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Board of Governors of the Federal Reserve System
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Federal Reserve Banks Combined Quarterly Financial Report
June 30, 2014

Abbreviations

ABS
Asset-backed securities
AIG
American International Group, Inc.
CMBS
Commercial mortgage-backed securities
FOMC
Federal Open Market Committee
FRBNY
Federal Reserve Bank of New York
GSE
Government-sponsored enterprise
MBS
Mortgage-backed securities
ML
Maiden Lane LLC
ML II
Maiden Lane II LLC
ML III
Maiden Lane III LLC
LLC
Limited liability company
RMBS
Residential mortgage-backed securities
SOMA
System Open Market Account
TALF
Term Asset-Backed Securities Loan Facility
VIE
Variable interest entity

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Combined Quarterly Financial Statements

Combined statements of condition
(in millions)
  June 30, 2014 December 31, 2013
Assets
Gold certificates $11,037 $11,037
Special drawing rights certificates 5,200 5,200
Coin 1,889 1,955
Loans:
Depository institutions 164 74
Term Asset-Backed Securities Loan Facility (measured at fair value) 50 98
System Open Market Account:
Treasury securities, net (of which $16,719, and $17,153 is lent as of June 30, 2014, and December 31, 2013, respectively) 2,540,817 2,359,434
Government-sponsored enterprise debt securities, net (of which $1,246 and $1,099 is lent as of June 30, 2014, and December 31, 2013, respectively) 45,255 59,122
Federal agency and government-sponsored enterprise mortgage-backed securities, net 1,712,939 1,533,860
Foreign currency denominated investments, net 24,035 23,724
Central bank liquidity swaps 124 272
Accrued interest receivable 24,890 23,493
Other investments 12 2
Investments held by consolidated variable interest entities (of which $1,970 and $1,774 is measured at fair value as of June 30, 2014, and December 31, 2013, respectively) 1,970 1,926
Bank premises and equipment, net 2,625 2,653
Items in process of collection 102 165
Other assets 1,468 1,134
Total assets $4,372,577 $4,024,149
Liabilities and capital
Federal Reserve notes outstanding, net $1,238,571 $1,197,920
System Open Market Account:
Securities sold under agreements to repurchase 456,501 315,924
Other liabilities 1,853 1,331
Consolidated variable interest entities:
Beneficial interest in consolidated variable interest entities (measured at fair value) 98 116
Other liabilities (of which $70 and $73 is measured at fair value as of June 30, 2014, and December 31, 2013, respectively) 134 158
Deposits:
Depository institutions 2,363,424 2,249,070
Term deposit facility 92,420 --
Treasury, general account 139,299 162,399
Other deposits 17,392 34,150
Interest payable to depository institutions 92 99
Accrued benefit costs 1,873 1,823
Deferred credit items 626 1,127
Accrued remittances to Treasury 3,657 4,791
Other liabilities 313 227
Total liabilities 4,316,253 3,969,135
Capital paid-in 28,162 27,507
Surplus (including accumulated other comprehensive loss of $2,452 and $2,556 at June 30, 2014, and December 31, 2013, respectively) 28,162 27,507
Total capital 56,324 55,014
Total liabilities and capital $4,372,577 $4,024,149

