Federal Reserve Monthly Report for June

8/14/2019 Federal Reserve Monthly Report for June

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June 2009

Federal Reserve System Monthly Report on

Credit and Liquidity Programs and theBalance Sheet

Board of Governors of the Federal Reserve System


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Purpose

The Federal Reserve prepares this report as part of its

efforts to enhance transparency in connection with its

various programs to foster market liquidity and finan-

cial 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 2007.1 The

Federal Reserve considers transparency about the goals,

conduct, and stance of monetary policy to be funda-

mental 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 undertaken a number of impor-

tant steps aimed at providing liquidity to important fi-

nancial markets and institutions to support overall

financial stability. Financial stability is a critical pre-

requisite for achieving sustainable economic growth,

and all of the Federal Reserves actions during the cri-

sis have been directed toward achieving its statutory

monetary policy objectives.

1. Financial information in this report has not been audited.Audited financial data are prepared annually and are available atwww.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm.


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Contents

Overview .................................................................................................... ............................................1

Recent Developments.............................................. ...............................................................................1

System Open Market Account (SOMA) Portfolio .......................................................................................3


Background .............................................................................................. ............................................3

Liquidity Swaps ....................................................................................... ...............................................4


Background .............................................................................................. ............................................4

Dollar Liquidity Swaps........................................... ................................................................................4

Foreign-Currency Liquidity Swap Lines ....................................................................................................5

Lending to Depository Institutions ............................................................................................................5


Background .............................................................................................. ............................................5

Collateral Pledged by Depository Institutions.............................................................................................6

Recent Developments.............................................. ...............................................................................6Background .............................................................................................. ............................................6

Collateral................................................................................................. .............................................7

Lending to Primary Dealers ........................................................................................ .............................7


Background .............................................................................................. ............................................7

Collateral................................................................................................. .............................................8

Other Lending Facilities: Commercial Paper Funding Facility (CPFF)...... ..... ...... ...... ..... ...... ...... ..... ...... ......9


Background .............................................................................................. ............................................9

Other Lending Facilities: Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)...10

Recent Developments ........................................................................................... ................................10

Background.........................................................................................................................................10

Collateral............................................................................................................ ................................10Other Lending Facilities: Term Asset-Backed Securities Loan Facility (TALF)............................................10


Background............................................................................................................... ..........................11

Collateral and Risk Management ............................................................................................................12

Lending in Support of Specific Institutions ..............................................................................................12


Background.........................................................................................................................................12

Bear Stearns..................................................... ...................................................................................13

Financial Tables: Maiden Lane LLC ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ...13

American International Group (AIG).......................................................................................................13

Recent Developments..................................... ...................................................................................13

Background ..................................................................................... ................................................14

Financial Tables: AIG Credit Facility ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..15Financial Tables: Maiden Lane II ........................................................................................................15

Financial Tables: Maiden Lane III LLC................................................................................................16

Citigroup ............................................................................................ ................................................16

Bank of America................................................................................................... ...............................16

Financial Tables: Federal Reserve System................................................................................................17


Background.........................................................................................................................................17

Financial Tables............... ...................................................................................................... ..............18

SOMA Financial Summary.................................................................................................................18

Loan Programs................................................................................. ................................................19

Consolidated Variable Interest Entities (VIEs) .... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ...19


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Tables and Figures

Tables

1. Selected Assets, Liabilities, and Capital Accounts of the Federal Reserve System. ... ... ... ... ... ... ... ... ... ... ... ... ... ... .12. System Open Market Account (SOMA) Holdings.......................................................................................3

3. Amounts Outstanding under Dollar Liquidity Swaps .... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... .....4

4. Discount Window Credit Outstanding to Depository Institutions ...................................................................5

5. Discount Window Credit Outstanding to Depository InstitutionsConcentration at Largest Borrowers ...............6

6. Lending to Depository Institutions: Collateral Pledged by Borrowers.............................................................6

7. Securities Pledged by Depository Institutions by Rating ... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... .7

8. Discount Window Credit Outstanding to Depository InstitutionsPercent of Collateral Used............................7

9. Credit Outstanding to Primary Dealers......................................................................................................7

10. Concentration of Borrowing at the PDCF and TSLF........ ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ......8

11. PDCF Collateral ..................................................................................................... .............................8

12. PDCF Collateral by Rating....................................................................................................................8

13. TSLF Collateral...................................................................................................................................8

14. TSLF Collateral by Rating ....................................................................................................................915. CPFFConcentration of Largest Issuers .................................................................................................9

16. CPFF Commercial Paper Holdings by Type .............................................................................................9

17. CPFF Collateral by Rating ....................................................................................................................9

18. AMLF Credit: Number of Borrowers and Amount Outstanding ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... .....9

19. AMLF Collateral by Rating .................................................................................................................10

20. TALF: Number of Borrowers and Loans Outstanding .. ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..10

21. TALF Collateral by Underlying Credit Exposure. ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... .....11

22. TALF Collateral by Rating ..................................................................................................................11

23. Issuers of Securities that Collateralize TALF Loans ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ..12

24. Fair Value Asset Coverage...................................................................................................................12

25. Outstanding Principal Balance of Loans.................................................................................................13

26. Summary of Portfolio Composition, Cash/Cash Equivalents, and Other Assets and Liabilities ........................1327. Maiden Lane LLC Asset Distribution by Type and Rating ..... ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ....13

28. AIG Revolving Credit Facility..............................................................................................................15

29. Maiden Lane II LLC Outstanding Principal Balance of Senior Loan and Fixed Deferred Purchase Price..........16

30. Maiden Lane II LLC Summary of Portfolio Composition and Cash/Cash Equivalents ... ... ... ... ... ... ... ... ... ... ... ..16

31. Maiden Lane II LLC Asset Distribution by Sector and Rating.. ...... ...... ..... ...... ...... ..... ...... ...... ..... ...... ...... ..16

32. Maiden Lane III LLC Outstanding Principal Balance of Senior Loan and Equity Contribution .. .. .. .. .. .. .. .. .. .. .. .17

33. Maiden Lane III LLC Summary of Portfolio Composition and Cash/Cash Equivalents.. ... ... ... ... ... ... ... ... ... ... ..17

34. Maiden Lane III LLC Asset Distribution by CDO Type/Vintage and Rating ................................................18

35. SOMA Financial Summary..................................................................................................................19

36. Interest IncomeLoan Programs..........................................................................................................19

37. Assets and Liabilities of Consolidated Variable Interest Entities.................................................................20

Figures

1. Credit and Liquidity Programs and the Federal Reserves Balance Sheet........................................................2

2. Maiden Lane Portfolio Distribution.........................................................................................................14

3. AIG Revolving Credit........................................................................................... ................................15

4. Maiden Lane II LLC Portfolio Distribution..............................................................................................17

5. Maiden Lane III LLC Portfolio Distribution.............................................................................................18


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Credit and Liquidity Programs and the Balance Sheet

Overview

Recent Developments

Improvements in financial market conditions over re-

cent weeks, particularly following release of the re-

sults of the Supervisory Capital Assessment Program,

have been accompanied by a drop in credit extended

through many of the Federal Reserves liquidity

programs.

