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Federal Reserve Board of Governors

Credit and Liquidity Programs and the Balance Sheet

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Collateral and rate setting

Tables posted on November 5, 2009

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Collateral Eligibility, Valuation, and Haircuts by Program

Interest Rate Setting

 

Collateral Eligibility, Valuation, and Haircuts by Program

Lending to depository institutions

Program Collateral Eligibility, Valuation, and Haircuts
Primary, Secondary, Seasonal, and TAF Credit (Depository Institutions)

Eligibility: The Federal Reserve is willing to consider any sound asset that can be held by a depository institution. Margins for commonly accepted assets.

Valuation and Haircuts: Where possible, collateral is marked to market daily using information supplied by a pricing service.1

  • The lendable value of such collateral incorporates a haircut that reflects the liquidity and credit and interest rate risk of the asset.

For assets that cannot be marked to market, a haircut is applied to the par value in the case of a security or to the outstanding balance in the case of a loan.

  • The haircuts applied to such non-priced collateral are generally substantially larger than those applied to collateral that can be marked to market to account for reduced liquidity.

Footnotes

1. Daily pricing was implemented on January 30, 2009. Prior to that, collateral was priced weekly. Return to text

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Lending to primary dealers

Program Collateral Eligibility, Valuation, and Haircuts
Primary Dealer Credit Facility (PDCF)

Eligibility: All assets that are eligible for tri-party repo arrangements with the major clearing banks are eligible collateral.

Valuation and Haircuts: Assets are priced by the borrower's clearing bank, using the lowest price available in the clearing bank's valuation systems.

  • For collateral that is eligible for open market operations (OMOs)--Treasury, agency, and agency mortgage-backed securities--the haircuts are those used for OMOs.
  • For non-OMO-eligible collateral, haircuts are assigned based on the riskiness of the asset and are generally higher than for OMO-eligible collateral.

Term Securities Lending Facility (TSLF) and TSLF Options Program (TOP)

Eligibility: OMO-eligible collateral and investment-grade corporate, municipal, mortgage-backed, and asset-backed securities

Valuation and Haircuts: Assets are priced by the borrower's clearing bank, using the lowest price available in the clearing bank's valuation systems.

  • For OMO-eligible collateral, the haircuts are those used for OMOs.
  • For non-OMO-eligible collateral, haircuts are assigned based on the risk of the asset and are generally higher than for OMO-eligible collateral.
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Other lending facilities

Program Collateral Eligibility, Valuation, and Haircuts
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)

Eligibility: U.S. dollar-denominated asset-backed commercial paper (ABCP) rated at least A-1/P-1/F1. The ABCP must be purchased from a money market mutual fund (MMMF).

Valuation and Haircuts: Pledged ABCP is valued at the amortized cost at which the ABCP was originally acquired by the MMMF (the program requires the borrower to purchase the ABCP from the MMMF at that price). There is no haircut applied.

Commercial Paper Funding Facility (CPFF)

Eligibility: Three-month U.S. dollar-denominated CP (including ABCP) that is rated at least A-1/P-1/F1.

Risk Management: CPFF assets are purchased by a special purpose vehicle (SPV). ABCP purchased by the SPV is backed by underlying assets. Unsecured CP purchased by the SPV is subject to an additional fee, indorsement/guarantee, or separate collateral arrangement. The CPFF also collects registration and other fees that provide a cushion against potential loss.

Term Asset-Backed Securities Loan Facility (TALF)

Eligibility: Asset-backed securities (ABS) backed by auto loans, student loans, credit cards loans, SBA-guaranteed small business loans, mortgage servicing advances, loans or leases relating to business equipment, leases of vehicle fleets, floorplan loans, insurance premium finance loans, and commercial mortgages. The ABS must have two or more top (for example, AAA) ratings from a list of approved ratings agencies--and must not have a rating below the top rating from any of these agencies--or, in the case of SBA ABS, must be fully guaranteed by the U.S. Government.

