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Financial Accounting Manual

Chapter 1: Balance Sheet

 

 

.01 General

The balance sheet, form FR 34, shows in detail the assets, liabilities, and capital accounts of the Federal Reserve Banks and certain additional information such as U.S. Government deposits with special depositaries, collateral and custodies held, classifications of "Other deposits--Miscellaneous," and certain memorandum accounts.

The balance sheet is the basis for the weekly statement of condition which the Board of Governors is required by law to publish periodically. It also furnishes the Board of Governors with basic, original source material for statistical data, much of which is published, relating to the condition of Federal Reserve Banks.

Each Reserve Bank should set up such general ledger and subsidiary accounts as it requires for its own purposes and as such will enable it to prepare the balance sheet and to maintain satisfactory internal controls. This chapter provides general descriptions of the scope of the balance sheet accounts to promote uniformity of accounting treatment. It is not the intent of this Manual to redefine basic accounting principles. In those cases where the accounting treatment is unclear, Reserve Banks should contact the RBOPS Accounting Policy and Operations Section for a FAM interpretation. Transactions of the Reserve Bank must be recorded in the general ledger and reflected on the Balance Sheet; none of the principles or possible lack of specific instructions for any given transactions in this Manual should be interpreted as allowing otherwise. Proper accounting practice requires consistent application of accounting principles throughout the District (i.e. head office and Branches) from year to year. Where this Manual permits Reserve Banks to choose optional treatments for transactions, Reserve Banks should consistently apply the chosen option to all similar transactions in the future. In general, the provisions of this Manual address Reserve Bank accounting issues and should be applied from a District perspective (for example, the process for accruals required by paragraph .90 should be applied on a Districtwide basis rather than department or Branch basis).

Balance Sheet
ASSETS
GOLD CERTIFICATE ACCOUNT 110-025  
SPECIAL DRAWING RIGHTS certificate account 120-025  
COIN 130-025  
LOANS AND SECURITIES:
Loans to depository institutions 140-025  
Loans to others 140-050  
Acceptances    
Bought outright 140-070*  
Held under repurchase agreement 140-075  
Federal agency obligations:    
Bought outright 140-100  
Held under repurchase agreement 140-125*  
U.S. Govt. securities bought outright:    
Bills 140-150  
Notes 140-175  
Bonds 140-200  
U.S. Govt. sec. held under repurchase agreement 140-225*  
Total U.S. Government securities 140-275  
Total loans and securities 140-800  
ML II portfolio holdings at fair value 142-025*  
ML II reserve account 142-050*  
ML II loan payable to FRBNY at par 142-075*  
ML II accrued interest payable--FRBNY 142-100*  
Expansion account 142-125  
Expansion account 142-150  
Portfolio holdings of Maiden Lane LLC 145-025*  
Loan payable to FRBNY at par (ML) 145-030*  
Accrued interest payable to FRBNY (ML) 145-035*  
Loan fees deferred 145-040  
CPFF loan payable to FRBNY 145-050*  
CPFF accrued interest payable to FRBNY 145-055*  
CPFF assets, face 145-060*  
CPFF assets, discount 145-065*  
CPFF other investments 145-070*  
Expansion account 145-075  
MMIFF loan payable to FRBNY 145-100*  
MMIFF accrued interest payable to FRBNY 145-115*  
MMIFF portfolio assets 145-130*  
MMIFF portfolio assets--valuation adjustment 145-145*  
MMIFF other investments 145-160*  
Expansion account 145-175  
ML III portfolio holdings at fair value 145-200*  
ML III reserve account 145-215*  
ML III loan payable to FRBNY at par 145-230*  
ML III accrued interest payable 145-245*  
Expansion account 145-260  
Expansion account 145-275  
Fed agency MBS 145-300  
Fed agency MBS--fail to deliver 145-315  
Fed agency MBS--temporary investments 145-330  
AIG allowance for loan modification 145-345*  
Allowance for loan losses 145-360  
AIG loan and capitalized interest 145-375*  
TALF--loans extended to borrowers 145-400*  
TALF--ABS held by FRBNY 145-415*  
TALF--value of put option with LLC 145-430*  
TALF--cash equivalents 145-445*  
TALF--credit extended by FRBNY to LLC 145-460*  
TALF--accrued interest payable--FRBNY 145-475*  
TALF--other investments 145-500*  
TALF--ABS held by LLC 145-515*  
TALF--AIR investments 145-530*  
TALF--senior loan payable to FRBNY 145-545*  
TALF--FV adj of senior loan pay to FRBNY 145-560*  
TALF--FV of TALF loans 145-575  
Investment in LLC 145-600  
Expansion account 145-615  
Expansion account 145-630  
Expansion account 145-645  
Expansion account 145-660  
Expansion account 145-675  
Expansion account 145-700  
Expansion account 145-715  
Expansion account 145-730  
Expansion account 145-745  
Expansion account 145-760  
Expansion account 145-775  
Expansion account 145-800  
Expansion account 145-815  
AIG--preferred securities--AIA 145-830*  
AIG--accrued dividends on preferred securities--AIA 145-845*  
AIG--accrued dividends on preferred securities --ALICO 145-860*  
AIG--preferred securities--ALICO 145-875*  
ITEMS IN PROCESS OF COLLECTION:
Transit items--
Federal Reserve Banks 150-025  
Depository institutions 150-050  
Other items in process 150-100  
Adjustments, net 150-150  
Total items in process of collection 150-900  
BANK PREMISES:
Land 160-025  
Buildings (including vaults) 160-050  
Building machinery and equipment 160-075  
Construction account 160-100  
Total bank premises 160-110  
Less depreciation 160-125  
Bank premises, net 160-150  
OTHER ASSETS:
Furniture and equipment 170-025  
Less depreciation 170-050  
Furniture and equipment, net 170-060  
Claims account closed banks 170-075  
Foreign currencies 170-100  
(gross $             ) 170-110*  
Reimbursable exp. and other items receivable 170-125  
Less allowance for doubtful reimbursement 170-130  
Reimbursable expenses, net 170-135  
FDIC assumed indebtedness 170-140  
Interest accrued 170-150  
Premium on securities 170-175  
Overdrafts 170-200  
Deferred charges 170-225  
Prepaid expenses:    
Materials and supplies 170-250  
Pension costs 170-260*  
Other 170-275  
Difference account, net 170-300  
Suspense account--general 170-325  
Other real estate, net 170-350  
Currency and coin exhibits 170-375  
Old currency series 170-400  
Miscellaneous cash items 170-425  
Suspense account--pricing 170-450  
Accrued service income 170-475  
Securities borrowing 170-500*  
Foreign currency liquidity swap arrangements 170-525  
Foreign currency swap arrangements 170-530  
Expansion account 170-540  
Expansion account 170-550  
Expansion account 170-560  
Expansion account 170-570  
Expansion account 170-580  
Expansion account 170-590  
Total other assets 170-800  
Interdistrict settlement account 180-025  
Branches or head office--interoffice account 190-025  
TOTAL ASSETS 190-050  
LIABILITIES
FEDERAL RESERVE NOTES:
Outstanding (Received from Agent, net) 210-025  
Less--
Held by Bank and branches 210-050  
In transit 210-075  
Federal Reserve notes, net 210-100  
DEPOSITS:
Depository institutions 220-025  
Due to other F.R. Banks--collected funds 220-075  
U.S. Treasury--general account 220-100  
Foreign 220-125  
Foreign (gross $ ) 220-130*  
Other deposits:    
U.S. Treasury--special account 220-140*  
Officers' and certified checks 220-150  
International organizations 220-175  
Secy. of Treasury special account 220-200*  
Govt.-sponsored enterprise accounts 220-225*  
Less unclassified charges 220-250*  
Net 220-275*  
FRB as Fiscal Agent 220-325*  
Miscellaneous 220-400  
Total other deposits 220-450  
Total deposits 220-500  
DEFERRED CREDIT ITEMS:
Other offices--Own District 230-025  
Other Federal Reserve Banks 230-050  
U.S. Treasury--general account 230-075  
Depository institutions 230-100  
Other items in process 230-125  
Adjustments, net 230-150  
Total deferred credit items 230-500  
OTHER LIABILITIES:
Accrued dividends unpaid 240-025  
Unearned discount 240-050  
Discount on securities 240-075  
Sundry items payable 240-125  
Suspense account--general 240-150  
Earnings credit due to depository institutions 240-175  
Exchange translation liability--central bank liquidity swaps 240-190*  
Accrued expenses unpaid--estimated 240-200  
Accumulated Postretirement Benefit Obligation 240-300  
ML loan and interest payable 240-400  
ML loan payable--fair value adjustment 240-425  
Interest on reserves due to depository institutions 240-430  
ML II loan payable 240-435*  
ML II loan payable--fair value adjustment 240-440*  
Expansion account 240-445  
MMIFF asset backed commerical paper (ABCP) issued 240-450*  
MMIFF ABCP accrued interest payable 240-455*  
ML III loan and accrued interest payable 240-460*  
ML III loan payable--fair value adjustment 240-465*  
Accumulated proceeds--AIG 240-470  
Expansion account 240-475  
Expansion account 240-480  
Expansion account 240-485  
Total other liabilities 240-800  
Branches or head office--interoffice acct. 240-825  
Term Deposit Facility 240-850  
Federal agency and GSE MBS--fails 240-875  
Designated Financial Market Utilities Deposits 240-900  
Interest on Federal Reserve notes 240-925  
TALF--U.S. Treasury equity, including accrued interest 240-930*  
TALF--FV of loan commitment 240-940*  
Expansion account 240-950  
TALF--FV adj of U.S. Treasury loan 240-960*  
Central bank liquidity swap accounts 242-100  
Reverse repurchase agreements--foreign pool 242-120  
Reverse repurchase agreements--other 242-140  
Expansion account 242-160  
Expansion account 242-180  
Expansion account 242-200  
Expansion account 242-220  
Expansion account 242-240  
TOTAL LIABILITIES 250-025  
CAPITAL ACCOUNTS
CAPITAL PAID IN 310-025  
SURPLUS 320-025  
INCOME, EXPENSES, AND DIVIDENDS:
Current income 330-025  
Operating expenses (deduct) 330-050  
Net periodic pension costs 330-060*  
Cost of earnings credits (deduct) 330-075  
Interest on reserves and term deposits 330-078  
Provision for loan loss expense 330-080  
Expansion account 330-082  
Expansion account 330-085  
Current net income 330-090  
Profit and loss, net 330-100  
Cost of unreimbursed Treasury services 330-110  
Assessment by Board of Governors (deduct)    
Board expenditures 330-125  
Expansion account 330-130  
Assessments by Board of Governors--Bureau of Consumer Financial Protection 330-135  
Assessments by Board of Governors--Office of Financial Research 330-140  
Assessments by Board of Governors--F.R. currency costs 330-150  
Net income available for distribution 330-160  
Deduct:    
Dividends accrued since January 1 330-175  
Interest paid on Federal Reserve notes 330-200  
Transferred to or from surplus 330-225  
Undistributed net income 330-275  
TOTAL CAPITAL ACCOUNTS 340-025  
TOTAL LIABILITIES & CAPITAL ACCTS: 350-025  
(Monthly)
Special depositaries, Treasury tax and loan accounts $
Definitive Book Entry
Collateral for Treasury tax and loan accounts: $ $
Held in own vaults    
Held by other offices in own district    
Held by other F.R. Banks    
Held by depository institutions    
Collateral for loans:    
Held in own vaults    
Held by other offices in own district    
Held by other F.R. Banks    
Held by depository institutions    
Accountability to Treasury for U.S. Government securities:    
Marketable securities--    
Retired    
Canceled redeemed    
Non-marketable securities--    
On hand    
On consignment with--    
Issuing agents    
Branches    
Savings bonds issued--book entry    
Accountability for other securities:    
U.S. Government agencies--    
*Unissued    
Retired    
Canceled redeemed    
International Organizations--    
*Unissued    
Retired    
Canceled redeemed    
Other custodies held as fiscal agent of the Treasury:    
Gold--    
Held in own vaults    
Held by other F.R. Banks    
Other    
Custodies held for:    
Commodity Credit Corporation    
U.S. Treasury--    
Special gold custody account:    
For display purposes    
Other    
Other Government departments, agencies, and officials--    
Held in own vaults    
Held by other offices in own district    
Held by other F.R. Banks    
Held by depository institutions    
Other offices in own district--    
Unissued U.S. Government securities on consignment--    
On hand    
With issuing agents    
Other    
System Open Market Account    
Other F.R. Banks    
Depository Institutions--    
Securities, etc.--    
Held in own vaults    
Held by other offices in own district    
Held by other F.R. Banks    
Held by depository institutions    
Foreign correspondents--    
Acceptances    
Securities--    
Held in own vaults    
Held by others    
Earmarked gold--Held in own vaults    
Foreign Debt Collateral    
Held in own vaults    
Held by others    
International Bank for Reconstruction & Dev.--securities    
International Finance Corporation--securities    
International Monetary Fund--    
securities    
gold    
International Development Association--securities    
Inter-American Development Bank--securities    
Asian Development Bank--securities    
Miscellaneous custody items    
Collateral and custody items in process    
TOTAL    
OTHER DEPOSITS--MISCELLANEOUS
Name of Account Amount
$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Memorandum Accounts
Food coupons pending--  
verification  
destruction  
Noncash collection items:  
Securities and coupons on hand  
U.S. Government and agency coupons:  
Unclassified (or redeemed)  
Suspense or holdover  
Miscellaneous cash items  
International coupons:  
Redeemed  
Suspense or holdover  
Coupons detached from safekeeping holding awaiting shipment to paying agents  
Coupons clipped from unissued Treasury and agency stock  
MATURITY DISTRIBUTION
Maturity distribution of loans:    
15 days or less 615-020  
16-90 days 615-025  
Over 90 days 615-030  
Total loans 615-035  
Maturity distribution of acceptances:    
15 days or less 615-040*  
16-90 days 615-045*  
Over 90 days 615-050*  
Total Acceptances 615-055*  
     
Supplemental #1 615-110  
Supplemental #2 615-115  
Supplemental #3 615-120  
Supplemental #4 615-125  
Supplemental #5 615-130  
Supplemental #6 615-135  
Supplemental #7 615-140  
Supplemental #8 615-145  
Supplemental #9 615-150  

.10 Daily Preparation

A combined balance sheet for each Federal Reserve Bank should be prepared for each day that the Bank or any Branch is open for business. (See paragraph 60.11 for standard holiday schedule.) Special procedures are required for Wednesday, month-end, and year-end balance sheets:

  • On the last day of the month the combined balance sheet and the individual balance sheets for each office should show on the reverse all the data for which provision has been made.
  • When Wednesday is not the first day of the month and is a holiday, or when the last day of the month is a holiday, the balance sheet for the preceding business day should reflect accruals of earnings, expenses, and dividends through the Wednesday holiday or the last day of the month. (See accrual instructions beginning with paragraph .60.)
  • At the end of each day, no amount should be reported in undistributed net income on the combined balance sheet. (See paragraph 60.20 for additional discussion.)

.15 Adjustments to Prior Day Balances

While adjustments to prior day balances may be made before balance sheets are submitted, adjustments to prior day Treasury and depository institution account balances should be rare. The Manager of the RBOPS Financial Reporting and Control Section should be notified of all prior day adjustments to Treasury and depository institution accounts, when identified, in order to ensure that their implications are properly communicated to monetary projection and fiscal staff.

.20 Daily Submission

Combined balance sheet data for each District should be transmitted to the Board daily. Technical procedures for the transmission of FR 34 data may be found in Technical Memorandum No. 15. Data should be transmitted to reach the Board no later than 1:30 p.m. Eastern Time each business day.

.25 Monthly Submission

A copy of the reverse side of the combined District balance sheet, FR 34, should be forwarded electronically or by mail to the RBOPS Financial Reporting and Control Section to be received within 15 business days after month-end. (See paragraph .10.) The reverse side of the individual office balance sheets should be included at year-end. (See paragraph .50.)

.30 Confidential Daily Summary (L.6.1)

The combined balance sheet data are consolidated daily and, together with figures from other sources, are used in preparing a confidential daily statement, which is furnished to the Board and various members of its staff, certain Treasury officials, and the Federal Reserve Banks.

.40 Condition Statement of Federal Reserve Banks (H.4.1)

Section 11(a) of the Federal Reserve Act provides that the Board of Governors shall publish once each week a statement showing the condition of each Federal Reserve Bank and a consolidated statement for all Federal Reserve Banks. This section of the Act further provides that " such statements should show in detail the assets and liabilities of the Banks, single and combined, and shall furnish full information regarding the character of the money held as reserve and the amount, nature, and maturities of the paper and other investments owned or held by Federal Reserve Banks."

