at the FRBNY, which acts as agent for the FOMC. The range of securities that the Federal Reserve is authorized to purchase and sell is relatively limited. The authority to conduct OMOs is granted under Section 14 of the Federal Reserve Act. OMOs can be divided into two types: permanent and temporary. Permanent OMOs are outright purchases or sales of securities for the SOMA, the Federal Reserve’s portfolio. Permanent OMOs have traditionally been used to accommodate the longer-term factors driving the expansion of the Federal Reserve’s balance sheet, principally the trend growth of currency in circulation. More recently, the expansion of SOMA securities holdings has been driven by LSAPs. Temporary OMOs typically are used to address reserve needs that are deemed to be transitory in nature. These operations are either repurchase agreements (repos) or reverse repurchase agreements (reverse repos). Under a repo, the Trading Desk buys a security under an agreement to resell that security in the future; under a reverse repo, the Trading Desk sells a security under an agreement to repurchase that security in the future. A repo is the economic equivalent of a collateralized loan; con- • As of March 2, 2010, the Federal Reserve Bank of New York (FRBNY) began to use its own staff on select days to transact directly in the secondary market for agency MBS as part of the LSAPs, consistent with previously announced plans. • On March 8, 2010, the FRBNY announced the beginning of a program to expand its counterparties for conducting reverse repurchase agreement transactions (“reverse repos”). This expansion is intended to enhance the capacity of such operations to drain reserves beyond what could likely be conducted through primary dealers, the FRBNY’s traditional counterparties. The additional counterparties will not be eligible to participate in transactions conducted by the FRBNY other than reverse repos. Over time, the FRBNY expects that it will modify the counterparty criteria to include a broader set of counterparties and anticipates that it will publish criteria for additional types of firms and for expanded eligibility within previously identified types of firms. In this context, the FRBNY also published the Reverse Repurchase Transaction (RRP) Eligibility Criteria for Money Funds, for the first set of expanded counterparties, domestic money market mutual funds. The FRBNY anticipates publishing a legal Master Repo Agreement for money market mutual funds in April 2010. This expansion of counterparties for the reverse repo program is a matter of prudent advance planning, and no inference should be drawn about the timing of any prospective monetary policy operation. Further program parameters will be decided and announced at future dates. Table 2. System Open Market Account (SOMA) Securities Holdings Billions of dollars, as of February 24, 2010 Security type Total par value U.S. Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury notes and bonds, nominal . . . . . . . . . . . . . . U.S. Treasury notes and bonds, inflation-indexed1 . . . . . Federal agency debt securities2 . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities3 . . . . . . . . . . . . . . . . . . . . . . . . . . . Total SOMA securities holdings . . . . . . . . . . . . . . . . . . . . . 18 709 49 167 1,033 1,976 Note: Unaudited. Components may not sum to total because of rounding. Does not include investments denominated in foreign currencies or unsettled transactions. 1. Includes inflation compensation. 2. Direct obligations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. 3. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the remaining principal balance of the underlying mortgages. March 2010 versely, a reverse repo is the economic equivalent of collateralized borrowing. In both types of transactions, the difference between the purchase and sale prices reflects the interest on the loan or borrowing. The composition of the SOMA is shown in table 2. Each OMO affects the Federal Reserve’s balance sheet; the size and nature of the effect depend on the specifics of the operation. The Federal Reserve publishes its balance sheet each week in the H.4.1 statistical release, “Factors Affecting Reserve Balances of Depository Institutions and Consolidated Statement of Condition of Reserve Banks” (www.federalreserve.gov/ releases/h41). The release separately reports securities held outright, repos, and reverse repos. To help reduce the cost and increase the availability of credit for the purchase of houses, on November 25, 2008, the Federal Reserve announced that it would buy direct obligations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, and MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. The FOMC authorized purchases of up to $1.25 trillion of agency MBS and up to $200 billion of agency direct obligations. Subsequently, in November 2009, the FOMC announced that agency debt purchases would be about $175 billion. This amount, while somewhat less than the previously announced maximum of $200 billion, was consistent with the path of purchases and reflected the limited availability of agency debt. The Federal Reserve determined that supporting the MBS “dollar roll” market promotes the goals of the MBS purchase program. Dollar roll transactions, which consist of a purchase or sale of securities combined with an agreement to sell or purchase securities in the future, provide short-term financing to the MBS market. Because of principal and interest payments and occasional delays in the settlement of transactions, the Federal Reserve also holds some cash associated with the MBS purchase program. The FRBNY announced in August 2009 that it would streamline the set of external investment managers for the agency-guaranteed MBS purchase program, reducing the number of investment managers from four to two. As of March 2, 2010, the FRBNY began to use its own staff on select days to transact directly in the secondary market for agency MBS as part of the FOMC’s LSAP, consistent with the announcement of November 2009. These changes were not performancerelated: the FRBNY had anticipated that it would adjust its use of external investment managers as it gained more experience with the program. In September 2009, the Federal Reserve began to purchase on-the-run agency securities—the most recently issued securities—in order to mitigate market 5 dislocations and promote overall market functioning. Prior to this change, purchases were focused on offthe-run agency securities. On September 23, 2009, the FOMC announced its intention to gradually slow the pace of its purchases of agency-guaranteed MBS and agency debt. In implementing this directive, the Trading Desk of the FRBNY announced that it would scale back the average weekly purchase amounts of agency MBS and reduce the size and frequency of agency debt purchases. The FOMC anticipates that these transactions will be executed by the end of the first quarter of 2010. The Federal Reserve’s outright holdings of MBS are reported weekly in tables 1, 3, 10, and 11 of the H.4.1 statistical release. In addition, detailed data on all settled agency MBS holdings are published weekly on the FRBNY website (www.newyorkfed.org/markets/ soma/sysopen_accholdings.html). In March 2009, the FOMC announced that it would also purchase up to $300 billion of longer-term Treasury securities to help improve conditions in private credit markets. The Federal Reserve has purchased a range of securities across the maturity spectrum, including Treasury Inflation-Protected Securities (TIPS). The bulk of purchases have been in intermediate maturities. In August 2009, the FOMC announced that it decided to gradually slow the pace of these transactions in order to promote a smooth transition in markets as purchases of these Treasury securities are completed. The FOMC anticipated that the purchases would be completed by the end of October; the purchases were completed as planned. In addition, the Federal Reserve has long operated an overnight securities lending facility as a vehicle to address market pressures for specific Treasury securities. Since July 9, 2009, this facility has lent housingrelated government-sponsored enterprise (GSE) securities that are particularly sought after. Amounts outstanding under that program are reported in table 1A of the H.4.1 statistical release. In December 2009, the FRBNY conducted a set of small-scale, real-value, triparty reverse repurchase transactions with primary dealers. Reverse repurchase agreements are a tool that could be used to support a reduction in monetary accommodation at the appropriate time. These transactions were conducted to ensure operational readiness at the Federal Reserve, the major clearing banks, and the primary dealers, and had no material impact on the availability of reserves or on market rates. On January, 11, 2010, the FRBNY published a revised policy regarding the administration of its relationships with primary dealers intended to provide 6 greater transparency about the significant business standards expected of primary dealers and to offer clearer guidance on the process to become a primary dealer. Substantive changes from the previous policy included: a more structured presentation of the business standards expected of a primary dealer; a more formal application process for prospective primary Credit and Liquidity Programs and the Balance Sheet dealers; an increase in the minimum net capital requirement, from $50 million to $150 million; a seasoning requirement of one year of relevant operations before a prospective dealer may submit an application; and a clear notice of actions the FRBNY may take against a noncompliant primary dealer. 7 March 2010 Lending Facilities to Support Overall Market Liquidity Lending to Depository Institutions Table 4. Concentration of Discount Window Credit Outstanding to Depository Institutions Recent Developments For four weeks ending February 24, 2010 • Credit provided to depository institutions through the discount window and the Term Auction Facility (TAF) has continued to decline, primarily reflecting reductions in loans outstanding under the TAF. Since October 5, 2008, TAF auctions have been undersubscribed and the auction rate has remained equal to the minimum bid rate. The final TAF auction was conducted on March 8, 2010; $25 billion in 28-day credit was offered and $3.4 billion was extended at the minimum bid rate of 1⁄2 percent. TAF credit will remain outstanding until April 8, 2010. • As previously announced, the typical maximum maturity of primary credit loans was shortened to overnight, effective March 18, 2010. • As indicated in table 5, total collateral pledged by depository institutions with discount window loans outstanding on February 24, 2010, was $69 billion, more than twice the amount of credit outstanding. Background The discount window helps to relieve liquidity strains for individual depository institutions and for the banking system as a whole by providing a source of funding in times of need. Much of the statutory framework that governs lending to depository institutions is contained in Section 10B of the Federal Reserve Act, as amended. The general policies that govern discount Table 3. Discount Window Credit Outstanding to Depository Institutions Daily average borrowing for each class of borrower over four weeks ending February 24, 2010 Type and size of borrower Commercial banks3 Assets: more than $50 billion . . . . . . . . . . . Assets: $5 billion to $50 billion . . . . . . . . . Assets: $250 million to $5 billion . . . . . . . Assets: less than $250 million . . . . . . . . . . . Thrift institutions and credit unions . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average number of borrowers1 Average borrowing ($ billions)2 3 16 77 59 24 178 5 29 6 * 2 42 Note: Unaudited. Includes primary, secondary, seasonal, and TAF credit. Size categories based on total domestic assets from Call Report data as of December 31, 2009. Components may not sum to totals because of rounding. * Less than $500 million. 1. Average daily number of depository institutions with credit outstanding. Over this period, a total of 311 institutions borrowed. 2. Average daily borrowing by all depositories in each category. 3. Includes branches and agencies of foreign banks. Rank by amount of borrowing Number of borrowers Daily average borrowing ($ billions) Top five . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Next five . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 168 178 24 6 12 42 Note: Unaudited. Amount of primary, secondary, seasonal, and TAF credit extended to the top five and next five borrowers on each day, as ranked by daily average borrowing. Components may not sum to totals because of rounding. window lending are set forth in the Federal Reserve Board’s Regulation A. Depository institutions have, since 2003, had access to three types of discount window credit—primary credit, secondary credit, and seasonal credit. Primary credit is available to depository institutions in generally sound financial condition with few administrative requirements. Secondary credit may be provided to depository institutions that do not qualify for primary credit, subject to review by the lending Reserve Bank. Seasonal credit provides short-term funds to smaller depository institutions that experience regular seasonal swings in loans and deposits. On August 17, 2007, in order to promote orderly market functioning, the Federal Reserve narrowed the spread between the primary credit rate (generally referred to as the discount rate) and the Federal Open Market Committee’s (FOMC’s) target federal funds rate to 50 basis points and began to allow the provision of primary credit for terms as long as 30 days. On March 16, 2008, the Federal Reserve further narrowed the spread between the primary credit rate and the target federal funds rate to 25 basis points, and increased the maximum maturity of primary credit loans to 90 days. On November 17, 2009, in response to improved financial conditions, the Federal Reserve announced that the maximum maturity on primary credit loans would be reduced to 28 days effective January 14, 2010. On February 18, 2010, the Federal Reserve increased the spread between the primary credit rate and the top of the target range for the federal funds rate to 50 basis points, effective February 19, 2010. The Federal Reserve also announced that, effective March 18, 2010, the typical maximum maturity of primary credit loans would be shortened to overnight. These changes represented further normalization of the 8 Credit and Liquidity Programs and the Balance Sheet Federal Reserve’s lending facilities and did not signal any change in the outlook for the economy or for monetary policy. In December 2007, the Federal Reserve introduced the TAF, which provides credit through an auction mechanism to depository institutions in generally sound financial condition. All regular discount window loans and TAF loans must be fully collateralized to the satisfaction of the lending Reserve Bank, with an appropriate “haircut” applied to the value of the collateral. On September 24, 2009, the Federal Reserve announced that the TAF would be scaled back in response to continued improvements in financial market conditions. The auction amount for the 84-day auctions was reduced in late 2009 and the maturity dates of the 84-day auctions were adjusted