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Board of Governors of the Federal Reserve System
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Financial Accounting Manual

Chapter 2: Collateral and Custodies

 

 

20.01 General

The preceding chapter discusses the periodic reporting of the assets and liabilities of Federal Reserve Banks. Chapter 2 is concerned with the accounts covering securities and other valuables, which are to be reported at the end of each month on the back of the FR 34. Federal Reserve Banks act as custodians for securities and other valuables pledged by depository institutions as collateral for borrowings from Reserve Banks and securities pledged as collateral to the Federal government. As fiscal agents, the Banks also act as custodians for securities pledged by nondepository institutions, including securities that are held for Government departments and officials in a fiduciary capacity. As the issuing and/or paying agents for the U.S. Government and certain Government-sponsored agencies, the Reserve Banks are accountable for unissued stock and for retired or paid securities, held pending shipment or destruction. The Reserve Banks also hold gold and other valuables, in accordance with safekeeping agreements with the Treasury, foreign central banks, and other institutions. The objective in reporting the various collateral and custody items on the reverse of the FR 34 is to assure adequate disclosure for purposes of verification and control. For purposes of this chapter, "book entry" securities refer to Fedwire book entry securities only.

20.02 Book Entry vs. Definitive Custodies

Two amount columns are provided on the reverse of form FR 34: one titled "Definitive" and the other titled "Book Entry." All book entry securities should be reported in the Book Entry column and all definitive securities and other custodies, including custody receipts, should be reported in the Definitive column. Custodies in book entry form that are held for the reporting office by another Federal Reserve office should also be shown in the Book Entry column, and included on the line for "Held by other offices in own District" or "Held by other FR Banks," as the case may be.

20.03 Special Depositaries, Treasury Tax and Loan Accounts

As fiscal agents the Reserve Banks maintain records for certain balances in the Treasury's deposit accounts at commercial banks and thrift institutions. For example, when qualified depositaries that hold investments of Treasury balances receive payment for Federal taxes, the depositaries hold the funds until the Treasury withdraws or calls the balances held at the depositaries. When investments mature or calls are made, the funds are remitted through the reserve accounts of depository institutions. The balance reported in this item should represent the aggregate of the individual demand deposit accounts, as well as open-ended note accounts.

20.04 Classification/Valuation of Holdings

Classification: To properly reflect the location, purpose and accountability for custodies recorded on the books of the Federal Reserve Banks, the various collateral and custody accounts are subdivided into four categories: Held in Own Vaults, Held by Other Offices in Own District, Held by Other Federal Reserve Banks, and Held by Depository Institutions. In general, all book-entry securities (except securities issued by international organizations) should be classified as "Held In Own Vaults." For book-entry securities issued by international organizations, all Federal Reserve Banks (except the Federal Reserve Bank of New York) should classify their holdings of these securities as "Held By Other FRBs." The Federal Reserve Bank of New York, however, should classify their holdings of these securities as "Held In Own Vaults." The Federal Reserve Bank of New York should then classify the roll-up of all the other Reserve Banks' holdings of these securities as "Custodies Held For Other F.R. Banks." (See paragraph 21.10.)

The following characteristics should be considered to determine the proper classifications for custodies on both office and District level FR 34s. The descriptions below focus on definitive holdings, however, except for the reference to trust receipts, the same principles apply to book-entry securities. The classifications of "Held by DI's" and "Held by Other Offices in Own District" only apply to definitive securities and should never be used for book entry securities:

Location of Physical Security

All custodies held by an office must appear on that office's FR 34 Reverse as Held in Own Vaults. Trust receipts held by an office that represent custodies held outside the System are classified as Held by Depository Institutions.

Collateral Function

Custodies are recorded on the books of the Federal Reserve System for one of two purposes: collateral to protect the System or a government entity against certain risks; or as a safekeeping service. Custody items held as collateral should be reflected in the appropriate function (Loans, TT&L, etc.); if the same custody is used to collateralize differing transactions during the day, it should be reflected on the FR 34 Reverse under the function it serves at end-of-day and should be recorded and carefully monitored in departmental records to reflect the purpose served intraday. Other security holdings are reflected in the appropriate Custodies Held for... accounts.

Location of Applicable Function

The Federal Reserve System has a wide variety of both decentralized and consolidated processes at the District and office levels. In order to reflect proper accountability on the FR 34 Reverse, offices which have functional units that may require collateral must reflect all of this associated collateral on their FR 34 Reverse regardless of where that collateral is located. To distinguish between physical accountability and functional accountability, offices should reflect these custodies as Held by other offices in own District or Held by other Federal Reserve Banks. Trust receipts held by other offices or FRBs are treated the same as other custodies in these accounts; only the office which has physical possession of the trust receipts is required to distinguish on the FR 34 Reverse whether the security is physically held in a Federal Reserve vault or at a depository institution.