The Board's weekly statement is published each Thursday and is compiled from the previous Wednesday's data.

.45 Quarterly Report

The Board publishes the Federal Reserve Banks Combined Quarterly Financial Report, which presents the Federal Reserve Banks' combined financial statements and is prepared using data that the Reserve Banks make available.

.50 Annual Report

The Board publishes the Annual Report of the Board of Governors of the Federal Reserve System, which provides the Board's financial statements, the Reserve Banks' combined financial statements, and pro forma financial statements for Federal Reserve priced services. The Annual Report is prepared using data that the Reserve Banks make available.

.60 Accruals

Under accrual accounting, the financial effects of transactions and other economic events are recorded in the periods in which they have their primary economic effect. Accordingly, accrual accounting recognizes revenues and expenses as they are earned or incurred, not as cash is received or paid.

Accruals should be made weekly at a minimum (see paragraph .80) unless otherwise specified. Prior to the end of the reporting period, Reserve Banks should ensure that all accruals are properly reflected in the underlying accounts. In most cases, the accrual should be based on a transaction or other economic event that has been completed (i.e. the goods/services have been received). Accruals for standard timing lags may be made by using a standard accrual made in the beginning of the year, and then reversed at year-end ("standing accrual").

Paragraphs .70 - 1.00 provide general procedures for making accruals at different intervals. Due to their unique nature, detailed instructions have also been provided for making the following accruals: consolidated health plans (see paragraph 1.01), self-insured medical/dental expenses (see paragraph 1.02), compensated absences (see paragraph 1.04), contingent liabilities (see paragraph 1.06), and dividends (see paragraph 1.10).

.70 Accruals of Earnings

Calculate earnings on all types of earning assets, except SOMA assets (see paragraph 40.60) for each calendar day on the basis of holdings of such assets at opening of business on such day or at close of business on the last preceding business day if the day in question is a Sunday or a holiday. Accrual of earnings on advances to depository institutions should be calculated at the interest rate in effect on the previous day. Other earnings are ordinarily credited when received or when services are rendered.

.80 Accrual of Expenses Within the Month

Operating expenses or, as an option, salaries and related expenses, should be accrued in total along with estimates of compensation paid or received for check, automated clearing house, electronic access, and funds and securities transfer services provided or bought, as outlined in the following paragraphs, in order that expenses may be reflected consistently in published condition reports.

On each Wednesday, if accruals are made weekly, or on each day, the difference between total estimated net operating expenses and total net operating expenses recorded for the week or day should be debited (or credited) to a special expense account e.g., "Expenses accrued-estimated" and credited (or debited) to a special liability account, e.g., "Accrued expenses unpaid--estimated" (paragraph 11.83). After these entries are made, the balances in these two accounts will represent the difference between estimated net operating expenses for the month-to-date and total net operating expenses for the month-to-date as recorded.

On the form FR-34, the debit balance in the "Expenses accrued-estimated" account should be included in the item "Operating expenses" account (330-050) and the credit balance in the "Accrued expenses unpaid---estimated" account (240-200) should be reported under the caption "Other liabilities." If month-to-date net operating expenses recorded exceeds total estimated net operating expenses, resulting in a credit balance in "Expenses accrued-estimated" and a debit balance in "Accrued expenses unpaid-estimated," these two accounts should be adjusted to zero. On the last day of the month, these accounts should be closed against each other. (See paragraph .90 for month-end accruals).

.90 Accrual of Expense/Expenditure at Month-End and Year-End

Expenses incurred should be accrued as of the last day of the month and the year. Expenses are considered incurred if the service has been rendered or the product or material has been received. Non-incurred expenses should not be accrued. Types of transactions that normally give rise to accruals include receipt of goods or services; taxes; transportation costs; certain payroll costs, such as overtime charges; and costs associated with acquiring or improving physical assets, such as buildings and equipment. (Also see paragraphs 1.20 and 4.35 for additional clarification and examples.)

To ensure the proper recognition of expenses and liabilities at month-end and year-end, Reserve Banks are expected to maintain robust accrual processes to identify expenses timely and record them in the proper period. These processes may differ depending on the nature of the transaction as long as they effectively accrue significant expenses. For example, some transactions may be more efficiently accrued on a comprehensive basis than on a transaction basis. Examples of these may include automated accruals associated with purchase orders, purchasing cards, and personnel-related expenses. Other transactions, such as recurring monthly payments for utilities, may be more efficiently recorded on a cash basis if the monthly differences are minor and they are handled consistently month-to-month.

Although some transactions, particularly those acquisitions of goods and services outside the purchase order/purchasing card processes, may be difficult to identify, Reserve Banks must maintain an accrual process to consistently identify and accrue significant transactions in the appropriate period. Because of the importance of producing accurate year-end financial statements, additional procedures, such as subsequent payments testing, should be used to identify and accrue expenses incurred but not paid at year-end.

Amounts accrued should be debited to operating expenses and distributed to the appropriate subsidiary accounts or to the appropriate asset account, and credited to sundry items payable (see paragraph 11.70) or credited as offsets to items in prepaid accounts. (See paragraph 1.20.) For monthly accruals made for purchasing card transactions, the Bank may choose to offset the accrual for expenses to the current expense undistributed account rather than the individual PACS account. If the Bank makes significant capital purchases with purchasing cards, however, accruals for capital items should be debited to the relevant capital asset account. Generally, each month the previous month-end accruals, except for standing accruals (see paragraph .60 for standing accruals) should be reversed and payments should be debited to current expense as noted in paragraph .60. If payment is not expected to be made until a future period, the Bank can elect to not automatically reverse the accrual.

.95 Accruals of Expenses for Employee Termination Plans (Involuntary/Voluntary)

If a Reserve Bank initiates an involuntary employee termination program, it must recognize the associated liability if it is probable and the amounts are estimable. The probability test has been met when all four of the following conditions exist and have been communicated to the affected employees (communication date): 1) the appropriate level of management has approved and committed the organization to involuntarily terminate employees, 2) the affected employees have been notified, 3) the terms of the benefits to be provided have been communicated in sufficient detail to the affected employees, and 4) the period to complete the planned termination is not likely to change. If the plan requires an employee to work more than sixty days beyond notification in order to receive benefits, it may be necessary to accrue the liability over several periods.

Reserve Banks should note that if incremental termination benefits, in addition to the standard benefit program, are provided to employees as retention incentives, the accrual for the cost associated should not be included in the accrual for the standard benefit program -- it should be accrued evenly over the period from the communication date to the termination date.

If a Reserve Bank initiates a voluntary (early) termination program, it must estimate and recognize the liability for the termination benefits when the following conditions exist: 1) the appropriate level of management has approved and committed to a plan that allows employees to terminate employment, 2) employees have accepted the plan and it is unlikely that the election will be changed, and 3) the period to complete the termination is not likely to change.

Any incremental costs such as retention incentives associated with voluntary retirement programs, unlike the involuntary termination plans, should be accrued in total when the employee accepts the offer. If the election window for the program falls within a calendar year, the accrual may be made at the end of the window period; however, if the window crosses year-end, Reserve Banks should accrue only costs that are associated with employees who have indicated acceptance of the program.

Given the complexity involved with these programs related to the timing of expense accruals, Reserve Banks should contact RBOPS Accounting Policy and Operations Section for guidance when considering such plans.

1.00 Accrual of Reimbursements at Month-End

Estimated reimbursements at the end of the month should be debited to reimbursable expenses and other items receivable, the purpose being to reflect a more accurate current expense figure. The accrual entries are reversed, and replaced with actual amounts in the following month when reimbursable amounts are determined.

1.01 Accruals and prepayments for the consolidated health plans

In January 2003, the Reserve Banks consolidated most of the active and retiree health plans with the Office of Employee Benefits (OEB) as the administrator. (For Districts that continue to have locally managed self-insured health plans, see paragraph 1.02 for the accruals.) Although the Reserve Banks share a common administrator and service providers, the benefits and costs are still recorded at the Bank level. These costs include those for active employee medical benefits, retiree medical and life insurance benefits (FASB ASC Topic 715-60; formerly SFAS No. 106), and Long-Term-Disability (LTD)/self-insured workers compensation medical benefits (FASB ASC Topic 712-10; formerly SFAS No. 112). The following summarizes the payment flows and accounting instructions for these benefits:

  • Each month, in order to have sufficient funds to pay claims, OEB collects a monthly "premium" from the Reserve Banks by initiating a same day settlement (SDS) entry through the New York Reserve Bank. Reserve Banks record payments to the OEB by debiting the National Health Care Prepaid Expenses account (170-275) because this "premium" represents an advance payment to OEB.
  • Reserve Banks also accrue monthly expenses related to active employee medical benefits (including those incurred but not reported (IBNR) - see paragraph 1.02) to the SIP - National Health Care Accrued Liabilities account (240-125). Care should be taken to ensure that accruals for medical claims incurred but not paid do not include liabilities for post-retirement (FASB ASC Topic 715-60; formerly SFAS No. 106) and post-employment (FASB ASC Topic 712-10; formerly SFAS No. 112) benefits, which are accrued based on the actuarial valuation.
  • When Reserve Banks are notified by the OEB that payments have been made on their behalf, Reserve Banks debit as appropriate, the SIP - National Health Care Accrued Liabilities account (240-125) for active employee medical, retiree medical (FASB ASC Topic 715-60; formerly SFAS No. 106), and LTD/self-insured workers compensation medical (FASB ASC Topic 712-10; formerly SFAS No. 112) and credit the National Health Care Prepaid Expenses (170-275) account.

At year-end, each District will need to adjust its incurred but not paid liability associated with active medical claims based on actual claims paid.

1.02 Accruals for Self-Insured Medical/Dental Expenses

A liability must be recognized for the amount of medical/dental claims that have been incurred but not paid. A claim has been incurred when the event (e.g. medical treatment) that precipitates future payouts has occurred. The amount of this liability should reflect an estimate of the amount that will be paid, ultimately, by the Bank (net of stop-loss insurance, if the Bank maintains such coverage). It is not appropriate to maintain a "reserve" for claims that may be incurred in the future. Any funds related to the provision of self-insured medical/dental expenses that are held on deposit by claims administrators should be reflected separately as an asset of the Bank, rather than as an offset to the accrued self-insured medical/dental liability. A District is considered to be self-insured unless the insurance carrier bears 100% of the risk of loss due to shortfalls between claims and premiums.

As with most accruals, the liability reflected will be an estimate of the actual amounts of claims incurred but not paid. In order to maintain consistency among Reserve Bank estimates, a standard approach to this estimate has been adopted. The year-end liability should be based on the prior year's experience adjusted for current trends in claims. Specifically, a Reserve Bank should determine the amount of claims paid in the current year that were incurred in the prior year (run-out claims). This amount should then be divided by the total claims paid in the prior year to establish a "subsequent claims ratio." This ratio should then be applied to the most recent 12 months of payments data available to obtain the amount of the liability.

As with most accruals, medical and dental expenses should be accrued weekly, consistent with paragraph .60. Generally, this liability would be increased by the accruals, decreased by claim payments, and periodically adjusted to maintain an appropriate balance based on the "subsequent claims ratio" and the most current 12 months payment history. Alternatively, a Reserve Bank may choose to charge claims payments directly to expense while periodically adjusting this liability to its desired level, as described above. In any case, the liability balance should be reviewed at the end of every quarter, at a minimum (more frequently if circumstances warrant). This review should re-estimate the liability balance by applying the "subsequent claims ratio" (see second bullet under "Subsequent Claims Ratio" discussion below) to the most recent 12 months of payments data. In the first, second, and third quarter, if the actual liability balance is significantly different from the amount re-estimated, the on-going weekly accruals should be adjusted accordingly. The liability balance at year-end should always be adjusted to reflect the amount calculated using the methodology outlined in the paragraph above.

Exceptional circumstances (e.g., a change in claims administrator or plan design changes) may exist that would lead to a material misstatement of this liability if additional adjustments were not made. In such situations, the RBOPS Accounting Policy and Operations Section should be contacted for approval of an appropriate alternative estimation methodology.

The following items provide further clarification of this estimation process:

Subsequent claims ratio

  • Care should be taken when making this computation to remove claims paid that will be recovered from an insurance carrier due to a stop-loss policy from both the numerator and denominator.
  • Reserve Banks should modify this ratio at some point during the year when data for claims paid in the current year that were incurred in the prior year are available. This adjustment should be made as soon as practical, usually by the end of the second or third quarter. The following example illustrates the calculation of the liability balance:

Example of calculation of liability balance

Example of calculation of liability balance
  • In the event that Reserve Banks cannot obtain reliable information regarding the amount of run-out claims, they should contact the RBOPS Accounting Policy and Operations Section for assistance.
  • Some Reserve Banks maintain little to no "stop-loss" insurance. As a result they often experience more volatility in claims experience. It is conceivable that the "run-out" claims from a prior year may contain payments related to an unusual situation resulting in a ratio that is unreasonably high. Similarly, a Reserve Bank may be aware of an unusual situation that exists at year-end requiring an increase to the liability. Both cases should be treated as an exceptional circumstance and RBOPS Accounting Policy and Operations Section staff should be contacted.

Liability Estimate:

  • Given that the ratio is based on an annual amount, the estimate should be computed by applying the ratio to the most recent 12 month payment history.
  • Care should be taken when making this computation to remove claims that will be recovered from an insurance carrier due to a stop-loss policy from the 12 month payment history amount.

Special Considerations:

  • Remember that medical payments/accruals for retirees and individuals on long-term disability are covered under FASB ASC Topic 715-60; formerly SFAS No. 106, and FASB ASC Topic 712-10; formerly SFAS No. 112, respectively, and should be excluded from the aforementioned calculations.

1.04 Accruals for Compensated Absences

Districts must accrue a liability for employees' compensation for future absences if a) the obligation is attributable to services already rendered, b) the obligation relates to rights that vest or accumulate, and c) payment of the compensation is probable and estimable. This requirement does not extend to sick-pay benefits unless they vest (i.e. an employee is paid for unused sick days upon termination).

The purpose of this accrual is to recognize the liability for vested or accumulated compensated absences.

  • Vested rights are those for which the District has an obligation to make payment even if an employee terminates.
  • Accumulated rights are earned, but unused, rights to receive payment for compensated absences that may be carried forward to one or more periods. Accumulated rights may be vested, in whole or in part.

The requirement to accrue a liability for compensated absences depends on whether the unused rights expire at the end of the year in which they are earned or accumulated and are carried forward to succeeding years. The cost of accumulated compensated absences should be accrued to the extent that it is probable that employees will use or be paid in future years for the increased benefits attributable to the accumulated rights and that the amount can be reasonably estimated. The accrual for the cost of sick pay benefits, however, should be limited to the vested amount.

Example 1: Assume an employee accumulates vacation time throughout the year and, at the end of the year, has accumulated four weeks of vacation time. The District's policy allows employees to carry over a maximum of three weeks of vacation to the following year. The District should accrue a liability for the cost of three weeks of accumulated vacation time (accumulated portion), even if the District's policy is to pay only a maximum of two weeks of vacation in the event of termination (vested portion).

Example 2: Assume that an employee earns sick-pay benefits throughout the year and the District's policy allows employees to accumulate sick-pay benefits, but limits the amount that can be paid to the employee at termination to two weeks (vested portion). In this case, the accrual should be limited to the vested portion only, or two weeks.

This accrual should be calculated by multiplying total hours of qualifying compensated absences by actual salary rates. Average salary rates may be used if actual rates are unavailable or administratively burdensome to use. To ensure the recognition of this liability while avoiding the burdensome requirements of distinguishing between salary and compensated absence expense on a weekly basis, this liability need not be continually adjusted to reflect individual accrual/usage of qualifying benefits. Rather, this liability and related expense should be adjusted at year-end, to reflect overall changes in the level of the liability. This liability should also be adjusted periodically for significant changes in the liability that result from events such as merit increases, significant staff level changes, or policy changes. For example, when merit increases are granted to employees, an adjustment will be required to increase the liability. Districts that grant merit increases on an employee's anniversary date should accrue the annual projected merit increase weekly ratably over the year in which the increases are granted.

1.06 Accruals for Contingent Liabilities

A loss contingency arises when an uncertain existing condition will be resolved by a future event that may result in the impairment of an asset or the incurrence of a liability. Consistent with FASB ASC Topic 450-20; formerly SFAS No. 5, Accounting for Contingencies, a loss contingency should be accrued if 1) it is probable that a future event will confirm the impairment of an asset or the incurrence of a liability and 2) the amount is reasonably estimable. Examples of contingent liabilities are pending or threatened litigation and conditional asset retirement obligations (refer to paragraph 30.05). Districts should periodically conduct a review to determine if contingent liabilities exist that may require accrual. At a minimum, these accruals should be made at the end of every calendar quarter. Approval to accrue contingent liabilities must be obtained from the RBOPS Accounting Policy and Operations Section. Note: Information should be maintained on contingent liabilities that do not meet both tests required for establishing an accrual. This information may be required to be included in year-end footnote disclosures.

