Understanding the Factors Affecting Reserve Balances and What’s up with them Now
Start with this…here’s a graph from FRED showing reserve balances of the banks at the Fed.
Can you see QE1 and QE2?
What’s going on with this? What did the Fed do to jack up the reserves like that? To understand this, you need to look at the Fed’s table H4.1, which gives the factors affecting reserves. First a “teaser.”
Open Taylor, “An Exit Rule for Monetary Policy” to see other graphs like this. These are from 2009.
So what are they all about? Explaining what’s going on with the Fed and bank reserves. We’ll come back to these after looking at the Fed’s balance sheet.
What are all these acronyms? Terms with asterisk are no longer significant.
TAF (Term Auction Facility) December 2007
Under the Term Auction Facility (TAF) program, the Federal Reserve auctions term funds to depository institutions. All depository institutions judged to be in generally sound financial condition by their local Reserve Bank and that are eligible to borrow under the primary credit discount window program are eligible to participate in TAF auctions. All advances must be fully collateralized
SWAPS (Loans to Foreign Central Banks) December 2007
The FOMC has authorized temporary reciprocal currency arrangements (central bank liquidity swaps) with certain foreign central banks to help provide liquidity in U.S. dollars to overseas markets.
These swaps involve two transactions. First, when the foreign central bank draws on the swap line, it sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The foreign currency that the Federal Reserve acquires is placed in an account for the Federal Reserve at the foreign central bank. This line in the statistical release reports the dollar value of the foreign currency held under these swaps.
Second, the dollars that the Federal Reserve provides are deposited in an account for the foreign central bank at the Federal Reserve Bank of New York. At the same time as the draw on the swap line, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction in which the foreign central bank is obligated to repurchase the foreign currency at a specified future date at the same exchange rate. At the conclusion of the second transaction, the foreign central bank pays a market-based rate of interest to the Federal Reserve. Central bank liquidity swaps are of various maturities, ranging from overnight to three months.
PDCF (Primary Dealer Credit Facility) March 2008*
Bailout of Bear Stearns (Loan through JP Morgan Chase, Maiden Lane I) March 2008
To facilitate the acquisition of the Bear Stearns Companies, Inc. by JPMorgan Chase & Co., the Federal Reserve Bank of New York (FRBNY) created and extended credit to Maiden Lane LLC. Maiden Lane LLC is a limited liability company formed to acquire certain assets of Bear Stearns and to manage those assets through time to maximize the repayment of credit extended to it and to minimize disruption to financial markets. This line reports the fair value of the assets held by the LLC.
Because the FRBNY is the primary beneficiary of the LLC, the assets and liabilities of the LLC are consolidated onto the books of the FRBNY.
Bailout of AIG (Loan to AIG, Maiden Lane II and III, AIA-ALICO) September 2008
On December 12, 2008, FRBNY began extending credit to Maiden Lane II LLC, a company formed as part of a restructuring of the government's financial support to AIG, to purchase residential mortgage-backed security (RMBS) assets from AIG subsidiaries. This line reports the fair value of the RMBS held by the LLC.
On November 25, 2008, the FRBNY began extending credit to Maiden Lane III LLC, a company formed to purchase multi-sector collateralized debt obligations (CDOs) on which the Financial Products group of AIG had written credit default swap (CDS) contracts. This line reports the fair value of the CDOs held by the LLC.
Because the FRBNY is the primary beneficiary of the LLC, the assets and liabilities of the LLC are consolidated onto the balance sheet of the FRBNY.
AMLF (Asset-Backed Com. Paper Money Mkt Mutual Fund Liq. Facility) September 2008*
CPFF (Commercial Paper Funding Facility) October 2008*
MMIFF (Money Market Investors Funding Facility) October 2008*
MBS (Mortgage Backed Securities Purchase Program) November 2008
The current face value of mortgage-backed obligations held by Federal Reserve Banks. These securities are guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae.
TALF (Term Asset-Backed Securities Loan Facility) November 2008
The Term Asset-Backed Securities Loan Facility (TALF) is a funding facility that issues loans with a term of up to three years (and in some cases, five years) to holders of eligible asset-backed securities (ABS). The program is intended to assist the financial markets in accommodating the credit needs of consumers and businesses of all sizes by facilitating the issuance of ABS backed by consumer and small business loans and to improve the market conditions for ABS more generally.