Valuations and Haircuts: The ABS must have been purchased by a third party and valued at a market price. Haircuts are chosen so that estimated losses in a stress scenario is more than covered by the excess interest rate spread earned on the loans.

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Collateral Pledged to Various Facilities

 

Lending to depository institutions

Lending Program Authorized by Collateral value (billions of dollars)1 Credit extended(billions of dollars) Date
Board under Sec. 13(3) authority FOMC
Primary, Secondary, Seasonal, and Term Auction Facility (TAF) Credit     8992 332 June 24, 2009

Footnotes

1. Lendable value after application of appropriate margins. Return to text

2. For all depository institutions that were borrowing on the date shown. The value of collateral pledged by all depository institutions was $1,570 billion. Return to text

 

Lending to primary dealers

Lending Program Authorized by Collateral value (billions of dollars)1 Credit extended (billions of dollars) Date
Board under Sec. 13(3) authority FOMC
Primary Dealer Credit Facility (PDCF)2 X   0 0 June 24, 2009
Term Securities Lending Facility (TSLF) and TSLF Options Program (TOP) X X 8 7 June 24, 2009

Footnotes

1. Lendable value after application of appropriate margins. Return to text

2. Includes credit extended through the Primary Dealer Credit Facility and other broker-dealer credit. Return to text

 

Other lending facilities

Lending Program Authorized by Collateral value (billions of dollars) Credit extended (billions of dollars) Date
Board under Sec. 13(3) authority FOMC
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)1 X   21 21 June 24, 2009
Commercial Paper Funding Facility (CPFF) X   238 235 June 24, 2009
Term Asset-Backed Securities Loan Facility (TALF)1 X   27 25 June 24, 2009

Footnotes

NOTE: The collateral and loan amounts shown correspond to the dates in the final column. These dates are consistent with the reporting dates for information in the recent Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet report.

1. Loans under this program are non-recourse loans. Return to text

 

Support for specific institutions

Lending Program Authorized by Collateral value (billions of dollars) Credit extended (billions of dollars) Date
Board under Sec. 13(3) authority FOMC
Loan to Maiden Lane LLC to facilitate the acquisition by JPMorgan Chase & Co. of Bear Stearns X   261 29 June 17, 2009
Loans to American International Group, Inc. (AIG) X   assets of AIG 2 43 June 17, 2009
Loan to Maiden Lane II LLC as part of AIG assistance package X   163

18

June 17, 2009
Loan to Maiden Lane III LLC as part of AIG assistance package X   203 23 June 17, 2009
Certain residual financing for Citigroup, Inc.4 X   0 0 --
Certain residual financing for Bank of America4 X   0 0 --

Footnotes

NOTE: The collateral and loan amounts shown correspond to the dates in the final column. These dates are consistent with the reporting dates for information in the recent report submitted to the Congress under Section 129 of the Emergency Economic Stabilization Act.

1. The Board does not anticipate that the loan to Maiden Lane will result in any net loss to the Federal Reserve or taxpayers. The loan to Maiden Lane LLC was extended with the expectation that the full value of its portfolio (the collateral) would be realized either by holding the assets to maturity or by selling the assets in an orderly manner over an extended period of time. In addition, JPMorgan Chase will absorb the first $1.1 billion of realized losses, should any occur. Moreover, under the terms of the agreement, the Federal Reserve Bank of New York is entitled to receive interest payments on the loan to Maiden Lane, as well as any residual cash flow generated by the collateral after the loans to the Federal Reserve Bank of New York and JPMorgan Chase are repaid. Return to text