1.10 Dividend Accruals

As required by the Federal Reserve Act, a bank becoming a member of the System must subscribe to stock in the Federal Reserve Bank in whose territory it is located. All stock issued to banks within a District is issued by and reflected upon the books of the head office. Semiannual dividends on the paid-in stock are paid by the issuing Reserve Bank on the last business day of June and December. These dividends are accrued daily (based on a 360-day year) at the rate of one-half of one percent per month and accumulate in this account from one payment date until the next. The total amount of the daily accrual is debited to Dividends Accrued, representing a deduction from current net earnings, and credited to Accrued Dividends Unpaid (see paragraph 11.50) as the liability for dividends due but unpaid.

The amount to be accrued daily should be obtained by dividing one-half of one percent of the Reserve Bank's paid-in capital stock from member banks by 30 days (representing the standard number of days in each month). Dividend accruals are computed on the total of such capital paid-in as of the opening of business that day (close of business previous day). No accrual should be made on the last day of months with 31 days, and extra accruals will be required on the last day of February. Accruals for a non-business day should be made on the succeeding business day except when a non-business day is a month-end or a Wednesday. In these cases, the accruals should be included in the previous business day provided the non-business day(s) are of the same month. When the non-business days are in different months, the accrual for the non-business days should be split appropriately between the previous and subsequent days. In lieu of accruing dividends daily, accruals may be made as of each Wednesday and the last business day of the month (excluding the 31st day of any month).

Banks become members of the System at various times during an accrual period and others must subscribe to additional capital. In these instances the stock is issued, upon opening of business or proper authorization, and the bank's reserve account is charged for the amount of the accrued stock dividends (at the daily rate described earlier) from the last dividend payment date through the issuance date. The corresponding credit is recorded to the accrued Dividends Unpaid account. At the end of the period, the member bank is paid a full six months' dividend. The effect of this procedure is to make all stock purchases effective as of the beginning of the dividend period for accounting purposes. A bank withdrawing from membership is paid upon actual cancellation of stock or at the effective date of stock cancellation (as explained in Regulation I) rather than at the regular dividend payment date. On the day dividends are credited to member bank reserve accounts, a corresponding summary debit is made to Accrued Dividends Unpaid that will eliminate the previously accrued account balance.

According to the Federal Reserve Act, after all necessary expenses of a Federal Reserve Bank have been paid or provided for, the stockholders of the Bank shall be entitled to receive an annual dividend of 6 percent on paid-in capital stock. The entitlement to dividends shall be cumulative. That portion of net earnings of each Federal Reserve Bank which remains after dividend claims have been fully met shall be deposited in the surplus fund of the Bank. (See FAM 60.20 for remittance to Treasury and Appendix B.1, Payment of Dividends from Surplus.)

1.20 Prepayments

Payments made in advance for services to be rendered over future periods will be recorded as deferred charges or prepaid expenses (see paragraph 4.20 and 4.35) and amortized as appropriate. Prepayments under $25,000 should be charged directly to expense. Among the types of prepayments normally recorded as prepaids are rent, taxes on real estate, and the cost of printing and supplies. Special accounts are provided on the balance sheet for recording the prepayments of services as well as recording inventory items such as materials and supplies; paragraphs 4.30 and 4.35 should be consulted for specific instructions. In particular, the $25,000 limitation is designed only to eliminate the need to amortize small amounts over many periods. All inventory type items purchased for future use should be recorded as a prepaid upon receipt, regardless of amount. (See 4.30 and 4.35.) Also, prepayments for equipment purchases should be recorded as either a deferred charge (if long-term) or prepaid expense until the associated equipment is received.

1.24 Operating Leases

An operating lease is defined as a lease contract that allows the use of an asset, without conveying rights of ownership. Consistent with the requirements of FASB ASC Topic 840-20; formerly SFAS No. 13, the monthly income or expense recognized should be derived by dividing the minimum rent to be received or paid (including any rent escalations) equally over the non-cancelable lease term. Minimum rental payments include those called for by the lease agreements, such as broker commissions, tenant improvements, incentive payments, rent escalations and CPI adjustments, and exclude executory costs (insurance, maintenance, and taxes) and contingent payments. The noncancelable lease term should include all free rental periods granted. Improvements should be capitalized and amortized as discussed in paragraph 30.85 and 30.86. For example, if a Reserve Bank enters into a lease agreement with a rent escalation clause, the Reserve Bank's monthly rental expense (or income) will be equal to the total rent that will be paid over the minimum lease term divided by the number of months in the minimum lease term. The difference between the rental expense (or income) and the actual rent payment will be recognized as a liability in the Sundry Items Payable (SIP) account (or an asset in the deferred charges account) during the initial months of the lease and as an offset to the liability (or asset) as the payments escalate. For example, assume a Reserve Bank enters into a three-year lease for $100 per month for the first two years and $115 per month for the third year. The total rental payments over the 36-month life of the lease would be $3,780 ($1,200, $1,200, and $1,380). The monthly expense would be $105 per month for all 36 months ($3,780/36 months). Each month, for the first 24 months the $5 difference between the expense recognized and the rent paid would be credited to the SIP account. Beginning with the first payment of the third year the $10 difference between the rent paid and the expense recognized ($115 - $105) would be debited to the SIP account.

1.25 Recovery of Disbursements for Others

Disbursements that are earmarked at the outset for recovery from other Reserve Banks, the Treasury, and others, should not be debited to expense but should be debited to a reimbursable ledger account pending receipt of payment. This account should not be used for disbursements related to items defined as recoveries in the PACS Manual.

1.30 Accounting for Rebates

In the course of procuring goods or services, vendors may offer rebates of varying amounts to the Reserve Banks. In addition, Reserve Banks may receive rebates as a result of payment arrangements (based on volume of purchases, timing of payments, etc.) such as with P-cards. Rebates associated with a particular capital acquisition should reduce the acquisition cost recognized for that asset by the rebate amount. Similarly, rebates associated with particular expenses should be recorded as a reduction to that expense. Rebates associated with P-cards or similar arrangements where specific allocation is not practical should be recognized as a reduction to current expense as they are earned.

2.00 Balance Sheet Accounts--General

The following paragraphs describe the general content of the accounts on FR 34. While the discussion is not to be regarded as an instruction for individual ledger accounts that may be maintained by a Reserve Bank, it does serve as an instruction regarding the scope of each FR 34 account. The more important accounts include a discussion of background information to aid in understanding.

2.10 Gold Certificate Account (110-025)

The Secretary of the Treasury is authorized to issue gold certificates to the Reserve Banks to monetize gold held by the U.S. Treasury. At any time, the U.S. Treasury may reacquire the gold certificates by demonetizing the gold.

The Treasury of the United States maintains an account with the Board of Governors entitled "Gold certificate fund--Board of Governors of the FR System." When the Treasury monetizes gold, it credits this account in return for deposit credit at the New York Reserve Bank. When demonetizing gold, Treasury decreases the account and authorizes New York to charge its deposit account. The offsetting entry in each case on New York's books is made to the Gold Certificate account and the U.S. Treasury - general account. New York accounting staff sends an advice of these entries to the Board. Also, whenever the official price of gold is changed, Treasury adjusts the account and, simultaneously, the deposit account.

The Board maintains the account in the exact amount as shown on Treasury's books at all times. The entries are made pursuant to advice from the New York Reserve Bank and Treasury. The amount of gold certificates on each Bank's balance sheet must agree with the total in the Board's records and is periodically confirmed by auditors. Monthly statements of the account are received from Treasury and confirmed by the RBOPS Financial Reporting and Control Section.

The Board distributes substantially all of the total gold among Reserve Banks based on Federal Reserve notes outstanding (see paragraph 40.70) with an additional amount allocated to the New York Reserve Bank as a cushion to accommodate Treasury sales during the year. By law, each Bank may pledge all or any part of its account with the Federal Reserve Agent as security for Federal Reserve notes. Prior to 1978, each Bank pledged a specific amount which was then earmarked in the Board's records on a separate ledger sheet, and thereafter was subject to and reduced only with prior approval from the Assistant Federal Reserve Agent. Beginning in 1978, each Bank's holdings were pledged automatically pursuant to a continuing agreement. The amount of gold certificates pledged with the Agent--currently the same as the balance sheet total at each Bank--is reported on the Daily Statement of the Federal Reserve Agent, Form FR 5 and is also confirmed periodically.

The gold certificate account serves as the medium for affecting an annual settlement among the Reserve Banks for amounts accumulated in the Interdistrict Settlement account. Following the annual settlement, each Bank's gold certificate account is restored relative to the average Federal Reserve notes outstanding through a reallocation of securities in the System Open Market Account. (See paragraph 40.70.)

2.20 Special Drawing Rights Certificate Account (120-025)

Special Drawing Rights (SDRs) are issued by the International Monetary Fund (Fund) to its members in proportion to each member's quota in the Fund at the time of issuance. SDRs serve as a supplement to international monetary reserves and may be transferred from one national monetary authority to another. Under the law providing for U.S. participation in the SDR system, the Secretary of the Treasury is authorized to issue SDR certificates (broadly comparable with gold certificates) to the Federal Reserve Banks. The Banks are required to purchase them for the purpose of financing SDR acquisitions or for financing exchange stabilization operations.

The Treasury, when it wishes to monetize a specific amount of SDRs, authorizes and requests the New York Reserve Bank to credit a special account of the Secretary of the Treasury with the total amount of such monetization and to debit the Bank's SDR certificate account by a corresponding amount. The Board participates the SDR certificate transactions among all 12 Federal Reserve Banks in proportion to Federal Reserve notes outstanding in each District at the end of the preceding year. Each of the other Federal Reserve Banks pays for its share of the SDR certificates through its Interdistrict Settlement account. Each of the eleven Banks, therefore, has an increase in one asset (SDR certificates) offset by a decline in another balance sheet asset. The New York Reserve Bank has an increase in its deposit liabilities (special account of the Secretary of the Treasury) matched by increases in two assets (SDR certificates--to the extent of its share in overall distribution effected by the Board--and Interdistrict Settlement account). In addition, pursuant to an agreement between the Federal Reserve and the U.S. Treasury made in the 1960s, whenever the SDR account reaches a level of surplus, the Treasury authorizes and requests the demonetization of SDRs. When this occurs, the New York Reserve Bank debits the special account of the Secretary of the Treasury with the total amount of such demonetization and credits the Bank's SDR account by a corresponding amount. As in a monetization, the Board participates these balances among all 12 Federal Reserve Banks.

The New York Reserve Bank maintains an account for each Reserve Bank entitled "Special Drawing Rights certificate account." Amounts deposited with New York are distributed on the day of deposit rounded to the nearest million, and payment is made by direct entry to each Bank's Interdistrict Settlement account; i.e., New York's account is increased and accounts of other Reserve Banks are decreased. Entries in the opposite direction are made when Treasury reduces the total.

An electronic message is distributed to all Reserve Banks showing each Bank's share. Upon receipt of this message, each Bank other than New York, debits the SDR certificate account and credits the Interdistrict Settlement account on its books. New York credits the account by the amount distributed and debits the Interdistrict Settlement account.

Each Bank pledges the full amount in the Special Drawing Rights certificate account as collateral for Federal Reserve notes under a continuing pledge agreement.

2.30 Coin (130-025)

This account represents all United States coin held by the Reserve Banks except gold coin, coin in exhibits, and coin in petty cash funds.

For shipments of coin between Districts in which the shipment is not received on the same day the coin is shipped, the receiving District should establish a sub-account, defined as an in transit coin account, and follow the same accounting explained in paragraph 50.40 for shipments of notes between Districts.

2.40 Loans (140-025 and 140-050)

Extensions of credit by Federal Reserve Banks are governed by Regulation A and Operating Circular 10 of each Bank. Loans to depository institutions are carried at face amount in a single account on the balance sheet. The interest is accrued on a daily basis and collected at maturity. Loans to depository institutions are pledged by each Reserve Bank as collateral for Federal Reserve notes. Loans should be evaluated for collectability on a quarterly basis and the results of the 4th quarter (December 31) evaluation should be provided to the RBOPS Accounting Policy and Operations Section. (See paragraph 81.07 for further details.)

Account 140-050 is used for recording loans to others, the authority for which is covered in paragraphs 3 and 13 of Section 13 of the Federal Reserve Act. Specifically, this account includes amounts extended to borrowers under Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC.1

2.70 Acceptances: Bought Outright and Held Under Repurchase Agreement (140-070 and 140-075)

The New York Reserve Bank, in carrying out the domestic policy directive adopted by the Federal Open Market Committee (FOMC), may be authorized to purchase or make repurchase agreements with dealers. Some repurchase agreements may be secured by bankers' acceptances and mature after a fixed period, usually one to seven days. Acceptances arise out of the shipment of goods between countries or within the United States or from the storage of goods within the United States pending marketing. All holdings of acceptances or repurchase agreements secured by acceptances are retained on the New York Bank's balance sheet and are not participated to other Reserve Banks. When acceptances are purchased or sold, the net amount of the transaction is paid to or collected by the New York Bank from the dealer. Only the par value of this transaction is entered to this account. Other accounts that may be affected are interest accrued, premium on securities, discount on securities and, in the case of sales, profit and loss. The New York Reserve Bank has not engaged in transactions involving acceptances for several years. Currently account 140-075 is being used for reporting tri-party repurchase agreements pending the creation of a new account for these purposes. In 2007, the FOMC authorized the participation of all activity related to tri-party repurchase agreements to each of the Reserve Banks. Prior to this change, the activity was reported only by the New York Reserve Bank.

2.80 Federal Agency Obligations: Bought Outright and Held Under Repurchase Agreement (140-100 and 140-125)

The New York Reserve Bank is authorized by the FOMC to purchase Federal Agency obligations for the System Open Market Account (SOMA) and to acquire such securities under repurchase agreements for its own account. This account includes Federal agency and government-sponsored enterprise (GSE) securities. By law, the securities must be either direct obligations of an agency of the United States, or fully guaranteed as to principal and interest by such agency.

When these securities are purchased or sold, the net amount of the transaction is paid to or collected by the New York Reserve Bank from the dealer and only the par value is entered to this account. Other accounts that may be affected are interest accrued, premium on securities, discount on securities and, in the case of sales, profit and loss. The amortization or accretion of premiums and discounts is discussed in paragraphs 4.00 and 11.65, respectively. The securities are accounted for at amortized cost rather than fair value; therefore, no unrealized gains or losses are recognized. Federal agency obligations held under repurchase agreements are, however, accounted for consistent with the treatment of U.S. government securities held under repurchase agreements. (See paragraph 2.95.)

On the day of settlement the New York Reserve Bank participates a share of the transaction to each Reserve Bank. Profits and losses are participated to each Bank according to holdings at the opening of business. (See paragraph 40.70 for the participation methodology.)

2.90 U.S. Government Securities Bought Outright: Bills, Notes, and Bonds (140-150, 140-175, and 140-200)

The New York Reserve Bank is authorized by the FOMC to purchase and sell U.S. Government securities, which consist of U.S. Treasury securities. The securities are bought from or sold to securities dealers and foreign and international accounts maintained at the New York Reserve Bank at market prices. Maturing securities may be exchanged with the Treasury for other securities or may be allowed to mature without exchange.

When securities are purchased or sold, the net amount of the transaction is paid to or collected by the New York Reserve Bank from the dealer and only the par value is entered to this account. Other accounts that may be affected are interest accrued, premium on securities, discount on securities and, in the case of sales, profit and loss. The amortization or accretion of premiums and discounts is discussed in paragraphs 4.00 and 11.65, respectively. The securities are accounted for at amortized cost rather than fair value; therefore, no unrealized gains or losses are recognized.

On the day of settlement the New York Reserve Bank participates a share of the transaction to each Reserve Bank. Profits and losses are participated to each Bank based on the holdings at the opening of business. (See paragraph 40.70 for the participation methodology.)

Holdings of U.S. Government securities are in book-entry form and are pledged as collateral to secure Federal Reserve notes. Specific securities are not participated to the individual Reserve Banks and the amounts on each Bank's books reflect an undivided interest.

2.95 U.S. Government Securities: Held Under Repurchase Agreement (140-225)

The New York Reserve Bank is authorized by the FOMC to acquire U.S. Treasury, Federal agency, and GSE securities under agreement with a dealer to repurchase the securities at an established point in time (securities purchased under agreements to resell). On the day of settlement, the New York Reserve Bank participates a share of the transaction to each Reserve Bank. Profits and losses are participated to each Bank according to holdings at the opening of business. (See paragraph 40.70 for the participation methodology.) The repurchase agreements generally consist entirely of agreements through third-party custodial arrangements. (See paragraph 40.15.)

