November 2001
This manual is designed to provide you with basic information about the types of assets
the Discount Window accepts as collateral and outline pledging procedures. All
discount window advances must be secured with acceptable collateral. We strive to
accept a wide variety of assets, including most performing assets that are legally
permitted investments for financial institutions. The Federal Reserve Bank of Atlanta
perfects its interest in all collateral pledged in accordance with federal and state laws.
We encourage you to contact us at the phone numbers given below with any questions
you may have regarding our collateral acceptance policies. Other information is
available on our website, including instructions on completing discount window legal
documents necessary to establish access to the discount window and a table indicating
current haircuts on assets pledged as collateral. Please keep in mind that we must
have completed acceptable legal documents before you will be able to pledge collateral.
Options for Pledging Collateral to the Federal Reserve Bank
In general, there are five arrangements for pledging collateral to the Discount Window.
They include electronic book-entry transfer, delivery for safekeeping at our Reserve
Bank, maintenance on your institution’s premises through the Borrower In Custody
Program, delivery to the site of a third party custodian (most commonly the Depository
Trust Company), and the pledge of certain intangible assets to our Reserve Bank. The
type of asset being pledged will usually determine the appropriate collateral
arrangement.
I.
Electronic Book-Entry
Book-entry (non-certificated) securities are pledged through off-line processing or
through Fedline to the Discount Window pledge account, known as a “U102” account,
through the Federal Reserve’s book-entry system. This account must be established
prior to the movement of any book-entry securities. The U-102 account may be opened
by contacting our Electronic Payments Department at (877) 553-9735. Institutions with
Fedline can move securities directly into their U102 account. Off-line institutions will
need to issue instructions to the Federal Reserve Bank of Kansas City, our off-line
processor. For off-line transactions, please call (800) 333-2448.
Common types of collateral eligible for electronic transfer through the book-entry system
includeØ U.S. Treasury Notes
Ø U.S. Government Sponsored Agency Securities
We review all book-entry collateral for acceptability. All securities must be of investment
grade (and may be subject to additional credit risk restrictions) and should not be
subject to significant market or interest rate risk. For additional information on security
acceptability, please call our staff.
II. Definitive Safekeeping Depository
Institution assets in physical form such as certificated securities or promissory notes can
be delivered for deposit in our vault. These assets can be delivered by messenger,
mail, or overnight service. Please call the Discount Window staff at (888) 500-7390 or
Electronic Payments staff at (877) 553-9735 for information on the correct mailing
address or if you have questions regarding delivery.
Customer Notes
All notes need to be submitted with a financial statement, unless your institution is
approved to participate in the Qualified Loan Review Program, described below. Under
certain circumstances, note endorsement may be required. All notes should have the
following characteristics:
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Be original,
State a promise to pay,
Contain origination date,
Display the name/signature of the borrower (maker),
Be payable to your institution in U.S. dollars,
Include the principal amount,
Specify the interest rate, payment frequency, and calculation method,
Specify the maturity date or demand policy,
Contain no alterations that are not initialed,
Be a complete note without any missing pages,
Include amendments to the notes/credit agreements, and
Be assignable.
Principal updates and other loan data are generally required monthly, but may vary
according to the fluctuation in the outstanding principal balance of the assets pledged.
Financing statements (“UCC-1”) are filed on all instruments and chattel pledged.
Delinquent or classified loans are not acceptable as Discount Window collateral.
Certificated Securities
All securities must be of investment grade. Municipal or corporate bonds not rated by a
publicly recognized rating service must include supporting credit information and
analysis by your institution to establish that the obligation is equivalent to investment
grade. All registered securities must be delivered with detached bond or stock powers.
III. Maintaining Collateral on Your own Premises
Through the Borrower In Custody (BIC) of Collateral Program, your institution may
pledge loans to the Federal Reserve Bank while holding the loan documents on your
premises. Loans pledged to the Discount Window must be readily identifiable as
pledged to the Reserve Bank. Principal updates and other loan data are generally
required monthly, but may vary according to the fluctuation in the outstanding principal
balance of the assets pledged. Delinquent or classified/criticized loans are not
acceptable.
In order to qualify for the BIC Program, an initial inspection of your institution’s internal
controls and financial condition will be conducted. Periodic reviews will take place every
12 to 18 months thereafter. Financing statements (“UCC-1”) are filed on all instruments
and chattel pledged. As part of these reviews, we may visit your premises and/or
request that you complete an auditor questionnaire. More detailed information on the
BIC Program is available in Appendix B to Operating Circular 10.
