For release at4:30 p.m. EDTNovember 19, 2009
The Board's H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," has been modified to include information related to TALF LLC, a limited liability company formed to purchase and manage any asset-backed securities that might be received by the Federal Reserve Bank of New York (FRBNY) in connection with the Term Asset-Backed Securities Loan Facility (TALF). This information will be presented in a new table 8, "Information on Principal Accounts of TALF LLC." The release has also been modified to include information related to the net portfolio holdings of TALF LLC. This information is presented in table 1, in table 8, in table 9, and in table 10.
On November 25, 2008, the Federal Reserve announced the creation of the TALF under the authority of section 13(3) of the Federal Reserve Act. Under the TALF, the FRBNY extends loans to eligible borrowers to finance the purchase of eligible asset-backed securities (ABS) that serve as the collateral for the loans. The loans provided through the TALF are non-recourse, meaning that the obligation of the borrower can be discharged by surrendering the collateral to the FRBNY. The loans are extended for the market value of the security less an amount known as a haircut. As a result, the borrower bears the initial risk of a decline in the value of the security. TALF LLC has committed, for a fee, to purchase all ABS received by FRBNY in conjunction with a TALF loan at a price equal to the TALF loan plus accrued but unpaid interest. Purchases of these securities are funded first through the fees received by the LLC and any interest the LLC has earned on its investments. In the event that such funding proves insufficient, the U.S. Treasury's Troubled Asset Relief Program (TARP) will provide additional subordinated debt funding to the TALF LLC to finance up to $20 billion of asset purchases. Subsequently, the FRBNY will finance any additional purchases of securities by providing senior debt funding to TALF LLC. Thus, the TARP funds provide credit protection to FRBNY.
The Federal Reserve has completed its evaluation and consistent with generally accepted accounting principles, the assets and liabilities of TALF LLC will be consolidated with the assets and liabilities of the FRBNY in the preparation of the statements of condition shown on the release. Although the U.S. Treasury provides credit protection to the FRBNY, the FRBNY is the more closely associated beneficiary of the LLC because it directs the significant financial activities of the TALF LLC.
The consequences of this consolidation appear on the release in the following ways. Any extensions of credit from the FRBNY to TALF LLC are eliminated, as is the accrued interest on such loans. The net portfolio holdings of TALF LLC are included in "total factors supplying reserve funds" in table 1 and in "assets" in table 9 and in table 10. The liabilities of TALF LLC to entities other than the FRBNY are included in "other liabilities and capital" in table 1 and in "other liabilities and accrued dividends" in table 9 and in table 10.Information on the principal accounts of TALF LLC is presented separately in a new table 8. This table presents the net portfolio holdings of TALF LLC, which comprise the fair value of the ABS holdings of TALF LLC and other investments that result from the initial funding provided by the U.S. Treasury, fees paid by the FRBNY, and interest received on investments. In addition, the table presents the book value of the outstanding principal of the loan extended by the FRBNY, the book value of the accrued interest payable to the FRBNY, and the book value of the funding provided by the U.S. Treasury to TALF LLC, which includes the accrued interest payable to the U.S. Treasury.