Declines in borrowing under the Primary Dealer

Credit Facility (PDCF) and Term Securities Lending

Facility (TSLF) have been particularly notable. Mar-

ket reports have suggested that market sources of

funding are now less expensive in many cases than

funding obtained through these facilities.

The Federal Reserve has continued to purchase large

volumes of Treasury and agency securities and

agency-backed mortgage-backed securities (MBS)

under its large-scale asset purchase programs.

In recent weeks, the level of reserve balances has re-

mained quite high; the drain in reserves attributable

to a drop in use of various lending programs has

been roughly offset by increases in reserves associ-

ated with asset purchases.

Recent quarterly revaluations resulted in markdowns

in the aggregate fair value of assets held by Maiden

Table 1. Selected Assets, Liabilities, and Capital Accounts of the Federal Reserve System

($ billions)

ItemCurrent

May 27, 2009Change fromApr 29, 2009

Change fromMay 28, 2008

Total assets . .. .. . . .. .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. .. . . .. .. .. .. 2,082 +13 +1,176Selected assets:

Securities held outright . . .. .. .. . . .. .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. . . .. .. .. .. . 1,107 +124 +616U.S. Treasury securities1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600 +51 +109Agency securities1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 +12 +80MBS2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428 +62 +428Memo: TSLF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6 79

Lending to depository and other financial institutions . . .. . .. . .. . . .. . .. . .. . . 437 16 +258Primary, secondary, and seasonal credit . . .. .. . . .. .. .. .. .. .. .. . . .. .. .. .. .. 38 7 +19TAF. . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . 373 31 +223

PDCF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 1 10AMLF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 +22 +26

Foreign central bank liquidity swaps3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 68 +120

Lending through other credit facilities .. . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . 165 23 +165CPFF4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 33 +149TALF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 +9 +15

Support for specific institutions. . . .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. .. . . .. .. .. .. 106 12 +106Credit extended to AIG5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 1 +44Net portfolio holdings of Maiden Lane I, II, and III6 . . . . . . . . . . . . . . . . . . . . 62 10 +62

Total liabilities . . .. . . .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. .. . . .. .. .. .. .. .. .. . . .. .. .. .. 2,037 +15 +1,171Selected liabilities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal reserve notes in circulation. .. .. .. .. .. .. . . .. .. .. .. .. .. .. .. . . .. .. .. .. 870 +7 +82Deposits of depository institutions. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . 877 +64 +850U.S. Treasury, general account . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 11 52 +7U.S. Treasury, supplementary financing account . .. . . . . . . . . . . . . . . . .. . . . . . . . . 200 0 +200Other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 1 0

Total capital. . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . 45 2 +4

Note: Unaudited. Securities loans under the TSLF are off-balance-sheet transactions. TSLF loans are shown here as a memo item to indicate the portionof securities held outright that have been lent through this program. Components may not add because of rounding.

1. Face value.2. Current face value which is the remaining principal balance of the underlying mortgages.3. 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.4. Book value of net portfolio holdings, includes commercial paper holdings, net, and about $4 billion of other investments.5. Excludes credit extended to Maiden Lane II and III.6. Fair value. 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.

1


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2007 2008 2009

0

500

1000

1500

2000

2500Billions of dollars

Total AssetsSecurities Held Outright

All Liquidity Facilities* +

+

+

Selected Assets of the Federal Reserve

Weekly

2007 2008 2009-200

0

200

400

600

800


U.S. Treasury SecuritiesFederal Agency Debt Securities

Mortgage-Backed Securities

+

+

+

Securities Held Outright

Weekly

Note: Reflects settlements not commitments.

2007 2008 2009

0

500

1000

1500


All Liquidity Facilities*

Term Auction CreditCommercial Paper Funding FacilityCentral Bank Liquidity SwapsTerm Asset-Backed Securities

Loan Facility

+

+

++

+

Credit Extended through Federal Reserve

Liquidity Facilities

Weekly

2007 2008 2009

0

200

400

600

800

1000


Currency in Circulation

Deposits of Depository InstitutionsTreasury Balance

++

+

Selected Liabilities of the Federal Reserve

Weekly

+ indicates most recent data point. Data are shown through 5/27/2009.

*All Liquidity Facilities includes: Term Auction credit; primary credit; secondary credit; seasonal credit; Primary Dealer Credit Facility; Asset-Backed Commercial

Paper Money Market Mutual Fund Liquidity Facility; Term Asset-Backed Securities Loan Facility; Commercial Paper Funding Facility; and central bank liquidity

swaps.

Figure 1. Credit and Liquidity Programs and the Federal Reserves Balance Sheet

2 Credit and Liquidity Programs and the Balance Sheet


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Lane LLC, Maiden Lane II LLC, and Maiden Lane

III LLC (see Lending in Support of Specific Institu-

tions on page 12).

The Federal Reserve released audited financial state-

ments for 2008 that received unqualified audit opin-

ions from independent registered public accountants

for all Reserve Banks and limited liability company(LLC) entities (see Financial Tables: Federal Re-

serve System on page 17).

Investor interest in financing through the Term Asset-

Backed Securities Loan Facility (TALF) has in-

creased over recent weeks. The Federal Reserve has

announced the addition of new asset classes that are

eligible for TALF financing and has extended the

maximum term of loans available for certain classes

of asset-backed securities (ABS).

Developments concerning American International

Group, Inc. (AIG) included the firms announcement

of plans to separate its American International Under-

writers (AIU) Holdings group in a special-purpose

vehicle, a modification of its credit arrangement with

the Federal Reserve, and the resignation of its chief ex-

ecutive officer pending the appointment of a successor.

System Open Market Account (SOMA)Portfolio

Recent Developments

The SOMA portfolio expanded rapidly over recent

weeks, reflecting Federal Reserve purchases of securi-

ties under the large-scale asset purchase programs

(LSAPs) announced by the Federal Open MarketCommittee (FOMC).

The FOMC has authorized purchases of up to $1.25

trillion of agency MBS and up to $200 billion of

agency direct obligations by the end of this year.

The FOMC has authorized purchases of up to $300

billion of Treasury securities by the autumn of this

year.

As of May 27, the Federal Reserve had settled pur-

chases of about $125 billion in Treasury securities,

$80 billion in agency debt, and $428 billion in

agency-backed MBS as part of the FOMCs large-

scale asset purchase programs. The settled purchasesto date have increased the size of the SOMA portfo-

lio to about twice the level prevailing in August of

2008.