over time to align with the maturity dates of the 28-day auctions. Subsequently, the auction amount for the remaining 28-day auctions was tapered, and the final TAF auction was held on March 8, 2010. In extending credit to depository institutions, the Federal Reserve closely monitors the financial condition of borrowers. Monitoring the financial condition of depository institutions is a four-step process designed to minimize the risk of loss to the Federal Reserve posed by weak or failing depository institutions. The first step is monitoring, on an ongoing basis, the safety and soundness of all depository institutions that access or may access the discount window and the payment services provided by the Federal Reserve. The second step is identifying institutions whose condition, characteristics, or affiliation would present higher-thanacceptable risk to the Federal Reserve in the absence Table 5. Lendable Value of Collateral Pledged by Borrowing Depository Institutions Billions of dollars, as of February 24, 2010 Type of collateral Loans Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities U.S. Treasury/agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Municipal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate market instruments . . . . . . . . . . . . . . . . . . . . . . . MBS/CMO: agency-guaranteed . . . . . . . . . . . . . . . . . . . . . MBS/CMO: other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset-backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International (sovereign, agency, municipal, and corporate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lendable value 9 4 5 10 1 6 6 4 2 14 6 69 Note: Unaudited. Collateral pledged by borrowers of primary, secondary, seasonal, and TAF credit as of the date shown. Total primary, secondary, seasonal, and TAF credit on this date was $30 billion. The lendable value of collateral pledged by all depository institutions, including those without any outstanding loans, was $1,252 billion. Lendable value is value after application of appropriate haircuts. Components may not sum to total because of rounding. Table 6. Lendable Value of Securities Pledged by Depository Institutions by Rating Billions of dollars, as of February 24, 2010 Type of security and rating Lendable value U.S. Treasury, agency, and agency-guaranteed securities . Other securities AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa/AA1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Baa/BBB3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investment-grade4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 185 40 47 22 47 498 Note: Unaudited. Lendable value for all institutions that have pledged collateral, including those that were not borrowing on the date shown. Lendable value is value after application of appropriate haircuts. Components may not sum to total because of rounding. 1. Includes short-term securities with A-1+ or F1+ rating or MIG 1 or SP-1+ municipal bond rating. 2. Includes short-term securities with A-1 rating or SP-1 municipal bond rating. 3. Includes short-term securities with A-2, P-2, A-3, or P-3 rating. 4. Determined based on a credit review by a Reserve Bank. of controls on their access to Federal Reserve lending facilities and other Federal Reserve services. The third step is communicating—to staff within the Federal Reserve System and to other supervisory agencies, if and when necessary—relevant information about those institutions identified as posing higher risk. The fourth step is implementing appropriate measures to mitigate the risks posed by such entities. At the heart of the condition monitoring process is an internal rating system that provides a framework for identifying institutions that may pose undue risks to the Federal Reserve. The rating system relies mostly on information from each institution’s primary supervisor, including CAMELS ratings, to identify potentially problematic institutions and classify them according to the severity of the risk they pose to the Federal Reserve.1 Having identified institutions that pose a higher risk, the Federal Reserve then puts in place a standard set of risk controls that become increasingly stringent as the risk posed by an institution grows; individual Reserve Banks may implement additional risk controls to further mitigate risk if they deem it necessary. Collateral All extensions of discount window credit by the Federal Reserve must be secured to the satisfaction of the lending Reserve Bank by “acceptable collateral.” Assets accepted as collateral are assigned a lendable value deemed appropriate by the Reserve Bank; lendable value is determined as the market price of the 1. CAMELS is a rating system employed by banking regulators to assess the soundness of depository institutions. CAMELS is an acronym that stands for Capital, Assets, Management, Earnings, Liquidity, and Sensitivity. 9 March 2010 asset, less a haircut. When a market price is not available, a haircut may be applied to the outstanding balance or a valuation based on an asset’s cash flow. Haircuts reflect credit risk and, for traded assets, the historical volatility of the asset’s price and the liquidity of the market in which the asset is traded; the Federal Reserve’s haircuts are generally in line with typical market practice. The Federal Reserve applies larger haircuts, and thus assigns lower lendable values, to assets for which no market price is available relative to comparable assets for which a market price is available. A borrower may be required to pledge additional collateral if its financial condition weakens. Collateral is pledged under the terms and conditions specified in the Federal Reserve Banks’ standard lending agreement, Operating Circular No. 10 (www.frbservices.org/ files/regulations/pdf/operating_circular_10.pdf). Discount window loans and extensions of credit through the TAF are made with recourse to the borrower beyond the pledged collateral. Nonetheless, collateral plays an important role in mitigating the credit risk associated with these extensions of credit. The Federal Reserve generally accepts as collateral for discount window loans and TAF credit any assets that meet regulatory standards for sound asset quality. This category of assets includes most performing loans and most investment-grade securities, although for some types of securities (including commercial mortgagebacked securities, collateralized debt obligations, collateralized loan obligations, and certain non-dollardenominated foreign securities) only AAA-rated securities are accepted. An institution may not pledge as collateral any instruments that the institution or its affiliates have issued. Additional collateral is required for discount window and TAF loans with remaining maturity of more than 28 days—for these loans, borrowing only up to 75 percent of available collateral is permitted. To ensure that they can borrow from the Federal Reserve should the need arise, many depository institutions that do not have an outstanding discount window or TAF loan nevertheless routinely pledge collateral. Changes to the lending margins on discount window collateral took effect on October 19, 2009. The Federal Reserve periodically reviews its collateral valuation practices, and the new collateral margins reflect the results of a broad-based review, which began before the financial crisis, of methodology and data sources. For more information on these changes to collateral margins, refer to the Discount Window and Payments System Risk public website (www.frbdiscountwindow.org). Table 7. Discount Window Credit Outstanding to Borrowing Depository Institutions—Percent of Collateral Used As of February 24, 2010 Percent of collateral used Number of borrowers Total borrowing ($ billions) Over 0 and under 25 . . . . . . . . . . . . . . . . . . . . . . . 25 to 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 to 75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 to 90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 54 25 15 9 161 3 8 2 16 2 30 Note: Unaudited. Components may not sum to totals because of rounding. As shown in table 7, depository institutions that borrow from the Federal Reserve generally maintain collateral in excess of their current borrowing levels. Commercial Paper Funding Facility (CPFF) Recent Developments • The Federal Reserve closed the CPFF on February 1, 2010. CPFF LLC will retain its existing commercial paper holdings until April 2010, when the remaining commercial paper will mature; the LLC’s other assets will remain until the LLC is dissolved. Background The CPFF, which was authorized under Section 13(3) of the Federal Reserve Act, was designed to support liquidity in the commercial paper markets. The CPFF provided a liquidity backstop to U.S. issuers of commercial paper through a specially created limited liability company (LLC) called CPFF LLC. This LLC purchased three-month unsecured and asset-backed commercial paper directly from eligible issuers. The FRBNY provides financing to the LLC, and the FRBNY’s loan to the LLC is secured by all of the assets of the LLC, including those purchased with the accumulated upfront fees paid by the issuers. Breakdowns of commercial paper held in CPFF LLC, by type and credit rating, are shown in tables 9 and 10, respectively. The CPFF was announced on October 7, 2008, and purchases of commercial paper began on October 27, Table 8. Concentration of CPFF Issuers For four weeks ending February 24, 2010 Rank by amount of commercial paper Number of borrowers Daily average borrowing ($ billions) All Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 3 3 Note: Unaudited. Amount of commercial paper held in the CPFF that was issued by issuers on each day. Components may not sum to totals because of rounding. 10 Credit and Liquidity Programs and the Balance Sheet Table 9. CPFF Commercial Paper Holdings by Type Billions of dollars, as of February 24, 2010 Table 11. TALF: Number of Borrowers and Loans Outstanding As of February 24, 2010 Type of commercial paper Value Unsecured commercial paper Issued by financial firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issued by nonfinancial firms . . . . . . . . . . . . . . . . . . . . . . . . Asset-backed commercial paper . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 3 3 Note: Unaudited. Components may not sum to total because of rounding; does not include $5 billion of other investments. Lending program Number of borrowers Borrowing ($ billions) Non-CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 82 146 37 9 46 Note: Unaudited. “Number of borrowers” may not sum to total because borrowers may be included in more than one category. “Borrowing” amounts may not sum to total because of rounding. Table 10. CPFF Commercial Paper Holdings by Rating Billions of dollars, as of February 24, 2010 Type of collateral Value Commercial paper with rating1 A-1/P-1/F1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Split-rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Downgraded after purchase . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0 0 3 Note: Unaudited. Components may not sum to total because of rounding; does not include $5 billion of other investments. 1. The CPFF purchases only U.S. dollar-denominated commercial paper (including asset-backed commercial paper) that is rated at least A-1/P-1/F1 by Moody’s, S&P, or Fitch and, if rated by more than one of these rating organizations, is rated at least A-1/P-1/F1 by two or more. “Split-rated” is acceptable commercial paper that has received an A-1/ P-1/F1 rating from two rating organizations and a lower rating from a third rating organization. When pledged commercial paper is downgraded below split-rated after purchase, the facility holds such paper to maturity. 2008. This program is administered by the FRBNY, and the assets and liabilities of the LLC are consolidated onto the balance sheet of the FRBNY. The net assets of the LLC are shown in tables 1, 10, and 11 of the weekly H.4.1 statistical release, and primary accounts of the LLC are presented in table 7 of the H.4.1 statistical release. The CPFF was closed on February 1, 2010. CPFF LLC will retain its existing commercial paper holdings until April 2010, when the remaining commercial paper will mature, and the LLC’s other assets will remain until the LLC is dissolved. Term Asset-Backed Securities Loan Facility (TALF) Recent Developments • In the January 2010 commercial mortgage-backed securities (CMBS) TALF subscription, which settled on January 28, 2010, a total of $1.3 billion in TALF loans was extended against legacy CMBS collateral. • The February 2010 non-CMBS TALF subscription supported the primary issuance of eight asset-backed securities (ABS) deals worth a total of about $4.2 billion, of which $735 million was financed through the TALF. Approximately $239 million in loans was also extended against previously issued TALFeligible ABS collateral. Background On November 25, 2008, the Federal Reserve announced the creation of the TALF under the authority of Section 13(3) of the Federal Reserve Act. The TALF is a funding facility under which the FRBNY extends credit with a term of up to five years to holders of eligible ABS. The TALF is intended to assist financial markets in accommodating the credit needs of consumers and businesses of all sizes by facilitating the issuance of ABS collateralized by a variety of consumer and business loans; it is also intended to improve market conditions for ABS more generally. Eligible collateral initially included U.S. dollardenominated ABS that (1) are backed by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA) and (2) have a credit rating in the highest investment-grade rating category from two or more eligible nationally recognized statistical rating organizations (NRSROs) and do not have a credit rating below the highest investmentgrade rating category from an eligible NRSRO. The loans provided through the TALF are non-recourse, meaning that the obligation of the borrower can be discharged by surrendering the collateral to the FRBNY. Borrowers commit their own risk capital in the form of haircuts against the collateral, which serve as the borrower’s equity in the transaction and act as a buffer to absorb any decline in the collateral’s value in the event the loan is not repaid. Using funds authorized under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008, the U.S. Treasury has committed to lend up to $20 billion to TALF LLC to provide protection against losses to the FRBNY. On February 10, 2009, the Federal Reserve Board announced that it would consider expanding the size of the TALF to as much as $1 trillion and potentially broaden the eligible collateral to encompass other types of newly issued AAA-rated ABS, such as ABS backed by commercial mortgages or private-label (nonagency) ABS backed by residential mortgages. Any expansion of the TALF would be supported by the 11 March 2010 Treasury’s providing additional funds from the TARP. As of February 24, 2010, however, the authorized limit for the program remained at $200 billion. Between March and May 2009, the Federal Reserve expanded the range of eligible collateral for TALF loans to include: — ABS backed by loans or leases related to business equipment, leases of vehicle fleets, floorplan loans, mortgage servicing advances, and insurance premium finance loans; and — newly issued