2.96 Consolidated Maiden Lane II LLC Asset Accounts (142-025, 142-050, 142-075, and 142-100)

The Federal Reserve Board authorized the New York Reserve Bank under section 13(3) of the Federal Reserve Act to provide financing to ML II. The New York Reserve Bank is the primary beneficiary of ML II, and its assets and liabilities are consolidated for financial reporting purposes with those of the New York Reserve Bank. The primary asset accounts of ML II are as follows:

142-025
ML II Portfolio Holdings at Fair Value
142-050
ML II Reserve Account
142-075
ML II Loan Payable to FRBNY at Par
142-100
ML II Accrued Interest Payable - FRBNY

3.00 U.S. Government Securities: Floating Rate Notes (142-125)

The New York Reserve Bank is authorized by the FOMC to purchase or sell U.S. Treasury floating rate notes. On the day of settlement, the New York Reserve Bank participates a share of the transaction to each Reserve Bank. Profits and losses are participated to each Bank according to holdings at the opening of business. (See paragraph 40.70 for the participation methodology.)

3.01 Consolidated Maiden Lane LLC Asset Accounts (145-025, 145-030, and 145-035)

The Federal Reserve Board authorized the New York Reserve Bank under section 13(3) of the Federal Reserve Act to provide financing to ML. The New York Reserve Bank is the primary beneficiary of ML, and its assets and liabilities are consolidated for financial reporting purposes with those of the New York Reserve Bank. The primary asset accounts of ML are as follows:

145-025
Portfolio Holdings of Maiden Lane LLC
145-030
Loan Payable to FRBNY at Par
145-035
Accrued Interest Payable to FRBNY

3.02 Loan Fees Deferred (145-040)

Nonrefundable fees, such as origination or commitment fees, paid to the Bank by borrowers, based on the terms of the agreement, are recorded in this account. As described in FASB ASC Topic 310-20; formerly SFAS No. 91, such fees are to be deferred and recognized as income over the life of the loan. The unamortized balance of deferred loan fees should be reported in the Bank's financial statements as an offset to the related loan balance. The periodic amortization of balances in this account should generally be recorded as an addition to interest income, but in some circumstances may be recorded as fees in the profit and loss accounts (330-100). Contact RBOPS Accounting Policy and Operations Section staff to discuss the proper accounting for deferred loan fees.

3.03 Consolidated Commercial Paper Funding Facility LLC Accounts (145-050, 145-055, 145-060, 145-065, and 145-070) 2

3.04 Consolidated Money Market Investor Funding Facility LLCs Accounts (145-100, 145-115, 145-130, 145-145, and 145-160)3

3.05 Consolidated Maiden Lane III LLC Asset Accounts (145-200, 145-215, 145-230, and 145-245)

The Federal Reserve Board authorized the New York Reserve Bank under section 13(3) of the Federal Reserve Act to provide financing to ML III. The New York Reserve Bank is the primary beneficiary of ML III, and its assets and liabilities are consolidated for financial reporting purposes with those of the New York Reserve Bank. The primary asset accounts of ML III are as follows:

145-200
ML III Portfolio Holdings at Fair Value
145-215
ML III Reserve Account
145-230
ML III Loan Payable to FRBNY at Par
145-245
ML III Accrued Interest Payable

3.06 Other Assets - Markets (145-260)

The balance in this account represents infrequent newly established low-value, non-SOMA markets-related transactions conducted by the New York Reserve Bank and is not participated to other Reserve Banks. Dedicated accounts must be established prior to program start dates for transactions related to non-SOMA markets programs that are expected to be high-value or recurring. This account may be used, however, to record transactions for newly established programs until a dedicated account is established, when the balances should be reclassified to the dedicated account. At the close of business each December 31, this account balance should include only the low-value and infrequent non-SOMA markets-related transactions.

3.07 Other Assets - SOMA (145-275)

The balance in this account represents infrequent newly established low-value transactions for newly established low-value, SOMA programs conducted by the New York Reserve Bank and is participated to each Reserve Bank. Dedicated accounts must be established prior to program start dates for transactions related to SOMA programs that are expected to be high-value or recurring. This account may be used, however, to record transactions for newly established programs until a dedicated account is established, when these balances should be reclassified to the dedicated account. At the close of business each December 31, this account balance should include only the low-value and infrequent SOMA-related transactions.

3.08 Federal Agency and GSE Mortgage-Backed Securities (145-300, 145-315, 145-330)

On January 5, 2009 the mortgage-backed securities (MBS) purchase program began to purchase MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Outright transactions in MBS are recorded on the next scheduled settlement date. (See paragraph 40.13.) If a seller fails to provide a security to the New York Reserve Bank, a fail liability is recorded. (See paragraph 11.94.) The following accounts are participated to the twelve Reserve Banks:

145-300
Fed Agency MBS
(includes GSE MBS)
145-315
Fed Agency MBS - fail to deliver
(includes GSE MBS fails)
145-330
Fed Agency MBS - temporary investments
(includes temporary investments resulting from GSE MBS transactions)

3.09 AIG Allowance for Loan Modification (145-345)4

3.10 Allowance for Loan Losses (145-360)

In accordance with paragraph 1.06, Reserve Banks are required to recognize a loss on a loan when it is probable that the loan will be uncollectible in whole or in part and the amounts of losses are estimable. Detailed instructions on how to recognize, measure, and record an allowance for loans loss are provided in paragraph 81.01 Allowance for Loan Losses. The Reserve Banks should use account 145-360 to record allowances for loan losses. Allowances recorded in this account must be approved by the RBOPS Accounting Policy and Operations Section.

3.11 AIG Loan and Capitalized Interest (145-375)5

3.12 Term Asset-Backed Securities Loan Facility Accounts (145-400, 145-415, 145-430, 145-445, 145-460, 145-475, 145-500, 145-515, 145-530,145-545, 145-560, and 145-575)

Under the Term Asset-Backed Securities Loan Facility (TALF), the New York Reserve Bank provides loans to eligible issuers of asset-backed securities (ABS). The New York Reserve Bank will record all TALF loans at fair value under FASB ASC Topic 825-10; formerly SFAS No. 159, rather than at the remaining principal amount outstanding.

Recording the TALF loans at fair value improves accounting consistency and results in appropriate GAAP presentation of the TALF program on a consolidated basis by matching the change in fair value of TALF loans with changes in the value of the related TALF LLC commitment. In addition, recording all TALF-related assets and liabilities at fair value represents the economics of the program.

Pursuant to the put agreement with the New York Reserve Bank, the TALF LLC will purchase and manage any ABS that might be received by the Bank in connection with the TALF program loans. The primary asset accounts related to the loan facility and the TALF LLC are as follows:

Term Asset-Backed Securities Loan Facility:

145-400
TALF - Loans extended to borrowers
145-415
TALF - ABS held by FRBNY
145-430
TALF - Value of put option with LLC
145-445
TALF - Cash equivalents
145-460
TALF - Credit extended by FRBNY to LLC
145-575
TALF - FV of TALF loans

TALF LLC:

145-475
TALF - Accrued interest payable - FRBNY
145-500
TALF - Other investments
145-515
TALF - ABS held by TALF LLC
145-530
TALF - AIR investment
145-545
TALF - Senior loan payable to FRBNY
145-560
TALF - FV adjustment of FRBNY senior loan

3.13 Investment in LLC (145-600)

In February 2012, the New York Reserve Bank acquired a building and transferred title to a newly formed and wholly owned subsidiary, Maiden & Nassau LLC, a Delaware based limited liability company (LLC). This account is used to record the investment in the LLC and is eliminated upon consolidation of the subsidiary.

3.14 AIG Preferred Securities (145-830, 145-845, 145-860, and 145-875)6

3.20 Expansion Accounts - Total Assets

These asset accounts are reserved for future use. Reserve Banks are required to report zero balances in these expansion accounts: 142-150, 145-075, 145-175, 145-615, 145-630, 145-645, 145-660, 145-675, 145-700 series, 145-800, and 145-815.

3.30 Items in Process of Collection (150-025, 150-050, 150-100, and 150-150)

Consists of items, including but not limited to cash letters, return items, and automated clearing house files, deposited with the Federal Reserve for collection and, on the balance sheet date, have not yet been presented to the paying bank. The items are segregated on FR 34 according to the accounts described in the following paragraphs. Sufficient detail or subsidiary accounts should be maintained to identify the general nature of the transactions for float reporting purposes (see paragraph 11.40), including transportation delays and midweek/holiday closings.

Transit Items--Federal Reserve Banks (150-025)

Represents amounts due from other Federal Reserve Banks and Branches. The preliminary total will include transfers of funds, ACH activity, securities transfers, etc., for which payment is expected on the same day through the Interdistrict Settlement account. The balance reported on the FR 34 is after application of settlement credits and will, therefore, represent the total of items forwarded to and still in process of collection with other Districts, including cash letters, ACH activity, securities, and electronic transfers. Wire transfers received too late to credit depository institutions should be debited to this account and credited to Deferred credit items -- Other items in process (150-100).

Transit Items--Depository Institutions (150-050)

Represents the amount of items including cash letters, return items, etc., which have been dispatched for collection and will be settled with depository institutions located in own office territory. This account is charged when items are forwarded for payment. This account also includes: ACH credit transactions when the originating depository institution cannot be debited on the transaction date because of a holiday or mid-week closing; and deferred debit entries for depository institutions located and/or settled in another Reserve office using Same Day Settlement procedures. Cash letters reported not received by the cut-off hour by paying banks because of transportation delays should be reported in this account. Work that has been identified as lost (i.e. has remained in Transit Items for 3 business days) should not be included in this account, but should be transferred to an Adjustments, net account.

Other Items In Process (150-100)

Represents the aggregate amount of items held overnight for processing or dispatch on the following day, exchanges for clearing houses, and return items held over for look-up. Only items for which credit has been passed or deferred to depositors are included. Also includes the redemption value of future due securities or coupons held pending maturity and for which the Reserve Bank has elected to credit the deferred credit account and credit has been passed or will be passed to customer accounts on a pre-determined availability schedule, securities transfers where a depository institution has been credited but the Reserve Bank is unable to complete the transaction and debit ACH return items that have been held over.

Adjustments, net (150-150)

The balance in this account represents the net amount (+ or -) of check related adjustments and any other adjustments relating to items that are debited to items in process of collection including differences that are temporarily held in abeyance pending final resolution. The account contains the net of both debit and credit adjustments to items originally recorded in an items in process of collection account such as unlocated differences in settlement, unlocated departmental differences, loose items, cash letters determined to be lost (see Transit Items--Depository Institutions (paragraph 150-050), missing bundles reported by drawee banks, items believed to be listed but not enclosed in outgoing cash letters, adjustment requests received from Banks containing insufficient information, errors on clearing house statements discovered too late to correct, and cash letter changes discovered too late for adjustments to be made to accounting charges. Also included are check truncation adjustment items where the adjustment arises from a difference occurring between a depository institution and a Reserve Bank. Treasury check truncation adjustment items and other government related adjustment items where the adjustment arises from a difference between a Reserve Bank and the Treasury Department or another government agency, which do not affect float should be held in Suspense Account--General pending resolution. Transactions involving items in process of collection that have been dispatched by the Federal Reserve office for which the office is unable to determine the destination distinction between other Federal Reserve Banks and depository institutions should also be included in this account. Petty differences or items below a certain threshold amount are entered to a difference account in Other assets or a current expense account (as described in paragraph 4.70), as are all other differences where it is probable that the difference will not be resolved or where it is decided that it is not feasible to conduct further research.

3.40 Bank Premises--Land (160-025)

The balance in this account represents the original cost of land (less any charge-offs); incidental expenses in connection with the purchase; cost of wrecking old buildings (less salvage); and paving, grading, or landscaping.

3.45 Bank Premises--Buildings (including vaults - 160-050)

Includes the total cost of buildings, improvements, and additions that are owned by the Reserve Bank.

3.50 Bank Premises--Machinery and Equipment (160-075)

Includes machinery and equipment associated with building structures that are considered part of the building and will convey with the building when it is sold. Examples include air conditioning units, boilers, elevators, and heating or lighting equipment.

3.55 Bank Premises--Construction Account (160-100)

Includes any material construction or renovation. During construction, all costs of a new building, the purchase price of a building to be renovated, and all improvement and renovation costs are reported in this account. When the construction is completed, amounts to be capitalized should be transferred to the appropriate accounts under "Bank Premises." For detailed accounting procedures, see Chapter 3.

3.60 Bank Premises--Depreciation (160-125)

Depreciation is recorded monthly on each building and each unit of machinery and equipment. A more detailed description of capitalization and depreciation of Bank premise assets together with reporting requirements is contained in Chapter 3.

3.65 Furniture and Equipment (170-025)

This account contains furniture, furnishings, fixtures, office equipment, automotive equipment, and operating equipment such as computers, incinerators, and shredding machines required for specific operations.

3.66 Furniture and Equipment--Depreciation (170-050)

Depreciation is recorded monthly on furniture and equipment in accordance with the provisions contained in Chapter 3.

3.70 Claims Account Closed Banks (170-075)

Direct costs incurred in connection with the collection of paper of failed banks or other obligations, such as court costs of filing suits, collection fees paid attorneys, cost of recording mortgages, premiums paid on fire and other insurance policies covering property held under mortgage, etc., should be charged to this account. The amount of any overdraft not offset should be included.

3.85 Foreign Currencies (170-100 and 170-110)

This account represents each Bank's participated share in balances denominated in foreign currencies and includes premiums, discounts, and accrued interest on investments denominated in a foreign currency. For further discussion, see paragraph 40.30.

3.90 Reimbursable Expenses and Other Items Receivable (170-125)

Includes expenses that are reimbursable to the Bank and miscellaneous amounts that the Bank has advanced or paid on behalf of others. Individual ledger accounts are maintained as necessary to facilitate control. Each is based on actual amounts with the exception of an account holding expenses that are estimated at the end of each month that will be reimbursed in the future.

For the most part, the accounts will represent claims for fiscal agency work performed for the U.S. Treasury (e.g., public debt operations) and for government departments and agencies. Other accounts consist of receivables due from employees such as loans or dining room charges and amounts due from others such as security deposits with airlines for the use of credit cards, losses incurred in the handling or transportation of currency that are expected to be recovered, or amounts due from Treasury for mutilated currency. Accounts may also be maintained for miscellaneous services rendered others and purchases of goods and services for other Reserve Banks or for other offices in own District.

Under ordinary circumstances, the amounts that are included in claims for expenses reimbursable or recoverable will represent a calculated part of items such as salaries, retirement contributions, furniture and equipment rentals, etc., that are paid initially by the Bank and included in gross expenses. In some cases, however, expenditures by the Bank are earmarked at the outset for reimbursement or recovery. Such expenditures are not included in the Bank's expenses and are debited directly to one of the receivable ledger accounts herein pending receipt of payment.

An account covering estimated fiscal agency reimbursable expenses is carried for the purpose of reflecting a more accurate current expense figure. The reimbursable expenses for the month are estimated at the end of the month and debited to this account and credited to the current expenses account. The following month, the estimated receivable is credited and the actual reimbursables are debited to this account. When funds are received from Treasury, generally quarterly, the balance is closed out.

3.93 Allowance for Doubtful Treasury Reimbursement (170-130)

This account is a contra-asset account to the Reimbursable Expenses and Other Items Receivable Account (170-125). At the time entries are made to the reimbursable account, an estimate is made of the amount of the reimbursable that will not be reimbursed due to lack of appropriated funds by the Treasury. The original offset to this account is a debit to the Capital account--Cost of Unreimbursed Treasury Services. When actual amounts are determined that will not be reimbursed, the Allowance account should be debited and the Reimbursable account should be credited. As a general rule, there should be little to no activity in this account as full costs of providing Treasury services will be passed to the Treasury. The account, however, will be maintained for contingency purposes.

3.94 FDIC assumed indebtedness (170-140)

This account represents depository institution discount window loans that have been subsequently assumed by the FDIC. Payment and maturity schedules are worked out with the FDIC on a case-by-case basis.