So far, about 80 percent of the Treasury purchases

have been in the 2- to 10-year maturity range and 10

percent in maturities greater than 10 years. The re-

mainder of the purchases has been in Treasury

Inflation-Protected Securities (TIPS) and securities

maturing in less than two years.

Background

Open market operations (OMOs)the purchase and

sale of securities in the open market by a central

bankare a key tool used by the Federal Reserve inthe 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) 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 orsales of securities for the System Open Market Ac-

count, the Federal Reserves portfolio. Permanent

OMOs are generally used to accommodate the longer-

term factors driving the expansion of the Federal Re-

serves balance sheet, principally the trend growth of

currency in circulation. Temporary OMOs are typically

used to address reserve needs that are deemed to be

transitory in nature. These operations are either repur-

chase agreements (repos) or reverse repurchase agree-

ments (reverse repos). Under a repo, the Trading Desk

buys a security under an agreement to resell that secu-

rity in the future. A repo is the economic equivalent of

a collateralized loan, in which the difference betweenthe purchase and sale prices reflects the interest on the

loan.

Each OMO affects the Federal Reserves balance

sheet; the size and nature of the effect depends on the

specifics of the operation. The Federal Reserve pub-

lishes its balance sheet each week in the H.4.1 statisti-

cal release, Factors Affecting Reserve Balances of De-

pository Institutions and Condition Statement of

Federal Reserve Banks. The release separately

Table 2. System Open Market Account (SOMA) Holdings

As of May 27, 2009

Security typeTotal par value

($ billions)

U.S. Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18U.S. Treasury notes and bonds . . . . . . . . . . . . . . . . . . . . . . . . 534Treasury Inflation-Protected Securities1 . . . . . . . . . . . . .. . . 43Federal agency securities2. . . . . . . . . . .. . . . . . . . . . . . . . . . .. . 80

Mortgage-backed securities3 . . . . . . .. . . . . . . . . . . . . . . . .. . . 428Total SOMA holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,103

Note: Unaudited.1. Does not reflect inflation compensation of about $5 billion.2. Direct obligations of Fannie Mae, Freddie Mac, and Federal Home

Loan Bank.3. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current

face value of the securities, which is the remaining principal balance ofthe underlying mortgages.

June 2009 3


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reports securities held outright, repos, and reverse repos

(www.federalreserve.gov/releases/h41/).

The Federal Reserves approach to the implementa-

tion of monetary policy has evolved considerably since

2007, and particularly so since late 2008. The FOMC

has established a near-zero target range for the federal

funds rate, implying that the very large volume of re-serve balances provided through the various liquidity

facilities is consistent with the FOMCs funds rate ob-

jectives. In addition, open market operations have pro-

vided 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 ob-

ligations of Fannie Mae, Freddie Mac, and the Federal

Home Loan Banks and MBS guaranteed by Fannie

Mae, Freddie Mac, and Ginnie Mae. The Federal Re-

serve determined that supporting the mortgage-backed

security dollar roll market promotes the goals of the

mortgage-backed securities purchase program. Dollarroll transactions, which consist of a purchase of securi-

ties combined with an agreement to sell securities in

the future, provide short-term financing to the

mortgage-backed securities market. Because of princi-

pal and interest payments and occasional delays in the

settlement of transactions, the Federal Reserve also has

some uninvested cash associated with the mortgage-

backed securities purchase program. The Federal Re-

serves outright holdings of mortgage-backed securities

are reported in tables 1, 3, 9, and 10 of the H.4.1 statis-

tical release.

In March 2009, the FOMC announced that it wouldalso purchase up to $300 billion of longer-term Trea-

sury securities over the next 6 months to help improve

conditions in private credit markets. The Federal Re-

serve has purchased a range of securities across the ma-

turity spectrum, including TIPS. The bulk of purchases

have been in intermediate maturities. The Federal Re-

serve conducts purchases through regular auctions, with

the auction results posted to the FRBNY website at www.

newyorkfed.org/markets/openmarket.html.

Liquidity Swaps

Recent Developments

Use of the Federal Reserves foreign central bank

dollar liquidity swaps has declined noticeably in re-

cent weeks, consistent with a general improvement of

conditions in short-term funding markets.

As of May 27, total dollar liquidity extended to

foreign central banks dropped to $182 billion.

Background

Because of the global character of bank funding mar-

kets, the Federal Reserve has worked with other central

banks in providing liquidity to financial markets and in-

stitutions. As part of these efforts, the FRBNY has en-

tered 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 compli-

ance with authorizations, policies, and procedures es-

tablished by the FOMC.

Dollar Liquidity Swaps

On December 12, 2007, the FOMC announced that ithad authorized dollar liquidity swap lines with the Eu-

ropean 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. These lines

are now authorized with the following institutions: the

Reserve Bank of Australia, the Banco Central do Bra-

sil, the Bank of Canada, Danmarks Nationalbank, the

Bank of England, the European Central Bank, the Bank

of Japan, the Bank of Korea, the Banco de Mexico, the

Reserve Bank of New Zealand, the Norges Bank, the

Monetary Authority of Singapore, Sveriges Riksbank,

and the Swiss National Bank. The FOMC has autho-rized these lines through October 30, 2009.

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

Table 3. Amounts Outstanding under Dollar LiquiditySwaps

Central bankAmount

($ billions)5/27/2009

Amount($ billions)12/31/2008

Bank of Canada . . . . . . . . . . . . . . . . .. . . . . . . . . . . 0 0Banco de Mexico .. . . . . . . . . . . . . . .. . . . . . . . . . . 3 0

European Central Bank . . . . . . . . . . . . . . . . . . . . . 101 291Swiss National Bank . . .. . .. . .. . . .. . .. . .. . .. 9 25Bank of Japan . . . .. . .. . .. . .. . .. . . .. . .. . .. . .. 25 123Bank of England . . . . . . . . . . . . . . . . .. . . . . . . . . . 2 33Danmarks Nationalbank . . . . . .. . . . . . .. . . . . .. 5 15Reserve Bank of Australia . . . . . .. . . . . .. . . . . . 2 23Sveriges Riksbank . . . . . .. . . . . .. . . . . . .. . . . . .. 17 25Norges Bank. . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . 5 8Reserve Bank of New Zealand . . . . . .. . . . . .. 0 0Bank of Korea. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. 13 10Banco Central do Brasil . . .. . .. . . .. . .. . .. . .. 0 0Monetary Authority of Singapore . . . . . . . . . . . 0 0Total. . .. . .. . .. . . .. . .. . .. . .. . .. . .. . . .. . .. . .. . 182 554

Note: Unaudited. Components may not add because of rounding.



9/24

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 that obli-

gates 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 transac-

tion 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 market-based

rate to the FRBNY.