commercial mortgage-backed securities (CMBS) and certain high-quality CMBS issued before January 1, 2009 (so-called “legacy” CMBS). High-quality newly issued and legacy CMBS must have at least two AAA ratings from a list of eligible NRSROs—DBRS, Inc.; Fitch Ratings; Moody’s Investors Service; Realpoint; or Standard & Poor’s—and must not have a rating below AAA from any of these rating agencies. The Federal Reserve also authorized TALF loans with maturities of five years, available for the June 2009 funding, to finance purchases of CMBS, ABS backed by student loans, and ABS backed by loans guaranteed by the SBA. The Federal Reserve indicated that up to $100 billion of TALF loans could have fiveyear maturities and that some of the interest on collateral financed with a five-year loan may be diverted toward an accelerated repayment of the loan, especially in the fourth and fifth years. On September 1, 2009, the following four nonprimary dealer broker-dealers were named as agents for the TALF: CastleOak Securities, LP; Loop Capital Markets, LLC; Wells Fargo Securities, LLC; and The Williams Capital Group, LP. These agents, like the primary dealers, may represent borrowers in accessing the facility. On October 5, 2009, the Federal Reserve announced two changes to the procedures for evaluating ABS pledged to the TALF. The first change was to propose a rule that would establish criteria for the FRBNY to use when determining which NRSROs’ ratings are accepted for establishing the eligibility of ABS to be pledged as collateral to the TALF. The proposed rule was intended to strike a balance between the goal of promoting competition among NRSROs and the goal of ensuring appropriate protection against credit risk in TALF for the U.S. taxpayer. The Board’s rule regarding NRSROs does not apply to discount window lending or to other extensions of credit provided by the Federal Reserve System. The rule establishing the process for approving NRSROs was finalized on Decem- ber 4, 2009. The second change was the implementation by the FRBNY of a formal risk assessment of all proposed collateral for TALF ABS transactions, in addition to continuing to require that collateral for TALF loans receive two AAA ratings from TALFeligible NRSROs. This was intended to protect against TALF accepting excessive risk, as well as addressing any increased credit risk in the program caused by an expansion of the set of NRSROs accepted at TALF. The goal of the risk assessment process for ABS is to ensure that TALF collateral continues to comply with the existing high standards for credit quality, transparency, and simplicity of structure. In accordance with the Board’s rule, the FRBNY announced that the credit ratings of four NRSROs— DBRS, Inc.; Fitch Ratings; Moody’s Investors Service; and Standard & Poor’s—would be accepted for establishing the eligibility of selected types of nonmortgage-backed ABS as collateral for the TALF. These NRSROs’ ratings were accepted beginning with the TALF’s February 2010 non-mortgage-backed ABS subscription. The Federal Reserve Board initially authorized the offering of new TALF loans through December 31, 2009, but subsequently authorized an extension of the program until March 31, 2010, for loans against newly issued ABS and legacy CMBS, and until June 30, 2010, for loans against newly issued CMBS. Collateral and Risk Management Under the TALF, the FRBNY lends on a non-recourse basis to holders of certain ABS backed by consumer, business, and commercial mortgage loans. Eligible collateral for the TALF includes U.S. dollar-denominated ABS that (1) have a credit rating in the highest longterm or, in the case of non-mortgage-backed ABS, the highest short-term investment-grade rating category (for example, AAA) from at least two eligible NRSROs and (2) do not have a credit rating below the highest investment-grade rating category from an eligible NRSRO. Eligible small-business-loan ABS also include U.S. dollar-denominated cash ABS for which all of the underlying credit exposures are fully guaranteed as to principal and interest by the full faith and credit of the U.S. government. All or substantially all of the credit exposures underlying eligible ABS must be exposures to U.S.-domiciled obligors or with respect to real property located in the United States or its territories. The underlying credit exposures of eligible ABS must be student loans, auto loans, credit card loans, loans or leases relating to business equipment, leases of vehicle fleets, floorplan loans, mortgage servicing advances, insurance premium finance loans, 12 Credit and Liquidity Programs and the Balance Sheet Table 12A. Issuers of Non-CMBS that Collateralize Outstanding TALF Loans Table 12C. Issuers of Legacy CMBS that Collateralize Outstanding TALF Loans As of February 24, 2010 As of February 24, 2010 Issuers AH Mortgage Advance Trust 2009-ADV2 AH Mortgage Advance Trust 2009-ADV3 Ally Auto Receivables Trust 2009-A Ally Master Owner Trust American Express Credit Account Master Trust AmeriCredit Automobile Receivables Trust 2009-1 ARI Fleet Lease Trust 2010-A Bank of America Auto Trust 2009-1 BMW Floorplan Master Owner Trust BMW Vehicle Lease Trust 2009-1 Cabela’s Credit Card Master Note Trust CarMax Auto Owner Trust 2009-1 CarMax Auto Owner Trust 2009-A Chase Issuance Trust Chesapeake Funding LLC Chrysler Financial Auto Securitization Trust 2009-A CIT Equipment Collateral 2009-VT1 Citibank Credit Card Issuance Trust Citibank Omni Master Trust CitiFinancial Auto Issuance Trust 2009-1 CNH Equipment Trust 2009-B CNH Wholesale Master Note Trust Discover Card Execution Note Trust FIFC Premium Funding LLC First National Master Note Trust Ford Credit Auto Lease Trust 2009-A Ford Credit Auto Owner Trust 2009-A Ford Credit Auto Owner Trust 2009-B Ford Credit Auto Owner Trust 2009-C Ford Credit Floorplan Master Owner Trust A GE Capital Credit Card Master Note Trust GE Dealer Floorplan Master Note Trust GE Equipment Midticket LLC, Series 2009-1 Great America Leasing Receivables Funding, L.L.C. Harley-Davidson Motorcycle Trust 2009-1 Harley-Davidson Motorcycle Trust 2009-2 Honda Auto Receivables 2009-2 Owner Trust Honda Auto Receivables 2009-3 Owner Trust Huntington Auto Trust 2009-1 Hyundai Auto Receivables Trust 2009-A Hyundai Floorplan Master Owner Trust John Deere Owner Trust 2009 Marlin Leasing Receivables XII LLC MMAF Equipment Finance LLC 2009-A MMCA Auto Owner Trust 2009-A Navistar Financial Dealer Note Master Owner Trust Nissan Auto Lease Trust 2009-A Nissan Auto Receivables 2009-A Owner Trust OCWEN Servicer Advance Receivables Funding Company II LTD. PFS Financing Corp. SLC Private Student Loan Trust 2009-A SLM Private Education Loan Trust 2009-B SLM Private Education Loan Trust 2009-C SLM Private Education Loan Trust 2009-CT SLM Private Education Loan Trust 2009-D U.S. Small Business Administration Volkswagen Auto Lease Trust 2009-A WHEELS SPV, LLC World Financial Network Credit Card Master Note Trust World Omni Auto Receivables Trust 2009-A World Omni Master Owner Trust Table 12B. Issuers of Newly Issued CMBS that Collateralize Outstanding TALF Loans As of February 24, 2010 Issuers1 1. There are currently no outstanding TALF loans collateralized with newly issued CMBS. Issuers Banc of America Commercial Mortgage Inc. Series 2004-1 Banc of America Commercial Mortgage Inc. Series 2004-2 Banc of America Commercial Mortgage Inc. Series 2004-3 Banc of America Commercial Mortgage Inc. Series 2004-4 Banc of America Commercial Mortgage Inc. Series 2005-1 Banc of America Commercial Mortgage Inc. Series 2005-2 Banc of America Commercial Mortgage Inc. Series 2005-3 Banc of America Commercial Mortgage Inc. Series 2005-5 Banc of America Commercial Mortgage Inc. Series 2005-6 Banc of America Commercial Mortgage Trust 2006-1 Banc of America Commercial Mortgage Trust 2006-2 Banc of America Commercial Mortgage Trust 2006-4 Banc of America Commercial Mortgage Trust 2006-5 Banc of America Commercial Mortgage Trust 2006-6 Banc of America Commercial Mortgage Trust 2007-1 Banc of America Commercial Mortgage Trust 2007-2 Banc of America Commercial Mortgage Trust 2007-3 Banc of America Commercial Mortgage Trust 2007-4 Banc of America Commercial Mortgage Trust 2007-5 Bear Stearns Commercial Mortgage Securities Trust 2004-PWR4 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR7 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR8 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR9 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR10 Bear Stearns Commercial Mortgage Securities Trust 2005-TOP20 Bear Stearns Commercial Mortgage Securities Trust 2006-PWR12 Bear Stearns Commercial Mortgage Securities Trust 2006-PWR13 Bear Stearns Commercial Mortgage Securities Trust 2006-PWR14 Bear Stearns Commercial Mortgage Securities Trust 2006-TOP22 Bear Stearns Commercial Mortgage Securities Trust 2006-TOP24 Bear Stearns Commercial Mortgage Securities Trust 2007-PWR15 Bear Stearns Commercial Mortgage Securities Trust 2007-PWR16 Bear Stearns Commercial Mortgage Securities Trust 2007-PWR17 Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18 Bear Stearns Commercial Mortgage Securities Trust 2007-TOP26 Bear Stearns Commercial Mortgage Securities Trust 2007-TOP28 CD 2005-CD1 Commercial Mortgage Trust CD 2006-CD2 Mortgage Trust CD 2006-CD3 Mortgage Trust CD 2007-CD4 Commercial Mortgage Trust CD 2007-CD5 Mortgage Trust Citigroup Commercial Mortgage Trust 2004-C1 Citigroup Commercial Mortgage Trust 2006-C4 Citigroup Commercial Mortgage Trust 2008-C7 COBALT CMBS Commercial Mortgage Trust 2006-C1 COBALT CMBS Commercial Mortgage Trust 2007-C2 COBALT CMBS Commercial Mortgage Trust 2007-C3 COMM 2004-LNB2 Mortgage Trust COMM 2005-C6 Mortgage Trust COMM 2005-LP5 Mortgage Trust COMM 2006-C7 Mortgage Trust COMM 2006-C8 Mortgage Trust Commercial Mortgage Loan Trust 2008-LS1 Commercial Mortgage Trust 2004-GG1 Commercial Mortgage Trust 2005-GG3 Commercial Mortgage Trust 2005-GG5 Commercial Mortgage Trust 2006-GG7 Commercial Mortgage Trust 2007-GG9 Credit Suisse Commercial Mortgage Trust Series 2006-C1 Credit Suisse Commercial Mortgage Trust Series 2006-C2 Credit Suisse Commercial Mortgage Trust Series 2006-C3 Credit Suisse Commercial Mortgage Trust Series 2006-C4 Credit Suisse Commercial Mortgage Trust Series 2006-C5 Credit Suisse Commercial Mortgage Trust Series 2007-C2 Credit Suisse Commercial Mortgage Trust Series 2007-C3 Credit Suisse Commercial Mortgage Trust Series 2007-C5 CSFB Commercial Mortgage Trust 2004-C1 CSFB Commercial Mortgage Trust 2004-C3 CSFB Commercial Mortgage Trust 2005-C1 CSFB Commercial Mortgage Trust 2005-C2 CSFB Commercial Mortgage Trust 2005-C3 CSFB Commercial Mortgage Trust 2005-C4 CSFB Commercial Mortgage Trust 2005-C5 CSFB Commercial Mortgage Trust 2005-C6 GE Commercial Mortgage Corporation Series 2004-C3 13 March 2010 Table 12C. Issuers of Legacy CMBS that Collateralize Outstanding TALF Loans—Continued Table 12C. Issuers of Legacy CMBS that Collateralize Outstanding TALF Loans—Continued As of February 24, 2010 As of February 24, 2010 Issuers GE Commercial Mortgage Corporation Series 2005-C1 GE Commercial Mortgage Corporation Series 2005-C4 GE Commercial Mortgage Corporation, Series 2007-C1 Trust GMAC Commercial Mortgage Securities, Inc. Series 2004-C3 Trust GMAC Commercial Mortgage Securities, Inc. Series 2006-C1 Trust GS Mortgage Securities Corporation II Series 2004-GG2 GS Mortgage Securities Corporation II Series 2005-GG4 GS Mortgage Securities Trust 2006-GG6 GS Mortgage Securities Trust 2006-GG8 GS Mortgage Securities Trust 2007-GG10 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2003-CIBC7 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-C1 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-C2 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-C3 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-CIBC8 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-CIBC10 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-PNC1 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-CIBC11 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-CIBC13 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP1 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP2 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP3 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP4 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP5 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-CIBC14 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-CIBC15 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-CIBC16 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-CIBC17 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-LDP6 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-LDP8 J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-LDP9 J.P. Morgan Chase Commercial Mortgage Securities Trust 2007-LDP11 J.P. Morgan Chase Commercial Mortgage Securities Trust 2007-LDP12 LB Commercial Mortgage Trust 2007-C3 LB-UBS Commercial Mortgage Trust 2004-C1 LB-UBS Commercial Mortgage Trust 2004-C2 LB-UBS Commercial Mortgage Trust 2004-C4 LB-UBS Commercial Mortgage Trust 2004-C7 LB-UBS Commercial Mortgage Trust 2005-C2 LB-UBS Commercial Mortgage Trust 2005-C3 LB-UBS Commercial Mortgage Trust 2006-C1 LB-UBS Commercial Mortgage Trust 2006-C3 LB-UBS Commercial Mortgage Trust 2006-C6 LB-UBS Commercial Mortgage Trust 2006-C7 LB-UBS Commercial Mortgage Trust 2007-C1 LB-UBS Commercial Mortgage Trust 2007-C2 LB-UBS Commercial Mortgage Trust 2007-C6 LB-UBS Commercial Mortgage Trust 2007-C7 LB-UBS Commercial Mortgage Trust 2008-C1 Merrill Lynch Mortgage Trust 2004-KEY2 Merrill Lynch Mortgage Trust 2005-CIP1 Merrill Lynch Mortgage Trust 2005-LC1 Merrill Lynch Mortgage Trust 2005-MKB2 Merrill Lynch Mortgage Trust 2006-C1 ML-CFC Commercial Mortgage Trust 2006-1 ML-CFC Commercial Mortgage Trust 2006-2 ML-CFC Commercial Mortgage Trust 2006-3 ML-CFC Commercial Mortgage Trust 2006-4 ML-CFC Commercial Mortgage Trust 2007-5 ML-CFC Commercial Mortgage Trust 2007-6 ML-CFC Commercial Mortgage Trust 2007-7 ML-CFC Commercial Mortgage Trust 2007-9 Issuers Morgan Stanley Capital I Trust 2003-IQ4 Morgan Stanley Capital I Trust 2004-TOP13 Morgan Stanley Capital I Trust 2005-HQ5 Morgan Stanley Capital I Trust 2005-HQ6 Morgan Stanley Capital I Trust 2005-HQ7 Morgan Stanley Capital I Trust 2005-IQ9 Morgan Stanley Capital I Trust 2006-HQ8 Morgan Stanley Capital I Trust 2006-HQ10 Morgan Stanley Capital I Trust 2006-IQ11 Morgan Stanley Capital I Trust 2006-IQ12 Morgan Stanley Capital I Trust 2006-TOP21 Morgan Stanley Capital I Trust 2006-TOP23 Morgan Stanley Capital I Trust 2007-HQ11 Morgan Stanley Capital I Trust 2007-IQ14 Morgan Stanley Capital I Trust 2007-IQ15 Morgan Stanley Capital I Trust 2007-TOP27 Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Wachovia Bank Commercial Mortgage Trust Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series 2002-C1 2003-C9 2004-C12 2004-C14 2005-C16 2005-C17 2005-C18 2005-C19 2005-C20 2005-C22 2006-C23 2006-C24 2006-C25 2006-C26 2006-C27 2006-C28 2006-C29 2007-C30 2007-C31 2007-C32 2007-C33 2007-C34 commercial mortgages, or loans guaranteed by the SBA. Except for ABS for which the underlying credit exposures are SBA-guaranteed loans, eligible newly issued ABS must be issued on or after January 1, 2009. Eligible legacy CMBS must be issued before January 1, 2009, must be senior in payment priority to all other interests in the underlying pool of commercial mortgages, and must meet certain other criteria designed to protect the Federal Reserve and the Treasury from credit risk. In almost all cases, eligible collateral for a particular borrower must not be backed by loans originated or securitized by the borrower or by an affiliate of the borrower. The FRBNY’s loan is secured by the ABS collateral, with the FRBNY lending an amount equal to the market value of the ABS, less a haircut. The lendable value of the ABS may be adjusted based on a risk assessment by the FRBNY. The Federal Reserve has set initial haircuts for each type of eligible collateral to reflect an assessment of the riskiness and maturity of the various types of eligible ABS. Breakdowns of TALF collateral by underlying loan type and credit rating are shown in tables 13 and 14, respectively. 