Combined statements of income and comprehensive income
(in millions)
  Three months ended Six months ended
  June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Interest income
Loans:
Term Asset-Backed Securities Loan Facility $-- $2 $1 $4
System Open Market Account:
Treasury securities, net 16,710 13,145 31,345 24,284
Government-sponsored enterprise debt securities, net 398 568 845 1,152
Federal agency and government-sponsored enterprise mortgage-backed securities, net 12,949 8,417 25,374 15,988
Foreign currency denominated investments, net 22 24 44 50
Central bank liquidity swaps -- 8 1 20
Investments held by consolidated variable interest entities 4 -- 5 --
Total interest income 30,083 22,164 57,615 41,498
Interest expense
System Open Market Account:
Securities sold under agreements to repurchase 28 15 41 40
Other -- 1 -- 2
Deposits:
Depository institutions 1,677 1,216 3,281 2,258
Term Deposit Facility 19 2 24 3
Total interest expense 1,724 1,234 3,346 2,303
Net interest income 28,359 20,930 54,269 39,195
Non-interest income
Term Asset-Backed Securities Loan Facility, unrealized (losses) -- (1) -- (2)
System Open Market Account:
Federal agency and government-sponsored enterprise mortgage-backed securities gains (losses), net 50 67 71 (8)
Foreign currency translation gains (losses), net 57 (293) 250 (1,551)
Consolidated variable interest entities:
Investments held by consolidated variable interest entities gains, net 10 61 84 88
Income from services 109 110 218 222
Reimbursable services to government agencies 149 131 282 265
Other 24 21 39 41
Total non-interest income 399 96 944 (945)
Operating expenses
Salaries and benefits 742 798 1,522 1,589
Occupancy 77 77 153 152
Equipment 41 40 80 81
Other 137 143 272 283
Assessments:
Board of Governors operating expenses and currency costs 326 319 598 593
Bureau of Consumer Financial Protection 116 79 242 187
Total operating expenses 1,439 1,456 2,867 2,885
Net income before providing for remittances to Treasury 27,319 19,570 52,346 35,364
Earnings remittances to Treasury 26,827 19,328 50,957 34,619
Net income 492 242 1,389 745
Change in prior service costs related to benefit plans 22 22 44 48
Change in actuarial gains related to benefit plans 18 78 60 165
Total other comprehensive income 40 100 104 213
Comprehensive income $532 $342 $1,493 $958

Combined statements of changes in capital
(in millions, except share data)
  Capital paid-in Surplus Total capital
Net income retained Accumulated other comprehensive
loss
Total surplus
Balance at January 1, 2013 (547,195,145 shares) $27,360 $32,205 $(4,845) $27,360 $54,720
Net change in capital stock issued (2,941,791 shares) 147 -- -- -- 147
Comprehensive income:
Net loss -- (492) -- (492) (492)
Other comprehensive income -- -- 2,289 2,289 2,289
Dividends on capital stock -- (1,650) -- (1,650) (1,650)
Net change in capital 147 (2,142) 2,289 147 294
Balance at December 31, 2013 (550,136,936 shares) $27,507 $30,063 $(2,556) $27,507 $55,014
Net change in capital stock issued (13,106,570 shares) 655 -- -- -- 655
Comprehensive income:
Net income -- 1,389 -- 1,389 1,389
Other comprehensive income -- -- 104 104 104
Dividends on capital stock -- (838) -- (838) (838)
Net change in capital 655 551 104 655 1,310
Balance at June 30, 2014 (563,243,506 shares) $28,162 $30,614 $(2,452) $28,162 $56,324

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Supplemental Financial Information

(1) Loans

Loans to Depository Institutions

The Reserve Banks offer primary, secondary, and seasonal loans to eligible depository institutions. The remaining maturity distribution of loans to depository institutions outstanding as of June 30, 2014, and December 31, 2013, was as follows:

Table 1. Loans to depository institutions
(in millions)
  Within 15 days 16 to 90 days Total
June 30, 2014:
Primary, secondary, and seasonal credit $150 $14 $164
December 31, 2013:
Primary, secondary, and seasonal credit $69 $5 $74

As of June 30, 2014, and December 31, 2013, the Reserve Banks did not have any loans that were impaired, restructured, past due, or on non-accrual status, and no allowance for loan losses was required. There were no impaired loans during the period ended June 30, 2014, and year ended December 31, 2013.

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Term Asset-Backed Securities Loan Facility (TALF) Loans

The Board of Governors authorized the offering of TALF loans collateralized by newly-issued asset-backed securities (ABS) and legacy commercial mortgage-backed securities (CMBS) until March 31, 2010, and TALF loans collateralized by newly-issued CMBS until June 30, 2010. All TALF loans are recorded at fair value.

The table below presents the fair value of TALF loans by concentration as of June 30, 2014, and December 31, 2013, respectively:

Table 2. TALF loans by concentration
(in millions)
Collateral type 1 Time to maturity Total
Within 90 days 91 days to 1 year Over 1 year to 3 years
June 30, 2014:
Student loan $-- $-- $-- $--
CMBS 35 15 -- 50
Total $35 $15 $-- $50
December 31, 2013:
Student loan $-- $14 $33 $47
CMBS -- 51 -- 51
Total $-- $65 $33 $98

1. All credit ratings are AAA unless otherwise indicated. Return to table

The fair value of TALF loans reported in the Combined statements of condition as of June 30, 2014, and December 31, 2013, includes $0 million and $1 million in unrealized gains, respectively.