3.95 Interest Accrued (170-150)

This account represents interest accrued, but not yet collected, on earning assets. The accruals are based on holdings of such assets at the opening of business and are calculated and debited to the respective ledger accounts and credited to earnings. The principal ledger accounts are as follows:

  • Interest accrued on securities in the System Open Market Account - The New York Reserve Bank posts these entries directly to each Federal Reserve Bank's accounts. Interest accrued on securities is debited to the account beginning the day that a security is purchased and ending the day before the security is sold or matures. Daily accruals are computed on individual issues by dividing the amount of interest to be earned by the number of days to the payment date.
  • Interest accrued on investments of consolidated LLCs - Entries are made to the accounts of the LLCs and, as a result of consolidation, are reported by the New York Reserve Bank as a component of accrued interest. Interest accruals are booked at least weekly and are computed on individual issues by dividing the amount of interest to be earned by the number of days to the payment date.
  • Interest accrued on loans - The daily accrual is based on the rate in effect on the previous day divided by 365 days. Accrual on a one-day loan is unnecessary.

4.00 Premium on Securities (170-175)

Premium on securities represents the unamortized amount paid in excess of the face value of securities in the SOMA. On the date of purchase, such excess is debited to this account and daily thereafter an equal portion of the premiums, computed on individual issues, is credited to the account. The daily straight-line amortization is determined by dividing the premiums paid by the number of days to the call date of the issue. Amortization of premiums on Federal agency and GSE mortgage-backed securities is determined based on an effective yield calculation. When securities are sold, any applicable premium is credited to the account. The New York Reserve Bank posts these entries to each Federal Reserve Bank's account.

4.10 Overdrafts (170-200)

This account is used to record depository institution overdrafts with the Reserve Bank, and is debited by the amount necessary to restore the deposit account to a zero balance.

4.20 Deferred Charges (170-225)

Deferred charges arise through long-term prepayments of expenses. Deferred charges $25,000 or greater should be recorded in this account and amortized over the current and prospective periods that benefit from the expenditure. Deferred charges will include items such as multi-year maintenance or licensing agreements and costs of major improvements to leased space that should be amortized over the life of the contract or lease respectively. (See Chapter 3 for further discussion of leasehold improvements.) Once a prepayment has been properly recorded in the deferred charges account, it does not need to be reclassified as prepaid when the remaining amortization period falls below a year. Advance payments for vendor purchases held in this account pending delivery should not be amortized, but should be reversed when goods or services are received.

The deferred charges account should also be used to record charges for internal use software, which is defined as software acquired, internally developed, or significantly modified for use by the Reserve Banks in performing their operations. Internally developed software should be capitalized if the cost exceeds $100,000 and externally-purchased software should be capitalized if the costs exceed $25,000.7 For internal use software acquired from a vendor with costs of $100,000 or greater, contract or lease terms should also be reviewed to determine if the acquisition qualifies for accounting treatment as a capital lease. (See paragraph 30.80.) Standard desktop utility software, however, should be charged to current expense.8 Expenditures for bulk purchases of a number of identical low-cost software licenses that are individually below the capitalization threshold should be capitalized as a single asset if the total cost is $100,000 or more and the license agreement is for a period longer than a year.

Costs incurred during software development are capitalized or expensed depending on the stages of development (preliminary stage, development stage, and post-implementation stage). See Accounting Guidance for Internal Use Software Costs at Appendix D.1 for additional information related to the appropriate accounting for these costs.

Costs incurred during the preliminary stage, such as evaluation of alternatives and prototype development, are expensed. Costs incurred in the development stage that are capitalized include:

  • External costs of materials and services (for example, consulting fees and salary, retirement, and other benefit costs of employees directly associated with the product.)
  • Costs associated with time spent specifically to oversee developers (programmers), if determinable.
  • Expenditures related to system integration, which includes consultant fees and salary, retirement, and other benefit costs of employees directly associated with the integration effort. Integration costs must be analyzed to determine the allocation between hardware and software.
  • Travel costs for staff, consultants, or vendors should be capitalized if they are directly related to the software development.
  • Capitalizable costs paid to another Reserve Bank for software development efforts.

Costs incurred during the development stage related to general and administrative expense and end-user testing and training should be expensed. Post-implementation stage costs generally should be expensed, except the cost of prepaid maintenance contracts, provided that the costs meet the FAM thresholds for prepaid assets or deferred charges. Other non-capitalizable costs include process re-engineering costs, data conversion costs, and training costs.

When internal use software is purchased and the purchase price includes non-capitalizable items (e.g. training), the price must be allocated among capitalizable and non-capitalizable items based on fair value. The costs for web-site development are accounted for in the same manner as costs of internal use software.

Expenditures made to change existing software assets are considered either improvements or maintenance. Expenditures to existing software assets that meet the capitalization thresholds discussed above should be capitalized if the improvement provides additional capabilities and meets one of the following criteria:

  • The quantity of output or operating efficiency of the asset is significantly increased.
  • The quality of output is significantly increased.

Improvements should be recorded as separate assets with unique useful lives determined in accordance with the discussion of useful lives below. When the results of efforts to rewrite or improve the software are significant enough to be considered a replacement to the existing software and the expenditures meet the capitalization criteria, the costs should be capitalized. Because the former software asset is significantly altered, the net book value of the former software asset is expensed.

The costs of shared capitalized software projects (i.e., software developed by more than one Reserve Bank) should be transferred to the books of the Reserve Bank that owns the software. The Bank that owns the software should account for the entire software asset, including related amortization and disposal costs. Absent contracts or agreements that delineate ownership, the Reserve Bank that exercises control over the software is the Bank that owns the software.

The estimated useful life over which the costs will be amortized should reflect the circumstances for that specific asset. The maximum useful life that should be assigned to a software asset is generally 5 years. For perpetual license agreements, the deferred charge should be amortized over a reasonable period generally, not to exceed 5 years, based on the type and use of the software. In unusual situations, a request to establish a longer useful life must be submitted for RBOPS Accounting Policy and Operations Section staff approval. At a minimum, each Bank should assess the useful lives of software assets annually.

Categorization of some software development may not be as easily determined from the above guidance and may require more analysis with the product or support office, business area, and review by RBOPS Accounting Policy and Operations Section staff to determine whether the software costs should be capitalized or expensed.

(Note: The accounting treatment for software developed internally for external use (sale) should be determined in consultation with the RBOPS Accounting Policy and Operations Section.)

4.30 Prepaid Expenses--Materials and Supplies (170-250)

This account is used to record the cost of materials, forms and supplies, such as remote-access tokens, which are carried in the Bank's general stock for release over future periods as well as the spare parts inventory for the BPS-3000 currency processors. Items which are purchased for immediate delivery to the requesting department, such as weapons and ammunition for the police force, food for the cafeteria, currency and coin pouches for the money department, books and pamphlets for the library, public information displays, etc., should not be included unless the purchases are clearly for inventory. Items purchased for direct usage, however may be posted to this account when such posting and simultaneous withdrawal facilitates inventory control. Freight charges should be reflected in the cost of supplies purchased, whether for inventory or direct usage. When impracticable to distribute freight charges over a number of items, the cost may be applied to the largest item(s) of purchase. Freight charges billed separately, and that relate to items already in inventory, may be charged to expense. The treatment of freight charges billed separately must be consistent throughout the District (i.e., either all such charges must be charged to expense, or all such charges must continue to be capitalized).

Appropriate records should be maintained to assure that the cost of materials and supplies in actual inventory, along with materials and supplies that have been delivered to operating departments during a month, may be verified against the balance sheet. Separate subsidiary accounts should be maintained to record supplies issued during the month and the appropriate expense entries should be made by month-end. A physical inventory of materials and supplies should be conducted at least annually and any necessary adjusting entries made to expense. Items which become obsolete or which have only limited use over future periods, such as an unused supply of a monthly bulletin issued two months earlier, should be expensed unless the Reserve Bank feels that the demand for the item is likely to recur at a pace that justifies the continued recordkeeping. In the case of supplies that are sold out of inventory, the offsetting entry should be made to cash, items in process of collection, or other designated payment medium.

Purchases for future consumption should be uniformly debited to this account and expensed by the last business day of the month based on the supplies actually used during the month, and the average cost of such supplies should always be used in calculating the expense charge. A possible method of determining average cost is as follows:

  • The average cost of each supply item should be calculated by dividing the total cost of the items on hand by the number of units on hand. Upon receipt of a new shipment, the cost of the items received should be added to the previous total cost of the items on hand, the units should be added to the existing quantity, and the new total cost should be divided by the new quantity to arrive at the new average cost. Supplies should be issued at the established average cost until the next shipment is received.

The salaries and related expenses which are incurred within the Bank on duplicating and printing forms, stationery, pamphlets, etc., or on making parts or other items of supply, may also be debited to the account and deferred to the month of actual usage, provided senior management has approved a policy for capitalizing such costs.

The following are illustrations of possible methods to account for different types of inventory transactions:

  • 5,000 note pads, of which none was in stock on January 1, are purchased on January 10 for $500 or 10 cents each and another 5,000 are purchased on January 25 for $600 or 12 cents each. On January 31 it is determined that 8,000 pads were requisitioned from stock. A credit of $880 is made against the prepaid account and a debit is made to expenses, based on the average cost of 11 cents for the 8,000 pads that were actually used. In February 10,000 pads are purchased for $1,000, making an average cost of 10.17 cents to be applied against February requisitions.
  • A one year's stock of accounting forms is printed internally by a Reserve Bank which has a policy of capitalizing in-house jobs costing more than $1,000. The cost of paper, previously debited to the prepaid account, amounts to $2,000 and salaries and other expenses incurred in printing and binding amount to $6,000. The $2,000 for the stock paper is credited to the prepaid expense account and charged to expenses of the Printing and Duplicating activity when the items are withdrawn from supplies. The $2,000 and the $6,000 are subsequently debited to the prepaid account upon completion of the job and an offsetting credit is made to the contra expense account. The $8,000 then would be the basis for determining the unit cost which will be used to charge expenses when the item is issued from stock.
  • The annual report of the Bank is printed in February. Two-thirds of the copies are distributed immediately and all but 100 of the remaining copies are distributed and expensed in succeeding months of the year. The 100 remaining copies are charged to expenses at the end of the year, since continued record keeping would serve no useful purpose.

Do not average or otherwise commingle costs for different publications or products that are designed for consumption over different years. For example, the cost of any remaining copies of a specific publication covering the period through 1977 should not be added to the cost of an updated version of that publication which is released beginning in 1980, but should be expensed promptly.

4.33 Prepaid Expenses--Pension Costs (170-260)

This account is used by the New York Reserve Bank to record the funded status of the Retirement Plan for Employees of the Federal Reserve System ("System Plan") when the fair value of plan assets exceed the projected benefit obligation, as defined by FASB ASC Topic 715-20; formerly SFAS No. 87, and required by FASB ASC Topic 715-20; formerly SFAS No. 158.

The New York Reserve Bank recognizes the costs and associated net asset or liability of the System Plan on behalf of all the System's employers. Although the System Plan has characteristics of a multi-employer plan in that the plan's assets are not severable among the participating employers, the New York Reserve Bank accounts for and discloses the System Plan in a manner similar to a single-employer plan given its close administrative relationship with the Office of Employee Benefits and practice of providing funding to the plan on behalf of the System when needed; refer to appendices F.1 and F.1.1 for additional information.

4.35 Prepaid Expenses--Other (170-275)

This account reflects all prepaid expenses not specifically covered by paragraphs 4.30 and 4.33. As noted in paragraph 1.20, the cost of all prepayments of $25,000 or more is debited to this account or the deferred charges account. (See paragraph 4.20.) Additionally, some inventory type items other than materials and supplies, such as airline tickets, are also debited to this account as they are received with an offsetting credit to Sundry Items Payable (240-125). The prepaid asset is expensed when the travel is completed with a debit to expense and a credit to the prepaid asset. At the Reserve Bank's option, items which will be consumed within the month may be expensed and not entered to this account. This account may also be used for various control purposes, such as recording travel advances to employees and salary advances prior to the date of regular salary payment. Individual ledger accounts should be maintained as necessary to permit effective control. Advance payments for vendor purchases held in this account pending delivery should not be amortized.

4.40 Difference Account, Net (170-300)

Differences are reported in the account to permit settlement between incoming and outgoing work processed in various areas. A difference is an out-of-balance condition resulting from the normal operation of a department where it is probable that the difference will not be resolved or where it is decided that it is not economically feasible to conduct further research. The account thus contains amounts that the Bank has determined to be either uncollectible or else not worth the effort of doing so. While their disposition is considered final, entries to this account are subject to reversal. The account contains both overages and shortages and is shown net on the asset side of FR 34. The balance in this account should be removed and applied to current expense monthly and at year-end regardless of the year in which the differences originated. At the option of any District, unresolved items in the Adjustments, net or Suspense accounts for which research is complete may be written off directly to Current expense, bypassing the Difference account, providing the General Auditor agrees that sufficient control and documentation exist to ensure a clear audit trail absent the Difference account entries. An expensed item that is resolved subsequently should be applied directly to expenses of the current period. General ledger accounts are maintained as necessary to permit effective control. The sources of differences are generally as follows:

  • Currency and Coin. Tellers verifying incoming deposits are sometimes unable to locate differences in the work. Also, depository institutions will report back any differences that they find in shipments from the Reserve Bank. Any difference identifiable as to depositing institution is applied back to the depositor and is not entered in this account. Differences that result from counterfeits identified during alternative currency processing should be charged to this account.
  • Other. Internal differences may occur in a variety of Reserve Bank settlement operations such as the balancing of paid savings bonds, cafeteria receipts, and postmaster's deposits. Any difference that will be resolved and reversed should be posted to a suspense account.

4.50 Suspense Account--General (170-325)

This account represents miscellaneous debit items that are temporarily held in abeyance pending disposition. In the case of differences, the suspense account contains amounts whose disposition has yet to be decided and which the Bank has reason to believe are collectable or payable. The suspense account is used to record other items about which there are questions or which for other reasons are being held pending functioning to the appropriate account. Examples are (1) savings bond redemptions that are received too late for a charge to the Treasury's account, (2) expense items that arrive too late in the day to be vouchered or that are being held for additional information, (3) other transactions that require additional information or verification before the charge can be made to the proper account, and (4) checks cashed for employees that have been returned due to non-sufficient funds, etc. The only check-related items to be held in this account are Treasury check truncation adjustment items, and other government related adjustment items, where an unlocated difference arises between a Reserve Bank and the Treasury, or another government agency, and a depository institution has been credited pending resolution of the difference. Treasury check truncation adjustment items where an unlocated difference occurs between a depository institution and a Reserve Bank that is float related should be held in the adjustments, net account under items in process of collection or deferred credit items as appropriate. Items that cannot be resolved should be cleared from this account by a credit and offset by a Difference account debit or may be debited directly to current expense as described in paragraph 4.40.

4.60 Other Real Estate, net (170-350)

Property purchased for future Bank use is reported in this account pending final approval of the site for construction. Upon final approval of the site, the property is transferred to the Bank premises accounts. The net book value of Bank-owned property that has been classified as held for sale (see Appendix E) should be transferred to this account and carried at net realizable value. (See paragraph 30.96.)

4.70 Currency and Coin Exhibits (170-375)

Represents the cost of currency and coin contained in exhibits or acquired for display purposes. (Exhibits borrowed from other Reserve Banks or from the Treasury are reported as a custody item.) The exhibits are acquired pursuant to the following guidelines:

  • There is no objection to the maintenance of currency and coin exhibits by the Reserve Banks, or to their retaining individual silver dollars or other pieces of coin and currency for actual use in such exhibits.
  • Duplicate pieces of currency and coin that are in excess of exhibit needs should not be held for "trading" purposes, but instead should be returned to the Treasury.
  • There is no objection to the Reserve Banks' using the currency and coin received in the ordinary course of business to fill out their exhibits, or to their purchasing individual items from dealers or others for this purpose.
  • It is inappropriate for the Reserve Banks to bid on miscellaneous collections of currency and coin offered for sale by executors of estates or others, and also inappropriate for them to trade or sell currency and coin to collectors and dealers.
  • In those instances where Reserve Banks receive permanent donations of exhibits, this account should reflect an estimate of the fair market value of the exhibit at the time of the donation. The offset should go to the profit and loss account.

4.80 Old Currency Series (170-400)

This account contains old currency issues held pending forwarding to the Treasury for redemption as mutilated currency as follows:

  • Treasury notes of 1890 Silver certificates, large size
  • Federal Reserve notes, large size
  • United States notes, large and small size
  • National Bank notes, large and small size
  • Federal Reserve Bank notes, large and small size
  • Gold certificates large and small issued prior to January 30, 1934

4.90 Miscellaneous Cash Items (170-425)

The account consists of petty cash funds, the deposit with the Office of Employee Benefits for the account of long term disability payments, such items as Canadian and foreign currency and coin that are held pending shipment or exchange, and government coupons due at a future date for which credit has been passed inadvertently. U.S. Government-sponsored agency securities and coupons which are being processed by the Reserve Bank or are in transit to the New York Reserve Bank for collection should be reported in this account along with interest payments on book-entry U.S. Government sponsored agency securities that were processed too late in the day to meet the deadline for transmitting to the New York Reserve Bank. Amounts paid by the New York Reserve Bank should be carried in the unclassified account to the extent that the Bank has not collected from the individual agency. (See paragraph 11.20.)