14 Credit and Liquidity Programs and the Balance Sheet Table 13. TALF Collateral by Underlying Loan Type Table 14. TALF Collateral by Rating Billions of dollars, as of February 24, 2010 Billions of dollars, as of February 24, 2010 Type of collateral By underlying loan type Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Newly issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floorplan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premium service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Servicing advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Small business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Student loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value 5 11 0 11 20 1 4 1 1 2 7 52 Note: Unaudited. Components may not sum to total because of rounding. Data represent the face value of collateral. TALF LLC, a limited liability company, was formed to purchase and manage any asset-backed securities that might be surrendered by a TALF borrower or otherwise claimed by the FRBNY in connection with its enforcement rights to the TALF collateral. TALF LLC has committed to purchase, for a fee, all such ABS at a price equal to the TALF loan, plus accrued but unpaid interest. Purchases of these securities are funded first through the fees received by TALF LLC and any interest TALF LLC has earned on its investments. In the event that such funding proves insufficient, the U.S. Treasury’s Troubled Asset Relief Pro- Type of collateral Value Asset-backed securities with minimum rating of:1 AAA/Aaa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AA+/Aa+ to AA−/Aa− . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 * 52 Note: Unaudited. Components may not sum to total because of rounding. Data represent the face value of collateral. * Less than $500 million. 1. Eligible ABS collateral for the TALF must have a credit rating in the highest long-term or, in the case of non-mortgage-backed ABS, the highest short-term investment-grade rating category from at least two eligible NRSROs and must not have a credit rating below the highest investment-grade rating category from an eligible NRSRO. When pledged collateral is downgraded below the highest investment-grade rating, existing loans against the collateral remain outstanding. However, the ABS may not be used as collateral for any new TALF loans until it regains its status as eligible collateral. gram (TARP) will provide additional subordinated debt funding to TALF LLC to finance up to $20 billion of asset purchases. Subsequently, the FRBNY will finance any additional purchases of securities by providing senior debt funding to TALF LLC. Thus, the TARP funds provide credit protection to FRBNY. Financial information on TALF LLC is reported weekly in tables 1, 2, 8, 10, and 11 of the H.4.1 statistical release. As of February 24, 2010, TALF LLC had purchased no assets from the FRBNY. 15 March 2010 Lending in Support of Specific Institutions Quarterly Developments Table 16. Maiden Lane LLC Outstanding Principal Balance of Loans • Net income, including changes in valuation, for the Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs was $0.3 billion, $1.8 billion, and $3.7 billion, respectively, for the quarter ended September 30, 2009. As presented in table 15, these changes resulted in improvements to the fair value asset coverage of loans by the Federal Reserve Bank of New York (FRBNY) to each of the Maiden Lane LLCs. • Cash flows generated from the Maiden Lane II and Maiden Lane III portfolios are used to pay down the loans from the FRBNY. As indicated in tables 20 and 23, those repayments totaled about $3.8 billion in the third quarter of 2009. To date, cash flows from the Maiden Lane portfolio have been reinvested, primarily in agency mortgage-backed securities. • As previously announced, the fair value of the three Maiden Lane LLCs’ net portfolio holdings, as of February 10, 2010, were reported in the H.4.1 statistical release based on updated valuations as of December 31, 2009. The updated valuations resulted in a combined net unrealized gain of $0.7 billion for Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC. Figures for the full year of 2009 will be published in this report following the release of the audited financial statements of the Federal Reserve System. Millions of dollars Background During the financial crisis, the Federal Reserve has extended credit to certain specific institutions in order to avert disorderly failures that could result in severe dislocations and strains for the financial system as a whole and harm the U.S. economy. In certain other cases, the Federal Reserve has committed to extend credit, if necessary, to support important financial firms. Table 15. Fair Value Asset Coverage Millions of dollars Maiden Lane LLC . . . . . . . Maiden Lane II LLC . . . . . Maiden Lane III LLC . . . . Fair value asset coverage of FRBNY loan on 9/30/2009 Fair value asset coverage of FRBNY loan on 6/30/2009 (3,055) (604) 3,645 (3,400) (2,371) (129) Note: Unaudited. Fair value asset coverage is the amount by which the fair value of the net portfolio assets of each LLC (refer to table 29) is greater or less than the outstanding balance of the loans extended by the FRBNY, including accrued interest. Principal balance at closing . . . . . . . . . . . . . . . . Most Recent Quarterly Activity Principal balance on 6/30/2009 (including accrued and capitalized interest) . . . . . . . . . Accrued and capitalized interest 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Repayment during the period from 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Principal balance on 9/30/2009 (including accrued and capitalized interest) . . . . . . . . . FRBNY senior loan JPMC subordinate loan 28,820 1,150 29,159 1,217 37 16 0 0 29,196 1,233 Note: Unaudited. As part of the asset purchase agreement, JPMC made a loan to Maiden Lane LLC. For repayment purposes, this obligation is subordinated to the senior loan extended by the FRBNY. Bear Stearns and Maiden Lane LLC In March 2008, the FRBNY and JPMorgan Chase & Co. (JPMC) entered into an arrangement related to financing provided by the FRBNY to facilitate the merger of JPMC and the Bear Stearns Companies Inc. In connection with the transaction, the Federal Reserve Board authorized the FRBNY, under Section 13(3) of the Federal Reserve Act, to extend credit to a Delaware limited liability company, Maiden Lane LLC, to partially fund the purchase of a portfolio of mortgagerelated securities, residential and commercial mortgage loans, and associated hedges from Bear Stearns. The LLC is managing its assets through time to maximize Table 17. Maiden Lane LLC Summary of Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities Millions of dollars Agency MBS . . . . . . . . . . . . . . . . . . . . . . . . . . Non-agency RMBS . . . . . . . . . . . . . . . . . . . . Commercial loans . . . . . . . . . . . . . . . . . . . . . . Residential loans . . . . . . . . . . . . . . . . . . . . . . . Swap contracts . . . . . . . . . . . . . . . . . . . . . . . . . TBA commitments1 . . . . . . . . . . . . . . . . . . . . Other investments . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . Other assets2 . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair Value on 9/30/2009 Fair Value on 6/30/2009 17,437 1,938 4,025 623 1,318 382 863 1,446 527 (2,418) 26,141 16,424 1,962 4,447 683 1,827 1,199 736 1,805 827 (4,151) 25,759 Note: Unaudited. Components may not sum to totals because of rounding. 1. To be announced (TBA) commitments are commitments to purchase or sell mortgage-backed securities for a fixed price at a future date. 2. Including interest and principal receivable and other assets. 3. Including amounts payable for securities purchased, collateral posted to Maiden Lane LLC by swap counterparties, and other liabilities and accrued expenses. 16 Credit and Liquidity Programs and the Balance Sheet Table 18. Maiden Lane LLC Securities Distribution by Sector and Rating Percent, as of September 30, 2009 Sector1 2 Agency MBS . . . . . . . . . . . . . . . . . . Non-agency RMBS . . . . . . . . . . . . . Other2 . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rating AAA AA+ to AA− A+ to A− 0.0 0.5 1.5 2.0 0.0 0.6 0.9 1.5 0.0 0.8 0.3 1.1 BBB+ to BBB− BB+ and lower 0.0 0.4 0.9 1.3 Gov’t/Agency Total 86.2 0.0 0.0 86.2 86.2 9.6 4.3 100.0 0.0 7.3 0.7 8.0 Note: Unaudited. This table presents the sector and ratings composition of the securities in the Maiden Lane LLC portfolio as a percentage of all securities in the portfolio. It is based on the fair value of the securities. Lowest of all ratings is used for purposes of this table. Rows and columns may not sum to totals because of rounding. 1. Does not include Maiden Lane LLC’s swaps and other derivative contracts, commercial and residential mortgage loans, and TBA commitments. 2. Includes all asset sectors that, individually, represent less than 5 percent of the aggregate fair value of securities in the portfolio. Figure 2. Maiden Lane LLC Securities Distribution as of September 30, 2009 the repayment of credit extended to the LLC and to minimize disruption to the financial markets. In the second quarter of 2008, the FRBNY extended credit to Maiden Lane LLC. Details of the terms of the loan are published on the FRBNY website (www.newyorkfed.org/ markets/maidenlane.html). The assets of Maiden Lane LLC are presented weekly in tables 1, 10, and 11 of the H.4.1 statistical release. Additional details on the accounts of Maiden Lane LLC are presented in table 4 of the H.4.1 statistical release. Information about the assets and liabilities of Maiden Lane LLC is presented as of September 30, 2009, in tables 16 through 18 and figure 2. This information is updated on a quarterly basis. American International Group (AIG) Recent Developments • The balance on the AIG revolving credit facility decreased from $25.8 billion to $25.3 billion between January 27 and February 24, 2010, as indicated in table 19A. The decline was primarily attributable to principal repayments and reductions outpacing drawdowns on the facility. • On March 12, 2010, the maximum amount available under the AIG revolving credit facility was reduced from $35 billion to approximately $34.4 billion in connection with the sale of the property and casualty premium finance assets of AIG Credit Corp. and its subsidiaries to Premium Financing Specialists, Inc. Table 19A. AIG Revolving Credit Facility Billions of dollars Value Balance on January 27, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . Principal drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal repayments and reductions . . . . . . . . . . . . . . . . Recapitalized interest and fees . . . . . . . . . . . . . . . . . . . . . . Amortization of restructuring allowance . . . . . . . . . . . . Balance on February 24, 2010 . . . . . . . . . . . . . . . . . . . . . . . . 25.8 1.5 (2.2) 0.0 0.1 25.3 Note: Unaudited. Components may not sum to total because of rounding. Does not include Maiden Lane II LLC and Maiden Lane III LLC. Does not include preferred interests in AIA Aurora LLC and ALICO Holdings LLC. Table 19B. Preferred Interests in AIA Aurora LLC and ALICO Holdings LLC Billions of dollars Balance on February 24, 2010 Preferred Interests in AIA Aurora LLC and ALICO Holdings LLC1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued dividends on preferred interests in AIA Aurora LLC and ALICO Holdings LLC . . . . . . . . . . . . Note: Unaudited. 1. Book value. Value 25.1 0.2 17 March 2010 • On February 28, 2010, AIG reported a net loss attributable to AIG of $10.9 billion for 2009, compared to a loss of $99.3 billion in 2008, as certain of its businesses continue to stabilize. For the quarter ended December 31, 2009, AIG reported a net loss attributable to AIG of $8.9 million and an adjusted net loss of $7.2 billion, compared with a net loss of $61.7 billion and an adjusted net loss of $38.5 billion in the fourth quarter of 2008. • On March 1, 2010, AIG announced the signing of a definitive agreement for the sale of AIA Group, Limited (AIA), to Prudential plc for approximately $35.5 billion, including approximately $25 billion in cash, $8.5 billion in face value of equity and equity-linked securities, and $2.0 billion in face value of preferred stock of Prudential, subject to closing adjustments. AIG stated that the cash portion of the proceeds from the sale will be used to fully redeem the approximately $16 billion of preferred interests held by the Federal Reserve Bank of New York (FRBNY) in the special purpose vehicle (SPV) that holds AIA, and to repay approximately $9 billion of its borrowing under the revolving credit facility with the FRBNY. AIG intends to monetize the securities received in the transaction over time, subject to market conditions, following the lapse of certain minimum holding periods set forth in the definitive agreement with Prudential. AIG will then apply an amount equal to the net cash proceeds resulting from these transactions to repay any remaining debt outstanding under the revolving credit facility. The transaction has been approved by the boards of directors of both AIG and Prudential, and is expected to close by the end of 2010. The transaction is subject to approval by Prudential shareholders, regulatory approvals, and customary closing conditions. • On March 8, 2010, AIG announced the signing of a definitive agreement for the sale of American Life Insurance Company (ALICO) to MetLife, Inc. for approximately $15.5 billion, including $6.8 billion in cash and the remainder in equity securities of MetLife, subject to closing adjustments. AIG stated that the cash portion of the proceeds from this sale will be used to redeem an equivalent amount of the approximately $9 billion of preferred interests held by the FRBNY in the SPV that holds ALICO. AIG intends to monetize the MetLife securities received in the transaction over time, subject to market conditions, following the lapse of certain minimum holding periods set forth in the definitive agreement with MetLife. AIG will then apply an amount equal to the resulting net cash proceeds first to redeem the remainder of the preferred interests held by FRBNY in the ALICO SPV and, afterwards, to repay any remaining debt outstanding under the revolving credit facility. The transaction has been approved by the boards of directors of both AIG and MetLife, and is expected to close by the end of 2010, subject to the approvals of certain domestic and international regulatory bodies and to customary closing conditions. Background On September 16, 2008, the Federal