When the FCB lends the dollars it obtained by draw-

ing 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 FCBremains 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 ac-

quires is an asset on the Federal Reserves balance

sheet. In tables 1, 9, and 10 of the H.4.1 statistical re-

lease, the dollar value of amounts that the foreign cen-

tral banks have drawn but not yet repaid is reported in

the line entitled Central bank liquidity swaps. Dollar li-

quidity swaps have maturities ranging from overnightto three months. Table 2 of the H.4.1 statistical release

reports the remaining maturity of outstanding dollar

liquidity swaps.

Foreign-Currency Liquidity Swap Lines

On April 6, 2009, the FOMC announced foreign-

currency 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 pro-

vide the Federal Reserve with the capacity to offer li-

quidity to U.S. institutions in foreign currency should a

need arise. These lines mirror the existing dollar liquid-ity 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 Re-

serve 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 autho-

rized these liquidity swap lines through Octo-

ber 30, 2009. So far, the Federal Reserve has not drawn

on these swap lines.

Lending to Depository Institutions

Recent Developments

Credit provided to depository institutions through the

discount window and the Term Auction Facility

(TAF) has declined of late, primarily reflecting reduc-

tions in loans outstanding under the TAF.

Recent TAF auctions have been undersubscribed, and

as a result the auction rate has been equal to the

minimum bid rate of 25 basis points for some time.

Background

The discount window helps to relieve liquidity strains

for individual depository institutions and for the bank-

ing system as a whole by providing a source of fund-

ing in time of need. Much of the statutory framework

that governs lending to depository institutions is con-

tained in section 10B of the Federal Reserve Act, as

amended. The general policies that govern discount

window lending are set forth in the Boards Regulation

A. Depository institutions have, since 2003, had access

to three types of discount window creditprimary

credit, secondary credit, and seasonal credit. Primarycredit is available to depository institutions in generally

sound financial condition with few administrative re-

quirements. Secondary credit may be provided to de-

pository institutions that do not qualify for primary

credit subject to review by the lending Reserve Bank.

Seasonal credit provides short-term funds to smaller de-

pository institutions that experience regular seasonal

swings in loans and deposits. In December 2007, the

Federal Reserve introduced the TAF, which provides

Table 4. Discount Window Credit Outstanding toDepository Institutions

Daily average borrowing for each class of borrower over the four weeksending May 27, 2009

Type and size of borrowerAverage

number ofborrowers1

Averageborrowing

($ billions)3

Commercial banks2 . . . . . . . . . . . . . . . . . . . . . . . .Assets: more than $50 billion . . . . . . . . . . . . 27 257Assets: $5 billion to $50 billion . . . . . . . . . . 62 159Assets: $250 million to $5 billion . . . . . . . . 146 21Assets: less than $250 million . . . . . . . . . . . 95 1

Thrift institutions and credit unions . . . . . . . . . 47 10Total. . .. . .. . .. . . .. . .. . .. . .. . .. . .. . . .. . .. . .. . 378 448

Note: Includes primary, secondary, seasonal, and Term Auction Facilitycredit. Size categories based on total domestic assets as of December 31,2008. Components may not sum to total because of rounding.

1. Average daily number of depository institutions with creditoutstanding. Over this period, a total of 566 institutions borrowed.

2. Includes branches and agencies of foreign banks.3. Average daily borrowing by all depositories in each category.

June 2009 5


10/24

credit to depository institutions in generally sound fi-

nancial condition through an auction mechanism. All

regular discount window loans and TAF loans must be

fully collateralized to the satisfaction of the lending Re-

serve Bank, with an appropriate haircut applied to the

value of the collateral.In extending credit to depository institutions, the

Federal Reserve closely monitors the financial condi-

tion 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 ser-

vices provided by the Federal Reserve. The second step

is identifying institutions whose condition, characteris-

tics, or affiliation would present higher-than-acceptable

risk to the Federal Reserve in the absence of controlson their access to Federal Reserve lending facilities and

other Federal Reserve services. The third step is

communicatingto staff within the Federal Reserve

System and to other supervisory agencies, if and when

necessaryrelevant 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 in-formation from each institutions primary supervisor,

including CAMELS ratings,1 to identify potentially

problematic institutions and classify them according to

the severity of the risk they pose to the Federal Re-

serve. 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 Pledged by Depository Institutions

Recent Developments

Total collateral pledged by borrowing depository in-

stitutions exceeded $1 trillion as of May 27, more

than twice the amount of credit outstanding.

The Federal Reserve announced updates to collateral

valuations in early April and implemented the up-

dates at the end of April. These changes reduced the

lendable value of collateral in aggregate by about 10

percent.

Background

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 assets

cash flow. Haircuts reflect credit risk and, for traded as-

sets, the historical volatility of the assets price and the

liquidity of the market in which the asset is traded; the

Federal Reserves haircuts are generally in line with

1. CAMELS is a rating system employed by banking regulators toassess the soundness of depository institutions. CAMELS is an acro-nym that stands for Capital, Assets, Management, Earnings, Liquid-ity, and Sensitivity.

Table 5. Discount Window Credit Outstanding toDepository InstitutionsConcentration at LargestBorrowers

For the four weeks ending May 27, 2009

RankingNumber ofborrowers

Daily averageborrowing($ billions)

Rank by amount of borrowingTop five .. . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . . 5 158Next five .. . . .. .. .. .. .. .. .. .. . . .. .. .. .. .. . 5 67Other. . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. . 368 228

Total. . .. . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. . 378 448

Note: Amount of primary, secondary, seasonal, and TAF creditextended to the top five and next five borrowers on each day, as rankedby daily average borrowing. Components may not sum to total becauseof rounding.

Table 6. Lending to Depository Institutions: CollateralPledged by Borrowers

As of May 27, 2009

Type of collateralLendable value

($ billions)

LoansCommercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Consumer . . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . 73

SecuritiesUS Treasury/agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Municipal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Corporate market instruments . . . . . . . . . . . . . . . . . . . . . . . 54MBS/CMO: Agency-backed . . . . . . . . . . . . . . . . . . . . . . . . . 60MBS/CMO: Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Asset-backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173International (sovereign, agency, municipal,

and corporate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 965

Note: 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 $411 billion. The lendable value ofcollateral pledged by all depository institutions, including those withoutany outstanding loans, was $1,504 billion. Lendable value is value afterapplication of appropriate haircuts. Components may not sum to totalbecause of rounding.



11/24

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 avail-

able. Borrowers may be required to pledge additional

collateral if their financial condition weakens. Collateral

is pledged under the terms and conditions specified in

the Federal Reserve Banks standard lending agree-

ment, Operating Circular No. 10 (www.frbservices.org/

files/regulations/pdf/operating_circular_10.pdf).

Discount window loans and extensions of credit

through the TAF are made with recourse to the bor-

rower beyond the pledged collateral. Nonetheless, col-

lateral plays an important role in mitigating the credit

risk associated with these extensions of credit. The Fed-eral Reserve generally accepts as collateral for discount

window loans and TAF credit any assets that meet

regulatory standards for sound asset quality. This cat-

egory of assets includes most performing loans and

most investment-grade securities, although for some

types of securities (including commercial mortgage-

backed securities, collateralized debt obligations, collat-

eralized loan obligations, and certain non-dollar-

denominated 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 dis-

count window and TAF loans with remaining maturity

of more than 28 daysfor 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.

