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October 2009 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 in connection with its various programs to foster market liquidity and financial stability and to ensure appropriate accountability to the Congress and the public concerning policy actions taken to address the financial crisis. The report provides detailed information on the new policy tools that have been implemented since the summer of 2007. The Federal Reserve considers transparency about the goals, conduct, and stance of monetary policy to be fundamental to the effectiveness of monetary policy. The Federal Reserve Act sets forth the goals of monetary policy, specifically, “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Since the summer of 2007, the Federal Reserve has underNote: Financial information in this report has not been audited. Audited financial data are prepared annually and are available at www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm. taken 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 during the crisis have been directed toward achieving its statutory monetary policy objectives. Beginning with this edition of the report, the Federal Reserve will include additional information on the status of certain credit facilities implemented in response to the financial crisis. This information, which is provided in fulfillment of Section 129(b) of the Emergency Economic Stabilization Act of 2008, is included as an appendix to this report. For prior editions of this report along with other resources, please visit the Board’s public website at www.federalreserve.gov/monetarypolicy/ bst_reportsresources.htm. Contents Overview...............................................................................................................................................1 Recent Developments .............................................................................................................................1 System Open Market Account Holdings and Liquidity Arrangements with Foreign Central Banks ...4 System Open Market Account (SOMA) Portfolio........................................................................................4 Liquidity Swaps ....................................................................................................................................5 Lending Facilities to Support Overall Market Liquidity .....................................................................7 Lending to Depository Institutions............................................................................................................7 Lending to Primary Dealers.....................................................................................................................9 Commercial Paper Funding Facility (CPFF) .............................................................................................11 Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)...............................12 Term Asset-Backed Securities Loan Facility (TALF)..................................................................................13 Lending in Support of Specific Institutions ........................................................................................17 Recent Developments ...........................................................................................................................17 Bear Stearns and Maiden Lane LLC .......................................................................................................17 American International Group (AIG) .......................................................................................................18 Maiden Lane II LLC ............................................................................................................................20 Maiden Lane III LLC ...........................................................................................................................21 Citigroup ............................................................................................................................................22 Bank of America..................................................................................................................................22 Federal Reserve Banks’ Financial Tables ...........................................................................................24 Quarterly Developments ........................................................................................................................24 Combined Statement of Income and Comprehensive Income.......................................................................24 SOMA Financial Summary ....................................................................................................................24 Loan Programs Financial Summary.........................................................................................................26 Consolidated Variable Interest Entities (VIEs) Financial Summary ...............................................................27 Appendix.............................................................................................................................................28 Additional Information Provided Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008 ...................................................................................................................28 Tables and Figures Overview...............................................................................................................................................1 Table 1. Selected Assets, Liabilities, and Capital Accounts of the Federal Reserve System ...............................1 Figure 1. Credit and Liquidity Programs and the Federal Reserve’s Balance Sheet...........................................2 System Open Market Account Holdings and Liquidity Arrangements with Foreign Central Banks ...4 Table 2. System Open Market Account (SOMA) Holdings ..........................................................................4 Table 3. Amounts Outstanding under Dollar Liquidity Swaps ......................................................................5 Lending Facilities to Support Overall Market Liquidity .....................................................................7 Table Table Table Table Table Table Table Table 4. Discount Window Credit Outstanding to Depository Institutions ......................................................7 5. Concentration of Discount Window Credit Outstanding to Depository Institutions ...............................7 6. Lendable Value of Collateral Pledged by Borrowing Depository Institutions ......................................8 7. Lendable Value of Securities Pledged by Depository Institutions by Rating ........................................8 8. Discount Window Credit Outstanding to Depository Institutions—Percent of Collateral Used ...............9 9. Credit Outstanding to Primary Dealers .........................................................................................9 10. Concentration of Borrowing at the PDCF and TSLF .....................................................................9 11. PDCF Collateral by Type ........................................................................................................10 Table 12. PDCF Collateral by Rating .....................................................................................................10 Table 13. TSLF Collateral by Type ........................................................................................................11 Table 14. TSLF Collateral by Rating ......................................................................................................11 Table 15. Concentration of CPFF Issuers ................................................................................................11 Table 16. CPFF Commercial Paper Holdings by Type ...............................................................................11 Table 17. CPFF Commercial Paper Holdings by Rating ............................................................................11 Table 18. AMLF: Number of Borrowers and Amount Outstanding ..............................................................12 Table 19. AMLF Collateral by Rating ....................................................................................................12 Table 20. TALF: Number of Borrowers and Loans Outstanding ..................................................................13 Table 21A. Issuers of Non-CMBS that Collateralize Outstanding TALF Loans .............................................14 Table 21B. Issuers of CMBS that Collateralize Outstanding TALF Loans ....................................................14 Table 22. TALF Collateral by Underlying Loan Type ................................................................................16 Table 23. TALF Collateral by Rating .....................................................................................................16 Lending in Support of Specific Institutions ........................................................................................17 Table 24. Fair Value Asset Coverage ......................................................................................................17 Table 25. Maiden Lane LLC Outstanding Principal Balance of Loans .........................................................17 Table 26. Maiden Lane LLC Summary of Portfolio Composition, Cash/Cash Equivalents, and Other Assets and Liabilities ...............................................................................................................17 Table 27. Maiden Lane LLC Securities Distribution by Type and Rating .....................................................18 Figure 2. Maiden Lane LLC Securities Distribution as of June 30, 2009.......................................................18 Table 28. AIG Revolving Credit Facility .................................................................................................18 Figure 3. AIG Revolving Credit .............................................................................................................19 Table 29. Maiden Lane II LLC Outstanding Principal Balance of Senior Loan and Fixed Deferred Purchase Price .................................................................................................................................20 Table 30. Maiden Lane II LLC Summary of Portfolio Composition and Cash/Cash Equivalents ......................20 Table 31. Maiden Lane II LLC Asset Distribution by Sector and Rating ......................................................20 Figure 4. Maiden Lane II LLC Portfolio Distribution as of June 30, 2009.....................................................21 Table 32. Maiden Lane III LLC Outstanding Principal Balance of Senior Loan and Equity Contribution ..........21 Table 33. Maiden Lane III LLC Summary of Portfolio Composition and Cash/Cash Equivalents .....................21 Table 34. Maiden Lane III LLC Asset Distribution by Security Type/Vintage and Rating ...............................22 Figure 5. Maiden Lane III LLC Portfolio Distribution as of June 30, 2009....................................................22 