Reserve, with the full support of the Treasury Department, announced that it would lend to AIG to prevent a disorderly failure of this systemically important firm, protect the financial system and the broader economy, and provide the company time to restructure its operations in an orderly manner. Initially, the FRBNY extended an $85 billion line of credit to the company. The terms of the credit facility are disclosed on the Board’s website (www.federalreserve.gov/monetarypolicy/ bst_supportspecific.htm). Loans outstanding under this facility are presented weekly in table 1 of the H.4.1 statistical release and included in “Other loans” in tables 10 and 11 of the H.4.1 statistical release. On November 10, 2008, the Federal Reserve and the Treasury announced a restructuring of the government’s financial support to AIG. As part of this restructuring, two new limited liability companies (LLCs) were created, Maiden Lane II LLC and Maiden Lane III LLC, and the line of credit extended to AIG was reduced from $85 billion to $60 billion. (On October 8, 2008, the FRBNY was authorized to extend credit under a special securities borrowing facility to certain AIG subsidiaries. This arrangement was discontinued after the establishment of the Maiden Lane II facility.) More detail on these LLCs is reported in the remainder of this section. Additional information is included in tables 5 and 6 of the H.4.1 statistical release. On March 2, 2009, the Federal Reserve and the Treasury announced further restructuring of the government’s assistance to AIG, designed to enhance the company’s capital and liquidity in order to facilitate the orderly completion of the company’s global divestiture program. Additional information on the restructuring is available at www.federalreserve.gov/ newsevents/press/other/20090302a.htm. On April 17, 2009, the FRBNY implemented a loan restructuring adjustment that was previously approved and announced on March 2. The interest rate on the loan to AIG, which was the three-month Libor plus 300 basis points, was modified by removing the existing interest rate floor of 3.5 percent on the Libor com- 18 Credit and Liquidity Programs and the Balance Sheet Figure 3. AIG Revolving Credit Note: The above data illustrate selected components of the amount of credit extended to the American International Group Inc., including loan principal, all capitalized interest and fees, and the amortized portion of the initial commitment fee. The data exclude commercial paper sold by AIG and its subsidiaries to the Commercial Paper Funding Facility as well as amounts borrowed prior to December 12, 2008, under a securities borrowing arrangement. The facility ceiling represents the limit on the credit agreement plus capitalized interest and fees. From November 7, 2008 until December 1, 2009, the ceiling was $60 billion (excluding capitalized interest and fees); on December 1, 2009, it was reduced to $35 billion. ponent. Consistent with GAAP, as of July 29, 2009, the reported value of the AIG revolving credit extension was reduced by a $1.3 billion adjustment to reflect the loan restructuring. This restructuring adjustment is intended to recognize the economic effect of the reduced interest rate and will be recovered as the adjustment is amortized over the remaining term of the credit extension. The Federal Reserve expects that the credit extension, including interest and commitment fees under the modified terms, will be fully repaid. The interest rate on the loan to AIG is the threemonth Libor, plus 300 basis points. The lending under this facility is secured by a pledge of assets of AIG and its primary nonregulated subsidiaries, including all or a substantial portion of AIG’s ownership interest in its regulated U.S. and foreign subsidiaries. Furthermore, AIG’s obligations to the FRBNY are guaranteed by certain domestic, nonregulated subsidiaries of AIG with more than $50 million in assets. On June 25, 2009, the FRBNY entered into agreements with AIG to carry out two transactions previously approved and announced on March 2, 2009, as part of the restructuring of the U.S. government’s assistance to AIG. These transactions were completed on December 1, 2009. Under these agreements, the FRBNY received preferred interests in two SPVs, AIA Aurora LLC and ALICO Holdings LLC, formed to hold the outstanding common stock of AIG’s largest foreign insurance subsidiaries, AIA and ALICO. In exchange, upon the closing of each transaction and the resulting issuance of preferred interests, the outstanding balance of, and amount available to, AIG (excluding capitalized interest and fees) under the revolving credit facility was reduced by $25 billion. Specifically, the maximum amount available was reduced from $60 billion to $35 billion. By establishing the AIA and ALICO SPVs as separate legal entities, these transactions positioned AIA and ALICO for future initial public offerings (IPOs) or sale. The proceeds generated from an IPO or sale of AIA or ALICO would be used to redeem the preferred interests held by the FRBNY in the two SPVs, AIA Aurora LLC and ALICO Holdings LLC, respectively. On the H.4.1 statistical release, accrued but unpaid dividends on the preferred interests in the two SPVs are included in “Other Federal Reserve assets” in table 1, and in “Other assets” in table 10 and table 11. Figure 3 shows the amount of credit extended to AIG over time through the credit facility, including the principal, interest, and commitment fees, along with the facility ceiling. Maiden Lane II LLC Pursuant to authority granted by the Federal Reserve Board under Section 13(3) of the Federal Reserve Act, the FRBNY, on December 12, 2008, lent approximately $19.5 billion to a newly formed Delaware lim- 19 March 2010 Table 20. Maiden Lane II LLC Outstanding Principal Balance of Senior Loan and Fixed Deferred Purchase Price Table 21. Maiden Lane II LLC Summary of RMBS Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities Millions of dollars Millions of dollars Principal balance at closing . . . . . . . . . . . . . . . . Most Recent Quarterly Activity Principal balance on 6/30/2009 (including accrued and capitalized interest) . . . . . . . . . Accrued and capitalized interest 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Repayment during the period from 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Principal balance on 9/30/2009 (including accrued and capitalized interest) . . . . . . . . . FRBNY senior loan AIG fixed deferred purchase price 19,494 1,000 17,712 1,020 55 8 (966) 0 16,801 1,028 Note: Unaudited. As part of the asset purchase agreement, AIG subsidiaries were entitled to receive from Maiden Lane II LLC a fixed deferred purchase price plus interest on the amount. This obligation is subordinated to the senior loan extended by the FRBNY, and it reduced the amount paid by Maiden Lane II LLC for the assets by a corresponding amount. Fair Value on Fair Value on 9/30/2009 6/30/2009 Alt-A (ARM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . Other assets2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,903 8,758 939 1,299 297 3 (2) 16,197 4,455 8,348 840 1,371 327 3 (2) 15,341 Note: Unaudited. Components may not sum to totals because of rounding. 1. Includes all asset sectors that, individually, represent less than 5 percent of aggregate outstanding fair value of securities in the portfolio. 2. Including interest and principal receivable and other receivables. 3. Including accrued expenses and other payables. Table 22. Maiden Lane II LLC Securities Distribution by Sector and Rating Percent, as of September 30, 2009 RMBS sector Alt-A (ARM) . . . . . . . . . . . . . . . . . . . . Subprime . . . . . . . . . . . . . . . . . . . . . . . . . Option ARM . . . . . . . . . . . . . . . . . . . . . Other1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rating AAA AA+ to AA− A+ to A− BBB+ to BBB− BB+ and lower Total 0.9 8.1 0.0 0.1 9.1 3.0 3.0 0.0 0.6 6.6 2.6 2.9 0.0 0.0 5.5 1.4 2.6 0.0 0.0 4.0 23.0 38.5 5.9 7.4 74.7 30.8 55.1 5.9 8.2 100.0 Note: Unaudited. This table presents the sector and ratings composition of Maiden Lane II LLC’s RMBS portfolio as a percentage of aggregate fair value of the securities in the portfolio. Lowest of all ratings is used for the purposes of this table. Rows and columns may not sum to totals because of rounding. 1. Includes all asset sectors that, individually, represent less than 5 percent of the aggregate fair value of securities in the portfolio. Figure 4. Maiden Lane II LLC Securities Distribution as of September 30, 2009 20 ited liability company, Maiden Lane II LLC, to partially fund the purchase of residential mortgage-backed securities (RMBS) from the securities lending portfolio of several regulated U.S. insurance subsidiaries of AIG. Maiden Lane II LLC acquired the RMBS, which had an aggregate par value of approximately $39.3 billion, at the then-current market value of the RMBS of approximately $20.8 billion, which was substantially below par value.2 The full portfolio of RMBS held by Maiden Lane II LLC serves as collateral for the Federal Reserve’s loan to Maiden Lane II LLC, and AIG’s insurance subsidiaries also have a $1 billion subordinated position in Maiden Lane II LLC that is available to absorb first any losses that may be realized. Details of the terms of the loan are published on the FRBNY website (www.newyorkfed.org/markets/ maidenlane2.html). The net portfolio holdings of Maiden Lane II LLC are presented in tables 1, 10, and 11 of the weekly H.4.1 statistical release. Additional detail on the accounts of Maiden Lane II LLC is presented in table 5 of the H.4.1 statistical release. Information about the assets and liabilities of Maiden Lane II LLC is presented as of September 30, 2009, in tables 20 through 22 and figure 4. This information is updated on a quarterly basis. Maiden Lane III LLC Pursuant to authority granted by the Federal Reserve Board under Section 13(3) of the Federal Reserve Act, the FRBNY in November and December 2008, lent approximately $24.3 billion to a newly formed Delaware limited liability company, Maiden Lane III LLC, to fund the purchase of certain asset-backed collateralized debt obligations (ABS CDOs) from certain counterparties of AIG Financial Products Corp. (AIGFP) on which AIGFP had written credit default swaps and similar contracts. Maiden Lane III LLC acquired these CDOs, which had an aggregate par value of approximately $62.1 billion, at the then-current market value of the CDOs of approximately $29.6 billion, which was substantially below par value.3 The full portfolio 2. The aggregate amount of interest and principal proceeds from RMBS received after the announcement date, but prior to the settlement date, net of financing costs, amounted to approximately $0.3 billion and therefore reduced the amount of funding required at settlement by $0.3 billion, from $20.8 billion to $20.5 billion. 3. The aggregate amount of interest and principal proceeds from CDOs received after the announcement date, but prior to the settlement dates, net of financing costs, amounted to approximately $0.3 billion and therefore reduced the amount of funding required at settlement by $0.3 billion, from $29.6 billion to $29.3 billion. Credit and Liquidity Programs and the Balance Sheet Table 23. Maiden Lane III LLC Outstanding Principal Balance of Senior Loan and Equity Contribution Millions of dollars Principal balance at closing . . . . . . . . . . . . . . . . Most Recent Quarterly Activity Principal balance on 6/30/2009 (including accrued and capitalized interest) . . . . . . . . . Accrued and capitalized interest 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Repayment during the period from 6/30/2009 to 9/30/2009 . . . . . . . . . . . . . . . . . . Principal balance on 9/30/2009 (including accrued and capitalized interest) . . . . . . . . . FRBNY senior loan AIG equity contribution 24,339 5,000 22,614 5,108 66 43 (2,825) 19,855 0 5,151 Note: Unaudited. As part of the asset purchase agreement, AIG purchased a $5 billion equity contribution, which is subordinated to the senior loan extended by FRBNY. Table 24. Maiden Lane III LLC Summary of Portfolio Composition, Cash and Cash Equivalents, and Other Assets and Liabilities Millions of dollars High-grade ABS CDO . . . . . . . . . . . . . . . . . Mezzanine ABS CDO . . . . . . . . . . . . . . . . . . Commercial real estate CDO . . . . . . . . . . . RMBS, CMBS, & Other . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . Other assets1 . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities2 . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair Value on 9/30/2009 Fair Value on 6/30/2009 16,001 2,099 4,572 246 547 38 (3) 23,500 14,491 1,882 4,186 225 1,645 59 (4) 22,485 Note: Unaudited. Components may not sum to totals because of rounding. 1. Including interest and principal receivable and other receivables. 2. Including accrued expenses. of CDOs held by Maiden Lane III LLC serves as collateral for the Federal Reserve’s loan to Maiden Lane III LLC, and an AIG subsidiary also has a $5 billion subordinated position in Maiden Lane III LLC that is available to absorb first any losses that may be realized. Details of the terms of the loan are published on the FRBNY website (www.newyorkfed.org/markets/ maidenlane3.html). Assets of the portfolio of the LLC will be managed to maximize cash flows to ensure repayment of obligations of the LLC while minimizing disruptions to financial markets. The net portfolio holdings of Maiden Lane III LLC are presented in tables 1, 10, and 11 of the weekly H.4.1 statistical release. Additional detail on the accounts of Maiden Lane III LLC is presented in table 6 of the H.4.1 statistical release. Information about the assets and liabilities of Maiden Lane III LLC is presented as of September 30, 2009, in tables 23 through 25 and figure 5. This information is updated on a quarterly basis. 21 March 2010 Table 25. Maiden Lane III LLC Securities Distribution by Sector, Vintage, and Rating Percent, as of September 30, 2009 Sector and vintage1 High-grade ABS CDO . . . . . . . . . Pre-2005 . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . Mezzanine ABS CDO . . . . . . . . . . Pre-2005 . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate CDO . . . Pre-2005 . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . RMBS, CMBS, and other . . . . . . Pre-2005 . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . Rating AAA AA+ to AA− A+ to A− 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.9 1.9 0.0 0.0 0.0 0.2 0.0 0.2 0.0 0.0 2.1 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.0 0.0 0.0 0.5 0.5 0.0 0.0 0.0 0.2 0.0 0.1 0.0 0.0 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 17.6 2.8 0.0 0.0 14.8 0.1 0.0 0.1 0.0 0.0 17.7 BBB+ to BBB− BB+ and lower 0.7 0.7 0.0 0.0 0.0 1.4 1.0 0.0 0.0 0.4 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.0 0.0 2.2 69.1 23.9 30.1 7.5 7.6 7.3 4.0 2.9 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.5 0.1 0.4 0.1 0.0 76.9 Not rated Total 0.0 0.0 0.0 0.0 0.0 0.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 69.8 24.6 30.1 7.5 7.6 9.2 5.5 2.9 0.0 0.7 20.0 5.2 0.0 0.0 14.8 1.1 0.2 0.8 0.1 0.0 100.0 Note: Unaudited. This table presents the sector, vintage, and rating composition of the securities in the Maiden Lane III LLC portfolio as a percentage of all securities in the portfolio. It is based on the fair value of the securities. Lowest of all ratings is used for purposes of this table. Rows and columns may not sum to totals because of rounding. 