FEDERAL RESERVE statistical release
H.4.1
Factors Affecting Reserve Balances of Depository Institutions and
Condition Statement of Federal Reserve Banks
August 11, 2011
1. Factors Affecting Reserve Balances of Depository Institutions
Millions of dollars
Reserve Bank credit, related items, and Averages of daily figures Wednesday
reserve balances of depository institutions at Week ended Change from week ended Aug 10, 2011
Federal Reserve Banks Aug 10, 2011 Aug 3, 2011 Aug 11, 2010
Reserve Bank credit 2,854,724 + 5,199 + 545,712 2,856,360
Securities held outright (1) 2,653,620 + 4,535 + 599,110 2,654,462
U.S. Treasury securities 1,643,900 + 4,535 + 866,888 1,644,743
Bills (2) 18,423 0 0 18,423
Notes and bonds, nominal (2) 1,550,470 + 4,398 + 838,450 1,550,943
Notes and bonds, inflation-indexed (2) 65,643 + 122 + 24,514 65,948
Inflation compensation (3) 9,365 + 16 + 3,924 9,429
Federal agency debt securities (2) 112,435 0 - 46,946 112,435
Mortgage-backed securities (4) 897,285 0 - 220,832 897,285
Repurchase agreements (5) 0 0 0 0
Loans 11,919 - 43 - 50,455 11,913
Primary credit 6 - 4 - 8 10
Secondary credit 0 0 - 1 0
Seasonal credit 91 + 10 + 12 98
Credit extended to American International
Group, Inc., net (6) 0 0 - 23,512 0
Term Asset-Backed Securities Loan Facility (7) 11,821 - 50 - 26,947 11,804
Other credit extensions 0 0 0 0
Net portfolio holdings of Commercial Paper
Funding Facility LLC (8) 0 0 - 1 0
Net portfolio holdings of Maiden Lane LLC (9) 20,820 - 1 - 8,634 20,822
Net portfolio holdings of Maiden Lane II LLC (10) 10,063 - 116 - 5,895 10,064
Net portfolio holdings of Maiden Lane III LLC (11) 21,527 + 59 - 1,704 21,622
Net portfolio holdings of TALF LLC (12) 767 0 + 227 767
Preferred interests in AIA Aurora LLC and ALICO
Holdings LLC (6) 0 0 - 25,733 0
Float -1,135 - 50 + 626 -1,291
Central bank liquidity swaps (13) 0 0 - 1,246 0
Other Federal Reserve assets (14) 137,143 + 815 + 39,416 138,001
Gold stock 11,041 0 0 11,041
Special drawing rights certificate account 5,200 0 0 5,200
Treasury currency outstanding (15) 44,050 + 14 + 734 44,050
Total factors supplying reserve funds 2,915,014 + 5,213 + 546,445 2,916,650
Note: Components may not sum to totals because of rounding. Footnotes appear at the end of the table.
1. Factors Affecting Reserve Balances of Depository Institutions (continued)
Millions of dollars
Reserve Bank credit, related items, and Averages of daily figures Wednesday
reserve balances of depository institutions at Week ended Change from week ended Aug 10, 2011
Federal Reserve Banks Aug 10, 2011 Aug 3, 2011 Aug 11, 2010
Currency in circulation (15) 1,033,507 + 1,703 + 87,095 1,034,543
Reverse repurchase agreements (16) 74,579 + 4,767 + 14,599 96,807
Foreign official and international accounts 74,579 + 4,767 + 14,831 96,807
Others 0 0 - 231 0
Treasury cash holdings 127 + 11 - 72 113
Deposits with F.R. Banks, other than reserve balances 87,618 - 26,155 - 155,779 89,622
Term deposits held by depository institutions 5,088 0 + 2,969 5,088
U.S. Treasury, general account 23,425 - 33,486 - 12,688 14,599
U.S. Treasury, supplementary financing account 0 0 - 199,957 0
Foreign official 484 + 351 - 1,598 2,625
Service-related 2,490 0 + 33 2,490
Required clearing balances 2,490 0 + 33 2,490
Adjustments to compensate for float 0 0 0 0
Other 56,130 + 6,979 + 55,461 64,820
Funds from American International Group, Inc. asset
dispositions, held as agent (6) 0 0 0 0
Other liabilities and capital (17) 69,769 + 432 - 3,632 70,003
Total factors, other than reserve balances,
absorbing reserve funds 1,265,600 - 19,241 - 57,790 1,291,088
Reserve balances with Federal Reserve Banks 1,649,415 + 24,455 + 604,235 1,625,563
Note: Components may not sum to totals because of rounding.
1. Includes securities lent to dealers under the overnight securities lending facility; refer to table 1A.
2. Face value of the securities.
3. Compensation that adjusts for the effect of inflation on the original face value of inflation-indexed
securities.
4. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the
remaining principal balance of the underlying mortgages.