As of June 30, 2014, and December 31, 2013, no TALF loans were over 90 days past due or on nonaccrual status. Because TALF loans are measured at fair value, an allowance for loan losses was not required.

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(2) System Open Market Account (SOMA) Holdings

Treasury securities, government-sponsored enterprise (GSE) debt securities, and federal agency and GSE mortgage-backed securities (MBS) are reported at amortized cost in the Combined statements of condition. SOMA portfolio holdings as of June 30, 2014, and December 31, 2013, were as follows:

Table 3. Domestic SOMA portfolio holdings
(in millions)
  June 30, 2014 December 31, 2013
Amortized
cost
Fair value Cumulative unrealized gains (losses) Amortized
cost
Fair value Cumulative unrealized gains (losses)
Treasury Securities
Notes $1,618,979 $1,644,414 $25,435 $1,495,115 $1,499,000 $3,885
Bonds 921,838 969,745 47,907 864,319 842,336 (21,983)
Total Treasury securities $2,540,817 $2,614,159 $73,342 $2,359,434 $2,341,336 $(18,098)
GSE debt securities 45,255 48,154 2,899 59,122 62,236 3,114
Federal agency and GSE MBS 1,712,939 1,727,305 14,366 1,533,860 1,495,572 (38,288)
Total domestic SOMA portfolio securities holdings $4,299,011 $4,389,618 $90,607 $3,952,416 $ 3,899,144 $ (53,272)
Memorandum - Commitments for:
Purchases of Treasury securities $1,042 $1,043 $1 $-- $-- $--
Purchases of Federal agency and GSE MBS 61,478 61,917 439 59,350 59,129 (221)
Sales of Federal agency and GSE MBS -- -- -- -- -- --

The following table provides additional information on the amortized cost and fair values of the federal agency and GSE MBS portfolio as of June 30, 2014, and December 31, 2013:

Table 4. Detail of federal agency and GSE MBS holdings
(in millions)
  June 30, 2014 December 31, 2013
Distribution of MBS holdings by coupon rate Amortized cost Fair value Amortized cost Fair value
2.0% $13,528 $13,222 $14,191 $13,529
2.5% 119,080 117,130 123,832 118,458
3.0% 522,211 504,905 521,809 484,275
3.5% 410,498 412,792 349,689 338,357
4.0% 377,320 388,379 230,256 231,113
4.5% 174,942 187,842 185,825 195,481
5.0% 74,485 80,542 83,290 87,968
5.5% 18,015 19,416 21,496 22,718
6.0% 2,514 2,703 3,051 3,225
6.5% 346 374 421 448
Total $1,712,939 $1,727,305 $1,533,860 $1,495,572

The remaining maturity distribution of Treasury securities, GSE debt securities, federal agency and GSE MBS bought outright, and securities sold under agreements to repurchase as of June 30, 2014, and December 31, 2013, was as follows:

Table 5. Maturity distribution of domestic SOMA portfolio securities and securities sold under agreements to repurchase
(in millions)
  Within 15 days 16 days to 90 days 91 days to 1 year Over 1 year to 5 years Over 5 years to 10 years Over 10 years Total
June 30, 2014:
Treasury securities (par value) $-- $46 $1,995 $949,847 $805,831 $642,857 $2,400,576
GSE debt securities (par value) 1,009 2,644 4,111 33,548 -- 2,347 43,659
Federal agency and GSE MBS (par value) 1 -- -- -- 10 3,725 1,660,165 1,663,900
Securities sold under agreements to repurchase (contract amount) 456,501 -- -- -- -- -- 456,501
December 31, 2013:
Treasury securities (par value) $-- $298 $176 $763,329 $864,700 $580,272 $2,208,775
GSE debt securities (par value) 2,310 7,568 8,666 36,268 62 2,347 57,221
Federal agency and GSE MBS (par value) 1 -- -- -- 5 2,549 1,487,608 1,490,162
Securities sold under agreements to repurchase (contract amount) 315,924 -- -- -- -- -- 315,924

1. The par amount shown for federal agency and GSE MBS is the remaining principal balance of the securities. Return to table

Federal agency and GSE MBS are reported at stated maturity in the table above. The estimated weighted average remaining life of these securities as of June 30, 2014, and December 31, 2013, which differs from the stated maturity primarily because it factors in scheduled payments and prepayment assumptions, was approximately 5.0 years and 6.5 years, respectively.