The following are examples of proper classification on each office's FR 34 reverse and on the combined District's FR 34 reverse:

Example #1: Loan Function is centralized at the head office; safekeeping functions are decentralized.
Collateral for Loans: FR 34
Head Office
FR 34
Branch 1
FR 34
Branch 2
FR 34
District Combined
Held in own vaults 200 100 200 500
Held by other offices in own District 380 - - N/A
Held by other FR Banks 25 - - 25
Held by depository institutions 150 50 30 230
Example #2: Function is decentralized in all offices; Custody safekeeping is entirely centralized at Branch 1 except for trust receipts entirely held at Branch 2. (Each office has 200 TT&L collateral)
Collateral for TT&L FR 34
Head Office
FR 34
Branch 1
FR 34
Branch 2
FR 34
District Combined
Held in own vaults - 500 1 - 500
Held by other offices in own District 200 30 130 N/A
Held by other FR Banks - - - -
Held by depository institutions - - 100 2 100

1. Head Office=200; Branch 1=170; Branch 2=130  Return to table

2. Branch 1=30 Branch 2=70  Return to table

Valuation

Definitive collateral that will be redeemed at par at maturity and all book entry collateral should be reported at par value. Holdings of definitive collateral whose par value may increase (as in the case of certain collateralized mortgage obligations (CMOs) or decrease (as in the case of mortgage-backed securities) should be reported at the current outstanding principal value.

20.05 Collateral for Treasury Tax and Loan Accounts (Definitive and Book Entry)

Pursuant to 31 CFR 203, the funds held in Treasury Tax and Loan accounts, except for amounts covered by FDIC insurance, are secured by the pledge of collateral. The collateral must be of a type deemed acceptable by the Treasury Department as covered in the Code of Federal Regulations. Holdings of collateral should be subdivided and reported as described in paragraph 20.04.

20.10 Collateral for Loans (Definitive and Book Entry)

All loans made by the Reserve Banks are secured by collateral, except for a rare circumstance under the law that a loan to an individual, partnership or corporation may be secured by an endorsement satisfactory to the Reserve Bank. Where feasible to minimize unnecessary bookkeeping, a Reserve Bank should carry securities in this account even though the owning bank is not currently borrowing. Holdings should be subdivided and reported as described in paragraph 20.04.

20.15 Collateral for Overdrafts (Definitive and Book Entry)

Reserve Banks may, in certain situations, require a depository institution to pledge collateral in the event the institution's deposit account becomes overdrawn during the day or is overdrawn at the close of the business day. Any such collateral pledged for overdrafts is to be subdivided and reported as described in paragraph 20.04.

20.20 Accountability to Treasury for U.S. Government Securities: Marketable Securities (Definitive Only)

Reserve Banks no longer process these items. Items sent to Reserve Banks in error should be forwarded to the Treasury's Bureau of Public Debt and reported as Collateral and Custody Items in Process (see paragraph 21.50) until shipped to the Bureau of Public Debt.

20.40 Accountability to Treasury for U.S. Government Securities: Non-marketable securities (Definitive Only)

Savings Bonds Unissued On Hand - Report the face value of savings bonds (all series), retirement plan bonds, and individual retirement plan bonds that fall into the following categories: Unissued stock; spoiled bonds; issued bonds not reported to the Treasury (for example, sales and issues on reissue such as bonds issued for claims to replace valid issued bonds that were lost, stolen, or destroyed); unissued stock claims (bonds lost, stolen, or destroyed before being issued); canceled sales for which the original bond is not in-house; in-transit shipments of unissued stock to the Federal Reserve Bank of Philadelphia; and bond shipments awaiting delivery to issuing agents. Only the Federal Reserve Bank of Minneapolis should report this account.

20.45 Accountability to Treasury for U.S. Government Securities-- On Consignment: Non-marketable Securities (Definitive Only)

Savings Bonds on Consignment with Issuing Agents - Report the face value of savings bonds (all series), retirement plan bonds, and individual retirement plan bonds consigned to all issuing agents. Bonds that are lost, stolen, or destroyed should be included until the Treasury Department has notified the Reserve Bank that credit is allowed. Only the Federal Reserve Bank of Minneapolis should report this account.

20.50 Savings Bonds Issued-Book Entry

This account includes book-entry savings bonds held in safekeeping for trustees of qualified employees' savings and thrift plans. Only the Federal Reserve Bank of Minneapolis should report this account.