5. Cash value of agreements.
6. As a result of the closing of the American International Group, Inc. (AIG) recapitalization plan on
January 14, 2011, the credit extended to AIG was fully repaid and the Federal Reserve's commitment to lend
any further funds was terminated. In addition, the Federal Reserve Bank of New York (FRBNY) has been paid
in full for its preferred interests in AIA Aurora LLC and ALICO Holdings LLC. The funds from AIG asset
dispositions that FRBNY held as agent were the source of repayment of the credit extended to AIG, as well
as a portion of the FRBNY's preferred interests in ALICO Holdings LLC. The remaining FRBNY preferred
interests in ALICO Holdings LLC and AIA Aurora LLC, valued at approximately $20 billion, were purchased by
AIG through a draw on the Treasury's Series F preferred stock commitment and then transferred by AIG to
the Treasury as consideration for the draw on the available Series F funds.
7. Includes credit extended by the Federal Reserve Bank of New York to eligible borrowers through the Term
Asset-Backed Securities Loan Facility.
8. Includes the book value of the commercial paper, net of amortized costs and related fees, and other
investments held by the Commercial Paper Funding Facility LLC.
9. Refer to table 4 and the note on consolidation accompanying table 9.
10. Refer to table 5 and the note on consolidation accompanying table 9.
11. Refer to table 6 and the note on consolidation accompanying table 9.
12. Refer to table 7 and the note on consolidation accompanying table 9.
13. 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.
14. Includes other assets denominated in foreign currencies, which are revalued daily at market exchange
rates, and the fair value adjustment to credit extended by the FRBNY to eligible borrowers through the
Term Asset-Backed Securities Loan Facility. Before the closing of the AIG recapitalization plan on
January 14, 2011, included accrued dividends on the FRBNY's preferred interests in AIA Aurora LLC and
ALICO Holdings LLC.
15. Estimated.
16. Cash value of agreements, which are collateralized by U.S. Treasury securities, federal agency debt
securities, and mortgage-backed securities.
17. Includes the liabilities of Maiden Lane LLC, Maiden Lane II LLC, Maiden Lane III LLC, and TALF LLC to
entities other than the Federal Reserve Bank of New York, including liabilities that have recourse only
to the portfolio holdings of these LLCs. Refer to table 4 through table 7 and the note on consolidation
accompanying table 9. Also includes the liability for interest on Federal Reserve notes due to U.S.
Treasury. Refer to table 8 and table 9.
Sources: Federal Reserve Banks and the U.S. Department of the Treasury.
OLD BELOW------
All of the above are Fed programs. Don’t forget the Treasury’s TARP (Troubled Asset Relief Fund, $700B, Oct 2, 2008) and subsequent Obama “stimulus” bills.
FEDERAL RESERVE statistical release
H.4.1
Factors Affecting Reserve Balances of Depository Institutions and
Condition Statement of Federal Reserve Banks
August 12, 2010
1. Factors Affecting Reserve Balances of Depository Institutions
Millions of dollars
Reserve Bank credit, related items, and Averages of daily figures Wednesday
reserve balances of depository institutions at Week ended Change from week ended Aug 11, 2010
Federal Reserve Banks Aug 11, 2010 Aug 4, 2010 Aug 12, 2009
Reserve Bank credit 2,308,988 - 142 + 319,671 2,310,364
Securities held outright (1) 2,054,510 + 477 + 681,818 2,055,848
U.S. Treasury securities 777,012 - 10 + 56,102 777,009
Bills (2) 18,423 0 0 18,423
Notes and bonds, nominal (2) 712,020 0 + 59,582 712,020
Notes and bonds, inflation-indexed (2) 41,129 0 - 3,459 41,129
Inflation compensation (3) 5,441 - 10 - 21 5,437
Federal agency debt securities (2) 159,381 0 + 50,485 159,381
Mortgage-backed securities (4) 1,118,117 + 488 + 575,232 1,119,459
Repurchase agreements (5) 0 0 0 0
Term auction credit 0 0 - 233,598 0
Other loans 62,374 - 1,514 - 43,603 62,225
Primary credit 14 - 22 - 33,920 1
Secondary credit 1 + 1 - 804 0
Seasonal credit 79 - 4 - 26 80
Asset-Backed Commercial Paper Money Market
Mutual Fund Liquidity Facility 0 0 - 113 0
Credit extended to American International
Group, Inc., net (6) 23,512 - 73 - 17,677 23,674
Term Asset-Backed Securities Loan Facility (7) 38,768 - 1,416 + 8,937 38,470
Other credit extensions 0 0 0 0
Net portfolio holdings of Commercial Paper
Funding Facility LLC (8) 1 0 - 60,027 1
Net portfolio holdings of Maiden Lane LLC (9) 29,454 + 27 + 3,500 29,469
Net portfolio holdings of Maiden Lane II LLC (10) 15,958 - 214 + 1,143 15,961
Net portfolio holdings of Maiden Lane III LLC (11) 23,231 - 319 + 2,472 23,299
Net portfolio holdings of TALF LLC (12) 540 0 + 540 540
Preferred interests in AIA Aurora LLC and ALICO
Holdings LLC (13) 25,733 0 + 25,733 25,733
Float -1,761 - 78 + 384 -2,020
Central bank liquidity swaps (14) 1,246 0 - 75,037 1,246
Other Federal Reserve assets (15) 97,703 + 1,480 + 16,347 98,062
Gold stock 11,041 0 0 11,041
Special drawing rights certificate account 5,200 0 + 3,000 5,200
Treasury currency outstanding (16) 43,252 + 14 + 769 43,252
Total factors supplying reserve funds 2,368,481 - 128 + 323,439 2,369,857
Note: Components may not sum to totals because of rounding. Footnotes appear at the end of the table.