Collateral

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

Borrowing at the Primary Dealer Credit Facility

(PDCF) and Term Securities Lending Facility (TSLF)

has declined substantially over recent weeks as con-

ditions in money markets reportedly have improved.

Background

On March 16, 2008, the Federal Reserve announced the

creation of the PDCF, which is an overnight loan facil-

ity that provides funding to primary dealers and helps

foster improved conditions in financial markets more

generally.

PDCF credit is fully secured by collateral with ap-propriate haircutsthat is, the value of the collateral

exceeds the value of the loan extended. Initially, eli-

gible collateral was restricted to investment-grade secu-

rities. On September 14, 2008, the eligible set of collat-

eral was broadened to closely match the types of

instruments that can be pledged in the tri-party repur-

chase agreement systems of the two major clearing

banks. On September 21, 2008, the Federal Reserve

Board authorized the extension of credit to a set of

other securities dealers on terms very similar to those

for the PDCF. Credit extended under either program is

reported in table 1 of the H.4.1 statistical release as

Table 7. Securities Pledged by Depository Institutions byRating

As of May 27, 2009

Type of security and ratingLendable value

($ billions)

U.S. Treasury, Agency and agency-backed securities. . . 125Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AAA . . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . . .. . . 215Aa/AA1. . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. . .. . .. . . .. 51A2 . . .. . .. . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. . .. . .. . . . 67Baa/BBB . . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . 29Other investment-grade3 . . .. . .. . . .. . .. . .. . .. . .. . . .. . . 131

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618

Note: Lendable value for all institutions that have pledged collateralincluding those that were not borrowing on the date shown. Lendablevalue is value after application of appropriate haircuts. Components maynot sum to total because of rounding.

1. Includes short-term securities with A-1+ rating or MIG1 or SP-1+municipal bond rating.

2. Includes short-term securities with A-1 rating or SP-1 municipalbond rating.

3. Determined based on credit review by Reserve Bank.

Table 8. Discount Window Credit Outstanding to

Depository InstitutionsPercent of Collateral UsedAs of May 27, 2009

Percent of collateral usedNumber ofborrowers

Totalborrowing($ billions)

Over 0 and under 25 . . . . . .. . . . . . .. . . . . .. . . . 113 4725 to 50 . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . 89 11450 to 75 . . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. 118 18475 to 90 . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . 48 63Over 90 . .. .. .. . . .. .. .. .. .. .. .. . . .. .. .. .. .. . 14 2Total. . .. . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. . 382 411

Note: Components may not add to total because of rounding.

Table 9. Credit Outstanding to Primary Dealers

As of May 27, 2009

Number ofborrowers

Borrowing underprimary dealer credit

facility (PDCF)($ billions)

Borrowing under termsecurities lending

facility (TSLF)($ billions)

4 0 27

Note: Borrowing figures represent total amounts of PDCF and TSLFcredit extended on May 27, 2009. The total reported for the TSLFrepresents the par value of securities lent.

June 2009 7


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13/24

curity as collateral. Eligible collateral is determined by

the Federal Reserve. Currently, two schedules of collat-

eral are accepted. Schedule 1 collateral is Treasury,

agency, and agency-guaranteed mortgage-backed secu-

rities. Schedule 2 collateral is investment-grade corpo-

rate, municipal, mortgage-backed, and asset-backed se-

curities, as well as Schedule 1 collateral. Haircuts onposted collateral are determined by FRBNY using

methods consistent with current market practices.

Other Lending Facilities: Commercial PaperFunding Facility (CPFF)

Recent Developments

A significant portion of maturing paper in the CPFF

over recent weeks has not been rolled over.

Improvements in market conditions may have al-

lowed some borrowers to obtain financing from pri-vate investors in the commercial paper market or

from other sources.

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 li-

quidity 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 pro-

vides financing to the LLC, and the FRBNYs loan to

the LLC is secured by all of the assets of the LLC, in-cluding those purchased with the cumulated upfront

fees paid by the issuers.

The CPFF was announced on October 7, 2008 and is

administered by 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 H.4.1 statistical release, and

primary accounts of the LLC are presented in table 7 of

the H.4.1. The Federal Reserve Board has authorized

the extension of credit from the CPFF through October

30, 2009.

Table 14. TSLF Collateral by Rating

As of May 27, 2009

Type of collateralLendable value

($ billions)

U.S. Treasury, agency, and agency-backed securities .. 12Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aaa/AAA. . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . 6Aa/AA . . . . . .. . . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . .. 1

A/A-1 . . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . . .. . 7Baa/BBB . . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . 4

Total . . . . . .. . . . . .. . . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . . 31

Note: Collateral pledged by borrowers of TSLF on the date shown.Borrowing on that date was $27 billion. Lendable value is value afterapplication of appropriate haircuts. TSLF collateral must beinvestment-grade. Components may not sum to total because of rounding.

Table 15. CPFF Concentration of Largest Issuers

For the four weeks ending May 27, 2009

RankNumber ofborrowers

Daily averageborrowing($ billions)

Rank by amount of commercial paper (CP)Top five issuers . . . . . . . . . . . . . . .. . . . . . . . . . . 5 57Next five issuers . . .. . .. . .. . . .. . .. . .. . .. . . 5 29Other issuers . . .. . .. . .. . .. . . .. . .. . .. . .. . .. 47 73

Total. . .. . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. . 57 159

Note: Amount of commercial paper held in the CPFF that was issuedby the top five and the next five issuers on each day. Components maynot sum to total because of rounding.

Table 16. CPFF Commercial Paper Holdings by Type

As of May 27, 2009

Type of commercial paper Val ue ($ bill ions)

Unsecured commercial paperIssued by financial firms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Issued by nonfinancial firms . . . . . . . . . . . . . . . . . . . . . . . . . *

Asset-backed commercial paper . . . . . . . . . . . . . . . . . . . . . . . . 94Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Note: Components may not sum to total because of rounding; does notinclude $4 billion in accumulated earnings invested in other liquid assets.* denotes less than $500 million.

Table 17. CPFF Collateral by Rating

As of May 27, 2009

Type of collateral Value ($ billions)

Commercial paper with rating1

A-1/P-1/F-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143Split-rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Downgraded after purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . *Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Note: Components may not sum to total because of rounding; does not

include $4 billion of other investments.1. The CPFF purchases only U.S. dollar-denominated commercial

paper (including asset-backed commercial paper (ABCP)) that is rated atleast A-1/P-1/F1 by Moodys, S&P, or Fitch, and, if rated by more thanone of these rating organizations, is rated at least A-1/P-1/F1 by two ormore. Split-rated is acceptable commercial paper that has received anA-1/P-1/F-1 rating from two rating organizations and a lower rating froma third rating organization. Some pledged commercial paper wasdowngraded below split-rated after purchase; the facility holds such paperto maturity. * denotes less than $500 million.