4.91 Suspense Account--Pricing (170-450)

In ordinary circumstances, this account will include the net of debit and credit items that have been reversed out of an institution's account because of error or other questions. The items are held in this account pending resolution. Those that cannot be resolved and charged back to an institution should be removed from this account and from the earnings account to which they were originally entered. Except where there are indications of unreasonable or repetitive exceptions to the billings by the Reserve Bank, some questioned items may not be worth the effort of searching. When such items are credited to the institution's account, they should be debited to the earnings account.

4.92 Accrued Service Income (170-475)

The purpose of this account is to allow for the recognition of income from services in the month in which it is earned and income from explicitly priced float in the month incurred. Accruals may be made daily but should not be less than weekly, on Wednesday or the preceding business day before Wednesday if Wednesday is a holiday, and at the end of the month. The accruals may be on any suitable basis including projections made from the previous month's experience. Accruals within the month are a means for achieving an orderly growth in earnings. The month-end accrual should be used to adjust the month's earnings to an amount reasonably close to what will actually be realized from the services rendered during the month, unless, of course, the daily or weekly accruals are designed to automatically achieve such results. To avoid duplications in the combined earnings of all Banks, the amounts owed or due from other Reserve Banks should be taken into account in the accrual process.

In order to isolate amounts owed or due from other Reserve Banks, subsidiary accounts should be set up within this general ledger account to include accrued service income due from depository institutions, accrued service income due from other Reserve Banks, and accrued service income due to other Reserve Banks. Thus, the net balance in the general ledger account will be the net amount of income expected to be received for services. With the implementation of the Customer Accounts Receivable System (CARS) in late 2009, the subsidiary accounts (accrued service income due from and due to other Reserve Banks) are no longer used. Accrued service income will be recognized at the Reserve Bank, i.e. Atlanta, Chicago, and New York, which recognizes the service income.

4.93 Securities Borrowing (170-500)9

4.94 Central Bank Liquidity Swap Accounts (170-525 and 170-530)

Central bank liquidity swaps, which can be structured as either U.S. dollar liquidity or foreign currency liquidity swap arrangements, are renewable, short-term currency arrangements, generally for up to one year, between two parties, the New York Reserve Bank, on behalf of the Reserve Banks, and an FOMC authorized foreign central bank. The parties mutually agree to exchange their currencies up to a prearranged maximum amount, for an agreed-upon period of time. These arrangements give the Federal Reserve temporary access to the foreign currencies that it needs to support its international operations, and gives the authorized foreign central bank temporary access to U.S. dollars. For further discussion, see paragraph 40.50.

U.S. Dollar Liquidity Swaps

When a foreign central bank initiates a swap agreement with the New York Reserve Bank for the purpose obtaining U.S. dollar liquidity, the resulting asset is recorded by the New York Reserve Bank in account foreign currency held under liquidity swap arrangements (170-525). The foreign central bank compensates the New York Reserve Bank, as interest income, based on the foreign currency amounts it holds.

Foreign Currency Liquidity Swaps

When the New York Reserve Bank initiates a swap agreement with a foreign central bank for the purpose of obtaining foreign currency liquidity, any resulting asset is recorded in account foreign currency held under swap arrangements (170-530). For example, the New York Reserve Bank may enter into foreign currency liquidity arrangements whereby the Bank would obtain foreign currency from a foreign central bank; in a second and related transaction, the New York Reserve Bank would enter an agreement with a U.S. depository institution under which it would provide an equivalent amount of foreign currency liquidity to that depository institution. In this example, the foreign currency provided to the depository institution would be recorded as an asset in this account; see paragraph 11.99 for recording of the related liability.

4.99 Expansion Accounts - Other Assets

These asset accounts are reserved for future use. Reserve Banks are required to report zero balances in these expansion accounts: 170-540, 170-550, 170-560, 170-570, 170-580, and 170-590.

5.00 Interdistrict Settlement Account (180-025)

The cumulative net amount owed or due from other Federal Reserve Banks as a consequence of the daily settlement procedure is reported in this account with a credit balance indicated by a minus sign. The daily settlement between Districts is conducted by the centralized accounting system, which captures the data needed to conduct settlement. Once settlement has been effected, the appropriate entries are posted directly to each Reserve Bank's accounts.

Included in this process are the monthly Federal Reserve note clearings and the annual settlement through the gold certificate account of the cumulative interdistrict settlement position. (See paragraph 40.70.)

5.10 Branches or Head Office--Interoffice Account (190-025)

This account is provided for reporting a net debit or credit balance due between the head office and Branches as a result of the cumulative effect of daily settlements. This account is consolidated on the District's balance sheet. At management's discretion, an office may use only the asset or liability account for the net entries. (See paragraph 11.92.)

10.01 Federal Reserve Notes Outstanding (210-025)

Represents the net amount of Federal Reserve notes that are outstanding from the Federal Reserve Agent to the Bank. The account consists of the cumulative net issues of the present size currency minus the amount that has been returned for destruction and credit. Currency of the present size (approximately 2.61 inches by 6.14 inches) was issued beginning in July 1929; the outstanding large-size Federal Reserve notes, which were issued from 1914-1929, were removed from Reserve Bank liabilities in 1961 pursuant to the Old Series Currency Adjustment Act and absorbed into the Public Debt.

Eleven denominations of Federal Reserve notes make up the outstanding amount. Seven denominations--$1, $2, $5, $10, $20, $50, and $100-are currently being issued to the Banks. Issuance of larger denominations of $500, $1,000, $5,000 and $10,000 was discontinued in July 1969 and the notes are returned to Treasury for destruction whenever they are received by Reserve Banks from circulation.

Federal Reserve notes are a first and paramount lien on all of the assets of the issuing Reserve Bank. Certain of these assets are also set aside as a specific pledge with the Federal Reserve Agent in order to meet a requirement in Section 16 of the Federal Reserve Act that the notes that are in circulation outside Reserve Banks be fully collateralized. The collateral must consist of legally specified assets, alone or in any combination: (1) gold certificates, (2) U.S. Government and agency obligations, (3) special drawing rights certificates, (4) certain other assets, chiefly loans under Section 13 and foreign currencies acquired under Section 14, and (5) any other asset of a Federal Reserve Bank. The notes are also obligations of the U. S. Government, but the liability of the Government would arise only in the event of the liquidation of the Reserve Banks and then only to the extent that collateral and remaining assets of the Banks were less than the full amount of notes in circulation.

Federal Reserve notes are printed by the Bureau of Engraving and Printing as ordered by the Board of Governors. They are held in the vaults of the Bureau until the Board directs that they be shipped to (1) a Federal Reserve Agent, the Board's representative at the Reserve Bank, or (2) upon authorization from the Agent, to the Reserve Bank cash department. Notes held by the Agent are not monetized--i.e., they are not reported on the balance sheet. They are kept in separate vaults and their status is no different in this respect than if they were still in vaults at the Bureau of Engraving and Printing. There is no advantage in keeping stocks of agent cash at Reserve Banks and in practice all notes are shipped from Bureau of Engraving and Printing facilities in Washington, D.C. or Ft. Worth, Texas, to the cash departments. They are issued to the Reserve Bank on the day of shipment, at which time Federal Reserve Notes Outstanding account is credited and Federal Reserve Notes Held by Bank and Branches account is debited. The reverse occurs when notes are canceled and destroyed, as explained in Chapter 5 and appendix A.1.

10.25 Federal Reserve Notes--Held by Bank and Branches (210-050)

This account consists of all present size currency held by the Bank, including currency held in off-site locations, regardless of the Bank of issue. All present size currency is handled and processed for balance sheet reporting purposes as Federal Reserve notes even though small amounts of silver certificates or United States notes may be present. The latter are determined by formula when credit is being taken for unfit currency that is destroyed, and appropriate adjustment is made to the U.S. Treasury general account. Also included is canceled currency held pending destruction and currency destroyed in "late shift" work on the balance sheet date.

10.26 Federal Reserve Notes--In Transit (210-075)

This account is used to record issued notes in transit to or from the Bank, such as new notes that have left the Bureau of Engraving and Printing facilities in Washington D.C. or Ft. Worth, Texas, but have not been received by the Reserve Bank, or for notes that have been shipped from one Reserve Bank to another (Fed-to-Fed shipment), but have not been received. This account also includes notes held at a depot site.

10.30 Deposits: Depository Institutions (220-025)

Section 19 of the Federal Reserve Act provides for the establishment of reserve requirements for all depository institutions, including commercial banks, savings banks, savings and loan associations, credit unions, and industrial banks that have transaction accounts or nonpersonal time deposits. Reserve requirements also apply to Edge Corporations, U.S. agencies, and branches of foreign banks. The balances that are maintained by all such institutions with the Reserve Bank, including amounts in pass-through arrangements, are reported in this account.

10.40 Due to Other FR Banks--Collected Funds (220-075)

Amounts which are owed to another Federal Reserve Bank and which, in ordinary circumstances, would have been paid in the day's Interdistrict Settlement are reported in this account. For example, where the Reserve Bank office to which the funds are owed is closed and cannot accept credits through the Interdistrict Settlement account, where Same Day Settlement transactions cannot be sent because the receiving office closed before the sending office. A separate subsidiary account should be maintained for Same Day Settlement transactions. The balance in this account should equal the amount that would have been reported when the office participated in the Interdistrict Settlement.

10.50 U.S. Treasury--General Account (220-100)

As part of its function as Fiscal Agent for the United States Treasury, and as provided by Section 13 of the Federal Reserve Act, each of the Reserve Banks maintains a deposit account for the Treasury. Deposits in this account include funds realized on the sale of government securities or savings bonds, Federal tax receipts, payments for goods or services rendered by the Government, and payments of Reserve Bank earnings. The account is used by Treasury to make interest payments and redemption payments on government obligations and to pay government checks and other items drawn on the account. Prior to closing each day's books, the balance in this account is consolidated at the New York Reserve Bank.

10.60 Foreign Deposits (220-125, 220-130)

Foreign central banks and governments maintain deposit accounts with Reserve Banks for international settlement and other purposes. The accounts are opened with the New York Reserve Bank. The portion of the balances estimated to be in excess of what is needed for current transactions are participated among the Reserve Banks on the basis of each Bank's capital and surplus ratio.

10.70 U.S. Treasury -- Special Account (220-140)

This account is used by the New York Reserve Bank at the direction of the Treasury for certain Treasury deposits that require segregation from both the general account and the account used for exchange stabilization transactions. (See paragraph 11.10.) Balances related to the Treasury Supplementary Financing Program, which was initiated September 17, 2008, were also recorded in this account.

10.80 Officers' and Certified Checks (220-150)

The balance in this account represents the total of all unpaid checks issued by the Federal Reserve Bank, with exception of noncurrent checks which are periodically written off and charged to the Profit and Loss account.

11.01 International Organizations (220-175)

This account consists of balances of international organizations, such as the International Monetary Fund, Bank for Reconstruction and Development, Inter-American Development Bank, Asian Development Bank, International Development Bank and International Finance Corporation. The law provides that any Reserve Bank which is requested to do so by such organizations should act as its depository or as its fiscal agent, and requires the Board of Governors to supervise and direct the carrying out of these functions.

11.10 Secretary of Treasury Special Account (220-200)

This account is carried on the books of the New York Reserve Bank and is used by the Treasury for exchange stabilization transactions.

11.20 Government-Sponsored Enterprise Accounts (220-225); Less Unclassified Charges (220-250); Net (220-275)

GSEs, such as the Federal National Mortgage Association, maintain redemption accounts with the New York Reserve Bank to cover maturing coupons and securities that are received by Reserve Banks for payment. Balances are maintained by the GSEs to cover the amounts that are due on any given payment date. Payments on definitive obligations by Reserve Banks other than the New York Reserve Bank are carried in the miscellaneous cash items account pending charge to the New York Reserve Bank. Payments by the New York Reserve Bank are entered directly to the unclassified account. When the paid coupons and securities are verified according to the respective GSE, the New York Reserve Bank credits the unclassified account and charges the appropriate GSE account.

11.25 FRB as Fiscal Agent (220-325)

This account is used by the New York Reserve Bank to accommodate rare situations in which the Federal Reserve, to fulfill legal requirements, must hold funds for eventual distribution on behalf of the Treasury in a "non-Treasury" deposit account.

11.30 Miscellaneous Deposits (220-400)

A wide range of miscellaneous deposit accounts are carried on the books of the Reserve Banks. The deposits arise from depositary responsibilities assigned to the Reserve Banks by law--such as accounts opened by the Federal Deposit Insurance Corporation to cover closed banks and checking accounts opened by government agencies. Deposits also arise from work in process at the Reserve Banks, such as payments received from employee subscriptions to savings bonds, funds received for the account of new depository institutions which have not as yet opened for business, and interest paid on securities held pending redemption in federal estate tax cases. Deposit accounts are also carried for purposes that are specific to only one or a few Reserve Banks. The Board of Governors, for example, maintains a general fund account at the Richmond Reserve Bank to cover general disbursements and another to cover payroll charges and the Federal Reserve Office of Employee Benefits maintains accounts with the New York Reserve Bank. The individual accounts and balances comprising this account should be detailed on the Reverse of the form 34. The individual account descriptions should be adequate to identify the different types of accounts maintained under this heading. For example, "Employee subscriptions to savings bonds" is a sufficient description, rather than Miscellaneous Deposit account 1, etc.

11.40 Deferred Credit Items (230-025, 230-050, 230-075, 230-100, 230-125, and 230-150)

These accounts are the counterpart of items in process of collection and arise from the fact that Reserve Banks do not give immediate credit for all checks or other items deposited with them for collection or, in some cases, are unable to pass credit on the due date for items that the Reserve Bank has already collected. Where possible, credit is deferred according to a schedule that allows time for the items to be collected. The difference between the asset accounts and these accounts represents the net of checks or other items that, although not yet collected, have already been credited in accordance with a specified time schedule to the accounts of the institutions that deposited them. This difference, called "float", measures on a System basis the net amount of Federal Reserve credit generated by the collection process by providing credit on items deposited with the Federal Reserve for collection prior to actual collection. Sufficient detail or subsidiary accounts should be maintained, as in items in process of collection (see paragraph 3.30), to identify the general nature of the transactions for float reporting purposes (e.g., cash letters, ACH, noncash, etc.).

The amounts are carried in the following accounts:

Other Offices Own District (230-025)

Represents cash letters or other items received by one office in a District from another office or from depository institutions for collection for which credit is deferred and which will be settled with another Reserve office located in the same District. On a combined report for the District, the amount is closed to the asset account for items in process of collection.

Other Federal Reserve Banks (230-050)

Represents cash letters or other items which are received from other Districts or their depository institutions for which the other District will process the credit to the depository institution based on notification from the depository institution. Those items received directly from depository institutions in other Districts for which the other District would have no notice (such as Same Day Settlement items) should be recorded in the Depository Institutions account below.

U.S. Treasury -- General Account (230-075)

Consists of items received for deposit to the Treasury's account on which credit is deferred, such as items in payment for federal taxes, marketable securities, savings bonds, and checks deposited by various federal agencies to the Treasury's account.

Depository Institutions (230-100)

Represents cash letters and other items received from institutions in own territory or which have been dispatched by them to another Federal Reserve office for collection and ACH items which cannot be credited because the depository institution is closed, all of which will be settled with institutions within a Reserve office's own territory. Deferred credit entries for depository institutions located and/or settled in another Reserve office using Same Day Settlement procedures should be included in this account.

Other Items in Process (230-125)

Represents credit items held over by the Federal Reserve office. This account includes, but is not limited to, electronic transfers where one depository institution has been charged but the Federal Reserve office cannot complete the transaction by passing credit to a depository institution, credit ACH return items which have been held over, and any prefunded credit ACH items.

Adjustments, net (230-150)

Includes the net amount of adjustments (+ or -) that are made to items originally credited to any deferred credit items account prior to the date that the original entries are removed and credited on an immediate basis. Adjustments to deferred Treasury items processed via CA$H Link should be reflected in the Deferred Credit Items: U.S. Treasury General Account above.

11.50 Accrued Dividends Unpaid (240-025)

This account represents the liability for dividends accrued to date on Reserve Bank capital paid-in from member banks that have not been paid (as described in paragraph 1.10). Dividends accrued daily at the rate of one-half of one percent per month and charged to the Dividends Accrued Since January 1 account (330-175) are credited to Accrued Dividends Unpaid as a liability for dividends that are due but are unpaid.