1. Factors Affecting Reserve Balances of Depository Institutions (continued)
Millions of dollars
Reserve Bank credit, related items, and Averages of daily figures Wednesday
reserve balances of depository institutions at Week ended Change from week ended Aug 11, 2010
Federal Reserve Banks Aug 11, 2010 Aug 4, 2010 Aug 12, 2009
Currency in circulation (16) 946,348 + 1,658 + 34,727 947,902
Reverse repurchase agreements (17) 59,980 - 2,175 - 10,324 58,548
Foreign official and international accounts 59,748 - 2,407 - 10,556 57,963
Dealers 231 + 231 + 231 585
Treasury cash holdings 199 - 11 - 87 207
Deposits with F.R. Banks, other than reserve balances 243,397 + 8,299 - 14,983 233,845
Term deposits held by depository institutions 2,119 0 + 2,119 2,119
U.S. Treasury, general account 36,113 + 8,736 - 12,104 26,932
U.S. Treasury, supplementary financing account 199,957 - 3 + 24 199,957
Foreign official 2,082 - 656 - 1,332 2,013
Service-related 2,457 0 - 2,662 2,457
Required clearing balances 2,457 0 - 2,662 2,457
Adjustments to compensate for float 0 0 0 0
Other 669 + 220 - 1,028 367
Other liabilities and capital (18) 73,401 - 633 + 15,768 73,611
Total factors, other than reserve balances,
absorbing reserve funds 1,323,325 + 7,138 + 25,101 1,314,113
Reserve balances with Federal Reserve Banks 1,045,156 - 7,266 + 298,338 1,055,744
Notes
1. Includes securities lent to dealers under the overnight and term securities lending facilities; refer to
table 1A.
2. Face value of the securities.
3. Compensation that adjusts for the effect of inflation on the original face value of inflation-indexed
securities.
4. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the
remaining principal balance of the underlying mortgages.
5. Cash value of agreements.
6. Includes outstanding principal and capitalized interest net of unamortized deferred commitment fees and
allowance for loan restructuring. Excludes credit extended to consolidated LLCs.
7. Includes credit extended by the Federal Reserve Bank of New York to eligible borrowers through the Term
Asset-Backed Securities Loan Facility.
8. Refer to table 7 and the note on consolidation accompanying table 11.
9. Refer to table 4 and the note on consolidation accompanying table 11.
10. Refer to table 5 and the note on consolidation accompanying table 11.
11. Refer to table 6 and the note on consolidation accompanying table 11.
12. Refer to table 8 and the note on consolidation accompanying table 11.
13. Refer to table 9.
14. 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.
15. Includes other assets denominated in foreign currencies, which are revalued daily at market exchange
rates, accrued dividends on the Federal Reserve Bank of New York's (FRBNY) preferred interests in AIA
Aurora LLC and ALICO Holdings LLC, and the fair value adjustment to credit extended by the FRBNY to
eligible borrowers through the Term Asset-Backed Securities Loan Facility.
16. Estimated.
17. Cash value of agreements, which are collateralized by U.S. Treasury securities, federal agency debt
securities, and mortgage-backed securities.
18. Includes the liabilities of Commercial Paper Funding Facility LLC, Maiden Lane LLC (loans to bear Sterns), Maiden Lane II LLC (loans to AIG),
Maiden Lane III LLC (AIG), and TALF LLC (Term Asset-Backed Securities Loan Facility. This LLC is a special vehicle of the Fed. The loans are to entities that have created bundles of auto, school, credit card, and SBA loans.) (to entities other than the Federal Reserve Bank of New York, including
liabilities that have recourse only to the portfolio holdings of these LLCs. Refer to table 4 through
table 8 and the note on consolidation accompanying table 11.