20.55 Accountability for Other Securities (Definitive Only)

This account should be reported by the New York Reserve Bank only.

  • U.S. Government Agencies - This account includes the total accountability for bearer and registered (designated and undesignated) securities of U.S. Government agencies.
  • Unissued - Report the par value of the general and reserve stock of bearer and registered (designated and undesignated) U.S. Government agency securities, including spoiled and mutilated securities.
  • Retired - Report the par value of all bearer and registered U.S. Government agency securities retired before maturity as a result of processing servicing transactions; such as, interdistrict transfers, conversions to book-entry, denominational exchanges, and registered exchanges for bearer.
  • Canceled Redeemed - Report the par value of all matured bearer and registered U.S. Government agency securities for which the depositors have been paid.

20.70 Accountability for Other Securities (Definitive Only)

  • International Organizations - This account includes the total accountability for bearer and registered (designated and undesignated) securities issued by international organizations; such as, the International Bank for Reconstruction and Development. This account should be reported by the New York Reserve Bank only.
  • Unissued - Report the par value of the general and reserve stock of bearer and registered (designated and undesignated) securities unissued by international organizations, including spoiled and mutilated securities.
  • Retired - Report the par value of all bearer and registered securities issued by international organizations that have been retired before maturity as a result of processing servicing transactions; such as, denominational exchanges and transfers of ownership.
  • Canceled Redeemed - Report the par value of all matured bearer and registered securities issued by international organizations for which the depositor has been paid and the issuer has been charged.

20.80 Other Custodies Held as Fiscal Agent of the Treasury

This account includes gold held for the Exchange Stabilization Fund or any other holdings of gold as agent of the Treasury, as shown below. Custodies besides gold include collateral acquired under the loan guarantee program pursuant to the Defense Production Act of 1950, as amended. "Special custody account: Other" ordinarily will be used only by the Federal Reserve Bank of New York under specific instructions.

  • Gold-Held in own vaults
  • Gold-Held by other Federal Reserve Banks
  • Other

Gold that a Reserve Bank owns should be reported in Currency and Coin Exhibits. (Account 170-375, see paragraph 4.70.)

20.85 Custodies Held for Commodity Credit Corporation

This includes all custodies held for the Corporation. Where Branches do not act as custodians for the Commodity Credit Corporation but hold such custodies for the account of the head office, the Branches should show them as "Custodies held for other offices in own District." The head office would report the custodies according to the proper classification.

20.90 Custodies Held for U.S. Treasury

Custodies held for the Treasury are subdivided according to the captions below. Under the special gold custody account for display purposes, there should be reported gold coins and gold certificates held as specimen under special authority from the Treasury Department.

  • Special gold custody account:
  • For display purposes gold certificates
  • Other gold bars

20.95 Custodies Held for Other Government Departments, Agencies and Officials (Definitive and Book Entry)

This account includes custodies held for the Directors and Commissioner of Internal Revenue; Judges and Clerks, U.S. District Courts (includes CRIS holdings); Public Housing Administration; General Services Administration; Federal Deposit Insurance Corporation; U.S. Citizenship and Immigration Services; Secretary of the Treasury; U.S. Treasury (as security for Government deposits in other than Treasury Tax and Loan Account); withheld food coupons pending review by the Department of Agriculture, State Treasuries; and others. Holdings should be subdivided and reported as described in paragraph 20.04.

21.05 Custodies Held for Other Offices in Own District (Definitive Only)

Custodies held by head office for Branches and by Branches for head office and other Branches are reported in this account. No amount will appear opposite this caption on the combined form FR 34, inasmuch as it would represent a duplication of amounts reported elsewhere under the appropriate classification by the office for whose account the custodies are held.

21.06 Custodies Held for System Open Market Account

Includes all securities held in custody for the System Open Market Account. Securities loaned or undelivered should not be included. This account should be reported by the New York Reserve Bank only.

21.10 Custodies Held for Other Federal Reserve Banks (Book Entry Only)

Items included represent custodies held for other Federal Reserve Banks (but not for other offices in own District). The Federal Reserve Bank of New York should include in this account those securities issued by international organizations, which can officially be held only by the New York Reserve Bank but which may, de facto, be held in book entry safekeeping by other Reserve Banks. Thus, this category would include the roll-up of all the other Reserve Banks' holdings of international securities.

21.15 Custodies Held for Depository Institutions (Book Entry Only)

The account covers ordinary safekeeping of regular and "strippable" securities, including the corpus from any stripped security and pledges by depository institutions to various municipalities, county, state, and other officials (other than U.S.) generally referred to as "pledged" securities or "joint safekeeping." Also included are securities issued by international organizations that can officially be held only by the Federal Reserve Bank of New York but that are, de facto, held by other Reserve Banks. Holdings should be subdivided and reported as described in paragraph 20.04.