Federal Reserve Banks’ Financial Tables ...........................................................................................24 Table 35. Federal Reserve Banks’ Combined Statement of Income and Comprehensive Income from January 1, 2009 to June 30, 2009 ...............................................................................................25 Table 36. SOMA Financial Summary .....................................................................................................26 Table 37. Loan Programs Financial Summary ..........................................................................................26 Table 38. Consolidated Variable Interest Entities Financial Summary ..........................................................27 1 Overview Recent Developments • Continued improvements in financial market conditions have been accompanied by further declines in credit extended through many of the Federal Reserve’s liquidity programs. In response to these developments, the Federal Reserve has adjusted the size and frequency of many program operations. • On September 23, 2009, the Federal Open Market Committee (FOMC) announced that the pace of purchases through its large scale asset purchase programs—specifically purchases of agency-guaranteed mortgage-backed securities (MBS) and agency debt—would slow, and that these purchases would be completed by the first quarter of 2010. In implementing this directive, the Open Market Trading Desk of the Federal Reserve Bank of New York 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 Federal Reserve also released operation schedules for the Term Auction Facility and Term Securities Lending Facility through January 2010. These schedules lay out the Federal Reserve’s timeline for gradually scaling back the size of the credit facilities Table 1. Selected Assets, Liabilities, and Capital Accounts of the Federal Reserve System Billions of dollars Item Current September 30, 2009 Change from August 26, 2009 Change from October 1, 2008 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected assets Securities held outright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury securities1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agency securities1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agency-guaranteed mortgage-backed securities2 . . . . . . . . . . . . . . . . . . . . . . . . Memo: TSLF3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memo: Overnight securities lending3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memo: Net commitments to purchase MBS4 . . . . . . . . . . . . . . . . . . . . . . . . . . . Lending to depository and other financial institutions . . . . . . . . . . . . . . . . . . . . . . Primary, secondary, and seasonal credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TAF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PDCF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AMLF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign central bank liquidity swaps5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lending through other credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of CPFF LLC6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TALF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Support for specific institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit extended to AIG, net7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio holdings of Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,144 +66 +638 1,593 769 131 692 0 13 184 207 29 178 0 * 57 84 41 43 100 39 +108 +24 +14 +69 0 −* +44 −45 −2 −43 0 0 −3 −1 −8 +8 −1 −* +1,102 +293 +116 +692 −236 −11 +184 −290 −21 +29 −147 −152 −230 +84 +41 +43 +9 −22 62 2,093 −* +65 +33 +628 873 848 108 165 16 51 +3 −14 +95 −35 +16 +1 +69 +669 +103 −179 −15 +10 Note: Unaudited. Components may not sum to totals because of rounding. * Less than $500 million. 1. Face value. 2. Current face value, which is the remaining principal balance of the underlying mortgages. Does not include unsettled transactions. 3. Securities loans under the TSLF 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 June 30, 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. 2 Credit and Liquidity Programs and the Balance Sheet Figure 1. Credit and Liquidity Programs and the Federal Reserve’s Balance Sheet October 2009 due to improvements in financial markets, while also taking account of the potential for temporary pressures in short-term funding markets around the yearend. • On October 5, 2009, the Federal Reserve announced two changes to the procedures for evaluating assetbacked securities pledged to the Term Asset-Backed Securities Loan Facility (TALF). These changes are intended to promote competition among credit-rating agencies, ensure appropriate protection against credit risk for the U.S. taxpayer, and ensure that TALF collateral continues to comply with its existing high standards for credit quality, transparency, and simplicity of structure. • In September 2009, Bank of America paid an exit fee in order to terminate the term sheet, initially entered into in January 2009, under which the U.S. Department of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation would have provided certain guarantees and residual financing to Bank of America to promote financial market stability. The term sheet was never implemented. The Federal Reserve’s portion of the exit fee was $57 million. 3 • The Treasury announced on September 16, 2009, that the balance of the Supplementary Financing Account at the Federal Reserve likely would decrease to $15 billion in the coming weeks in order to preserve flexibility in the conduct of debtmanagement policy. As of September 30, 2009, the balance of this account was approximately $165 billion. • As of September 30, 2009, the special drawing rights (SDRs) certificate account at the Federal Reserve increased to $5.2 billion as the Treasury issued $3 billion in certificates to the Federal Reserve to fund prospective purchases of SDRs from other countries seeking U.S. dollars. • As required by Section 129 of the Emergency Economic Stabilization Act of 2008, the Federal Reserve must report to Congress on the status of its Section 13(3) credit facilities every 60 days. This assessment is included as an appendix to this report. 4 Credit and Liquidity Programs and the Balance Sheet System Open Market Account Holdings and Liquidity Arrangements with Foreign Central Banks System Open Market Account (SOMA) Portfolio Recent Developments • The SOMA portfolio has continued to expand in recent weeks, reflecting Federal Reserve purchases of securities under the large-scale asset purchase programs (LSAPs). • As of September 30, 2009, the Federal Reserve had purchased about $293 billion in Treasury securities, bringing purchases within approximately $7 billion of the announced purchase limit of $300 billion. About 81 percent of the Treasuries purchased are nominal Treasury securities in the two to 10 year maturity range, and about 14 percent are in nominal securities with maturities greater than 10 years. The remainder of the purchases is Treasury InflationProtected Securities (TIPS) and nominal securities maturing in less than two years. • On September 23, 2009, the Federal Open Market Committee (FOMC) announced its intention to gradually slow the pace of its purchases of agencyguaranteed mortgage-backed securities (MBS) and agency debt. In implementing this directive, the Open Market Trading Desk of the Federal Reserve Bank of New York (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. • As of September 30, 2009, the Federal Reserve had purchased about $131 billion in agency debt, and $692 billion in agency MBS as part of the FOMC’s LSAPs. Approximately 78 percent of SOMA MBS holdings were in 4 and 4.5 percent coupon securities. • As of October 1, 2009, the FRBNY began to publish detailed data on all settled SOMA agency MBS holdings on a weekly basis. The publication of detailed data on agency MBS holdings is consistent with the FRBNY’s standard practice of publishing detailed data on other SOMA holdings on its website (www.newyorkfed.org/markets/soma/ sysopen_accholdings.html). Background 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 Federal Reserve Bank of New York (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 found in 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. The composition of the SOMA is shown in Table 2. 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. A repo is the economic equivalent of a colTable 2. System Open Market Account (SOMA) Holdings Billions of dollars, as of September 30, 2009 Security type Total par value U.S. Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Treasury notes and bonds . . . . . . . . . . . . . . . . . . . . . . . . Treasury Inflation-Protected Securities1 . . . . . . . . . . . . . . . Agency securities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agency-guaranteed mortgage-backed securities3 . . . . . . . Total SOMA holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 700 44 131 692 1,587 Note: Unaudited. Components may not sum to total because of rounding. Does not include unsettled transactions. 1. Does not reflect inflation compensation of about $6 billion. 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. 5 October 2009 lateralized loan, in which the difference between the purchase and sale prices reflects the interest on the loan. 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. The Federal Reserve’s approach to the implementation of monetary policy has evolved considerably since 2007, and particularly since late 2008. The FOMC has established a near-zero target range for the federal funds rate, implying that the very large volume of reserve balances provided through the various liquidity facilities is consistent with the FOMC’s funds rate objectives. In addition, OMOs have provided increasing amounts of reserve balances. 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 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 of securities combined with an agreement to sell 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 has some cash associated with the MBS purchase program. The FOMC has authorized purchases of up to $1.25 trillion of agency MBS and up to $200 billion of agency direct obligations. The FRBNY announced in August 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. These changes were not performance related. 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 accept on-the-run agency securities—the most recently issued securities—for purchase in order to mitigate market dislocations and promote overall market func- tioning. Prior to this change, purchases were focused on off-the-run agency securities. The Federal Reserve’s outright holdings of MBS are reported weekly in Tables 1, 3, 9, and 10 of the H.4.1 statistical release. In addition, as of October 1, 2009, detailed data on all settled agency MBS holdings are published on a weekly basis on the FRBNY website, which is consistent with the FRBNY standard practice of publishing detailed data on other SOMA holdings. 