1. The year of issuance with the highest concentration of underlying assets as measured by outstanding principal balance determines the vintage of the CDO. Figure 5. Maiden Lane III LLC Securities Distribution as of September 30, 2009 22 Credit and Liquidity Programs and the Balance Sheet Federal Reserve Banks’ Financial Tables Quarterly Developments dated with the Federal Reserve Bank of New York (FRBNY) (the “consolidated LLCs”). • The daily average balance of the Federal Reserve System Open Market Account (SOMA) holdings exceeded $1 trillion during the first three quarters of 2009, as indicated in table 27. Net earnings from the portfolio amounted to approximately $32 billion during this period; most of the earnings are attributable to the holdings of U.S. government securities and agency-guaranteed mortgage-backed securities (MBS). • Net earnings from Federal Reserve loan programs over the first three quarters of the year amounted to about $2.2 billion; interest earned on Term Auction Facility (TAF) loans and credit extended to American International Group, Inc. (AIG) accounted for most of the total, as indicated in table 28. • After providing for the payment of dividends and reservation of an amount necessary to equate surplus with capital paid in, distributions to the U.S. Treasury as interest on Federal Reserve notes totaled $27 billion during the first three quarters of 2009, as noted in table 26. The Board of Governors, the Federal Reserve Banks, and the consolidated LLCs are all subject to several levels of audit and review. The Reserve Banks’ financial statements and those of the consolidated LLC entities are audited annually by a registered independent public accountant retained by the Board of Governors. To ensure auditor independence, the Board requires that the external auditor be independent in all matters relating to the audit. Specifically, the external auditor may not perform services for the Reserve Banks or others that would place it in a position of auditing its own work, making management decisions on behalf of the Reserve Banks, or in any other way impairing its audit independence. In addition, the Reserve Banks, including the consolidated LLCs, are subject to oversight by the Board. The Board of Governors’ financial statements are audited annually by an independent audit firm retained by the Board’s Office of Inspector General (OIG). The audit firm also provides a report on compliance and on internal control over financial reporting in accordance with government auditing standards. The OIG also conducts audits, reviews, and investigations relating to the Board’s programs and operations as well as of Board functions delegated to the Reserve Banks. • On January 12, 2010, the Federal Reserve Board announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $46.1 billion of their estimated 2009 net income of $52.1 billion to the U.S. Treasury. These payments represent an increase of $14.4 billion over the payments made in 2008, primarily due to increased earnings on securities holdings during 2009. The Reserve Banks’ securities holdings and other assets expanded significantly during 2009 as a result of the Federal Reserve’s response to the severe economic downturn. Figures for the full year of 2009 will be published in this report following the release of the audited financial statements of the Federal Reserve System. Background The Federal Reserve Banks prepare annual financial statements reflecting balances as of December 31, and income and expenses for the year then ended. The Federal Reserve Bank financial statements also include the accounts and results of operations of several limited liability companies (LLCs) that have been consoli- Audited annual financial statements for the Reserve Banks and Board of Governors are available at www.federalreserve.gov/monetarypolicy/ bst_fedfinancials.htm. On a quarterly basis, the Federal Reserve prepares unaudited updates of tables presented in the Annual Report. Combined Statement of Income and Comprehensive Income Table 26 presents unaudited combined Reserve Bank income and expense information for the first three quarters of the year. Tables 27 through 29 present information for the SOMA portfolio, the Federal Reserve loan programs, and the variable interest entities—the Commercial Paper Funding Facility LLC (CPFF) and Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs—for the first three quarters of this year. These tables are updated quarterly. 23 March 2010 Table 26. Federal Reserve Banks’ Combined Statement of Income and Comprehensive Income Millions of dollars January 1, 2009 − September 30, 2009 Interest income: Loans to depository institutions (refer to table 28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other loans (refer to table 28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . System Open Market Account (refer to table 27) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated variable interest entities (refer to table 29): Investments held by consolidated variable interest entities: Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial Paper Funding Facility LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense: System Open Market Account (refer to table 27) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depository institution deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated variable interest entities (refer to table 29) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889 2,261 31,131 4,668 3,962 42,911 86 1,496 200 1,782 41,129 Non-interest income (loss): System Open Market Account—realized and unrealized losses, net (refer to table 27) . . . . . . . . . . . . . . . . . . . . . . . Investments held by consolidated variable interest entities gains (losses), net (refer to table 29): Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial Paper Funding Facility LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan restructuring (refer to table 28)1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reimbursable services to government agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-interest (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,802) 8 (989) 517 299 25 (3,455) Operating expenses: Salaries and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assessments by the Board of Governors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees related to consolidated variable interest entities (refer to table 29) . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,019 202 136 641 88 401 3,487 Net income prior to distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,187 Change in funded status of benefit plans2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income prior to distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 34,484 Distribution of comprehensive income: Dividends paid to member banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remaining amount to be distributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,049 33,435 Memo: Distributions to U.S. Treasury (interest on Federal Reserve notes)3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,977 487 Note: Unaudited. 1. In accordance with GAAP, as of June 30, 2009, the AIG revolving credit extension was reduced by a $1.4 billion adjustment for loan restructuring. The adjustment is related to the loan modification, announced on March 2, 2009, which eliminated the existing floor on the interest rate. The restructuring adjustment is being recovered as it is amortized over the remaining term of the credit extension. 2. Represents the recognition of benefit plan deferred actuarial gains and losses and prior service costs. 3. The Board of Governors requires each Reserve Bank to distribute any remaining net earnings to the U.S. Treasury as interest on Federal Reserve notes, after providing for the payment of dividends and reservation of an amount necessary to equate surplus with capital paid-in. These distributions are made weekly based on estimated net earnings for the preceding week. The amount of each Bank’s weekly distribution to the U.S. Treasury would be affected by significant losses and increases in capital paid-in at a Reserve Bank, which would require that the Reserve Bank retains net earnings until the surplus is equal to the capital paid-in. The distributions to the U.S. Treasury are reported on an accrual basis; actual payments to the U.S. Treasury during the period from January 1, 2009, through September 30, 2009, were $24,552 million. SOMA Financial Summary Table 27 shows the Federal Reserve’s average daily balance of assets and liabilities in the SOMA portfolio for the period from January 1, 2009, though September 30, 2009, the related interest income and expense, and the realized and unrealized gains and losses for the first three quarters of the year. U.S. government and agency securities, as well as agency-guaranteed MBS making up the SOMA portfolio, are recorded at amortized cost on a settlement-date basis. Rather than using a fair value presentation, an amortized cost presentation more appropriately reflects the Reserve Banks’ purpose for holding these securities given the Federal Reserve’s unique responsibility to conduct monetary policy. Although the fair value of security holdings can be substantially greater than or less than the recorded 24 Credit and Liquidity Programs and the Balance Sheet Table 27. SOMA Financial Summary Millions of dollars January 1, 2009 − September 30, 2009 Average daily balance1 Interest income (expense) Realized gains (losses) Unrealized gains (losses) Net earnings SOMA assets U.S. government securities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal agency debt securities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed securities3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments denominated in foreign currencies4 . . . . . . . . . . . . . . . . . . Central bank liquidity swaps5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592,742 73,655 352,202 24,505 230,113 5,128 1,278,345 16,202 1,241 11,351 231 2,093 13 31,131 — — (411) — — — (411) — — — 898 — — 898 16,202 1,241 10,940 1,129 2,093 13 31,618 SOMA liabilities Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,928 1,208,417 (86) 31,045 — (411) — 898 (86) 31,532 Note: Unaudited. Components may not sum to totals because of rounding. 1. Based on holdings at opening of business. 2. Face value. 3. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the remaining principal balance of the underlying mortgages. Does not include unsettled transactions. 4. Includes accrued interest. Investments denominated in foreign currencies are revalued daily at market exchange rates. 5. Dollar value of foreign currency held under these agreements valued at the exchange rate to be used when the foreign currency is returned to the foreign central bank. This exchange rate equals the market exchange rate used when the foreign currency was acquired from the foreign central bank. value at any point in time, these unrealized gains or losses have no effect on the ability of the Reserve Banks to meet their financial obligations and responsibilities. As of September 30, 2009, the fair value of the U.S. government and agency securities held in the SOMA, excluding accrued interest, was $980 billion, the fair value of the agency-guaranteed MBS was $703 billion, and the fair value of investments denominated in foreign currencies was $26 billion, as determined by reference to quoted prices for identical securities, except for MBS, for which market values are obtained from an independent pricing vendor. FRBNY conducts purchases and sales of U.S. government securities under authorization and direction from the Federal Open Market Committee (FOMC). The FRBNY buys and sells securities at market prices from securities dealers and foreign and international account holders. The FOMC has also authorized the FRBNY to purchase and sell U.S. government securities under agreements to resell or repurchase such securities (commonly referred to as repurchase and reverse repurchase transactions). The SOMA holds foreign currency deposits and foreign government debt instruments denominated in foreign currencies with foreign central banks and the Bank for International Settlements. Central bank liquidity swaps are the foreign currencies that the Federal Reserve acquires and records as an asset (excluding accrued interest) on the Federal Reserve’s balance sheet. On January 5, 2009, the Federal Reserve began purchasing MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Transactions in MBS are recorded on settlement dates, which can extend several months into the future. MBS dollar roll transactions, which consist of a purchase or sale of securities combined with an agreement to sell or purchase securities in the future, may generate realized gains and losses. Loan Programs Financial Summary Table 28 summarizes the average daily loan balances and interest income of the Federal Reserve for the first three quarters of 2009. The most significant loan balance is the TAF, which was established at the end of 2007. As noted earlier in this report, during 2008 the Federal Reserve established several lending facilities under authority of Section 13(3) of the Federal Reserve Act. These included the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Primary Dealer Credit Facility (PDCF), credit extended to American International Group, Inc. (AIG), and the Term Asset-Backed Securities Loan Facility (TALF). Amounts funded by the Reserve Banks under all these programs are recorded as loans by the Reserve Banks. Net earnings from these loan programs were about $2.2 billion during the first three quarters of 2009. All loans must be fully collateralized to the satisfaction of the lending Reserve Bank, with an appropriate haircut applied to the collateral. At September 30, 2009, no loans were impaired, and an allowance for loan losses was not required. Consolidated Variable Interest Entities (VIEs) Financial Summary Table 29 summarizes the assets and liabilities of various consolidated VIEs previously discussed in this report. It also summarizes the net position of senior 25 March 2010 Table 28. Loan Programs Financial Summary Millions of dollars January 1, 2009 − September 30, 2009 Loan programs Average daily balance1 Primary, secondary, and seasonal credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Term Auction Facility (TAF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans to depository institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,864 351,661 398,525 176 713 889 Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Primary Dealer Credit Facility (PDCF) and other broker-dealer credit . . Credit extended to American International Group, Inc. (AIG), net . . . . . . Term Asset-Backed Securities Loan Facility (TALF) . . . . . . . . . . . . . . . . . . . . Total loans to others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,315 10,167 41,753 16,011 78,246 72 37 1,938 214 2,261 — — (989) — (989) 72 37 949 214 1,272 476,771 3,150 — 3,150 (989) — (989) 2,161 — 2,161 Total loan programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loan programs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income2 476,771 Provision for loan restructuring — — — Total 176 713 889 Note: Unaudited. Components may not sum to totals because of rounding. 