Information about transactions related to Treasury securities, GSE debt securities, and federal agency and GSE MBS during the six months ended June 30, 2014, and during the year ended December 31, 2013, is summarized as follows:

Table 6. Domestic portfolio transactions of SOMA securities
(in millions)
  Notes Bonds Total Treasury securities GSE debt securities Federal agency and GSE MBS
Balance December 31, 2012 $1,142,219 $666,969 $1,809,188 $79,479 $950,321
Purchases 1 358,656 206,208 564,864 -- 864,538
Sales 1 -- -- -- -- --
Realized gains, net 2 -- -- -- -- --
Principal payments and maturities (21) -- (21) (19,562) (273,991)
Amortization of premiums and accretion of discounts, net (6,024) (9,503) (15,527) (795) (7,008)
Inflation adjustment on inflation-indexed securities 285 645 930 -- ---
Balance December 31, 2013 $1,495,115 $864,319 $2,359,434 $59,122 $1,533,860
Purchases 1 126,521 61,296 187,817 -- 264,758
Sales 1 -- -- -- -- (29)
Realized gains, net 2 -- -- -- -- --
Principal payments and maturities (338) -- (338) (13,562) (82,717)
Amortization of premiums and accretion of discounts, net (2,772) (4,983) (7,755) (305) (2,933)
Inflation adjustment on inflation-indexed securities 453 1,206 1,659 -- --
Balance June 30, 2014 $1,618,979 $921,838 $2,540,817 $45,255 $1,712,939
Year ended December 31, 2013
Supplemental information - par value of transactions:
Purchases 3 $356,766 $184,956 $541,722 $-- $837,490
Sales 3 -- -- -- -- --
Six months ended June 30, 2014
Supplemental information - par value of transactions
Purchases 3 $128,694 $61,785 $190,479 $-- $256,484
Sales 3 -- -- -- -- (29)

1. Purchases and sales are reported on a settlement-date basis and may include payments and receipts related to principal, premiums, discounts, and inflation compensation adjustments to the basis of inflation-indexed securities. The amount reported as sales also includes realized gains and losses on such transactions. Purchases and sales exclude MBS TBA transactions that are settled on a net basis. Return to table

2. Realized gains, net offset the amount of realized gains and losses included in the reported sales amount.  Return to table

3. Includes inflation compensation. Return to table

Information about foreign currency denominated investments valued at amortized cost and foreign currency market exchange rates as of June 30, 2014, and December 31, 2013, was as follows:

Table 7. Foreign currency denominated investments
(in millions)
  June 30, 2014 December 31, 2013
Euro:
Foreign currency deposits $9,358 $7,530
Securities purchased under agreements to resell 702 2,549
German government debt instruments 2,373 2,397
French government debt instruments 2,398 2,397
Japanese yen:
Foreign currency deposits 3,043 2,926
Japanese government debt instruments 6,161 5,925
Total $24,035 $23,724

The remaining maturity distribution of foreign currency denominated investments, by currency, as of June 30, 2014, and December 31, 2013, was as follows:

Table 8. Maturity distribution of foreign currency denominated investments
(in millions)
  Within 15 days 16 days to 90 days 91 days to 1 year Over 1 year to 5 years Total
June 30, 2014:
Euro $4,295 $1,121 $5,716 $3,699 $14,831
Japanese yen 3,260 412 1,961 3,571 9,204
Total $7,555 $1,533 $7,677 $7,270 $24,035
December 31, 2013:
Euro $7,037 $1,803 $2,161 $3,872 $14,873
Japanese yen 3,116 380 1,870 3,485 8,851
Total $10,153 $2,183 $4,031 $7,357 $23,724

As of June 30, 2014, and December 31, 2013, the fair value of foreign currency denominated investments, including accrued interest, was $24,140 million and $23,802 million, respectively.