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 TIPS. The bulk of purchases have been in intermediate maturities. In August 2009, the FOMC announced that in order to promote a smooth transition in markets as purchases of these Treasury securities are completed, it has decided to gradually slow the pace of these transactions and anticipates that the purchases will be completed by the end of October. The Federal Reserve conducts purchases through regular auctions; auction results are posted to the FRBNY website at www.newyorkfed.org/markets/openmarket.html. Liquidity Swaps Recent Developments • Use of the Federal Reserve’s foreign central bank dollar liquidity swaps has continued to decline, consistent with ongoing improvements in short-term funding markets. • As shown in Table 3, as of September 30, 2009, total dollar liquidity extended to foreign central banks had dropped to $57 billion. Table 3. Amounts Outstanding under Dollar Liquidity Swaps Billions of dollars Central bank Amount as of 9/30/2009 Amount as of 12/31/2008 Bank of Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . Banco de Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . European Central Bank . . . . . . . . . . . . . . . . . . . . Swiss National Bank . . . . . . . . . . . . . . . . . . . . . . . Bank of Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank of England . . . . . . . . . . . . . . . . . . . . . . . . . . . Danmarks Nationalbank . . . . . . . . . . . . . . . . . . . Reserve Bank of Australia . . . . . . . . . . . . . . . . . Sveriges Riksbank . . . . . . . . . . . . . . . . . . . . . . . . . Norges Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve Bank of New Zealand . . . . . . . . . . . . Bank of Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Banco Central do Brasil . . . . . . . . . . . . . . . . . . . Monetary Authority of Singapore . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 3 44 0 2 * 1 0 3 1 0 4 0 0 57 0 0 291 25 123 33 15 23 25 8 0 10 0 0 554 Note: Unaudited. Components may not sum to totals because of rounding. * Less than $500 million. 6 • Consistent with the improvements in funding market conditions, the European Central Bank, the Bank of England, and the Swiss National Bank announced that after October 6, 2009, they would discontinue their 84-day U.S. dollar liquidity auctions, which had been funded through drawings on their swap lines with the Federal Reserve. Background Because of the global character of bank funding markets, the Federal Reserve has worked with other central banks in providing liquidity to financial markets and institutions. As part of these efforts, the FRBNY entered into agreements to establish temporary reciprocal currency arrangements (central bank liquidity swap lines) with a number of foreign central banks. Two types of temporary swap lines have been established— dollar liquidity lines and foreign-currency liquidity lines. The FRBNY operates swap lines under the authority in Section 14 of the Federal Reserve Act and in compliance with authorizations, policies, and procedures established by the 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 with additional central banks. The FOMC has authorized through February 1, 2010, the arrangements between the Federal Reserve and each of the following central banks: 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. Swaps under these lines consist of two transactions. When a foreign central bank (FCB) draws on its swap line with the FRBNY, the FCB sells a specified amount of its currency to the FRBNY in exchange for dollars at the prevailing market exchange rate. The FRBNY holds the foreign currency in an account at the FCB. The dollars that the FRBNY provides are deposited in an account that the FCB maintains at the FRBNY. At the same time, the FRBNY and the FCB enter into a binding agreement for a second transaction Credit and Liquidity Programs and the Balance Sheet that obligates the FCB to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. Because the swap transaction will be unwound at the same exchange rate used in the initial transaction, the recorded value of the foreign currency amounts is not affected by changes in the market exchange rate. At the conclusion of the second transaction, the FCB pays interest at a marketbased rate to the FRBNY. When the FCB lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the FCB account at the FRBNY to the account of the bank that the borrowing institution uses to clear its dollar transactions. The FCB remains obligated to return the dollars to the FRBNY under the terms of the agreement, and the FRBNY is not a counterparty to the loan extended by the FCB. The FCB bears the credit risk associated with the loans it makes to institutions in its jurisdiction. The foreign currency that the Federal Reserve acquires is an asset on the Federal Reserve’s balance sheet. In tables 1, 9, and 10 of the weekly H.4.1 statistical release, the dollar value of amounts that the foreign central banks have drawn but not yet repaid is reported in the line entitled “Central bank liquidity swaps.” Dollar liquidity swaps have maturities ranging from overnight to three months. Table 2 of the H.4.1 statistical release reports the remaining amount of outstanding dollar liquidity swaps. 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 are 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 mirror the existing dollar liquidity swap lines, which provide FCBs with the capacity to offer U.S. dollar liquidity to financial institutions in their jurisdictions. If drawn upon, the foreign-currency swap lines would support 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 FOMC has authorized these liquidity swap lines through February 1, 2010. So far, the Federal Reserve has not drawn on these swap lines. 7 October 2009 Lending Facilities to Support Overall Market Liquidity Lending to Depository Institutions Table 5. Concentration of Discount Window Credit Outstanding to Depository Institutions Recent Developments For four weeks ending September 30, 2009 • 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. • TAF auctions continue to be undersubscribed and, as a result, the auction rate has been equal to the minimum bid rate of 25 basis points for some time. • 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 offering amount under the 28-day auction will remain unchanged from its September level of $75 billion through January 2010. The auction amount for the 84-day auctions has been reduced to $50 billion in October and will be reduced to $25 billion in November and December. In addition, the maturity dates of the 84-day auctions will be adjusted over time to align these dates with the maturities of the 28-day auctions so that by early 2010 all TAF auctions will be on a 28-day cycle. • As indicated in Table 6, total collateral pledged by depository institutions with discount window loans outstanding on September 30, 2009, was $462 billion, more than twice the amount of credit outstanding. Table 4. Discount Window Credit Outstanding to Depository Institutions Daily average borrowing for each class of borrower over four weeks ending September 30, 2009 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 15 49 122 108 46 338 83 122 14 1 6 225 Note: Unaudited. Includes primary, secondary, seasonal, and TAF credit. Size categories based on total domestic assets from Call Report data as of June 30, 2009. Components may not sum to totals because of rounding. 1. Average daily number of depository institutions with credit outstanding. Over this period, a total of 563 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 5 328 338 82 36 108 225 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. • As previously announced, 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 broadbased review of methodology and data sources that began before the current financial crisis. 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 window lending are set forth in the 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. 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 8 Credit and Liquidity Programs and the Balance Sheet Table 6. Lendable Value of Collateral Pledged by Borrowing Depository Institutions Table 7. Lendable Value of Securities Pledged by Depository Institutions by Rating Billions of dollars, as of September 30, 2009 Billions of dollars, as of September 30, 2009 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 92 3 38 34 7 26 36 22 28 121 56 462 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 $207 billion. The lendable value of collateral pledged by all depository institutions, including those without any outstanding loans, was $1,475 billion. Lendable value is value after application of appropriate haircuts. Components may not sum to total because of rounding. appropriate “haircut” applied to the value of the collateral. 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 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,1 to identify potentially 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. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 201 46 69 25 75 555 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+ 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. problematic institutions and classify them according to the severity of the risk they pose to the Federal Reserve. 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 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 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). 9 October 2009 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. Institutions may not pledge as collateral any instruments that they or their 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. Announced 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 of methodology and data sources that began before the current financial crisis. For more information on these changes to collateral margins, see the Discount Window and Payments System Risk public website (www.frbdiscountwindow.org). As shown in Table 8, most depository institutions that borrow from the Federal Reserve maintain collateral well in excess of their current borrowing levels. Lending to Primary Dealers Recent Developments • Since mid-August, borrowing from the Term Securities Lending Facility (TSLF) has remained unchanged at zero. There has been no borrowing at the Primary Dealer Credit Facility (PDCF) since mid-May. • On September 24, 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, and offering amounts will be reduced to $25 billion in November, December, and January. Background On March 16, 2008, the Federal Reserve announced the creation of the PDCF, which is an overnight loan facility that provides funding to primary dealers and helps foster improved conditions in financial markets more generally. The Federal Reserve Board has authorized the extension of credit from the PDCF through February 1, 2010. While there is currently no borrowing under the PDCF, the Board believes that it is appropriate to continue to provide the PDCF as a backstop facility in the near term while financial market conditions remain somewhat fragile. PDCF credit is fully secured by collateral with appropriate haircuts—that is, the value of the collateral exceeds the value of the loan extended. Initially, eliTable 9. Credit Outstanding to Primary Dealers As of September 30, 2009 Number of borrowers Table 8. Discount Window Credit Outstanding to Depository Institutions—Percent of Collateral Used As of September 30, 2009 Percent of collateral used Number of borrowers Total borrowing ($ billions) Over 0 and under 25 . . . . . . . . . . . . . . . . . . . . . . . 