11.60 Unearned Discount (240-050)10

This account includes unearned discount on acceptances and, although rare, the discount on any loans under paragraph 3 of Section 13 of the Federal Reserve Act.

11.65 Discount on Securities (240-075)

Discount on securities represents the amount paid under the face value for securities in the System Open Market Account. The face value is recorded in the asset account for securities. On the date of purchase, the amount of the discount is credited to this account. The daily straight-line accretion is determined by dividing the discount by the number of days to the maturity date of the issue. Accretion of discounts on Federal agency and GSE MBS are determined based on an effective yield calculation. When securities are sold, any remaining unamortized discount is debited to this account. The New York Reserve Bank posts these entries to each Federal Reserve Bank's account.

11.70 Sundry Items Payable (240-125)

The account covers numerous items to be disbursed at a later date, such as amounts deducted from salaries for federal and state income taxes, United Way Fund, insurance, etc. The account also includes specific items which are due but have not yet been paid, staff salaries accrued at the close of the month, taxes on real estate, transportation charges, equipment purchases, lease payment obligations under capital leases, tenant security deposits and rent payments, active employee medical liabilities and interest payable accrued for reverse repurchase agreements. Amounts charged to this account for equipment purchases or services must be for items received or services rendered and for which the Reserve Bank has a firm obligation outstanding. (See paragraph .90.) Obligations under operating leases are accrued as service is provided, whereas capital lease obligations are recorded at the inception of the lease. A separate subsidiary account should be established to record obligations under capital leases. The account is also used to record the liabilities of the LLCs, consolidated by the New York Reserve Bank.

11.80 Suspense Account--General (240-150)

This account represents miscellaneous items for which credit has been received but processing or information is necessary before final disposition is affected. Some of the more common types are (1) overages in government deposits awaiting receipt of an additional certificate of deposit, (2) savings bonds missing from stock, and (3) overages reported in card bond shipments to Bureau of Public Debt. The only check-related items to be held in this account are Treasury check truncation adjustments where an unlocated difference arises between a Reserve Bank and the Treasury Department and a depository institution has been debited pending resolution of the difference. Similarly, funds transfers received too late in the day for crediting the account of a government agency should be included in this account until the agency can be credited. Items that cannot be resolved should be cleared from this account and credited to either the difference account or a current expense account. (See paragraph 4.70.) Items relating to items in process of collection and deferred credit items should not be included in this account.

11.81 Earnings Credits Due to Depository Institutions (240-175)11

11.82 Exchange translation liability - central bank liquidity swaps (240-190)

Effective December 2009, this account is no longer used to record unrealized gains or losses from the daily revaluation of foreign exchange liquidity swaps. These gains or losses are recorded directly to a subaccount of U.S. dollar liquidity swaps (170-525; see paragraph 4.94).

11.83 Accrued Expenses Unpaid--Estimated (240-200)

Each Wednesday, this account is credited by the difference, if any, that estimated net operating expenses for the month-to-date exceeds net operating expenses recorded for the same period. An offsetting account is maintained in current expenses, and the purpose is to reflect in weekly condition statements a reasonably accurate amount reflecting expenses to date. The account is debited at month end to reflect a zero balance. (See paragraph .80.)

11.84 Accumulated Postretirement Benefit Obligation (240-300)

This account is used to recognize the funded status of defined benefit retirement plans, and other postretirement benefit plans. When the projected benefit obligation exceeds the fair value of plan assets, the difference is recorded to this liability account, as defined by FASB ASC Topic 715-20; formerly SFAS No. 87, 106, and 158. Included in this account will be balances related to (1) the nonqualified retirement Benefits Equalization Plan (BEP), (2) the Supplemental Employee Retirement Program (SERP), and (3) postretirement medical and life insurance benefit plan. Entries related to these plans are based on actuarial valuations and actual payments made by the OEB on behalf of the Reserve Banks. Monthly benefits payments made by the OEB on behalf of each Reserve Bank will offset the recorded liability for these plans. The offset to the monthly and annual accruals for the BEP and SERP plans are offset to the net periodic pension cost (330-060) or Accumulated Other Comprehensive Income (AOCI) (a sub-account of 320-025, Surplus), as required.12 The offset to the monthly and annual accruals for postretirement medical and life insurance are posted to the Operating Expense account (330-050) or AOCI, as required. (See paragraph 12.33.)

This account is also used to record the liabilities for the long-term disability, income, medical, life, and survivor's income or workers compensation plan obligations in accordance with FASB ASC Topic 712-10; formerly SFAS Topic No. 112, Employers' Accounting for Postemployment Benefits. Entries for these plans are based on actuarial valuations and actual benefit payments made by the OEB on behalf of the Reserve Banks; the payments will offset the recorded liability for these plans. At year-end, each Reserve Bank adjusts the recorded obligations for the postemployment benefit plans, and the offset is posted to the Operating Expense account (330-050).

The liability associated with the Thrift Benefits Equalization Plan (Thrift BEP) is also recorded in this account. The Thrift BEP entries are made using information provided by the OEB at year-end based on the Plan account balance (not actuarially determined). Monthly payments made by the OEB on behalf of each Reserve Bank will offset the Thrift BEP liability. At year-end, each Reserve Bank may have to adjust the recorded obligation for the Thrift BEP, and the offset is posted to the Operating Expense account (330-050).

Effective April 2009, the liability associated with the deferred compensation plan (DCP) is also recorded in this account. The monthly DCP entries are made using information provided by the payroll system, OEB, and the third party administrator (not actuarially determined). Payments made by the OEB on behalf of each Reserve Bank will offset the DCP liability. The monthly report provided by the third party administrator should be used to verify each Bank's DCP liability account.

Significant reductions in staff or changes in pension or medical plan benefits may require the recognition of additional gains or losses. As a practical matter, Reserve Banks should coordinate with RBOPS Accounting Policy and Operations Section and OEB staff when they anticipate substantial changes to staffing or the plan benefits. The provisions of FASB ASC Topic 712-10; formerly SFAS No. 88 are applied when determining if staff reductions or benefit changes result in a plan curtailment. A percentage reduction of greater than 10% indicates a curtailment. If a percentage reduction of expected future working lifetime is less than 5%, no curtailment is deemed to have occurred. A determination of the existence of a curtailment for a percentage reduction between 5-10% is based on individual facts and circumstances of the events. Reserve Banks should work with RBOPS Accounting Policy and Operations Section staff in evaluating whether a curtailment exists.

Note that the liabilities for active medical expenses are not reflected in this account. (See paragraph 1.02.)

11.85 Consolidated Maiden Lane LLC Liability Accounts (240-400 and 240-425)

In June 2008, the Federal Reserve Board authorized the New York Reserve Bank, under section 13(3) of the Federal Reserve Act, to provide financing to Maiden Lane LLC (ML) to facilitate the acquisition of certain assets of Bear Stearns. JPMorgan Chase (JPMC) also extended credit to ML. This loan is reported at fair value in the consolidated financial statements of the New York Reserve Bank in the following accounts:

240-400
Loan and Interest Payable to JPMC
240-425
JPMC Fair Value Adjustment

11.86 Interest on Reserves Accounts - Interest Due to Depository Institutions (240-430)

Title II of the Financial Services Regulatory Relief Act of 2006 granted the Federal Reserve authority to pay interest to depository institutions for balances held at Reserve Banks effective in 2011. Section 128 of the Emergency Economic Stabilization Act of 2008 accelerated this authority to October 9, 2008. Accordingly, the Reserve Banks began paying explicit interest to depository institutions on balances held at Reserve Banks to satisfy reserve requirements and on balances held in excess of required reserve balances. Payments are made 15 days after the maintenance period is finalized. Accruals are recorded in this liability account each week as interest is earned.

11.87 Consolidated Maiden Lane II LLC Liability Accounts (240-435 and 240-440)

In November 2008, the Federal Reserve Board authorized the New York Reserve Bank under section 13(3) of the Federal Reserve Act to provide financing to Maiden Lane II LLC (ML II) to facilitate the acquisition of certain assets of American International Group, Inc. This loan is reported at fair value in the consolidated financial statements of the New York Reserve Bank in the following accounts:

240-435
ML II Loan Payable to AIG
240-440
ML II Loan Payable to AIG - Fair Value Adjustment

11.88 Consolidated Money Market Investor Funding Facility LLCs Liability Accounts (240-450 and 240-455)13

11.89 Consolidated Maiden Lane III LLC Liability Accounts (240-460 and 240-465)

In November 2008, the Federal Reserve Board authorized the New York Reserve Bank under section 13(3) of the Federal Reserve Act to provide financing to Maiden Lane III LLC (ML III) to facilitate the acquisition of certain assets of American International Group, Inc. counterparties. This loan is reported at fair value in the consolidated financial statements of the New York Reserve Bank in the following accounts:

240-460
ML III Loan and Accrued Interest Payable to AIG
240-465
ML III Loan Payable to AIG - Fair Value Adjustment

11.90 Accumulated proceeds - AIG (240-470)14

11.91 Expansion accounts - Other Liabilities

These liability accounts carry zero balances at this time: 240-445, 240-475, 240-480, and 240-485.

11.92 Branches or head office--interoffice account (240-825)

This account is provided for reporting a net credit balance due between the head office and Branches as a result of the cumulative effect of daily settlements. This account is consolidated on the District balance sheet. At management's discretion, an office may use only the asset or liability account for the net entries (See paragraph 5.10).

11.93 Term Deposit Facility (240-850)

This account is used to record term deposits of depository institutions held with the Reserve Banks. These term deposits are used by the Reserve Banks as a monetary policy tool to manage the aggregate quantity of depository institutions' reserve balances.

11.94 Federal Agency MBS Fails (240-875)

This account is used to record the fail liability for Federal agency and GSE MBS purchases. A MBS fail liability results from a seller failing to provide a security after the New York Reserve Bank has funded the purchase. As a result, a liability is recorded for the obligation to fund the purchase. If the New York Reserve Bank fails to provide a security to a purchaser, a fail asset is recorded (paragraph 3.06). This account is also used by the New York Reserve Bank to record the obligation to return cash collateral posted by counterparties pursuant to commitments to purchase MBS within SOMA. (See paragraph 40.13.)

11.95 Designated Financial Market Utilities Deposits (240-900)

This account is used to record the deposits for Designated Financial Market Utilities (DFMUs) that have been designated as systemically important in accordance with Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

11.96 Interest on Federal Reserve Notes (240-925)

This account is used to record the liability or deferred asset related to interest on Federal Reserve notes. A credit balance in this account represents the accrued amount of interest on FR notes to be distributed to the U.S. Treasury. A debit balance in this account, which results from situations where net earnings are insufficient to provide for dividends and equating surplus with paid-in capital, represents the amount of future net earnings that a Reserve Bank will need to realize before remittances to the Treasury resume. See paragraph 60.20 for further discussion.

11.97 TALF liability (240-930, 240-940, and 240-960)

The following accounts are used by New York Reserve Bank to record the U.S. Treasury loan to the TALF LLC and the fair value of the TALF loan commitment by the New York Reserve Bank to the TALF LLC:

240-930
TALF - U.S. Treasury equity
240-940
TALF - fair value of FRBNY loan commitment
240-960
TALF - fair value adjustment of U.S. Treasury loan

11.98 Other Liabilities - Markets (240-950)

The balance in this account represents infrequent low-value non-SOMA markets related transactions conducted by the New York Reserve Bank and is not participated to other Reserve Banks. Dedicated accounts must be established prior to program start dates for transactions related to non-SOMA markets programs that are expected to be high-value or recurring. This account may be used, however, to record transactions for newly established programs until a dedicated account is established, when the balances should be reclassified to the dedicated account. At the close of business each December 31, this account balance should include only the low-value and infrequent non-SOMA markets related transactions.

11.99 Central Bank Liquidity Swap Accounts (242-100)

When the New York Reserve Bank initiates a swap agreement with a foreign central bank for the purpose of obtaining foreign currency, the resulting liability is recorded in this account. For example, the New York Reserve Bank may enter into a foreign currency liquidity arrangement whereby the Bank would obtain a foreign currency from a foreign central bank; in this example the foreign currency obtained from the foreign central bank would be recorded a liability in this account. (See paragraph 4.94.)

12.00 Reverse Repurchase Agreements - Foreign Pool (242-120)

This account is used to record the contract amount of reverse repurchase agreements executed with foreign official and international account holders.

12.01 Reverse Repurchase Agreements - Other (242-140)

This account is used to record the contract amount of reverse repurchase agreements executed with primary dealers, selected money market funds, and others.

12.02 Expansion accounts - Total Liabilities

These liability accounts are reserved for future use. Reserve Banks are required to report zero balances in these expansion accounts: 242-160 through 242-180, and 242-200 series.

12.05 Capital Paid-In (310-025)

Represents the outstanding paid-in value of capital stock issued to member banks as required by law. The par value of shares is one hundred dollars and the paid-in value is $50. A member bank is required to subscribe to the capital stock of its Reserve Bank in an amount equal to 6 percent of its capital and surplus. Half of the subscription is paid in and the other half is subject to call. (The shares do not carry the power through voting to control the management of the Reserve Bank as does ordinary stock in private banks and corporations.) Changes in a member bank's stock or surplus may require an adjustment in its holdings of the Reserve Bank's capital stock as outlined in Regulation I. The stock may not be transferred, nor may the owning bank hypothecate its shares.

12.10 Surplus (320-025)

The balance of this account represents the portion of net income that is retained by the Bank. The Board of Governors has determined that each Reserve Bank should retain a surplus balance equal to its capital paid-in. (See paragraph 12.60.)

Accumulated other comprehensive income is a component of each Reserve Bank's surplus account, and a separate account has been established to record transactions related to AOCI. (See paragraph 11.84.) The balance of AOCI should be included with the Bank's surplus balance in computing the amount necessary to equate surplus with the amount of paid-in capital.

On a daily basis, surplus should be adjusted, as to equate the balance in the account with the amount of paid-in capital. (See paragraph 60.20.)15 Care should be taken to ensure that all entries for transactions to the capital paid-in and AOCI accounts have been recorded before equating surplus to capital paid-in. The following adjustment should be recorded:

Dr / Cr:
Transferred to or from Surplus (330-225) $xxx
Cr / Dr:
Surplus (320-025) $xxx.

12.20 Current Income (330-025)

This account includes income from all sources for the year to date. The income is derived from assets as described below. Significant income items should be accrued as described in paragraph 4.92 when earned. Other income is ordinarily credited when received.

  1. Loans - Earnings on loans to depository institutions, and earnings from any other loans, which may include loans to Federal Intermediate Credit Banks, and other Federal Reserve Banks, and individuals, partnerships, or corporations.
  2. Acceptances - Discount earned on acceptances, including earnings on acceptances held under repurchase agreement.
  3. U.S. Treasury, Federal Agency, and GSE Debt securities - System account- Interest earned plus discount amortized and less premium accreted on U.S. Treasury, Federal Agency, and GSE debt securities held in SOMA. Discount earned on Treasury bills held in SOMA.
  4. Other U.S. Treasury, Federal Agency, and GSE Debt securities - Earnings on U.S. Treasury, Federal Agency, and GSE debt securities held in the Bank's own portfolio. This line item also includes interest income generated from tri-party repurchase agreements.16
  5. Other securities - Interest earnings on bills, notes, revenue bonds, and warrants issued by any state, county, district, political subdivision or municipality in the continental United States, including irrigation, drainage, and reclamation districts, plus discounts amortized and less premiums accreted. Also includes interest earnings on Federal agency and government sponsored enterprise mortgage-backed securities.
  6. Foreign currencies - Participation in interest received on deposit balances with foreign banks, discount earned on acceptances payable in foreign currencies, and other earnings from assets denominated in foreign currencies.
  7. Income from services - Amounts collected under Section 11A of the Federal Reserve Act for services to depository institutions.
  8. Deficiencies in required balances - Charges assessed depository institutions on the amount of their deficiencies in required balances.
  9. Daylight and Overnight Overdraft charges - Charges assessed depository institutions for intra-day (daylight) and overnight overdrafts in accounts maintained with the Reserve Bank.
  10. Funds Settlement Fees - Earnings associated with the funds settlement component of the book-entry transfer of U.S. Treasury securities.
  11. All other - Other earnings that do not come within the above definitions should be included in this classification. Explanations for these amounts should be provided to RBOPS Financial Reporting and Control Section.

Individual ledger accounts are maintained for control purposes and to facilitate verification of income according to source. In the case of income from services, the ledger should be supported by subsidiary accounts in the same detail as the schedule of priced services. These subsidiary accounts must be posted currently and, together with any accrual accounts that the Bank elects to maintain separately, added to the total in the ledger at the close of business each day.