1. Based on holdings at opening of business. Average daily balance includes outstanding principal and capitalized interest net of unamortized deferred commitment fees and allowance for loan restructuring, and excludes undrawn amounts and credit extended to consolidated LLCs. 2. Interest income includes the amortization of the deferred commitment and administrative fees. Table 29. Consolidated Variable Interest Entities Financial Summary Millions of dollars Item CPFF ML ML II ML III Total Maiden Lane LLCs Net portfolio assets of the consolidated LLCs and the net position of FRBNY and subordinated interest holders as of September 30, 2009 Net portfolio assets1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities of consolidated LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio assets available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,384 (360) 41,024 28,559 (2,418) 26,141 16,199 (2) 16,197 23,503 (3) 23,500 68,261 (2,423) 65,838 Loans extended to the consolidated LLCs by FRBNY2 . . . . . . . . . . . . . . . . . . . Other beneficial interests2,3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,589 0 36,589 29,196 1,233 30,429 16,801 1,028 17,829 19,855 5,151 25,006 65,852 7,412 73,264 Allocated to FRBNY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocated to other beneficial interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative change in net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,435 0 4,435 (3,055) (1,233) (4,288) (604) (1,028) (1,632) 0 (1,506) (1,506) (3,659) (3,767) (7,426) Summary of consolidated VIE net income for the current year through September 30, 2009, including a reconciliation of total consolidated VIE net income to the consolidated VIE net income recorded by FRBNY Portfolio interest income4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense on loans extended by FRBNY5 . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense—other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio holdings gains (losses)6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) of consolidated LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,962 (587) 0 8 (27) 3,356 1,369 (109) (45) (881) (31) 303 876 (187) (26) (955) (9) (301) 2,423 (236) (129) (1,346) (21) 691 4,668 (532) (200) (3,182) (61) 693 0 3,356 (45) 348 (26) (275) 691 0 620 73 587 3,943 109 457 187 (88) 236 236 532 605 Cumulative change in net assets since the inception of the programs Less: Net income (loss) allocated to other beneficial interests6 . . . . . . . . . . . . Net income (loss) allocated to FRBNY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Interest expense on loans extended by FRBNY, eliminated in consolidation5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) recorded by FRBNY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Unaudited. Components may not sum to totals because of rounding. 1. Commercial paper holdings are recorded at book value, which includes amortized cost and related fees. Maiden Lane, Maiden Lane II, and Maiden Lane III holdings are recorded at fair value. 2. Includes accrued interest. 3. The other beneficial interest holder related to Maiden Lane LLC is JPMC, and for Maiden Lane II and Maiden Lane III LLCs it is AIG. 4. Interest income is recorded when earned, and it includes amortization of premiums, accretion of discounts, and paydown gains and losses. 5. Interest expense recorded by each VIE on the loans extended by the FRBNY is eliminated when the VIEs are consolidated in the FRBNY’s financial statements and, as a result, the consolidated VIEs’ net income (loss) recorded by the FRBNY is increased by this amount. 6. The amount of Maiden Lane portfolio holdings losses allocated to FRBNY is $3,802 million, which is the total of portfolio holdings gains (losses) reduced by the net income (loss) allocated to other beneficial interests. This amount is reported as “Investments held by consolidated variable interest entities gains (losses), net” in table 26. 26 and subordinated interest holders and the allocation of the change in net assets to interest holders. The FRBNY is the sole beneficiary of CPFF LLC and the primary beneficiary of the Maiden Lane LLCs. Commercial paper holdings are recorded at book value, which includes amortized cost and related fees. Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC holdings are recorded at fair value, which reflects an estimate of the price that would be received upon selling an asset if the transaction were to be conducted in an orderly market on the measurement date. Consistent with generally accepted accounting principles, the assets and liabilities of these LLCs have been consolidated with the assets and liabilities of the FRBNY. As a consequence of the consolidation, the extensions of credit from the FRBNY to the LLCs are eliminated. Credit and Liquidity Programs and the Balance Sheet “Net portfolio assets available” represent the net assets available to beneficiaries of the consolidated VIEs and for repayment of loans extended by the FRBNY. “Net income (loss) allocated to FRBNY” represents the allocation of the change in net assets and liabilities of the consolidated VIEs available for repayment of the loans extended by the FRBNY and other beneficiaries of the consolidated VIEs. The differences between the fair value of the net assets available and the face value of the loans (including accrued interest) are indicative of gains or losses that would have been incurred by the beneficiaries if the assets had been fully liquidated at prices equal to the fair value as of September 30, 2009. 27 March 2010 Appendix A Additional Information Provided Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008 In light of improved functioning of financial markets, on February 1, 2010, the Federal Reserve closed the Term Securities Lending Facility (TSLF), Primary Dealer Credit Facility (PDCF), Commercial Paper Funding Facility (CPFF), and the Asset-Backed Commercial Paper Money Market Liquidity Facility (AMLF). As of that date, all loans under the TSLF, PDCF, and AMLF had been repaid in full, with interest, in accordance with the terms of each facility, and each of the facilities resulted in no loss to the Federal Reserve or taxpayers. Some credit extended to CPFF LLC will remain outstanding until April 2010, when the remaining commercial paper will mature. For the reasons discussed below, the Board does not anticipate that the Federal Reserve or taxpayers will incur any net loss on the loans provided by the Federal Reserve Bank of New York (FRBNY) under the Term Asset-Backed Loan Facility (TALF), to American International Group, Inc. (AIG), to CPFF LLC, or to Maiden Lane LLC, Maiden Lane II LLC, or Maiden Lane III LLC (collectively, the “Maiden Lane facilities”). In making these assessments, the Board has considered, among other things, the terms and conditions governing the relevant facility and the type, nature, and value of the current collateral or other security arrangements associated with the facility. As discussed earlier in this report, the Federal Reserve has established various terms and conditions governing the types of collateral that may be pledged in support of a loan under a facility in order to mitigate the risk of loss. In the case of the Maiden Lane facilities, the Board also has considered analyses of the projected returns on the portfolio holdings of the respective special purpose vehicle (SPV) (the assets of which serve as collateral for the loan(s) extended to the SPV) conducted by the FRBNY or its advisors in connection with the most recent quarterly revaluation of the assets of each SPV. Commercial Paper Funding Facility As noted above, the CPFF was closed on February 1, 2010. While no new loans to the SPV established under the CPFF, CPFF LLC, were made after February 1, 2010, some credit extended to CPFF LLC will remain outstanding until the remaining commercial paper held by CPFF LLC matures. All advances by the FRBNY to the SPV are secured by all the assets of the SPV. In addition, in situations where the obligations acquired by the SPV are asset-backed commercial paper (ABCP), the advances are further secured by the assets that support the commercial paper. To use the CPFF, each issuer paid a facility fee. Furthermore, each time an issuer sold commercial paper that was not ABCP to the SPV, the issuer paid a surcharge unless it had entered into a collateral arrangement for the commercial paper, or had obtained an endorsement or guarantee of its obligation on the commercial paper, that was acceptable to the FRBNY. All fees have been retained by the SPV and serve as additional collateral for the FRBNY loans to provide an additional cushion against losses. As of February 24, 2010, the total value of the assets of CPFF LLC significantly exceeded the outstanding amount of the loans extended by the FRBNY under the CPFF. Term Asset-Backed Securities Loan Facility Under the TALF, the FRBNY makes loans on a collateralized basis to holders of eligible asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS). The potential for the Federal Reserve or taxpayers to incur any net loss on the TALF loans extended by the FRBNY to the holders of ABS and CMBS is mitigated by the quality of the collateral, the risk assessment performed by the FRBNY on all pledged collateral, and the margin by which the value of the collateral exceeds the amount of the loan (the haircut). Potential losses to the Federal Reserve also are mitigated by the portion of interest on the TALF loans to borrowers transferred to TALF LLC and by $20 billion in credit protection provided by the Treasury under the Troubled Asset Relief Program (TARP), both of which are available to TALF LLC to purchase any collateral received by the FRBNY from a borrower in lieu of repaying a TALF loan or foreclosed upon due to a default by the borrower. Loans to Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC The portfolio holdings of each of Maiden Lane LLC (Maiden Lane), Maiden Lane II LLC (ML-II), and Maiden Lane III LLC (ML-III) are revalued in accordance with generally accepted accounting principles 28 (GAAP) as of the end of each quarter to reflect an estimate of the fair value of the assets on the measurement date. The fair value determined through these revaluations may fluctuate over time. In addition, the fair value of the portfolio holdings that is reported on the weekly H.4.1 statistical release reflects any accrued interest earnings, principal repayments, expense payments and, to the extent any may have occurred since the most recent measurement date, realized gains or losses. The fair values as of February 24, 2010—as shown in table 1 of this report, and reported in greater detail in the H.4.1 release for that date—are based on quarterly revaluations as of December 31, 2009. Because the collateral assets for the loans to Maiden Lane, ML-II, and ML-III are expected to generate cash proceeds and may be sold over time or held to maturity, the current reported fair values of the net portfolio holdings of Maiden Lane, ML-II, and ML-III do not reflect the amount of aggregate proceeds that the Federal Reserve could receive from the assets of the respective entity over the extended term of the loan to the entity. The extended terms of the loans provide an opportunity to dispose of the assets of each entity in an orderly manner over time and to collect interest on the assets held by the entity prior to their sale, other disposition, or maturity. Each of the loans extended to Maiden Lane, ML-II, and ML-III is current under the terms of the relevant loan agreement. In addition, JPMorgan Chase will absorb the first $1.15 billion of realized losses on the assets of Maiden Lane, should any occur. Similarly, certain U.S. insurance subsidiaries of AIG have a $1 billion subordinated position in ML-II and an AIG affiliate has a $5 billion subordinated position in ML-III, which are available to absorb first any loss that ultimately is incurred by ML-II or ML-III, respectively. Moreover, under the terms of the agreements, the FRBNY is entitled to any residual cash flow generated by the collateral assets held by Maiden Lane after the loans made by the FRBNY and JPMorgan Chase are repaid, and five-sixths and two-thirds of any residual cash flow generated by the assets held by ML-II and ML-III, respectively, after the senior note of the FRBNY and the subordinate positions of AIG affiliates for these facilities are repaid. Credit and Liquidity Programs and the Balance Sheet Revolving Credit Facility and Preferred Interests Relating to American International Group, Inc. In light of the extremely broad and diverse range of collateral (including AIG’s ownership interest in numerous nonpublic companies) and guarantees securing advances under the Revolving Credit Facility and the term of the credit facility, it is difficult to estimate with precision the aggregate value that ultimately will or may be received in the future from the sale of collateral or the enforcement of guarantees supporting the Revolving Credit Facility or from the sale of assets of the two SPVs, AIA Aurora LLC and ALICO Holdings LLC (including any noncash consideration that may be received in connection with the sale of the assets of the AIA or ALICO SPVs), and disclosure of any such estimate could interfere with the goal of maximizing value through the company’s global divestiture program and, consequently, diminish the proceeds available to repay the loan or redeem the preferred interests held by FRBNY in the AIA and ALICO SPVs. However, based on the substantial assets and operations supporting repayment of the loan or redemption of the preferred interests, the terms of the agreements entered into by AIG for the sale of American International Assurance Company (AIA) and American Life Insurance Company (ALICO), the capital and capital commitments provided to AIG under the TARP, and the most recently completed quarterly review of the security arrangements supporting the Revolving Credit Facility conducted as of September 30, 2009, by the FRBNY supported by analyses performed by its advisors, the Federal Reserve anticipates that the loans provided by the Federal Reserve under the Revolving Credit Facility, including interest and commitment fees under the modified terms of the facility, will be fully repaid and the face value of the preferred interests in the AIA and ALICO SPVs, plus accrued dividends, will be received. Accordingly, the Federal Reserve anticipates that the facility will not result in any net loss to the Federal Reserve or taxpayers. 