Because of the global character of bank funding markets, the Federal Reserve has at times coordinated with other central banks to provide liquidity. The Federal Open Market Committee (FOMC) authorized and directed the Federal Reserve Bank of New York (FRBNY) to establish temporary U.S. dollar liquidity swap lines with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. In addition, as a contingency measure, the FOMC authorized and directed the FRBNY to establish temporary foreign currency liquidity swap arrangements with these five central banks to allow for the Federal Reserve to access liquidity, if necessary, in any of these foreign central banks' currencies. On October 31, 2013, the Federal Reserve and these five central banks agreed to convert their existing temporary liquidity swap arrangements to standing arrangements which will remain in place until further notice.

The remaining maturity distribution of U.S. dollar liquidity swaps as of June 30, 2014, and the total U.S. dollar liquidity swaps outstanding as of December 31, 2013, was as follows:

Table 9. Maturity distribution of liquidity swaps
(in millions)
  June 30, 2014 December 31, 2013
Within 15 days 16 days to 90 days Total Within 15 days 16 days to 90 days Total
Euro $-- $124 $124 $113 $159 $272
Japanese yen -- -- -- -- -- --
Total $-- $124 $124 $113 $159 $272

The following table presents the realized gains (losses) and the change in the cumulative unrealized gains (losses), presented as "Fair value changes unrealized gains (losses)," of the domestic securities holdings during the periods ended June 30, 2014, and June 30, 2013:

Table 10: Realized gains and change in unrealized gain position
(in millions)
  Six months ended
June 30, 2014
Six months ended
June 30, 2013
Total portfolio holdings realized gains 1 Fair value
changes unrealized gains
(losses) 2
Total portfolio holdings realized gains (losses) 1 Fair value changes unrealized gains (losses) 2
Treasury securities $-- $91,440 $-- $(118,482)
GSE debt securities -- (215) -- (1,710)
Federal agency and GSE MBS 71 52,654 (8) (59,286)
Total $71 $143,879 $(8) $(179,478)

1.  Total portfolio holdings realized gains (losses) are reported in "Non-interest income: System Open Market Account" in the Combined statements of income and comprehensive income. Return to table

2.  Because SOMA securities are recorded at amortized cost, unrealized gains (losses) are not reported in the Combined statements of income and comprehensive income. Return to table

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(3) Consolidated Variable Interest Entities (VIEs)

The combined financial statements include the accounts and results of operations of Maiden Lane LLC (ML), Maiden Lane II LLC (ML II), Maiden Lane III LLC (ML III), and TALF LLC, which are consolidated by the FRBNY. Intercompany balances and transactions are eliminated in consolidation.

Substantially all of the investments held by ML, ML II, ML III, and TALF LLC are recorded at fair value.

The classification of significant assets and liabilities of the consolidated VIEs as of June 30, 2014, and December 31, 2013, was as follows:

Table 11. Assets and liabilities of consolidated VIEs
(in millions)
  ML ML II ML III TALF LLC Total
June 30, 2014:
Assets
Short-term investments $600 $-- $-- $-- $600
Commercial mortgage loans 556 -- -- -- 556
Swap contracts 123 -- -- -- 123
Non-agency residential mortgage-backed securities (RMBS) 10 -- -- -- 10
Other investments 1 -- -- -- 1
Subtotal--investments $1,290 $-- $-- $-- $1,290
Cash, cash equivalents, accrued interest receivable, and other receivables 505 63 22 90 680
Total portfolio assets $1,795 $63 $22 $90 $1,970
Liabilities 134 -- -- -- 134
Net portfolio assets available $1,661 $63 $22 $90 $1,836
 
December 31, 2013:
Assets
Short-term investments $530 $-- $-- $-- $530
Commercial mortgage loans 507 -- -- -- 507
Swap contracts 158 -- -- -- 158
Non-agency RMBS 8 -- -- -- 8
Other investments 2 -- -- -- 2
Subtotal--investments $1,205 $-- $-- $-- $1,205
Cash, cash equivalents, accrued interest receivable, and other receivables 527 63 22 109 721
Total portfolio assets $1,732 $63 $22 $109 $1,926
Liabilities 158 -- -- -- 158
Net portfolio assets available $1,574 $63 $22 $109 $1,768

To finance the initial acquisition of assets by ML, ML II, and ML III, the FRBNY extended senior loans, and other beneficial interest holders acquired subordinated interests through the contribution of a subordinated loan, a deferred purchase price, and equity for ML, ML II, and ML III, respectively.