2. This lending is secured by a pledge of assets of AIG and its primary non-regulated subsidiaries, including all or a substantial portion of AIG's ownership interest in its regulated U.S. and foreign subsidiaries. Furthermore, AIG's obligations to the Federal Reserve Bank of New York are guaranteed by many of AIG's domestic, nonregulated subsidiaries that have more than $50 million in assets. These guarantees themselves are separately secured by assets pledged to the Federal Reserve Bank of New York by the relevant guarantor. Additional subsidiaries of AIG may be added as guarantors over time. In light of the complexities involved in valuing the extremely broad and diverse range of collateral and guarantees securing these advances, any estimate of the aggregate value that ultimately will or may be received from the sale of collateral or the enforcement of the guarantees in the future would be speculative and disclosure of any such estimate could interfere with the goal of maximizing value through the company’s global divestiture program and, consequently, diminish the proceeds available to repay the loan. Given the substantial assets and operations supporting repayment of the loan and the equity investment made by Treasury in AIG, and based on the Federal Reserve's most recent review of security arrangements supporting the Revolving Credit Facility, the Federal Reserve does not expect that this lending to AIG will result in any net loss to the Federal Reserve or taxpayers. Return to text

3. Because the collateral assets for the loans to ML-II and ML-III are expected to generate cash proceeds and will be sold over time, the current reported fair values of the net portfolio holdings of ML-II and ML-III do not reflect the amount of aggregate proceeds that the Federal Reserve could receive from payments on the assets or from the sale of the assets of these entities over the extended term of the loans. The collateral will be sold over time in a manner that is orderly and designed to reduce the effects of the unnaturally strong downward market pressures that have been associated with the recent liquidity crisis. In addition, AIG has a $1 billion subordinated position in ML-II and a $5 billion subordinated position in ML-III. These subordinated positions are available to absorb first any loss that ultimately is incurred by ML-II or ML-III, respectively. The Federal Reserve also is entitled to receive interest on the loans to ML-II and ML-III while they are outstanding and 5/6ths and 2/3rds of any residual cash flow generated by the collateral held by ML-II and ML-III, respectively, after the senior note of the New York Reserve Bank and the subordinated note of AIG are repaid. Given these protections, the Board does not believe that the extensions of credit to ML-II or ML-III will over time result in any net loss to the Federal Reserve or taxpayers. Return to text

4. Loans under this program are non-recourse loans. Return to text

 

Types of collateral pledged

For information on the types and amounts of collateral pledged to various Federal Reserve facilities, please see the Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet

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Interest rate setting for Federal Reserve lending programs1

As of July 21, 2009

Lending to depository institutions

Lending Program Eligible Borrowers Setting of Interest Rate
Primary Credit Depository institutions (DIs) in generally sound financial condition Recommended by the Boards of Directors of the Reserve Banks and approved by the Board of Governors2
Secondary Credit DIs that do not qualify for primary credit Spread above the primary credit rate, currently 50 basis points
Seasonal Credit Smaller DIs with a regular seasonal need for funds Average of the effective federal funds rate and the three-month CD rate, typically resulting in a rate close to the federal funds rate target
Term Auction Facility (TAF) DIs in generally sound financial condition Set in an auction process subject to a minimum bid rate. Currently, the minimum bid rate is set equal to the rate that Reserve Banks pay on excess reserve balances3
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Lending to primary dealers

Lending Program Eligible Borrowers Setting of Interest Rate
Primary Dealer Credit Facility (PDCF) Banks and securities broker-dealers that trade in U.S. Government securities with the Federal Reserve Bank of New York ("Primary Dealers") Equal to the primary credit rate in effect at the Federal Reserve Bank of New York
Term Securities Lending Facility (TSLF) and
TSLF Options Program (TOP)
Primary Dealers Set in an auction process subject to a minimum bid rate. The TSLF minimum bid rate is 10 or 25 basis points, depending on the type of collateral used in the auction. The TOP minimum bid rate is 1 basis point
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Other lending facilities

