The sector for funding corporations consists of five types of financial institutions and entities:
1. Subsidiaries of foreign bank and nonbank financial firms that raise funds in the U.S. commercial paper market and transfer the proceeds to foreign banking offices in the United States or to foreign parent companies abroad. In the flow of funds accounts, this transfer of funds is reported as negative foreign direct investment (FDI) in the United States since by convention, FDI is reported as an asset of the parent and a liability of the subsidiary. The treatment of these transactions in the flow of funds accounts is under review.
2. Financial holding companies, other than holding companies shown on tables F.128 and L.128, are included where data are available. The issuance of preferred shares to the federal government under the Troubled Asset Relief Program, or TARP, by American International Group, Inc. (AIG), a holding company, is recorded as a corporate equities liability with no specific corresponding asset.
3. Custodial accounts are bookkeeping entities established to hold cash collateral put up by security dealers to back securities they borrow to cover short sales and delivery failures. In the flow of funds accounts, these security transactions are listed as securities loaned (net). The collateral is returned to the dealers when the borrowed securities are returned. While held in custody, the collateral is invested in money market mutual fund shares, commercial paper, and corporate bonds.
4. Beginning in 2008, the Federal Reserve created a number of limited liability companies (LLCs) to which loans were extended to help stabilize the financial system. These LLCs included (1) Maiden Lane LLC to facilitate the arrangements associated with JPMorgan Chase & Co.'s acquisition of the Bear Stearns Companies, Inc.; (2) Maiden Lane II LLC to purchase residential mortgage-backed securities from the U.S. securities lending reinvestment portfolio of AIG subsidiaries; (3) Maiden Lane III LLC to purchase collateralized debt obligations on which AIG had written credit default swap contracts; and (4) Commercial Paper Funding Facility LLC. Loans were also made to AIG. Loans in the funding corporation sector are recorded as depository institution loans n.e.c., with corporate and foreign bonds and open market paper serving as the corresponding assets.
AIA Aurora LLC and ALICO Holdings LLC, two limited liability companies created to hold all the outstanding common stock of American International Assurance Company, Ltd. (AIA), and American Life Insurance Company (ALICO), which are two life insurance subsidiaries of AIG, are also included in this sector. The stocks of AIA and ALICO are shown as an asset, and the monetary authority sector's holdings of preferred shares in AIA Aurora LLC and ALICO Holdings LLC are shown as a liability.
5. Loans extended by the federal government to the Term Asset-Backed Securities Loan Facility, or TALF, LLC and to funds associated with the Public-Private Investment Program (PPIP) are recorded as an "other loans and advances" liability. The funding corporation sector's equity interest under PPIP is also shown as a liability.
Print
Close