21.25 Custodies Held for Foreign Correspondents (Definitive and Book Entry)

All safekeeping items for foreign central banks and governments, including the Bank for International Settlements, are reported by the New York Reserve Bank only, according to the following captions:

  • Acceptances
  • Securities
  • Earmarked gold-Held in own vaults

21.28 Foreign Debt Collateral (Definitive and Book Entry)

Includes collateral held by the Reserve Bank as collateral agent, as well as trust receipts representing collateral held by other custodians, in accordance with various Foreign Debt agreements. Collateral denominated in foreign currencies should be converted to dollars upon receipt; no further revaluation for fluctuations in exchange rates is necessary. Holdings should be subdivided as shown. This account should be reported by the New York Reserve Bank only.

  • Held in own vaults
  • Held by others

21.30 Custodies Held for International Organizations (Definitive and Book Entry)

All safekeeping items held for International Bank for Reconstruction and Development, International Finance Corporation, International Monetary Fund and other international organizations, are reported by the New York Reserve Bank only, as follows:

  • International Bank for Reconstruction & Development-securities
  • International Finance Corporation-securities
  • International Monetary Fund-securities and gold
  • International Development Association-securities
  • Inter-American Development Bank-securities
  • Asian Development Bank-securities

21.40 Miscellaneous Custody Items (Definitive and Book Entry)

This account includes ordinary safekeeping other than such safekeeping referenced earlier in this chapter. It also includes any collateral from dealers held by a Reserve Bank in connection with loans of securities from the System Open Market Account and prepaid postage provided by others for use in the provision of services such as RDS postage provided by the Treasury.

21.50 Collateral and Custody Items in Process (Definitive and Book Entry)

This account includes the total accountability for definitive and book-entry securities that are being held pending ultimate disposition. Report the par value of all securities for which processing or delivery has not been completed. For example: Treasury securities erroneously submitted to the Reserve Bank and awaiting return to the customer for forwarding to Treasury; book-entries held pending transfer to the Treasury on original issue or release of registered securities; municipal or corporate securities held pending deposit to or delivery from safekeeping; unopened "said-to-contain" envelopes for noncash; and outgoing security and coupon shipments held by registered mail personnel. Savings bonds received for redemption, exchange, or reissue and paid savings stamps should not be reported.

21.55 Memorandum Accounts (Definitive Only)

Report the following items at the end of each month.

  • Food Coupons Pending Verification - Report the face amount of all unprocessed food stamps and verified food stamps that have not been transferred to the destruction team.
  • Food Coupons Pending Destruction - Report the face amount of all food stamps that have been transferred to the destruction team and are being held pending destruction.
  • Noncash Collection Items:

    • Securities and Coupons on Hand - Report the face amount of all municipal and corporate coupons and bonds as well as bankers acceptances, both past and future due, that are being prepared for delivery to paying agents or for return to depositors.
  • U.S. Government and Agency Coupons:

    • Unclassified or Redeemed - Report the face amount of all Treasury and Government agency coupons, held pending shipment, for which the depositor has been paid and the Treasury or the agency has been charged.
    • Suspense or Holdover - Report the face amount of all Treasury and Government agency coupons that have not been paid or are not yet eligible to be paid.
    • Miscellaneous Cash Items - Report the face amount of all agency coupons held pending shipment, payable through accounts maintained at FRB New York for which the depositor has been paid and the miscellaneous cash items account (the Government sponsored agency accounts - unclassified at New York) has been charged.
  • International Coupons:

    • Redeemed - Report the face amount of all coupons issued by international organizations, held pending shipment, for which the depositor has been paid and the international organizations have been charged.
    • Suspense or Holdover - Report the face amount of all coupons issued by international organizations that have not been paid or that are not yet eligible to be paid.
    • Coupons Detached from Safekeeping Holdings - Report the face value of all corporate and municipal coupons that have been detached from securities held in safekeeping and are being prepared for or being held pending shipment. At each Reserve Bank's option, two sub-accounts may be maintained internally: unverified coupons and verified coupons.
    • Coupons Clipped from Unissued Agency Stock - Report the face value of all coupons that have been detached from unissued U.S. Government agency and international organizations stock that are being prepared for or being held pending shipment. At the Reserve Bank's option, two sub-accounts may be maintained internally: unverified coupons and verified coupons. Holdings in this account should be reported by the New York Reserve Bank only.

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Last update: February 18, 2014