Lending Program Eligible Borrowers Setting of Interest Rate
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) DIs and bank holding companies (to finance purchases of high-quality asset-backed commercial paper from money market mutual funds under certain conditions) Equal to the primary credit rate in effect at the Federal Reserve Bank of Boston at the time the advance is made
Commercial Paper Funding Facility (CPFF) A special purpose vehicle that purchases three-month unsecured and asset-backed commercial paper directly from eligible issuers Equal to the Federal Open Market Committee's target federal funds rate at the time loan is made
Term Asset-Backed Securities Loan Facility (TALF) Holders of certain AAA-rated asset-backed securities backed by consumer, business, and commercial mortgage loans Varies by the type of collateral securing the loan (and in some cases by the term of the loan):
  • ABS backed by federally guaranteed student loans: 50 basis points over 1-month Libor.
  • SBA Pool Certificates: federal funds target rate plus 75 basis points.
  • SBA Development Company Participation Certificates:
    • Three-year TALF loans: 50 basis points over the 3-year Libor swap rate.
    • Five-year TALF loans: 50 basis points over the 5-year Libor swap rate.
  • Commercial mortgage-backed securities:
    • Three-year TALF loans: 100 basis points over the 3-year Libor swap rate.
    • Five-year TALF loans: 100 basis points over the 5-year Libor swap rate.
  • Other eligible fixed-rate ABS:
    • Three-year TALF loans: 100 basis points over the 1-year Libor swap rate for securities with a weighted average life less than one year, 100 basis points over the 2-year Libor swap rate for securities with a weighted average life greater than or equal to one year and less than two years, 100 basis points over the 3-year Libor swap rate for securities with a weighted average life of two years or greater.
  • Private student loan ABS bearing a prime-based coupon: the higher of 1 percent and the rate equal to the Prime rate minus 175 basis points.
  • Other eligible floating-rate ABS: 100 basis points over 1-month Libor.
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Support for specific institutions

Lending Program Eligible Borrowers Setting of Interest Rate
Loan to Maiden Lane LLC to facilitate the acquisition by JPMorgan Chase & Co. of Bear Stearns A limited liability company (Maiden Lane LLC) that acquired about $30 billion of less liquid assets of The Bear Stearns Companies, Inc. Equal to the rate in effect from time to time for primary credit at the Federal Reserve Bank of New York
Loans to American International Group, Inc. American International Group, Inc. (AIG) Three-month Libor plus 300 basis points4
Loan to Maiden Lane II LLC as part of AIG assistance package A limited liability company (Maiden Lane II LLC) that acquired residential mortgage-backed securities from AIG One-month Libor plus 100 basis points
Loan to Maiden Lane III LLC as part of AIG assistance package A limited liability company (Maiden Lane III LLC) that acquired collateralized debt obligations from counterparties of AIG One-month Libor plus 100 basis points
Lending authority to Fannie Mae and Freddie Mac* Fannie Mae and Freddie Mac Equal to the primary credit rate in effect at the Federal Reserve Bank of New York
Certain residual financing for Citigroup, Inc.* Citigroup, Inc. (if needed to help finance a pool of assets that the U.S. Government has agreed to guarantee) A floating rate equal to the 3-month overnight index swap rate plus 300 basis points, reset quarterly
Certain residual financing for Bank of America* Bank of America (if needed to help finance a pool of assets that the U.S. Government has agreed to guarantee) A floating rate equal to an overnight index swap rate plus 300 basis points (term of OIS to be determined)

Footnotes

NOTE: *No loans have been extended under these programs.

1. Rates for all programs are proposed by the board of directors of the lending Reserve Bank and approved by the Board of Governors of the Federal Reserve System. Return to text

2. Current and historical primary, secondary, and seasonal rates can be found at
http://www.frbdiscountwindow.org/currentdiscountrates.cfm. Return to text

3. Prior to January 12, 2009, the minimum bid rate was based on a measure of the average expected overnight Fed Funds rate over the term of the credit being auctioned. Return to text

4. Prior to November 10, 2008, the rate was three-month Libor plus 850 basis points. Return to text

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Last update: November 5, 2009