25 to 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 to 75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 to 90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 101 97 28 14 351 21 55 97 34 * 207 Note: Unaudited. Components may not sum to totals because of rounding. *Less than $500 million. Borrowing under PDCF ($ billions) Borrowing under TSLF ($ billions) 0 0 0 Note: Unaudited. Borrowing figures represent total amounts of PDCF and TSLF credit extended as of the date shown. The total reported for the TSLF represents the par value of securities lent. Table 10. Concentration of Borrowing at the PDCF and TSLF As of September 30, 2009 Rank by amount of borrowing Number of borrowers Daily average borrowing ($ billions) Top five . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Next five . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0 0 0 Note: Unaudited. 10 gible collateral was restricted to investment-grade 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 triparty repurchase agreement systems of the two major clearing banks. On September 21 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. Credit extended under either program is reported weekly in Table 1 of the H.4.1 statistical release as “Primary dealer and other broker-dealer credit” and is included in “Other loans” in Tables 9 and 10 of the H.4.1 statistical release. On March 11, 2008, the Federal Reserve announced the creation of the Term Securities Lending Facility (TSLF). Under the TSLF, the Federal Reserve Bank of New York (FRBNY) lends Treasury securities to primary dealers for 28 days against eligible collateral in two types of auctions. For so-called “Schedule 1” auctions, the eligible collateral consists of Treasury securities, agency securities, and agency-guaranteed mortgage-backed securities (MBS). For “Schedule 2” auctions, the eligible collateral includes Schedule 1 collateral plus highly rated private securities. In mid2008, the Federal Reserve introduced the Term Securities Lending Facility Options Program (TOP), which offers options to primary dealers to draw upon shortterm, fixed-rate TSLF loans from the System Open Market Account (SOMA) portfolio in exchange for program-eligible collateral. The TOP is intended to enhance the effectiveness of the TSLF by offering added liquidity over periods of heightened collateral market pressures, such as quarter-end dates. The Federal Reserve Board has authorized the extension of credit from the TSLF through February 1, 2010. TSLF Schedule 1 and TOP auctions, however, were suspended effective July 2009 in light of considerably lower use of the facility. The TSLF supports the liquidity of primary dealers and fosters improved conditions in financial markets more generally. Securities lent through these programs are reported weekly in Table 1A of the H.4.1 statistical release. In addition to the TSLF and TOP, the Federal Reserve has long operated an overnight securities lending facility as a vehicle to address market pressures for specific Treasury and, since July 9, 2009, housingrelated government-sponsored enterprise (GSE) securities that are particularly sought after. Amounts outstanding under that program are, generally, fairly modest, and are also reported in Table 1A of the H.4.1 statistical release. Credit and Liquidity Programs and the Balance Sheet Collateral Eligible collateral for loans extended through the PDCF includes 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 may not exceed the lendable value of eligible collateral that the dealer has provided to the FRBNY. The collateral is valued by the clearing banks; values are based on prices reported by a number of private-sector pricing services widely used by market participants. Loans extended under the PDCF are made with recourse beyond the collateral provided by the primary dealer entity itself. Breakdowns of PDCF collateral by asset type and credit rating are shown in Tables 11 and 12, respectively. Transactions under the TSLF involve lending securities rather than cash; a dealer borrows Treasury securities from the Federal Reserve and provides another security as collateral. Eligible collateral is determined by the Federal Reserve. Currently, two schedules of collateral are defined. Schedule 1 collateral is Treasury, Table 11. PDCF Collateral by Type Billions of dollars, as of September 30, 2009 Type of collateral Lendable value Securities U.S. Treasury/agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Municipal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate market instruments . . . . . . . . . . . . . . . . . . . . . . . MBS/CMO: agency-guaranteed . . . . . . . . . . . . . . . . . . . . . MBS/CMO: other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset-backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International (sovereign, agency, and corporate) . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0 0 0 0 0 0 Note: Unaudited. Collateral pledged by borrowers of PDCF and related credit to primary dealers as of the date shown. Credit on that date totaled $0 billion. Lendable value is value after application of appropriate haircuts. Table 12. PDCF Collateral by Rating Billions of dollars, as of September 30, 2009 Type of collateral Lendable value U.S. Treasury/agency securities . . . . . . . . . . . . . . . . . . . . . . . Other securities Aaa/AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa/AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A ................................................... Baa/BBB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ba/BB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Caa/CCC or below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrated securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0 0 0 0 0 0 Note: Unaudited. Collateral pledged by borrowers of PDCF and related credit to primary dealers as of the date shown. Credit on that date totaled $0 billion. Lendable value is value after application of appropriate haircuts. 11 October 2009 Table 13. TSLF Collateral by Type Table 16. CPFF Commercial Paper Holdings by Type Billions of dollars, as of September 30, 2009 Billions of dollars, as of September 30, 2009 Type of collateral Lendable value Securities U.S. Treasury/agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Municipal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MBS/CMO: agency-guaranteed . . . . . . . . . . . . . . . . . . . . . MBS/CMO: other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset-backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0 0 Type of commercial paper Value Unsecured commercial paper Issued by financial firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issued by nonfinancial firms . . . . . . . . . . . . . . . . . . . . . . . . Asset-backed commercial paper . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 0 26 37 Note: Unaudited. Components may not sum to total because of rounding; does not include $5 billion of other investments. Note: Unaudited. Collateral pledged by borrowers of TSLF as of the date shown. Borrowing on the date shown was $0 billion. Lendable value is value after application of appropriate haircuts. Table 14. TSLF Collateral by Rating Billions of dollars, as of September 30, 2009 Type of collateral Lendable value U.S. Treasury, agency, and agency-guaranteed securities . . Other securities Aaa/AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa/AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A/A-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Baa/BBB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0 Note: Unaudited. Collateral pledged by borrowers of TSLF as of the date shown. Borrowing on that date was $0 billion. Lendable value is value after application of appropriate haircuts. TSLF collateral must be investment-grade. agency, and agency-guaranteed MBS. Schedule 2 collateral is investment-grade corporate, municipal, mortgage-backed, and asset-backed securities, as well as Schedule 1 collateral. Haircuts on posted collateral are determined by the FRBNY using methods consistent with current market practices. Breakdowns of TSLF collateral by asset type and credit rating are shown in Tables 13 and 14, respectively. Commercial Paper Funding Facility (CPFF) Recent Developments • The amount of commercial paper held in the CPFF has continued to decline in recent weeks. Improvements in market conditions have allowed some borrowers to obtain financing from private investors. This factor, combined with reduced funding needs, has contributed to the decreased usage of the facility. Table 15. Concentration of CPFF Issuers For four weeks ending September 30, 2009 Rank by amount of commercial paper Number of borrowers Daily average borrowing ($ billions) Top five issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Next five issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . Other issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 14 24 23 9 8 39 Note: Unaudited. Amount of commercial paper held in the CPFF that was issued by the top five and the next five issuers on each day. Components may not sum to totals because of rounding. Background The CPFF is a facility, authorized under Section 13(3) of the Federal Reserve Act, that supports liquidity in the commercial paper markets. The CPFF provides a liquidity backstop to U.S. issuers of commercial paper through a specially created limited-liability company (LLC) called the CPFF LLC. This LLC purchases 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 cumulated upfront fees paid by the issuers. Breakdowns of commercial paper held in the CPFF LLC, by type and credit rating, are shown in Tables 16 and 17, respectively. The CPFF was announced on October 7, 2008, and purchases of commercial paper began on October 27. 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, 9, and 10 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 Federal Reserve Board has authorized the extension of credit from the CPFF through February 1, 2010. Table 17. CPFF Commercial Paper Holdings by Rating Billions of dollars, as of September 30, 2009 Type of collateral Value 1 Commercial paper with rating A-1/P-1/F-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Split-rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Downgraded after purchase . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 * 0 37 Note: Unaudited. Components may not sum to total because of rounding; does not include $5 billion of other investments. * Less than $500 million. 1. The CPFF purchases only U.S. dollar-denominated commercial paper (including asset-backed commercial paper (ABCP)) that is rated at least A-1/P-1/F-1 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/F-1 by two or more. “Split-rated” is acceptable commercial paper that has received an A-1/P-1/F-1 rating from two rating organizations and a lower rating from a third rating organization. Some pledged commercial paper was downgraded below split-rated after purchase; the facility holds such paper to maturity. 