A subsidiary account may also be established for each priced service to record variances between accrued service income and the amount actually charged depository institutions due to absorption of differences. The use of this account should facilitate reconcilement of the general ledger with internal cost/revenue reports.

Income from services is recorded as current income and should not be netted with the expenses incurred to provide the services or compensation paid to other Reserve Banks for costs that they incur in providing these services.17 Costs incurred in providing services, including compensation paid, are recorded as operating expenses. This treatment of income from services (gross treatment) is deemed appropriate based on criteria in FASB ASC Topic 605-45; formerly EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, because each Bank that records such income a) is the primary obligor responsible for providing service, b) incurs costs related to providing the service, c) maintains significant input in setting specifications of services to provide, and d) is responsible for credit risk related to customers. See additional discussion regarding Procedures for Recording Compensation for Check, ACH, Funds, and Securities Transfer Services at Appendix C.1 and C.2. Similarly, the cost of earnings credits (see paragraph 11.81) should not be offset against income from services.18 Although earnings credit may be used by depository institutions to pay for priced services, the transactions that give rise to income from services and earnings credits are sufficiently distinct to preclude net treatment.

12.30 Operating Expenses (330-050)

The balance of this summary account represents the combined year-to-date actual and estimated net expenses that the Reserve Banks have incurred in performing business operations. The operating expenses subaccounts are as follows:

  • Operating Expenses. The balance of this subaccount represents year-to-date operating expenses, net of expenses reimbursed.
  • Accrued Expenses Estimated. The balance of this subaccount, and the liability account Accrued Expenses Unpaid--Estimated (240-200) (see paragraph 11.83), provides for the accrual of net operating expenses on an estimated basis during the month. (See paragraph .80.)

12.33 System Net Periodic Pension Cost (330-060)

This account is used by the New York Reserve Bank to record at least monthly the net periodic pension cost for the Federal Reserve System computed in accordance with the provisions of FASB ASC Topic 715; formerly SFAS No. 87. This account is also used by each Reserve Bank to record at least monthly the net pension costs associated with the BEP and SERP accruals. OEB provides information necessary to process entries to this account.

12.35 Cost of Earnings Credits (330-075)19

12.36 Interest on Reserves and Term Deposits - Interest Expense (330-078)

Interest is paid to depository institutions for reserve and excess balances held in their account. The interest is calculated on reserve balances at the end of a maintenance period and is then paid to depository institutions. Interest is also paid for term deposits by eligible depository institutions. The cost of interest on reserves and on term deposits is recorded to this account.

12.37 Provision for Loan Loss Expense (330-080)

In accordance with paragraph 1.06, Reserve Banks are required to recognize a loss on a loan when it is probable that the loan will be uncollectible in whole or in part and the amounts of losses are estimable. Detailed instructions on how to recognize, measure, and record an allowance for loans loss are provided in paragraph 81.01, Allowance for Loan Losses.The Reserve Banks should use account 330-080 to record the expense provision. The provision for loan loss expense recorded in this account must be approved by the RBOPS Accounting Policy and Operations Section.

12.39 Expansion Accounts - Current Net Income

These accounts are reserved for future use. Reserve Banks are required to report zero balances in these expansion accounts: 330-082, 330-085.

12.40 Profit and Loss (330-100)

This account is used for recording income and losses which are not current in nature or are not applicable to current earnings or current expenses. The balance represents the net total of miscellaneous entries, such as the following:

  1. Profit (loss) on sale of Bank premise assets or other real estate - The difference between net book value and the proceeds from the sale of Bank premises assets and other real estate (formerly used in bank operations).
  2. Recoveries and unrealized losses on the value of other real estate held for sale - The difference between net book value and net realizable value of other real estate (formerly used in Bank operations) held for sale. (See 30.96.)

  3. Profit (loss) on sale of "Other assets acquired account closed banks" - Book profit or loss resulting from the sale (or other final disposal) of "Other assets acquired account closed banks." When an allowance for estimated losses on such property is carried, the entire difference between gross carrying value of the particular asset and the proceeds received, if disposition results in a loss, may be charged to the allowance unless such a charge would result in a debit balance therein, in which case the excess should be charged to "Profit and loss." If disposition results in a profit, the excess should be credited to "Profit and loss."
  4. Losses (not expected to be recovered) on shipments of money
  5. Recoveries of losses on shipments of money
  6. Other recoveries - Other recoveries of amounts previously charged to profit and loss.
  7. Losses covered by loss sharing agreement - Rewards, advances, and expenses absorbed or prorated under the loss sharing agreement.
  8. Reimbursement from Treasury for purchases of uncut sheets of Federal Reserve notes
  9. Errors found in work of prior years - Errors involving significant amounts reported in income or expenses prior to the current year. Correction of errors of lesser amounts should be made in the appropriate income or expense account. (The correction of errors between years through "Profit and loss" should be limited to items involving significant amounts and must have prior approval from the RBOPS Accounting Policy and Operations Section.)
  10. Interest Expense - Interest expense for reverse repurchase agreements undertaken by the System Open Market Desk.
  11. Profit or loss on foreign exchange transactions (net) - Participation in foreign exchange profits and losses, including revaluations of foreign currency holdings and outstanding swap commitments at current market exchange rates.
  12. Discount on foreign currency
  13. Loss on counterfeits - (Only with approval of RBOPS Accounting Policy and Operations Section.)
  14. Profit or loss on sales of U. S. Treasury, Federal Agency, and GSE securities held in System Open Market Account (net)
  15. Profit or loss on the sale of works of art
  16. Profit or loss incurred by Reserve Banks and consolidated LLCs from lending authorized under section 13(3) of the Federal Reserve Act

For further discussion of the profit and loss account, see paragraph 60.60.

12.43 Cost of Unreimbursed Treasury Services (330-110)

This account is used to record the cost of services provided to the U.S. Treasury for which recovery is not anticipated. At the time entries are made to the reimbursable account, an estimate is made of the amount of the claim that is not expected to be received. The offsetting account would be the contra-asset account, Allowance for Doubtful Treasury Reimbursement or Reimbursable expenses for direct write-offs. Near the end of each year, adjusting entries may be required in order for the balance in this account to equal the cost of services provided to the Treasury during the year for which the Treasury has informed the Federal Reserve reimbursement will not be made or which the Federal Reserve has determined is unlikely. This account will be closed out at the end of each year. Costs in this account will be generated primarily from District or special projects that have not been approved by the Bureau of Public Debt or the Financial Management Service of the U.S. Treasury.

12.45 Assessments by Board of Governors (330-125 and 330-150)

Board Expenditures (330-125)

Section 10 of the Federal Reserve Act authorizes the Board to levy semi-annually upon the Reserve Banks, in proportion to their capital stock and surplus, an assessment sufficient to pay its estimated expenses for the half of the year succeeding the levying of such assessment, together with any deficit carried forward from the preceding half year. The Board is also authorized to leave on deposit in the Reserve Banks the proceeds of such assessments. Pursuant to this authority, the Board maintains accounts with the Richmond Reserve Bank and at the time of each assessment requests credit for one-half of the amount to its General Fund account at Richmond. The remaining half is called at the beginning of the second following month; i.e., the first business day in March and September.

Each Bank, other than the Richmond Reserve Bank, remits its own payment by crediting the Interdistrict Settlement Account and debiting the Board Expenditures account.

F.R. Currency Costs (330-150)

Section 16 of the Federal Reserve Act requires that all expenses in executing the laws relating to the procurement of Federal Reserve notes, including expenses incidental to their issue and retirement, be paid by the Reserve Banks and included in the Board's assessment against the Banks. The Board assesses the Reserve Banks, on a scheduled basis, for the costs for printing, shipping, issuance, retirement, educational services, and research and development. The allocation of the costs is based on each Bank's share of the total number of Federal Reserve notes outstanding at all Reserve Banks on December 31st of the previous year. Reserve Banks should debit this account upon payment of these costs.

Separate accounts should be maintained for (l) cost of printing, (2) cost of shipping (including the periodic assessment for bags and seals), (3) retirement costs, and (4) research and development costs for F.R. currency, see appendix A.3.

12.46 Assessments by Board of Governors - Bureau of Consumer Financial Protection (330-135)

This account is used to record the Board of Governor's assessments to the Reserve Banks. In accordance with the Dodd-Frank Act the Board of Governors assesses the Reserve Banks to fund the operations of the Bureau of Consumer Financial Protection (BCFP). During the period prior to the transfer date of July 21, 2011, there was no limit on the funding that can be provided to the BCFP. After the transfer date, the Board of Governors is required to fund the BCFP an amount not to exceed a fixed percentage of 2009 total operating expenses of the System. The fixed percentage of total operating expenses of the System is 12%.20

12.47 Assessments by Board of Governors - Office of Financial Research (330-140)

In accordance with the Dodd-Frank Act the Board of Governors assesses the Reserve Banks to fund the operations of the Office of Financial Research (OFR) for the two-year period following enactment of the Dodd-Frank Act; thereafter, the OFR will be funded by fees assessed on certain bank holding companies. This account is used to record the Board of Governor's assessments to the Reserve Bank.

12.48 Expansion Account - Board assessments (330-130)

This account is reserved for future use. Reserve Banks are required to report a zero balance in this expansion account.

12.50 Dividends Accrued Since January 1 (330-175)

The balance of this account represents the year-to-date accumulated dividends on outstanding capital stock paid-in from member banks. The balance is increased each day throughout the year and at year-end, it is closed out as part of the distribution of net earnings. The amount added to the account each day is computed on the total Reserve Bank capital paid-in from member banks as of the opening of business that day (close of business previous day) as described in paragraph 1.10 (Accrued Dividends).

12.60 Interest Paid on Federal Reserve Notes (330-200)

Under authority of Section 16 of the Federal Reserve Act, the Board has determined that the Reserve Banks will pay to the U.S. Treasury, as interest on Federal Reserve notes, all net earnings after providing for dividends and the amount necessary to equate surplus with paid-in capital. This concept originated in 1947. As a result of operations essential to Government financing during the war, and operations required by the needs of business and the public for credit and currency, earnings of the twelve Federal Reserve Banks were at relatively high levels. It was expected that net earnings of the Federal Reserve Banks for 1947, after payment of the statutory dividends to member banks, would aggregate more than $60 million. In view of these facts and the fact that at the end of 1946 the surplus of each Federal Reserve Bank was equal to its subscribed capital, the Board decided to invoke its authority, granted to it under Section 16 of the Federal Reserve Act, to levy an interest charge on Federal Reserve notes issued by the Federal Reserve Banks. The purpose of this interest charge was to pay into the Treasury approximately 90 percent of the net earnings of the Federal Reserve Banks for 1947.

The authority to levy an interest charge on Federal Reserve notes not covered by gold certificates had not been used previously, chiefly because of the existence, prior to 1933, of so-called franchise tax provisions of the law that had a similar effect; that is, of transferring excess earnings of the Reserve Banks to the Treasury. Under these provisions, which were repealed in 1933, each Federal Reserve Bank was required to pay a franchise tax to the government equal to 90 percent of its net earnings after it had accumulated a surplus equal to its subscribed capital. As of the end of 1932 the Federal Reserve Banks had paid franchise taxes to the United States Treasury amounting to $149 million. At that time the Federal Reserve had accumulated surplus accounts of $278 million, as compared with subscribed capital aggregating $302 million. The Federal Reserve Act amendment, contained in the Banking Act of 1933, that established the Federal Deposit Insurance Corporation required each Reserve Bank to pay an amount equal to one-half of its surplus on January 1, 1933, as a subscription to the capital stock of the FDIC on which no dividends are paid. These stock subscriptions amounted to $139 million and reduced the surplus of the Federal Reserve Banks to an equivalent figure, or considerably less than one-half of their subscribed capital. Congress, therefore, eliminated the franchise tax in order to permit the Federal Reserve Banks to restore their surplus accounts from future earnings. Net earnings for the next ten years were relatively small, and at the end of 1944 the combined surplus accounts of the Federal Reserve Banks were less than 75 percent of their subscribed capital. During the next two years, however, net earnings increased substantially, due primarily to large holdings of Government securities accumulated through open market operations. This resulted in transfers to surplus accounts that increased the combined surplus of the Federal Reserve Banks to about $439.8 million at the end of 1946, as compared with subscribed capital of nearly $373.6 million.

Under the circumstances, the Board concluded that it would be appropriate for the Federal Reserve Banks to pay to the Treasury the bulk of their net earnings after providing for necessary expenses and the statutory dividend. In effect, this involved paying currently to the Treasury funds which, under existing law, would otherwise come to it only in the event of liquidation of the Federal Reserve Banks. The Federal Reserve Act still provides that, in case of liquidation of the Federal Reserve Banks, any surplus remaining after the payment of all claims shall be paid to the Treasury. By invoking its authority under Section 16 of the Federal Reserve Act, the Board was able to accomplish the same results as were accomplished by the payments of franchise tax, i.e., the transfer of excess earnings to the Government.

The Reserve Banks remit payment to the U.S. Treasury on a weekly basis. The amount consists of all net earnings after dividends and amounts necessary to equate surplus with capital paid-in. (See paragraph 60.20 for computation and reporting of interest payments.)

12.65 Transferred To or From Surplus (330-225)

The purpose of this account is to record the transactions necessary to equate surplus to capital paid-in. The amount remains in this account until the closing of the books in January of each year. See paragraph 12.10 and 60.20 for further discussion.


References

1. The Asset-Backed Commercial Paper Money Market Liquidity Facility (AMLF), the Primary Dealer Credit Facility (PDCF), and Commercial Paper Funding Facility LLC (CPFF) closed on February 1, 2010. Accounting guidance related to these facilities has been removed from FAM. Return to text

2. The Commercial Paper Funding Facility was closed on February 1, 2010. The detailed accounting guidance related to this facility has been removed from FAM. Return to text

3. The Money Market Investor Funding Facility was never used and was discontinued on October 30, 2009. The detailed accounting guidance related to this facility has been removed from FAM. Return to text

4. As a result of the closing of the AIG recapitalization plan on January 14, 2011, the revolving credit facility was fully repaid. The detailed accounting guidance related to this account has been removed from FAM. Return to text

5. As a result of the closing of the AIG recapitalization plan on January 14, 2011, the revolving credit facility was fully repaid. The detailed accounting guidance related to this account has been removed from FAM. Return to text

6. As a result of the closing of the AIG recapitalization plan on January 14, 2011, the New York Reserve Bank has been paid in full for its preferred interests. The detailed accounting guidance related to this account has been removed from FAM. Return to text

7. From 1992 until 1998, computer software purchased from vendors with an acquisition cost of $50,000 or greater was capitalized in this account and amortized over its estimated useful life, not to exceed three years. From 1999 to 2004, Reserve Banks capitalized the costs for internal use software whether purchased externally or developed internally if the costs exceeded $100,000 in this account. Beginning in 2005, to make the threshold consistent with other prepaid expenses, the capitalization threshold for externally-purchased software, such as license fees, was lowered from $100,000 to $25,000. Return to text

8. Examples of desktop utility software include word processing, electronic mail, and anti-virus software. Return to text

9. The securities borrowing facility was terminated on December 12, 2008, and all outstanding balances under that facility were repaid in full. The detailed accounting guidance related to this account has been removed from FAM. Return to text

10. Prior to the creation of new accounts in September 2010, this FR 34 account included the contract amount of reverse repurchase agreements. Return to text

11. In July 2012, the earnings credits program was eliminated and all remaining earnings credits expired by July 2013. The detailed accounting guidance related to this account has been removed from FAM. Return to text

12. The accounting treatment will be determined annually and will be based on the materiality of the obligation to the overall balance sheet. Return to text

13. The Money Market Investor Funding Facility was never used and was discontinued on October 30, 2009. The detailed accounting guidance related to this facility has been removed from FAM. Return to text

14. As a result of the closing of the AIG recapitalization plan on January 14, 2011, the revolving credit facility was fully repaid. The detailed accounting guidance related to this account has been removed from FAM. Return to text

15. Prior to January 1, 2011, surplus was equated to the level of capital at December 31 of each year. Return to text

16. Prior to February 2007, the interest income generated from tri-party repurchase agreements was reported only by FRBNY. Return to text

17. Generally accepted accounting principles specify the circumstances when gross or net treatment of income and related expense items is appropriate. The treatment depends on the relationship between the customer and the entity. Return to text

18. Earnings credits were eliminated July 2012. Return to text

19. In July 2012, the earnings credits program was eliminated and all remaining earnings credits expired by July, 2013. The detailed accounting guidance related to this account has been removed from FAM. Return to text

20. The fixed percentage was 10% for 2011, 11% for 2012, and 12% beginning in 2013. Return to text

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Last update: February 18, 2014