Table 18. AMLF Credit: Number of Borrowers andAmount Outstanding

Daily average for the four weeks ending May 27, 2009

Lending programNumber ofinstitutions

Borrowing($ billions)

Asset-Backed Commercial Paper LendingFacility (AMLF) . . .. . .. . .. . . .. . .. . .. . .. . . * 26

* Three or fewer borrowers.

June 2009 9


14/24

Other Lending Facilities: Asset-BackedCommercial Paper Money Market MutualFund Liquidity Facility (AMLF)

Recent Developments

The amount outstanding under the AMLF has gener-

ally declined over recent weeks in concert with theoverall improvement in funding markets.

The amount borrowed under the AMLF, however,

jumped in the week prior to the release of the results

from the Supervisory Capital Assessment Program.

Background

The AMLF is a lending facility that finances the pur-

chases of high-quality asset-backed commercial paper

(ABCP) from money market mutual funds by U.S. de-

pository institutions and bank holding companies. The

program is intended to assist money funds that holdsuch paper to meet the demands for redemptions by in-

vestors and to foster liquidity in the 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 only to the collateral se-

curing the loan if the borrower elects not to repay.

The initiation of the AMLF, announced on Septem-

ber 19, 2008, relied on authority under section 13(3) of

the Federal Reserve Act. It is administered by the Fed-

eral Reserve Bank of Boston, which is authorized to

make AMLF loans to eligible borrowers in all 12 Fed-

eral Reserve Districts. Lending through the AMLF is

presented in table 1 of the H.4.1 statistical release andis included in Other loans in tables 9 and 10 of the

H.4.1. The Federal Reserve Board has authorized ex-

tension of credit through the AMLF until October 30,

2009.

Collateral

Collateral eligible for the AMLF is limited to ABCP

that:

was purchased by the borrower on or after Septem-

ber 19, 2008, from a registered investment company

that holds itself out as a money market mutual fund;

was purchased by the borrower at the mutual funds

acquisition cost as adjusted for amortization of pre-

mium or accretion of discount on the ABCP through

the date of its purchase by the borrower; is not rated lower than A1, P1, or F1 at the time it is

pledged to the Federal Reserve Bank of Boston (this

would exclude paper that is rated A1/P1/F1 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 Fed-

eral Reserve Bank of Bostons restricted account at the

Depository Trust Company before an advance, collater-

alized by that ABCP, will be approved. The collateral is

valued at the amortized cost (as defined in the Letter of

Agreement) of the eligible ABCP pledged to secure an

advance. Advances made under the facility are made

without recourse, provided the requirements in the Let-

ter of Agreement are met.

Other Lending Facilities: Term Asset-BackedSecurities Loan Facility (TALF)

Recent Developments

Investor interest in TALF financing has increased re-

cently.

May subscriptions supported primary issuance of

eight ABS deals worth a total of about $13.6 billion,

of which $10.6 billion was financed through the

TALF.

The Federal Reserve recently announced a number of

enhancements to the TALF program, including the in-

troduction of new interest rate schedules applicable to

borrowings against certain ABS with relatively shortmaturities, additions to the list of TALF-eligible secu-

rities, including commercial mortgage-backed securi-

Table 19. AMLF Collateral by Rating

As of May 27, 2009


Asset-backed commercial paper with ratingA-1/P-1/F-1 and not on watch for downgrade .. .. .. . 25A-1/P-1/F-1 but on watch for downgrade1 . . . . . . . . . . . 1Below A-1/P-1/F11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *

Total . . . . . .. . . . . .. . . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . . 26

Note: Components may not sum to total because of rounding.1. The AMLF accepts only U.S.-dollar denominated asset-backed

commercial paper (ABCP) that is not rated lower than A-1, F-1, or P-1by Moodys, S&P, or Fitch, and (effective April 22, 2009) is not onwatch for downgrade. Collateral that is on watch for downgrade or israted below rated A-1/P-1/F-1 is ABCP that has deteriorated after it waspledged. * denotes amounts less than $500 million.

Table 20. TALF: Number of Borrowers and LoansOutstanding

As of May 27, 2009

Lending programNumber ofborrowers

Borrowing($ billions)

Term Asset-Backed Securities LoanFacility (TALF) . . . . . .. . . . . .. . . . . . .. . . . . .. 61 15



15/24

ties (CMBS) and securities backed by insurance pre-

mium finance loans, and the authorization of five-

year loans for certain classes of securities.

Most recently, the Federal Reserve announced the

inclusion of legacy CMBSpreviously issued

CMBSto the list of TALF-eligible securities.

June 2009 subscriptions supported primary issuanceof 13 ABS deals worth a total of about $16.4 billion,

of which approximately $11 billion was financed

through the TALF.

Background

On November 25, 2008, the Federal Reserve an-

nounced the creation of the TALF under section 13(3)

of the Federal Reserve Act. The TALF is a funding fa-

cility under which the FRBNY extends credit with a

term of up to five years to holders of eligible asset-

backed securities (ABS). The TALF is intended to as-

sist financial markets in accommodating the creditneeds of consumers and businesses of all sizes by fa-

cilitating the issuance of ABS collateralized by a vari-

ety of consumer and business loans; it is also intended

to improve the market conditions for ABS more gen-

erally.

Eligible collateral initially included U.S. dollar-

denominated 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 highestinvestment-grade rating category from a major rating

agency. The loans provided through the TALF are non-

recourse loans; the Federal Reserve has rights only to

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 borrowers equity in the

transaction and act as a buffer for absorbing any de-

cline in the collaterals 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 Pro-

gram (TARP). The loan from the FRBNY is senior to

the TARP funds. Thus, the TARP funds serve as a first

loss position in the disposition special-purpose vehicle

in the event the borrowers haircut does not fully ab-

sorb the decline in the collaterals value.

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 asset-backed securities,such as ABS backed by commercial mortgages or

private-label (non-agency) ABS backed by residential

mortgages. Any expansion of the TALF would be sup-

ported by the Treasury providing additional funds from

the TARP.

On March 19, the Federal Reserve Board announced

that starting in April, the set of eligible collateral for

TALF loans was being expanded to include ABS

backed by loans or leases related to business equip-

ment, leases of vehicle fleets, floorplan loans, and mort-

gage servicing advances.

On March 23, the Federal Reserve and the Treasuryannounced that they were planning on expanding the

list of eligible collateral for TALF loans to include pre-

viously issued securitiesso-called legacy secur-

itiesas a complement to the Treasurys Public Pri-

vate Investment Program. Eligible securities are

expected to include certain non-agency residential

mortgage-backed securities (RMBS) that were origi-

nally rated AAA when issued and outstanding commer-

cial mortgage-backed securities and ABS that are rated

AAA.