12 Credit and Liquidity Programs and the Balance Sheet Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) Recent Developments • The amount of credit outstanding under the AMLF was $79 million on September 30, 2009, and subsequently dropped to zero as of October 13, 2009. Background The AMLF is a lending facility that finances 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 is intended to assist money funds that hold such paper in meeting the demands for redemptions by investors and to foster liquidity in the assetbacked commercial paper (ABCP) market and money markets more generally. The loans extended through the AMLF are non-recourse loans; as a result, the Federal Reserve has rights to only the collateral securing the loan if the borrower elects not to repay. To help ensure that the AMLF is used for its intended purpose of providing a temporary liquidity backstop to MMMFs, the Federal Reserve has established a redemption threshold for use of the facility. Under this requirement, a MMMF must experience material outflows—defined as at least 5 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 sells would be eligible collateral for AMLF loans to depository institutions and bank holding companies. Any eligible ABCP purchased from a MMMF that has experienced redemptions at these thresholds could be pledged to AMLF at any time within the five business days following the date that the threshold level of redemptions was reached. The initiation of the AMLF, announced on September 19, 2008, relied on authority under Section 13(3) of the Federal Reserve Act. It is administered by the Federal Reserve Bank of Boston, which is authorized to make AMLF loans to eligible borrowers in all 12 Federal Reserve Districts. Lending through the AMLF Table 18. AMLF: Number of Borrowers and Amount Outstanding Daily average for four weeks ending September 30, 2009 Number of borrowers Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Unaudited. * Three or fewer borrowers. ** Less than $500 million. Borrowing ($ billions) * ** is presented in Table 1 of the weekly H.4.1 statistical release and is included in “Other loans” in tables 9 and 10 of the H.4.1 statistical release. The Federal Reserve Board has authorized extension of credit through the AMLF through February 1, 2010. Since May 8, 2009, there has been no new borrowing through the AMLF. Collateral Collateral eligible for the AMLF is limited to ABCP that: — was purchased by the borrower on or after September 19, 2008, from a registered investment company that holds itself out as a MMMF and has 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 F-1 at the time it was pledged to the Federal Reserve Bank of Boston (this would exclude paper that is rated A-1/P-1/F-1 but is 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 — has a stated maturity that does not exceed 120 days if the borrower is a bank, or 270 days if the borrower is a non-bank. The qualifying ABCP must be transferred to the Federal Reserve Bank of Boston’s restricted account at the Depository Trust Company before an advance, collateralized by that ABCP, will be approved. The collateral is valued at the amortized cost (as defined in the Letter Table 19. AMLF Collateral by Rating Billions of dollars, as of September 30, 2009 Type of collateral Value Asset-backed commercial paper with rating A-1/P-1/F-1 and not on watch for downgrade . . . . . . A-1/P-1/F-1 but on watch for downgrade1 . . . . . . . . . . Below A-1/P-1/F-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 0 0 * Note: Unaudited. Components may not sum to total because of rounding. * Less than $500 million. 1. The AMLF accepts only U.S.-dollar denominated asset-backed commercial paper (ABCP) that is not rated lower than A-1, P-1, or F-1 by Moody’s, S&P, or Fitch, and (effective April 22, 2009) is not on watch for downgrade. Collateral that is on watch for downgrade or is rated below A-1/P-1/F-1 is ABCP that has deteriorated after it was pledged. 13 October 2009 of Agreement) of the eligible ABCP pledged to secure an advance. Advances made under the facility are made without recourse, provided the requirements in the Letter of Agreement are met. A breakdown of AMLF collateral by credit rating is shown in Table 19. Term Asset-Backed Securities Loan Facility (TALF) Recent Developments • The September TALF subscription supported primary issuance of 14 asset-backed securities (ABS) deals worth a total of about $17 billion, of which approximately $6 billion was financed through the TALF and approximately $1 billion was extended against previously issued TALF-eligible ABS collateral. In addition, $1.4 billion in TALF loans were extended against legacy commercial mortgage-backed securities (CMBS) collateral as of the subscription settlement on September 25, 2009. • On October 5, 2009, the Federal Reserve announced two changes to the procedures for evaluating ABS pledged to TALF. These changes are intended to promote competition among credit-rating agencies, ensure appropriate protection against credit risk for the U.S. taxpayer, and ensure that TALF collateral continues to comply with its existing high standards for credit quality, transparency, and simplicity of structure. — The first change, which currently is out for public comment, would establish criteria for the FRBNY to use when determining which Nationally Recognized Statistical Rating Organizations’ (NRSROs) ratings are accepted regarding the eligibility of ABS to be pledged as collateral to the TALF. — The second change requires FRBNY to conduct a formal risk assessment of all proposed collateral in addition to continuing to require that collateral for TALF loans receive two triple-A ratings from TALF-eligible NRSROs. The FRBNY assessment is slated to begin with the November TALF subscription. Table 20. TALF: Number of Borrowers and Loans Outstanding As of September 30, 2009 Lending program Number of borrowers Borrowing ($ billions) Non-CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 57 144 39 4 43 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. 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 the 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 approved rating agencies and do not have a credit rating below the highest investment-grade rating category from a major rating agency. The loans provided through the TALF are nonrecourse loans; the Federal Reserve has rights to only the collateral securing the loan in the event that the borrower elects not to repay. 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. The U.S. Treasury is providing protection against losses of up to $20 billion to the FRBNY using funds authorized under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008. 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 Treasury providing additional funds from the TARP. As of September 30, 2009, however, the authorized limit for the program remains at $200 billion. On March 19, 2009, the Federal Reserve Board announced that starting in April, the range of eligible collateral for TALF loans was being expanded to include ABS backed by loans or leases related to business equipment, leases of vehicle fleets, floorplan loans, and mortgage servicing advances. On March 23, 2009, the Federal Reserve and the Treasury announced that they were planning on 14 Credit and Liquidity Programs and the Balance Sheet Table 21A. Issuers of Non-CMBS that Collateralize Outstanding TALF Loans Table 21B. Issuers of CMBS that Collateralize Outstanding TALF Loans As of September 30, 2009 As of September 30, 2009 Issuers AH Mortgage Advance Trust 2009-ADV1 AH Mortgage Advance Trust 2009-ADV2 Ally Auto Receivables Trust 2009-A American Express Credit Account Master Trust AmeriCredit Automobile Receivables Trust 2009-1 Bank of America Auto Trust 2009-1 Bank of America Auto Trust 2009-2 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 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 Auto Owner Trust 2009-D GE Capital Credit Card Master Note Trust GE Dealer Floorplan Master Note Trust GE Equipment Midticket LLC, Series 2009-1 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 ABS Funding Corporation John Deere Owner Trust 2009 MMCA Auto Owner Trust 2009-A Nissan Auto Lease Trust 2009-A Nissan Auto Receivables 2009-A Owner Trust 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-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 expanding the list of eligible collateral for TALF loans to include previously issued securities—so-called “legacy securities”—as a complement to the Treasury’s Public-Private Investment Program. On May 1, 2009, the Federal Reserve announced that starting in June 2009, newly issued CMBS and securities backed by insurance premium finance loans would be eligible collateral under the TALF. The Federal Reserve also authorized TALF loans with maturities of five years, available for the June funding, to finance purchases of CMBS, ABS backed by student loans, and ABS backed by loans guaranteed by the Small Business Administration. The Federal Reserve indicated that up to $100 billion of TALF loans could have five-year maturities and that some of the interest Issuers Banc of America Commercial Mortgage Inc. Series 2004-1 Banc of America Commercial Mortgage Inc. Series 2004-4 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 2006-4 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 2007-3 Banc of America Commercial Mortgage Trust 2007-4 Bear Stearns Commercial Mortgage Securities Trust 2004-PWR4 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR10 Bear Stearns Commercial Mortgage Securities Trust 2005-PWR9 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 2007-PWR15 Bear Stearns Commercial Mortgage Securities Trust 2007-PWR16 Bear Stearns Commercial Mortgage Securities Trust 2007-TOP26 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 COMM 2004-LNB2 Mortgage Trust COMM 2005-C6 Mortgage Trust COMM 2005-LP5 Mortgage Trust COMM 2006-C7 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-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 2005-C1 CSFB Commercial Mortgage Trust 2005-C2 CSFB Commercial Mortgage Trust 2005-C3 CSFB Commercial Mortgage Trust 2005-C5 CSFB Commercial Mortgage Trust 2005-C6 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 2006-C1 Trust 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-CIBC10 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2004-CIBC8 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-CIBC12 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-CIBC13 J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP1 15 October 2009 Table 21B. Issuers of CMBS that Collateralize Outstanding TALF Loans—Continued As of September 30, 2009 Issuers J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP2 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-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 2007-LDP11 J.P. Morgan Chase Commercial Mortgage Securities Trust 2007-LDP12 LB Commercial Mortgage Trust 2007-C3 LB-UBS Commercial Mortgage Trust 2004-C2 LB-UBS Commercial Mortgage Trust 2005-C2 LB-UBS Commercial Mortgage Trust 2005-C3 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 Merrill Lynch Mortgage Trust 2003-KEY1 Merrill Lynch Mortgage Trust 2004-KEY2 Merrill Lynch Mortgage Trust 2005-CIP1 Merrill Lynch Mortgage Trust 2005-CKI1 Merrill Lynch