On June 14, 2012, the remaining outstanding balance of the senior loan from the FRBNY to ML was repaid in full, with interest. On November 15, 2012, the remaining outstanding balance of the subordinated loan from JPMorgan Chase & Co was repaid in full, with interest. The FRBNY will continue to sell the remaining assets from the ML portfolio as market conditions warrant and if the sales represent good value for the public. In accordance with the ML agreements, proceeds from future asset sales will be distributed to the FRBNY as contingent interest after all derivative instruments in ML have been terminated and paid or sold from the portfolio.

On March 1, 2012, the loan from the FRBNY to ML II was repaid in full with interest, in accordance with the terms of the facility. On March 15, 2012, the remaining portion of the fixed deferred purchase price plus interest owed to the American International Group, Inc. (AIG) subsidiaries was paid in full. On March 19, 2012, ML II was dissolved and the FRBNY began the wind up process in accordance with and as required by Delaware law and the agreements governing ML II. Winding up requires ML II to pay or make reasonable provision to pay all claims and obligations. Any remaining proceeds will be divided between the Bank, which is entitled to receive five-sixths, and the AIG subsidiaries, which are entitled to receive one-sixth. While its affairs are being wound up, the ML II is retaining certain assets to meet trailing expenses and other obligations as required by law. Dissolution costs are not expected to be material.

On June 14, 2012, the FRBNY announced that its loan to ML III had been repaid in full, with interest. On July 16, 2012, the FRBNY announced that net proceeds from additional sales of securities in ML III enabled the full repayment of AIG's equity contribution plus accrued interest and provided residual profits to the FRBNY and AIG. On September 10, 2012, ML III was dissolved and the FRBNY began the wind up process in accordance with and as required by Delaware law and the agreements governing ML III. Winding up requires ML III to pay or make reasonable provision to pay all claims and obligations. Any remaining proceeds will be divided between the FRBNY, which is entitled to receive two-thirds, and AIG (or its assignee), which is entitled to receive one-third, in accordance with the agreement. While its affairs are being wound up, the ML III is retaining certain assets to meet trailing expenses and other obligations as required by law. Dissolution costs are not expected to be material.

TALF LLC, which was formed to purchase from the FRBNY any ABS that might be surrendered by a TALF borrower or claimed by the FRBNY in connection with enforcement rights, has not purchased any ABS collateral from the inception of the program to June 30, 2014. As compensation for the commitment to purchase assets, the FRBNY pays TALF LLC a put option fee based on the amount of TALF loans extended to eligible borrowers. The Treasury provided initial funding of $100 million to TALF LLC in the form of a subordinated loan. TALF LLC invests the fees received from the FRBNY and the funding received from the Treasury in short-term investments.

On January 15, 2013, the Treasury and FRBNY eliminated the Treasury's and FRBNY's funding commitments to TALF LLC. These commitments were no longer deemed necessary because the cash equivalents and short-term investments held by the TALF LLC exceeded the amount of TALF loans then outstanding. In addition, the agreement related to distribution of proceeds was amended to limit funding of the cash collateral account to an amount equal to the outstanding principal plus accrued interest of all TALF loans as of the payment determination date; all accumulated funding in excess of that amount would then be distributed according to the distribution priorities described in the agreements governing TALF LLC. Pursuant to this agreement, on February 6, 2013, TALF LLC repaid in full the outstanding principal and accrued interest on the Treasury loan. During the six months ended June 30, 2014, and during the year ended December 31, 2013, additional distributions were made to the Treasury and FRBNY as contingent interest in the amounts of $17 million and $2 million and $573 million and $64 million, respectively.