29 March 2010 Appendix B Information about Closed and Expired Credit and Liquidity Facilities and Programs Temporary Liquidity Arrangements with Foreign Central Banks During the financial crisis that emerged during the summer of 2007, the Federal Reserve took a number of important steps aimed at providing liquidity to important financial markets and institutions to support overall financial stability. Financial stability is a critical prerequisite for achieving sustainable economic growth, and all of the Federal Reserve’s actions were directed toward achieving the Federal Reserve’s statutory monetary policy objectives. Specifically, the Federal Reserve implemented a number of programs designed to support the liquidity of financial institutions and foster improved conditions in financial markets, and also extended credit to certain specific institutions and committed to extend credit to support systemically important financial firms. In light of ongoing improvements in the functioning of financial markets, many of the facilities and programs established to help address the financial crisis have closed or expired. Specifically, on February 1, 2010, the Federal Reserve closed the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF). The temporary liquidity swap arrangements between the Federal Reserve and other central banks also expired on February 1, 2010. Background information about the temporary liquidity swap arrangements, the PDCF, the TSLF, and the AMLF, previously included in the body of this report, as well as information about the support provided to Citigroup and Bank of America, is presented in this appendix. Historical data related to these facilities, previously reported on the H.4.1 statistical release, “Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks,” which includes the weekly publication of the Federal Reserve’s balance sheet, is available through the Data Download Program (available at www.federalreserve.gov/datadownload/). The Data Download Program provides interactive access to Federal Reserve statistical data in a variety of formats. Liquidity Swaps Because of the global character of bank funding markets, the Federal Reserve worked with other central banks to provide liquidity to financial markets and institutions. As part of these efforts, the Federal Reserve Bank of New York (FRBNY) entered into agreements to establish temporary reciprocal currency arrangements (central bank liquidity swap lines) with a number of foreign central banks (FCBs). Two types of temporary swap lines were established—dollar liquidity lines and foreign currency liquidity lines. The FRBNY operated the swap lines under the authority granted under Section 14 of the Federal Reserve Act and in compliance with authorizations, policies, and procedures established by the Federal Open Market Committee (FOMC). Dollar Liquidity Swaps On December 12, 2007, the FOMC announced that it had authorized dollar liquidity swap lines with the European Central Bank and the Swiss National Bank to provide liquidity in U.S. dollars to overseas markets. Subsequently, the FOMC authorized dollar liquidity swap lines between the Federal Reserve and each of the following FCBs: the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, the Bank of Japan, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, Norges Bank, the Monetary Authority of Singapore, Sveriges Riksbank, and the Swiss National Bank. These temporary dollar liquidity swap arrangements expired on February 1, 2010. Swaps under these lines consisted of two transactions. When an FCB drew on its swap line with the FRBNY, the FCB would sell a specified amount of its currency to the FRBNY in exchange for dollars at the prevailing market exchange rate. The FRBNY held the foreign currency in an account at the FCB. The dollars that the FRBNY provided were then deposited in an account that the FCB maintained at the FRBNY. At the same time, the FRBNY and the FCB entered into a binding agreement for a second transaction that obligated the FCB to buy back its currency on a specified 30 future date at the same exchange rate. The second transaction unwound the first at the same exchange rate used in the initial transaction; as a result, the recorded value of the foreign currency amounts was not affected by changes in the market exchange rate. At the conclusion of the second transaction, the FCB compensated the FRBNY at a market-based rate. When the FCB lent the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars were transferred from the FCB account at the FRBNY to the account of the bank that the borrowing institution used to clear its dollar transactions. The FCB was obligated to return the dollars to the FRBNY under the terms of the agreement, and the FRBNY was not a counterparty to the loan extended by the FCB. The FCB bore the credit risk associated with the loans it made to institutions in its jurisdiction. The foreign currency that the Federal Reserve acquired in these transactions was recorded as an asset on the Federal Reserve’s balance sheet. Dollar liquidity swaps had maturities ranging from overnight to three months. Foreign Currency Liquidity Swap Lines On April 6, 2009, the FOMC announced foreigncurrency liquidity swap lines with the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. These lines were designed to provide the Federal Reserve with the capacity to offer liquidity to U.S. institutions in foreign currency should a need arise. These lines mirrored the existing dollar liquidity swap lines, which provided FCBs with the capacity to offer U.S. dollar liquidity to financial institutions in their jurisdictions. These foreign-currency swap lines would have supported operations by the Federal Reserve to address financial strains by providing liquidity to U.S. institutions in amounts of up to £30 billion (sterling), €80 billion (euro), ¥10 trillion (yen), and CHF 40 billion (Swiss francs). The Federal Reserve did not draw on these swap lines, which expired on February 1, 2010. Lending Facilities to Support Overall Market Liquidity Lending to Primary Dealers On March 16, 2008, the Federal Reserve announced the creation of the Primary Dealer Credit Facility (PDCF), an overnight loan facility that provided funding to primary dealers and helped foster improved conditions in financial markets more generally. All credit provided under the PDCF was fully secured by collat- Credit and Liquidity Programs and the Balance Sheet eral with appropriate haircuts—that is, the value of the collateral exceeded the value of the loan extended. Initially, eligible collateral was restricted to investmentgrade securities. On September 14, 2008, however, the set of eligible collateral was broadened to closely match the types of instruments that can be pledged in the tri-party repurchase agreement systems of the two major clearing banks. On September 21, 2008, and November 23, 2008, the Federal Reserve Board authorized the extension of credit to a set of other securities dealers on terms very similar to the PDCF. There was no borrowing at the PDCF after mid-May 2009. The Federal Reserve closed the PDCF on February 1, 2010. All loans extended under this facility were repaid in full, with interest, in accordance with the terms of the facility. Eligible collateral for loans extended through the PDCF included all assets eligible for tri-party repurchase agreement arrangements through the major clearing banks as of September 12, 2008. The amount of PDCF credit extended to any dealer could not exceed the lendable value of eligible collateral that the dealer provided to the FRBNY. The collateral was valued by the clearing banks; values were based on prices reported by a number of private-sector pricing services widely used by market participants. Loans extended under the PDCF were made with recourse beyond the collateral to the primary dealer entity itself. On March 11, 2008, the Federal Reserve announced the creation of the TSLF. Under the TSLF, the FRBNY lent Treasury securities to primary dealers for 28 days against eligible collateral in two types of auctions. For “Schedule 1” auctions, the eligible collateral consisted of Treasury securities, agency securities, and agencyguaranteed mortgage-backed securities (MBS). For “Schedule 2” auctions, the eligible collateral included Schedule 1 collateral plus highly rated private securities. In mid-2008, the Federal Reserve introduced the Term Securities Lending Facility Options Program (TOP), which offered options to primary dealers to draw upon short-term, fixed-rate TSLF loans from the System Open Market Account (SOMA) portfolio in exchange for program-eligible collateral. The TOP was intended to enhance the effectiveness of the TSLF by offering added liquidity over periods of heightened collateral market pressures, such as quarter-end dates. TSLF Schedule 1 and TOP auctions were suspended effective July 2009 in light of considerably lower use of the facility. Furthermore, in September 2009 the Federal Reserve announced its intention to scale back the size of TSLF auctions held between October 2009 and January 2010. The size of TSLF auctions was reduced to $50 billion in October 2009 and $25 billion in November 2009; offering amounts remained at 31 March 2010 $25 billion in December 2009 and January 2010. Since mid-August 2009, borrowing from the TSLF had remained unchanged at zero. The January 7, 2010, TSLF Schedule 2 auction was the last auction conducted prior to the closure of the TSLF on February 1, 2010. All loans extended under these facilities were repaid in full, with interest, in accordance with the terms of the facility. Transactions under the TSLF involved lending securities rather than cash: a dealer borrowed Treasury securities from the Federal Reserve and provided another security as collateral. Eligible collateral was determined by the Federal Reserve. Two schedules of collateral were defined. Schedule 1 collateral consisted of Treasury, agency, and agency-guaranteed MBS. Schedule 2 collateral included investment-grade corporate, municipal, mortgage-backed, and asset-backed securities, as well as Schedule 1 collateral. Haircuts on posted collateral were determined by the FRBNY using methods consistent with current market practices. Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) The AMLF was a lending facility that financed the purchase of high-quality asset-backed commercial paper from money market mutual funds (MMMFs) by U.S. depository institutions and bank holding companies. The program was intended to assist money funds that held such paper in meeting the demand for redemptions by investors and to foster liquidity in the asset-backed commercial paper (ABCP) market and money markets more generally. The loans extended through the AMLF were non-recourse loans; as a result, the Federal Reserve had rights to only the collateral securing the loan if the borrower elected not to repay. To help ensure that the AMLF was used for its intended purpose of providing a temporary liquidity backstop to MMMFs, the Federal Reserve established a redemption threshold for use of the facility. Under this requirement, a MMMF had to experience material outflows—defined as at least five percent of net assets in a single day or at least 10 percent of net assets within the prior five business days—before the ABCP that it sold was eligible collateral for AMLF loans to depository institutions and bank holding companies. Any eligible ABCP purchased from a MMMF that had experienced redemptions at these thresholds could have been pledged to the AMLF at any time within the five business days following the date that the threshold level of redemptions was reached. The creation of the AMLF, announced on September 19, 2008, relied on authority under Section 13(3) of the Federal Reserve Act. It was administered by the Federal Reserve Bank of Boston, which was authorized to make AMLF loans to eligible borrowers in all 12 Federal Reserve Districts. AMLF Collateral. Collateral eligible for the AMLF was limited to ABCP that: — was purchased by the borrower on or after September 19, 2008, from a registered investment company that held itself out as a MMMF and had experienced recent material outflows; — was purchased by the borrower at the mutual fund’s acquisition cost as adjusted for amortization of premium or accretion of discount on the ABCP through the date of its purchase by the borrower; — was not rated lower than A-1, P-1, or F1 at the time it was pledged to the Federal Reserve Bank of Boston (this would exclude paper that is rated A-1/P-1/F1 but was on watch for downgrade by any major rating agency); — was issued by an entity organized under the laws of the United States or a political subdivision thereof under a program that was in existence on September 18, 2008; and — had a stated maturity that did not exceed 120 days if the borrower is a bank, or 270 days if the borrower is a non-bank. The qualifying ABCP was transferred to the Federal Reserve Bank of Boston’s restricted account at the Depository Trust Company before an advance, collateralized by that ABCP, was approved. The collateral was valued at the amortized cost (as defined in the Letter of Agreement) of the eligible ABCP pledged to secure an advance. Advances made under the facility were made without recourse, provided the requirements in the Letter of Agreement were met. The AMLF was closed on February 1, 2010. Since May 8, 2009, there had been no new borrowing through the AMLF, and as of October 13, 2009, all prior outstanding AMLF credit had matured. All loans made under the facility were repaid in full, with interest, in accordance with the terms of the facility. Lending in Support of Specific Institutions During the financial crisis, the Federal Reserve committed to provide credit, if necessary, to support Cititgroup Inc. (Citigroup) and Bank of America Corporation (Bank of America), two important financial firms, as part of a package of supports for these institutions made available by the Treasury Department, the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve. 32 Credit and Liquidity Programs and the Balance Sheet Citigroup Bank of America On November 23, 2008, the Treasury, the Federal Reserve, and the FDIC jointly announced that the U.S. government would provide support to Citigroup in an effort to support financial markets. The terms of the arrangement, under which the government parties had agreed to provide certain loss protections and liquidity supports to Citigroup with respect to a designated pool of $301 billion of assets, are provided on the Federal Reserve Board’s website (www.federalreserve.gov/ monetarypolicy/bst_supportspecific.htm). The FRBNY did not extend credit to Citigroup under this arrangement. On December 23, 2009, the Treasury, the Federal Reserve, and the FDIC agreed to terminate the Master Agreement dated January 15, 2009, with Citigroup. In consideration for terminating the Master Agreement, the FRBNY received a $50 million termination fee from Citigroup. Outstanding expenses in connection with the Master Agreement and not yet reimbursed by Citigroup will continue to be reimbursable. On January 16, 2009, the Treasury, the Federal Reserve, and the FDIC jointly announced that the U.S. government had agreed to provide certain support to Bank of America to promote financial market stability. Information concerning these actions is available on the Federal Reserve Board’s website (www.federalreserve.gov/monetarypolicy/ bst_supportspecific.htm). On May 7, 2009, following the release of the results of the Supervisory Capital Assessment Program, Bank of America announced that it did not plan to move forward with a part of the package of supports announced in January 2009—specifically, a residual financing arrangement with the Federal Reserve and the related guarantee protections that would be provided by the Treasury and the FDIC with respect to an identified pool of approximately $118 billion in assets. In September 2009, Bank of America paid an exit fee in order to terminate the term sheet, which was never implemented, with the Treasury, the Federal Reserve, and the FDIC. The Federal Reserve’s portion of the exit fee was $57 million.
@FedFRASER