On May 1, the Federal Reserve announced that,

starting in June 2009, newly issued CMBS and securi-

ties backed by insurance premium finance loans wouldbe eligible collateral under the TALF. The Federal Re-

serve 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 Busi-

ness Administration. The Federal Reserve indicated that

up to $100 billion of TALF loans could have five-year

maturities and that some of the interest on collateral fi-

nanced with a five-year loan may be diverted toward an

Table 21. TALF Collateral by Underlying CreditExposure

As of May 27, 2009


Asset-backed securities by underlying loan type . . . . . .Auto . . .. . .. . .. . . .. . .. . .. . .. . .. . . .. . .. . .. . .. . .. . .. . . . 4Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Equipment .. . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . *Floorplan . . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . 0Small business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *Student loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Total. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . 17

Note: Components may not sum to total because of rounding. Datarepresent the face value of collateral. * denotes less than $500 million.

Table 22. TALF Collateral by Rating

As of May 27, 2009


Asset-backed securities with rating ....................AAA/Aaa. . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . 17

Total . . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . . . . . 17

Note: Components may not sum to total because of rounding.

June 2009 11


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accelerated repayment of the loan, especially in the

fourth and fifth years.

On May 19, 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 ap-

proved ratings agenciesDBRS, Fitch, Moodys Inves-

tors Service, Realpoint, or Standard & Poorsand

must not have a rating below AAA from any of these

rating agencies. More broadly, the Federal Reserve an-

nounced that it was formalizing procedures for deter-

mining the set of rating agencies whose ratings would

be accepted for various types of eligible collateral inthe Federal Reserves credit programs.

Collateral and Risk Management

Under the TALF, the FRBNY lends on a non-recourse

basis to holders of certain asset-backed securities

(ABS) backed by consumer, business, and commercial

mortgage loans. Eligible collateral for the TALF in-

cludes 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 cat-egory from a single rating agency. Eligible small-

business-loan ABS also includes 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. govern-

ment. All or substantially all of the credit exposures un-

derlying 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 under-

lying credit exposures of eligible ABS must be student

loans, auto loans, credit card loans, loans or leases re-

lating to business equipment, leases of vehicle fleets,

floor plan loans, mortgage servicing advances, insur-

ance premium finance loans, commercial mortgages,

and 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 Fed-

eral Reserve and the Treasury from credit risk. In al-

most all cases, eligible collateral for a particular bor-

rower must not be backed by loans originated or

securitized by the borrower or by an affiliate of the bor-

rower. The FRBNYs loan will be secured by the ABS

collateral, with the FRBNY lending an amount equal to

the market value of the ABS less a haircut. The Fed-eral Reserve has set initial haircuts for each type of eli-

gible collateral to reflect an assessment of the riskiness

and maturity of the various types of eligible ABS. In

addition, the U.S. Treasury Departmentunder the

Troubled Assets Relief Program (TARP) of the Emer-

gency Economic Stabilization Act of 2008will pro-

vide $20 billion of credit protection to the FRBNY in

connection with the TALF.

Lending in Support of Specific Institutions

Recent Developments

Recent quarterly revaluations resulted in a reduction

to the fair value asset coverage of FRBNY loans to

Maiden Lane LLC, Maiden Lane II LLC, and

Maiden Lane III LLC, as presented in Table 24.

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

Table 23. Issuers of Securities that CollateralizeOutstanding TALF Loans

As of May 27, 2009

Issuers

Cabelas Credit Card Master Note TrustCarMax Auto Owner Trust 2009-1Chase Issuance TrustCitibank Credit Card Issuance TrustCNH Equipment Trust 2009-BFord Credit Auto Owner TrustGE Capital Credit Card Master Note TrustHarley-Davidson Motorcycle Trust 2009-1Honda Auto Receivables 2009-2 Owner TrustHuntington Auto Trust 2009-1MMCA Auto Owner Trust 2009-ANissan Auto Receivables 2009-A Owner TrustSLM Private Education Loan Trust 2009-BSmall Business Administration Participation CertificatesVolkswagen Auto Lease Trust 2009-AWorld Financial Network Credit Card Master Note TrustWorld Omni Auto Receivables Trust 2009-A

Table 24. Fair Value Asset Coverage

(in millions)

Fair value assetcoverage of

FRBNY loan on3/31/2009

Fair value assetcoverage of FRBNY

loan 12/31/2008

Maiden Lane LLC . . . . . .. . . . . (3,771) (3,403)Maiden Lane II LLC . . .. . .. . . (1,965) (329)Maiden Lane III LLC . . . . . .. . (3,441) 2,824

Note: Unaudited. Fair value asset coverage is the amount by which thefair value of the net portfolio assets of each LLC (see Table 37) isgreater or less than the outstanding balance of the loans extended by theFRBNY, including accrued interest.



17/24

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

In March 2008, the FRBNY and JPMorgan Chase &Co. (JPMC) entered into an arrangement related to the

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 securi-

ties, residential and commercial mortgage loans, and

associated hedges from Bear Stearns. In the second

quarter of 2008, FRBNY extended credit to Maiden

Lane LLC. Details of the terms of the loan are pub-

lished on the FRBNY website (www.newyorkfed.org/

markets/maidenlane.html). The assets of Maiden Lane

LLC are presented 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

release.

Information about the assets and liabilities of Maiden

Lane LLC is presented in Tables 25 and 26. These

tables are as of March 31, 2009, and are updated on a

quarterly basis.

Financial Tables: Maiden Lane LLC

At March 31, 2009, the ratings breakdown of the $17.1

billion fair value of securities in the Maiden Lane LLC

portfolio (as a percentage of aggregate fair value of all

securities in the portfolio) was as presented in Table 27.

American International Group (AIG)

Recent Developments

The interest rate modification of the AIG credit facil-

ity, announced as part of the March 2, 2009 restruc-

turing, was finalized and became effective as of April17, 2009. AIG will continue to be charged interest at

the three-month LIBOR rate plus 300 basis points,

but the 3.5 percent floor on the contractual LIBOR

rate has been removed.

On April 21, 2009, AIG announced its intention to

accelerate the separation of several businesses by

transferring AIU Holdings, which will serve as the

holding company for AIGs Commercial Insurance,

Foreign General Insurance, and Private Client Group

Table 25. Outstanding Principal Balance of Loans

(in millions)

Senior loanSubordinate

loan

Pr inci pal bal ance at closing . . . . . . . . . . . . . . . . 28,820 1,150Accrued and capitalized interest to

12/31/2008 . . .. . .. . .. . .. . .. . .. . . .. . .. . .. . . 267 38Principal repayment from closing to

12/31/2008 .. . . .. .. .. .. .. .. .. . . .. .. .. .. .. . - -Pr inci pal bal ance on 12/31/ 2008.. . . . . . . . . . . 29,087 1,188Accrued and capitalized interest to

3/31/2009 . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . . 36 14Repayment during the period . . . .. . .. . .. . .. - -Pr inci pal bal ance on 3/31/2009 . . . . . . . . . . . . . 29,123 1,202

Note: Unaudited.