The following table presents the activity related to the senior and subordinated interests from inception to June 30, 2014, and December 31, 2013:

Table 12. Analysis of senior and subordinated interests in consolidated VIEs
(in millions)
  June 30, 2014 December 31, 2013
ML ML II ML III TALF LLC ML ML II ML III TALF LLC
Net assets available to pay senior and subordinated interests $1,661 $63 $22 $90 $1,575 $63 $22 $109
Total loans and subordinated interests outstanding -- -- -- -- -- -- -- --
Excess of net assets available over loans and subordinated interest outstanding:
Allocated to FRBNY 1,661 53 15 9 1,575 53 15 11
Allocated to other beneficial interests -- 10 7 81 -- 10 7 98
Total $1,661 $63 $22 $90 $1,575 $63 $22 $109

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(4) Federal Reserve Notes

Federal Reserve notes are the circulating currency of the United States. These notes, which are identified as issued to a specific Reserve Bank, must be fully collateralized. All of the Reserve Banks' assets are eligible to be pledged as collateral. As of June 30, 2014, and December 31, 2013, all Federal Reserve notes were fully collateralized.

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(5) Depository Institution Deposits

Depository institution deposits are primarily comprised of required reserve balances, contractual clearing balances, and excess reserve balances. Required reserve balances are those that a depository institution must hold to satisfy its reserve requirement. Contractual clearing balances are those established by a depository institution to provide protection against overdrafts in its account with its Reserve Bank. Excess reserves are those held by the depository institutions in excess of their required reserve balances and contractual clearing balances. The contractual clearing balance program was eliminated on July 12, 2012.

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(6) Treasury Deposits

The Treasury holds deposits at the Reserve Banks in a general account pursuant the Reserve Banks' role as fiscal agent and depositary of the United States.

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(7) Capital and Surplus

The Federal Reserve Act requires that each member bank subscribe to the capital stock of the Reserve Bank in an amount equal to 6 percent of the capital and surplus of the member bank. These shares are nonvoting with a par value of $100, and may not be transferred or hypothecated. Currently, only one-half of the subscription is paid in and the remainder is subject to call. By law, each Reserve Bank is required to pay each member bank an annual dividend of 6 percent on paid-in capital stock.

In addition, the Board of Governors requires the Reserve Banks to maintain a surplus equal to the amount of capital paid-in as of December 31 of each year.

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(8) Income and Expense

(A) Loans

Interest income on primary, secondary, and seasonal credit is accrued using the applicable rate established at least every 14 days by the Reserve Banks' boards of directors, subject to review and determination by the Board of Governors. Interest income on loans includes interest earned on TALF loans. Supplemental information on interest income on loans is as follows:

Table 13. Interest income on loans
(in millions)
  Six months ended
June 30, 2014
Six months ended
June 30, 2013
Interest income:
Primary, secondary, and seasonal credit * *
TALF 1 4
Total interest income $1 $4
Average daily loan balance:
Primary, secondary, and seasonal credit $44 $32
TALF 84 398
Average interest rate:
Primary, secondary, and seasonal credit 0.29% 0.37%
TALF 2.79% 2.01%

* Less than $500 thousand.

In addition to TALF LLC net income, the FRBNY records income and expense related to TALF loans in its consolidated financial statements. The following table summarizes the earnings of the TALF program, taken as a whole:

Table 14. FRBNY net income from TALF program
(in millions)
  Six months ended
June 30, 2014
Six months ended
June 30, 2013
TALF loans:
Interest income $1 $4
Gains (losses) -- (2)
Subtotal--TALF loans $1 $2
TALF LLC -- --
Total--TALF $1 $2

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(B) SOMA Holdings

The amount reported as interest income on SOMA portfolio holdings includes the amortization of premiums and discounts. Supplemental information on interest income on SOMA portfolio holdings is as follows:

Table 15. Interest income on SOMA portfolio
(in millions)
  Six months ended June 30, 2014 Six months ended
June 30, 2013
Interest income:
U.S. Treasury securities $31,345 $24,284
GSE debt securities 845 1,152
Federal agency and GSE MBS 25,374 15,988
Foreign currency denominated investments 44 50
Central bank liquidity swaps 1 20
Total interest income $57,609 $41,494
Average daily balance:
U.S. Treasury securities 1 $2,457,098 $1,953,049
GSE debt securities 1 50,277 75,495
Federal agency and GSE MBS 2 1,645,557 1,107,485
Foreign currency denominated investments 3 24,009 23,961
Central bank liquidity swaps 4 313 6,183
Average interest rate:
U.S. Treasury securities 2.55% 2.49%
GSE debt securities 3.36% 3.05%
Federal agency and GSE MBS 3.08% 2.89%
Foreign currency denominated investments 0.37% 0.42%
Central bank liquidity swaps 0.64% 0.65%