Mortgage Trust 2006-C1 ML-CFC Commercial Mortgage Trust 2006-2 ML-CFC Commercial Mortgage Trust 2006-3 ML-CFC Commercial Mortgage Trust 2007-5 ML-CFC Commercial Mortgage Trust 2007-6 ML-CFC Commercial Mortgage Trust 2007-9 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-HQ7 Morgan Stanley Capital I Trust 2006-TOP21 Morgan Stanley Capital I Trust 2007-HQ11 Morgan Stanley Capital I Trust 2007-IQ14 Wachovia Bank Commercial Mortgage Trust Series 2003-C9 Wachovia Bank Commercial Mortgage Trust Series 2004-C12 Wachovia Bank Commercial Mortgage Trust Series 2005-C19 Wachovia Bank Commercial Mortgage Trust Series 2005-C22 Wachovia Bank Commercial Mortgage Trust Series 2006-C23 Wachovia Bank Commercial Mortgage Trust Series 2006-C24 Wachovia Bank Commercial Mortgage Trust Series 2006-C25 Wachovia Bank Commercial Mortgage Trust Series 2006-C26 Wachovia Bank Commercial Mortgage Trust Series 2006-C27 Wachovia Bank Commercial Mortgage Trust Series 2006-C28 Wachovia Bank Commercial Mortgage Trust Series 2006-C29 Wachovia Bank Commercial Mortgage Trust Series 2007-C30 Wachovia Bank Commercial Mortgage Trust Series 2007-C31 Wachovia Bank Commercial Mortgage Trust Series 2007-C33 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 May 19, 2009, the Federal Reserve announced that starting in July 2009, certain high-quality CMBS issued before January 1, 2009 (legacy CMBS), would become eligible collateral under the TALF. The Federal Reserve indicated that eligible newly issued and legacy CMBS must have at least two AAA ratings from a list of approved ratings agencies—DBRS, Fitch, Moody’s Investors Service, Realpoint, or Standard & Poor’s— and must not have a rating below AAA from any of these rating agencies. More broadly, the Federal Reserve announced that it would be formalizing procedures for determining the set of rating agencies whose ratings would be accepted for various types of eligible collateral in the Federal Reserve’s credit programs. 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, will represent borrowers in accessing the facility. The Federal Reserve anticipates that the appointment of these agents will enable a broader range of investors to access TALF financing. 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 long-term credit rating in the highest investment-grade rating category (for example, AAA) from two or more rating agencies and (2) do not have a long-term credit rating below the highest investment-grade rating category from a single rating agency. 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, 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 col- 16 Credit and Liquidity Programs and the Balance Sheet Table 22. TALF Collateral by Underlying Loan Type Table 23. TALF Collateral by Rating Billions of dollars, as of September 30, 2009 Billions of dollars, as of September 30, 2009 Type of collateral By underlying loan type Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Newly issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premium finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floorplan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Servicing advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Small business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Student loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value 8 5 0 5 23 1 1 1 1 * 6 47 Note: Unaudited. Components may not sum to total because of rounding. Data represent the face value of collateral. * Less than $500 million. lateral 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 Type of collateral Value Asset-backed securities with rating AAA/Aaa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 47 Note: Unaudited. secured by the ABS collateral, with the FRBNY lending an amount equal to the market value of the ABS less a haircut. 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. In addition, the U.S. Treasury Department—under the TARP—will provide $20 billion of credit protection to the FRBNY in connection with the TALF. Breakdowns of TALF collateral by underlying loan type and credit rating are shown in Tables 22 and 23, respectively. 17 October 2009 Lending in Support of Specific Institutions Recent Developments Table 25. Maiden Lane LLC Outstanding Principal Balance of Loans • As presented in Table 24, net income including changes in valuation for the quarter ended June 30, 2009, resulted in improvements to the fair value asset coverage of loans of the Federal Reserve Bank of New York (FRBNY) to Maiden Lane and Maiden Lane III LLCs, while a net loss further reduced the coverage of the loan to Maiden Lane II LLC. Millions of dollars • Cash flows generated from the Maiden Lane II and Maiden Lane III portfolios are used to pay down the loans from the FRBNY. As shown in Tables 29 and 32, those repayments totaled about $2.6 billion in the second quarter of 2009. FRBNY senior loan Principal balance at closing . . . . . . . . . . . . . . . . Most Recent Quarterly Activity Principal balance on 3/31/2009 (including accrued and capitalized interest) . . . . . . . . . Accrued and capitalized interest 3/31/2009 to 6/30/2009 . . . . . . . . . . . . . . . . . . Repayment during the period from 3/31/2009 to 6/30/2009 . . . . . . . . . . . . . . . . . . Principal balance on 6/30/2009 (including accrued and capitalized interest) . . . . . . . . . JPMC subordinate loan 28,820 1,150 29,123 1,202 36 15 − − 29,159 1,217 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. Background In the current 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. 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 fund the purchase of a portfolio of mortgage-related securities, residential and commercial mortgage loans, Table 24. Fair Value Asset Coverage Millions of dollars Fair value asset coverage of FRBNY loan on 6/30/2009 Maiden Lane LLC . . . . . . . Maiden Lane II LLC . . . . . Maiden Lane III LLC . . . . Fair value asset coverage of FRBNY loan on 3/31/2009 (3,400) (2,371) (129) (3,771) (1,965) (3,435) Note: Unaudited. Fair value asset coverage is the amount by which the fair value of the net portfolio assets of each LLC (see Table 38) is greater or less than the outstanding balance of the loans extended by the FRBNY, including accrued interest. and associated hedges from Bear Stearns. The LLC will manage its assets through time to maximize 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, 9, and 10 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. Table 26. Maiden Lane LLC Summary of Portfolio Composition, Cash/Cash Equivalents, and Other Assets and Liabilities Millions of dollars Fair value on Fair value on 6/30/2009 3/31/2009 Agency CMOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-agency CMOs . . . . . . . . . . . . . . . . . . . . . . . . Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . Residential loans . . . . . . . . . . . . . . . . . . . . . . . . . . . Swap contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TBA commitments1 . . . . . . . . . . . . . . . . . . . . . . . . Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . Cash & cash equivalents . . . . . . . . . . . . . . . . . . . Other assets2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities3 . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,424 1,962 4,447 683 1,827 1,199 736 1,805 827 (4,151) 25,759 14,369 1,552 4,697 780 2,280 1,448 1,221 2,640 1,869 (5,505) 25,352 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 receivables. 3. Including amounts payable for securities purchased, collateral posted to Maiden Lane LLC by swap counterparties, and other liabilities/accrued expenses. 18 Credit and Liquidity Programs and the Balance Sheet Table 27. Maiden Lane LLC Securities Distribution by Type and Rating Percent, as of June 30, 2009 Security type1 Agency CMOs . . . . . . . . . . . . . . . . . Non-agency CMOs . . . . . . . . . . . . . Other2 . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . Rating AAA AA+ to AA− A+ to A− 0.0 0.8 1.6 2.4 0.0 0.7 1.2 1.9 0.0 0.9 0.3 1.2 BBB+ to BBB− BB+ and lower 0.0 0.7 0.4 1.1 0.0 7.2 0.3 7.5 Gov’t/Agency Total 85.9 0.0 0.0 85.9 85.9 10.3 3.8 100.0 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 investments. 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 June 30, 2009 Information about the assets and liabilities of Maiden Lane LLC is presented as of June 30, 2009, in Tables 25 through 27 and Figure 2. This information is updated on a quarterly basis. American International Group (AIG) Recent Developments • As shown in Table 28, the balance on the AIG revolving credit facility was $38.7 billion on September 30, 2009, largely unchanged since the end of August 2009. Over the reporting period, loan repayments only slightly outpaced loan drawdowns. Table 28. AIG Revolving Credit Facility Billions of dollars Value Balance on August 26, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . Principal drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recapitalized interest & fees . . . . . . . . . . . . . . . . . . . . . . . Amortization of restructuring allowance . . . . . . . . . . . . Balance on September 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . 39.1 1.4 −2.4 0.4 0.2 38.7 Note: Unaudited. Components may not sum to total because of rounding. Does not include Maiden Lane II LLC and Maiden Lane III LLC. Asset Divestitures • On September 5, 2009, AIG announced that it would sell a portion of its investment advisory and asset management business to Bridge Partners, L.P., a company owned by Pacific Century Group (PCG), a Hong Kong-based private investment firm. The $500 million purchase price consists of a cash payment of about $300 million at closing, plus additional future consideration that includes a performance note and a continuing share of carried interest. AIG will retain its in-house investment operation, which oversees approximately $480 billion of the assets under management. • On October 12, 2009, AIG announced that it would sell its 97.57 percent share of Nan Shan Life Insurance Company, Ltd. for approximately $2.15 billion to a consortium comprising Primus Financial Holdings Limited and China Strategic Holdings Limited. Background On September 16, 2008, the Federal Reserve, with the full support of the Treasury Department, announced 19 October 2009 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 9 and 10 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 to certain AIG subsidiaries against a range of securities. 