Table 26. Summary of Portfolio Composition, Cash/CashEquivalents, and Other Assets and Liabilities

(in millions)

Fair value on3/31/2009

Fair value on12/31/2008

Agency CMOs . . . . . . . . . . . . . . . . . . . . . . . . . 14,369 13,565Non-agency CMOs . . . . . . . . . . . . . . . . . . . . . 1,552 1,836Commercial loans . . . . . . . . . . . . . . . . . . . . . . 4,697 5,553Residential loans . . . . . . .. . . . . .. . . . . . .. . . 780 937Swap contracts . . . . . . . . . . . . . . . . . . . . . . . . . 2,280 2,454TBA commitments4 . .. .. .. .. .. .. .. . . .. .. 1,448 2,089Other investments . . . . . . . . . . . . . . . . . . . . . . 1,221 1,360Cash & cash equivalents1 . .. .. .. .. .. .. . 2,640 2,531Adjustment for other assets2 . . . . . . . . . . . 1,869 310Adjustment for other liabilities3 . . . .. . .. (5,505) (4,951)Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,352 25,684

Note: Unaudited.1. Including cash and cash equivalents on deposit in the Reserve

Account.2. Including interest and principal receivable and other receivables.3. Including amounts payable for TBAs, collateral posted to Maiden

Lane LLC by swap counterparties, and other liabilities/accrued expenses.4. TBA commitments are commitments to purchase or sell

mortgage-backed securities for a fixed price at a future date.

Table 27. Maiden Lane LLC Asset Distribution by Type and Rating

Security type1Rating

AAA AA+ to AA A+ to ABBB+ to

BBBBB+ and

lowerGovt/

AgencyTotal3

Agency CMOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 0.0 0.0 0.0 83.8 83.8Non-agency CMOs . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 0.2 0.8 0.4 5.4 0.0 9.1Other2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 1.4 0.5 0.7 2.2 0.0 7.1Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 1.6 1.3 1.1 7.6 83.8 100.0

Note: Lowest of all ratings is used for purposes of this table; data are in percent.1. This table does not include Maiden Lane LLCs swaps and other derivative contracts, commercial and residential mortgage loans, and to be

announced (TBA) investments.2. Includes all asset sectors that, individually, represent less than 5 percent of aggregate portfolio fair value.3. Rows and columns may not total because of rounding.

June 2009 13


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units, to a special purpose vehicle (SPV). This is the

first step in a process announced on March 2, 2009

that will result in AIU Holdings having a separateboard of directors and management team, and a dis-

tinct brand from AIG. Inc. The transfer prepares AIU

Holdings for a potential sale of a minority interest

stake.

On May 15, 2009, Fitch Ratings downgraded various

AIG ratings, including the Issuer Default Rating

(IDR) to BBB from A and the Issuer Financial

Strength (IFS) rating on the companys insurance

subsidiaries. Simultaneously, Fitch affirmed AIGs

short-term IDR and commercial paper ratings at F1.

None of the other major credit rating agencies

(Moodys, S&P, or AM Best) announced any creditrating actions concerning AIG during May.

On May 19, 2009, AIG announced that six new inde-

pendent director nomineesHarvey Golub, Laurette

T. Koellner, Christopher S. Lynch, Arthur C. Mar-

tinez, Robert S. (Steve) Miller, and Douglas M.

Steenlandwill stand for election at the AIG annual

meeting of shareholders, scheduled to be held on

June 30, 2009.

On May 21, 2009, AIG announced that its chairman

and CEO, Edward Liddy, has informed the AIG

board of directors of his intent to step down once the

board has successfully concluded its search for his

successor(s) in these roles.

On May 28, 2009, AIG announced that it had com-

pleted the sale of its real estate holdings in the Ote-

machi District in Tokyo to Nippon Life Insurance

Company, which paid approximately $1.2 billion in

cash for the entire office building and approximately

one acre of land on which it is situated.

Changes in borrowings under the revolving credit fa-

cility during May were relatively modest. Under the

terms of the contract, interest is accrued quarterly, so

no interest was added to the facility balance during

the period.

Background

On September 16, 2008, the Federal Reserve an-

nounced that it would lend to AIG to provide the com-

pany with the time and flexibility to execute a value-

maximizing strategic plan. Initially, the FRBNY

extended an $85 billion line of credit to the company.

The terms of the credit facility were disclosed on the

Boardswebsitewww.federalreserve.gov/monetarypolicy/

bst_supportspecific.htm). Loans outstanding under this

facility are presented in table 1 of the H.4.1 statistical

release and included in Other loans in table 9 of the

release.

On November 10, 2008, the Federal Reserve and the

Treasury announced a restructuring of the governments

financial support to AIG. As part of this restructuring,

two new limited liability companies (LLCs) were cre-

ated, Maiden Lane II LLC and Maiden Lane III LLC.

More detail on these two LLCs is reported below. Ad-

ditional information is included in table 5 in the H.4.1

statistical release. (On October 8, 2008, the FRBNY

was authorized to extend credit to certain AIG subsid-

iaries against a range of securities. This arrangement

was discontinued after the establishment of the MaidenLane II facility.)

On March 2, 2009, the Federal Reserve and the Trea-

sury announced an additional restructuring of the gov-

ernments assistance to AIG, designed to enhance the

companys capital and liquidity in order to facilitate the

orderly completion of the companys global divestiture

program. Additional information on the restructuring is

available at www.federalreserve.gov/newsevents/press/

other/20090302a.htm.

Figure 2. Maiden Lane LLC Portfolio Distribution



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Financial Tables: AIG Credit Facility

The lending under this facility is secured by a pledge

of assets of AIG and its primary nonregulated subsid-

iaries, including all or a substantial portion of AIGsownership interest in its regulated U.S. and foreign sub-

sidiaries. Furthermore, AIGs obligations to the Federal

Reserve Bank of New York are guaranteed by each of

AIGs domestic, nonregulated subsidiaries that have

more than $50 million in assets. These guarantees

themselves are separately secured by assets pledged to

the Federal Reserve Bank of New York by the relevant

guarantor.

Figure 3 above displays credit extended to AIG over

time through the credit facility including the principal,

interest, and commitment fees along with the facility

ceiling.

Financial Tables: Maiden Lane II

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 limitedliability company, Maiden Lane II LLC, to fund the

purchase of residential mortgage-backed securities

(RMBS) from the securitie

Federal Reserve Monthly Report for June

Documents

Transcript of Federal Reserve Monthly Report for June