1. Face value, net of unamortized premiums and discounts. Return to table

2. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the remaining principal balance of the securities, net of premiums and discounts. Return to table

3. Foreign currency denominated investments are revalued daily at market exchange rates. Return to table

4. Dollar value of foreign currency held under these agreements valued at the exchange rate to be used when the foreign currency is returned to the foreign central bank. This exchange rate equals the market exchange rate used when the foreign currency was acquired from the foreign central bank. Return to table

Supplemental information on interest expense on securities sold under agreement to repurchase (reverse repurchase agreements) is as follows:

Table 16: Interest expense on securities sold under agreement to repurchase
(in millions)
  Six months ended June 30, 2014 Six months ended June 30, 2013
Interest expense:
Tri-party 1 $26 *
Foreign official and international accounts 2 15 40
Total interest expense $41 $40
Average daily balance:
Tri-party 1 $113,267 $97
Foreign official and international accounts 2 103,640 92,902
Average interest rate:
Tri-party 0.05% 0.16%
Foreign official and international accounts 0.03% 0.09%

* Less than $500 thousand.

1. Reverse repurchase transactions arranged as open market operations are settled through tri-party arrangements. Return to table

2. Reverse repurchase transactions are executed with foreign official and international account holders as part of a service offering. Return to table

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(C) Consolidated VIEs

The interest income related to the consolidated VIEs is recorded when earned and includes amortization of premiums, accretion of discounts, and paydown gains and losses. Interest expense of the consolidated VIEs is attributable to loans extended by subordinated interest holders; interest expense on loans extended by the FRBNY is eliminated when the VIEs are consolidated in the FRBNY's financial statements. Gains and losses include realized and unrealized gains. Unrealized gains result from the quarterly revaluation of the VIEs portfolio assets. Operating expenses of the consolidated VIEs, which are reported as a component of "Operating expenses: Other" in the combined statement of income, were $3 million and $4 million for the six months ended June 30, 2014, and June 30, 2013, respectively.

The following table summarizes the net income and loss recorded by the FRBNY in its consolidated financial statements for each of the VIEs for the periods ended June 30, 2014, and June 30, 2013:

Table 17. FRBNY net income from consolidated VIEs
(in millions)
  ML ML II ML III TALF LLC 1 Total
Six months ended June 30, 2014:
Interest income:
Portfolio interest income $5 $-- $-- $-- $5
Less: interest expense -- -- -- -- --
Net interest income 5 -- -- -- 5
Non-interest income:
Portfolio holdings gains 84 -- -- -- 84
Less: realized and unrealized gains on beneficial interest in consolidated VIEs -- -- -- -- --
Net non-interest (loss) income 84 -- -- -- 84
Total net interest income and non-interest income 89 -- -- -- 89
Less: professional fees 3 -- -- -- 3
Net income (loss) attributable to consolidated VIEs $86 $-- $-- $-- $86
Six months ended June 30, 2013:
Interest income:
Portfolio interest income $(3) 2 $3 $-- $-- $--
Less: interest expense -- -- -- -- --
Net interest income (3) 3 -- -- --
Non-interest income:
Portfolio holdings (losses) gains 88 -- -- -- 88
Less: realized and unrealized (gains) losses on beneficial interest in consolidated VIEs -- -- -- -- --
Net non-interest (loss) income 88 -- -- -- 88
Total net interest income and non-interest income 85 3 -- -- 88
Less: professional fees 4 -- -- -- 4
Net income (loss) attributable to consolidated VIEs $81 $3 $-- $-- $84

1. Additional information regarding TALF-related income recorded by FRBNY is presented in Table 14. Return to table

2.  Reflects a reduction of $5.1 million due to the recalculation by the trustee of payments originally received and recorded in previous periods. Return to table

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(D) Depository Institution Deposits

The Reserve Banks pay interest to depository institutions on qualifying balances held at the Reserve Banks. The interest rates paid on required reserve balances and excess balances are determined by the Board of Governors, based on a FOMC-established target range for the effective federal funds rate.

In May 2010, the Reserve Banks commenced the auction of term deposits to be offered through its Term Deposit Facility. The interest rate paid on these deposits is determined by auction.

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Last update: August 27, 2014