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 an additional 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 is the three-month LIBOR plus 300 basis points, was modified by removing the existing interest rate floor of 3.5 percent on the LIBOR rate. Consistent with U.S. generally accepted accounting principles (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. On June 25, 2009, the FRBNY entered into agreements with AIG to carry out two transactions previously approved and announced on March 2, as part of the restructuring of the U.S. government’s assistance to AIG. Under these agreements, the FRBNY will receive preferred equity interests in two special-purpose vehicles formed to hold the outstanding common stock 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 $60 billion limit on the credit agreement plus capitalized interest and fees. 20 Credit and Liquidity Programs and the Balance Sheet of American International Assurance Company Ltd. (AIA) and American Life Insurance Company (ALICO), two life insurance subsidiaries of AIG. In exchange, upon the closing of each transaction and the resulting issuance of preferred equity, the FRBNY will reduce the outstanding balance and amount available to AIG under the revolving credit facility. The closing of each transaction is expected to occur by the end of 2009, pending the completion of the necessary regulatory approval processes. These transactions, when consummated, will position both AIA and ALICO for future initial public offerings, depending on market conditions. Subject to certain conditions, proceeds from any public offerings by the companies must first be used to redeem the FRBNY’s preferred interests, until the preferred interests have been redeemed in full. The interest rate on the loan to AIG is the threemonth LIBOR rate 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. 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. Table 29. Maiden Lane II LLC Outstanding Principal Balance of Senior Loan and Fixed Deferred Purchase Price Millions of dollars FRBNY senior loan Principal balance at closing . . . . . . . . . . . . . . . . Most Recent Quarterly Activity Principal balance on 3/31/2009 (including accrued and capitalized interest) . . . . . . . . . Accrued and capitalized interest 3/31/2009 to 6/30/2009 . . . . . . . . . . . . . . . . . . Repayment during the period from 3/31/2009 to 6/30/2009 . . . . . . . . . . . . . . . . . . Principal balance on 6/30/2009 (including accrued and capitalized interest) . . . . . . . . . AIG fixed deferred purchase price 19,494 1,000 18,638 1,012 64 8 (990) − 17,712 1,020 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. Table 30. Maiden Lane II LLC Summary of Portfolio Composition and Cash/Cash Equivalents Millions of dollars Fair value on Fair value on 6/30/2009 3/31/2009 Alt-A (ARM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option ARM1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other1,2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash & cash equivalents . . . . . . . . . . . . . . . . . . . Other assets3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities4 . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maiden Lane II LLC 4,455 8,348 840 1,371 327 3 (2) 15,341 4,401 9,744 728 1,497 297 7 (2) 16,673 Note: Unaudited. Components may not sum to totals because of rounding. 1. Aggregate fair value of positions classified under “Option ARM” was included as part of “Other” in previous reports because it was less than 5 percent of the aggregate fair value of securities in the portfolio at that time. 2. Includes all asset sectors that, individually, represent less than 5 percent of aggregate outstanding fair value of securities in the portfolio. 3. Including interest and principal receivable and other receivables. 4. Including accrued expenses. Under Section 13(3) of the Federal Reserve Act, the Federal Reserve Board authorized the FRBNY to lend up to $22.5 billion to a newly formed Delaware limited liability company, Maiden Lane II LLC, to fund the purchase of residential mortgage-backed securities (RMBS) from the securities lending portfolio of several regulated U.S. insurance subsidiaries of AIG. On Table 31. Maiden Lane II LLC Asset Distribution by Sector and Rating Percent, as of June 30, 2009 RMBS sector Alt-A (ARM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option ARM1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other1,2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rating AAA AA+ to AA− A+ to A− 1.4 8.8 0.0 0.2 10.3 3.1 3.3 0.0 1.0 7.5 1.8 3.5 0.0 0.0 5.3 BBB+ to BBB− BB+ and lower 2.3 2.9 0.0 0.0 5.3 21.0 37.2 5.6 7.9 71.7 Total 29.7 55.6 5.6 9.1 100.0 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. Aggregate fair value of positions classified under “Option ARM” was included as part of “Other” in previous reports because it was less than 5 percent of the aggregate fair value of securities in the portfolio at that time. 2. Includes all asset sectors that, individually, represent less than 5 percent of the aggregate fair value of securities in the portfolio. 21 October 2009 Figure 4. Maiden Lane II LLC Portfolio Distribution as of June 30, 2009 December 12, 2008, the FRBNY loaned about $19.5 billion to Maiden Lane II LLC. Details of the terms of the loan are published on the FRBNY website (www. newyorkfed.org/markets/maidenlane2.html). The assets of Maiden Lane II LLC are presented in Tables 1, 9, and 10 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 June 30, 2009, in Tables 29 through 31 and Figure 4. This information is updated on a quarterly basis. Maiden Lane III LLC Under Section 13(3) of the Federal Reserve Act, the Federal Reserve Board authorized the FRBNY to lend up to $30 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. On November 25, 2008, the FRBNY loaned about $24.4 billion to Maiden Lane III LLC. 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 assets of Maiden Lane III LLC are presented in Tables 1, 9, and 10 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 June 30, 2009, in Tables 32 through 34 and Figure 5. This information is updated on a quarterly basis. Table 32. Maiden Lane III LLC Outstanding Principal Balance of Senior Loan and Equity Contribution Table 33. Maiden Lane III LLC Summary of Portfolio Composition and Cash/Cash Equivalents Millions of dollars FRBNY senior loan Principal balance at closing . . . . . . . . . . . . . . . . Most Recent Quarterly Activity Principal balance on 3/31/2009 (including accrued and capitalized interest) . . . . . . . . . Accrued and capitalized interest 3/31/2009 to 6/30/2009 . . . . . . . . . . . . . . . . . . Repayment during the period from 3/31/2009 to 6/30/2009 . . . . . . . . . . . . . . . . . . Principal balance on 6/30/2009 (including accrued and capitalized interest) . . . . . . . . . AIG equity contribution 24,339 5,000 24,168 5,065 82 43 (1,636) 22,614 − 5,108 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. Millions of dollars Fair value on Fair value on 6/30/2009 3/31/2009 High-grade ABS CDO . . . . . . . . . . . . . . . . . . . . . Mezzanine ABS CDO . . . . . . . . . . . . . . . . . . . . . Commercial real estate CDO . . . . . . . . . . . . . . RMBS, CMBS, & Other . . . . . . . . . . . . . . . . . . . Cash & cash equivalents . . . . . . . . . . . . . . . . . . . Other assets1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,491 1,882 4,186 225 1,645 59 (4) 22,485 13,565 1,832 3,761 − 1,508 73 (5) 20,733 Note: Unaudited. Components may not sum to totals because of rounding. 1. Including interest and principal receivable and other receivables. 2. Including accrued expenses. 22 Credit and Liquidity Programs and the Balance Sheet Table 34. Maiden Lane III LLC Asset Distribution by Security Type/Vintage and Rating Percent, as of June 30, 2009 Security type/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 16.7 2.7 0.0 0.0 14.0 0.2 0.0 0.2 0.0 0.0 16.9 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 0.1 0.0 0.1 0.0 0.0 0.8 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.0 0.0 0.0 3.0 3.0 0.0 0.0 0.0 0.1 0.0 0.1 0.0 0.0 3.3 BBB+ to BBB- BB+ and lower 0.7 0.7 0.0 0.0 0.0 2.4 1.7 0.0 0.0 0.8 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.0 0.0 3.3 69.0 24.2 29.6 7.6 7.6 6.0 3.1 2.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 0.1 0.4 0.1 0.0 75.5 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 69.7 24.9 29.6 7.6 7.6 9.1 5.5 2.8 0.0 0.8 20.1 6.1 0.0 0.0 14.0 1.1 0.2 0.8 0.1 0.0 100.0 Note: Unaudited. This table presents the security, 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 Portfolio Distribution as of June 30, 2009 Citigroup Bank of America On November 23, 2008, the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (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 are provided on the Federal Reserve Board’s website (www.federalreserve.gov/monetarypolicy/ bst_supportspecific.htm). The FRBNY has not extended credit to Citigroup under this arrangement. 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 at 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 October 2009 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. 23 In September 2009, Bank of America paid an exit fee in order to terminate the term sheet with the Treasury, the Federal Reserve, and the FDIC. The term sheet was never implemented. The Federal Reserve’s portion of the exit fee was $57 million. 24 Credit and Liquidity Programs and the Balance Sheet Federal Reserve Banks’ Financial Tables Quarterly Developments • As noted in Table 36, the daily average balance of the Federal Reserve System Open Market Account (SOMA) holdings exceeded $1 trillion during the first half of 2009. Total earnings from the portfolio amounted to approximately $16 billion during this period; most of the earnings are attributable to the holdings of U.S. government securities and agencyguaranteed mortgage-backed securities (MBS) and central bank liquidity swaps. • As noted in Table 37, net earnings from Federal Reserve loan programs over the first half of the year amounted to $874 million; interest earned on the TAF loans accounted for most of the total. Background The Federal Reserve Banks annually prepare 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 consolidated with the Federal Reserve Bank of New York (FRBNY) (the “consolidated LLCs”). 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. The audit firm also provides a report on compliance and on internal control over financial reporting in accordance with government auditing standards. The Office of Inspector General also conducts audits, reviews, and investiga- tions relating to the Board’s programs and operations as well as of Board functions delegated to the Reserve Banks. 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 35 presents unaudited combined Reserve Bank income and expense information for the first half of the year. Tables 36 through 38 present information for the SOMA portfolio, the Federal Reserve loan programs, and the variable interest entities—the CPFF and Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs—for the first half of this year. These tables are updated quarterly. SOMA Financial Summary Table 36 shows the Federal Reserve’s average daily balance of assets and liabilities in the SOMA portfolio for the period from January 1, 2009, though June 30, 2009, the related interest income and expense, and the realized and unrealized gains and losses for the first half 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 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 June 30, 2009, the fair value of the U.S. government and agency securities held in the SOMA, excluding accrued interest, was $812 billion, the fair value of the agency-guaranteed MBS was $463 billion, and the fair value of investments denominated in foreign currencies was $25 billion, as determined by reference to quoted prices for identical securities. 25 October 2009 Table 35. Federal Reserve Banks’ Combined Statement of Income and Comprehensive Income from January 1, 2009 to June 30, 2009 Millions of dollars Interest income: Loans to depository institutions (see table 37) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other loans (see table 37) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . System Open Market Account (see table 36) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated variable interest entities (table 38): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,144 3,668 26,251 Interest expense: System Open Market Account (see table 36) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depository institution deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated variable interest entities (see table 38) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 992 133 1,188 25,063 704 1,594 17,141 Non-interest income (loss): System Open Market Account—realized and unrealized losses, net (see table 36) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments held by consolidated variable interest entities gains (losses), net (see table 38): . . . . . . . . . . . . . . . . . . . . . . . . . Maiden Lane, Maiden Lane II, and Maiden Lane III LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial Paper Funding Facility LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan restructuring (see table 37)1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reimbursable services to government agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-interest (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,762) 5 (1,424) 358 190 136 (6,355) Operating expenses: Salaries and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assessments by the Board of Governors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees related to consolidated variable interest entities (see table 38) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,294 135 93 446 65 289 2,322 Net income prior to distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,386 Change in funded status of benefit plans2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income prior to distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 16,566 Distribution of comprehensive income: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid to member banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remaining amount to be distributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679 15,887 Memo: Distributions to U.S. Treasury (interest on Federal Reserve notes)3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,586 (858) 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 will be 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 June 30, 2009, were $10,161 million. 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 (exclud- 26 Credit and Liquidity Programs and the Balance Sheet Table 36. SOMA Financial Summary Millions of dollars January 1, 2009 − June 30, 2009 Average daily balance1 Interest income/ Realized gains (expense) (losses) Unrealized gains (losses) Net earnings SOMA assets U.S. government securities2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal agency and government-sponsored enterprise securities2 . Agency-guaranteed mortgage-backed securities3 . . . . . . . . . . . . . . . . . . Investments denominated in foreign currencies4 . . . . . . . . . . . . . . . . . . Central bank liquidity swaps5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526,953 54,050 233,501 24,243 308,020 7,735 1,154,502 9,504 614 4,968 162 1,880 13 17,141 − − (352) − − − (352) − − − (506) − − (506) 9,504 614 4,616 (344) 1,880 13 16,283 SOMA liabilities Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,701 1,083,801 (63) 17,078 − (352) − (506) (63) 16,220 Note: Unaudited. Components may not sum to totals because of rounding. 1. Based on holdings at opening of business. 2. Face value. 3. Current face value of the securities, which is the remaining principal balance of the underlying mortgages. 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. ing 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 of securities combined with an agreement to sell securities in the future, may generate realized gains and losses. Loan Programs Financial Summary Table 37 summarizes the average daily loan balances and interest income of the Federal Reserve for the first half 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), and credit extended to American International Group, Inc. (AIG). 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 $874 million during the first half 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 June 30, 2009, no loans were impaired, and an allowance for loan losses was not required. Table 37. Loan Programs Financial Summary Millions of dollars January 1, 2009 − June 30, 2009 Loan programs Average daily balance1 Primary, secondary, and seasonal credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Term Auction Facility (TAF). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans to depository institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,157 415,079 469,236 134 570 704 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,370 15,335 42,250 6,874 78,829 70 37 1,427 60 1,594 − − (1,424) − (1,424) 70 37 3 60 170 Total loan programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loan programs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548,065 − 548,065 2,298 − 2,298 (1,424) − (1,424) 874 − 874 Interest income2 Provision for loan restructuring − − − Total 134 570 704 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. 27 October 2009 Table 38. Consolidated Variable Interest Entities Financial Summary Millions of dollars January 1, 2009 − June 30, 2009 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 Net portfolio assets1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities of consolidated LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net portfolio assets available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,147 (154) 114,993 29,910 (4,151) 25,759 15,343 (2) 15,341 22,489 (4) 22,485 67,742 (4,157) 63,585 Loans extended to the consolidated LLCs by FRBNY2 . . . . . . . . . . . . . . . . . . . Other beneficial interests2,3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,810 0 110,810 29,159 1,217 30,376 17,712 1,020 18,732 22,614 5,108 27,722 69,485 7,345 76,830 (3,400) (1,217) (4,617) (2,371) (1,020) (3,391) (129) (5,108) (5,237) (5,900) (7,345) (13,245) Cumulative change in net assets since the inception of the programs Allocated to FRBNY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocated to other beneficial interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative change in net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,183 0 4,183 Summary of consolidated VIE net income for the current year through June 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,668 (546) 0 5 (22) 3,105 930 (72) (30) (832) (22) (26) 592 (132) (17) (2,496) (6) (2,059) 1,622 (169) (86) (4,391) (15) (3,039) 3,144 (373) (133) (7,719) (43) (5,124) 0 3,105 (30) 4 (17) (2,042) (2,910) (129) (2,957) (2,167) 546 3,651 72 76 132 (1,910) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 40 373 (1,794) 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 $4,762, 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” on Table 35. Consolidated Variable Interest Entities (VIEs) Financial Summary Table 38 summarizes the assets and liabilities of various consolidated VIEs previously discussed in this report. It also summarizes the net position of senior and subordinated interest holders and the allocation of the change in net assets to interest holders. The FRBNY is the sole beneficiary of the 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 consoli- dated 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. “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 June 30, 2009. 28 Credit and Liquidity Programs and the Balance Sheet Appendix Additional Information Provided Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008 pledged collateral, and the risk of loss is mitigated by daily revaluation of the collateral and haircuts on the collateral value. 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 under the TSLF, PDCF, CPFF, TALF, or the AMLF, or the loans provided by the Federal Reserve Bank of New York (FRBNY) to AIG 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 Term Securities Lending Facility As noted in the main portion of this report, no loans currently are outstanding under the TSLF, and all prior loans under the TSLF were repaid in full. The potential for losses on any new securities loans that may be extended under the TSLF is mitigated by the quality of the collateral accepted, haircuts on the value of the collateral, daily revaluation of the collateral, and limits on the participation of individual dealers. Moreover, loans extended under this program are with recourse to the borrower beyond the specific collateral pledged. Primary Dealer Credit Facility As noted in the main portion of this report, no loans currently are outstanding under the PDCF, and all prior loans under the PDCF were repaid in full. All credit extended by the Federal Reserve under the PDCF is with recourse to the broker-dealer entity beyond the All advances by the FRBNY to the SPV established under the CPFF 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 also must pay a facility fee. Furthermore, each time an issuer sells commercial paper that is not ABCP to the SPV, the issuer must pay a surcharge unless it has entered into a collateral arrangement for the commercial paper, or obtained an endorsement or guarantee of its obligation on the commercial paper, that is acceptable to the FRBNY. All fees are retained by the SPV and serve as additional collateral for the FRBNY loans to provide an additional cushion against losses. Term Asset-Backed Securities Loan Facility The potential for the Federal Reserve or the taxpayers to incur any net loss on the loans provided by the Federal Reserve under the TALF is mitigated by the high credit quality of the collateral accepted, the haircuts applied to each type of collateral accepted, and the credit protection provided by Treasury. The FRBNY also performs a risk assessment of all proposed and pledged TALF-eligible securities. Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility Loans extended under the AMLF are secured by ABCP that receives the highest rating from a major credit rating agency. Moreover, the ABCP is supported by the assets backing the paper. 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 29 October 2009 (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 September 30, 2009—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 June 30, 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 5⁄6ths and 2⁄3rds 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. Revolving Credit Facility for 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, 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. However, based on the substantial assets and operations supporting repayment of the loan, the capital and capital commitments provided to AIG under the TARP, and the most recent quarterly review of the security arrangements supporting the Revolving Credit Facility conducted as of June 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 will not result in any net loss to the Federal Reserve or taxpayers.
@FedFRASER