Examples of eligible types of collateral for the BIC program includeØ
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1-4 Family Mortgage Loans
Commercial Loans
Student Loans
SBA Loans
Auto Loans
Home Equity Loans
A Note on Loans as Collateral: The Qualified Loan Review (QLR) Program
If your institution demonstrates acceptable internal loan review procedures and is in
satisfactory financial condition, you may be eligible to participate in the QLR Program.
Under the QLR Program, your institution is permitted to pledge customer notes without
submitting for credit analysis the supporting financial statements for each note. The
integrity of your institution’s internal loan rating system is reviewed every 12 to 18
months. Detailed information on the QLR Program is available from Discount Window
staff.
IV. Maintaining Collateral at the Site of a Third Party Custodian
Under a third-party custody arrangement, your institution may pledge collateral to the
Reserve Bank that is held by a third party custodian, such as a commercial bank or,
more commonly, the DTC. Book-entry securities may not be held by a third party
custodian.
Commercial Bank
In order to pledge assets held by a third party, both your institution and the custodian
must agree to the conditions expressed in Appendix A of Operation Circular 10 and
execute a Third Party Custody of Collateral Agreement. These arrangements must be
approved in advance by the Reserve Bank and additional legal agreements may be
required. Reserve Bank staff will conduct an analysis of the proposed custodian to
ensure it qualifies to participate in this program. Eligible types of collateral that might
use a third party custody arrangement include customer notes and certain definitive
securities.
DTC
If your institution is a participant with the DTC, pledge arrangements are available for
DTC maintained corporate and municipal securities. AThird Party Custody of
Collateral Agreement exists between the Reserve Bank and the DTC to accept pledges
of collateral. Your financial institution would need to execute an Addendum to our
existing agreement in order to pledge collateral to the Reserve Bank’s account at the
DTC. Participants pledge collateral by transferring the collateral from its account at the
DTC to the Reserve Bank’s pledge account at the DTC.
A non-DTC participant may pledge to the Reserve Bank securities held by its
correspondent in an account at the DTC. The pledging institution and its correspondent
(DTC participant) will receive a copy of the DTC Third Party Custody of Collateral
Agreement and must execute appropriate letters of agreement.
Extended parties (the pledging bank’s securities safekeeper is not a DTC participant)
may also pledge securities through the DTC. The pledging institution will be provided a
copy of the DTC Third Party Custody of Collateral Agreement and must execute the
appropriate letter of agreement.
As several different parties may be involved in a pledge of DTC held securities, please
call the Discount Window staff to discuss your particular situation.
V. Pledging Intangible Collateral
Certain intangible collateral, such as credit card receivables, may be acceptable as
discount collateral. Financing statements (“UCC-1”) will be filed on all intangible assets
pledged. From an operational standpoint, these arrangements are treated in a manner
similar to the Borrower in Custody Program, with similar reporting and review
requirements.
Pricing and Valuing Discount Window Collateral
The Reserve System obtains market prices weekly for all securities and other assets
where a market price is available. Margins are calculated to reflect weekly pricing
volatility. Where asset prices are not available, margins have been developed to adjust
for multiple risk factors, including credit quality, interest rate risk, maturity, liquidity, and
current rate environment. Margins for non-priced collateral are applied to the par or
current face value. Non-priced collateral base amounts are updated monthly. The last
page of this brochure contains the current margins for various types of collateral.
Discount Window Staff
If you have questions, or would like additional information, please contact a member of
our staff at the numbers listed below. The Federal Reserve Bank of Atlanta’s Discount
Window is open from 8:30 am to 7:00 pm, Eastern Time, on standard business days.
Our department telephone number is (404) 498-7390 and the fax number is
(404) 498-7257. Those outside metro Atlanta may call toll free at (888) 500-7390. Our
mailing address is:
Credit & Risk Management Department
Federal Reserve Bank of Atlanta
1000 Peachtree Street N.E.
Atlanta, Georgia 30309
Federal Reserve Bank
Discount and PSR Collateral Margins Table*
Effective January 29, 2001
Collateral Category
Lendable Value for
Securities or
Instruments with
Market Prices /1
(% of Market Price)
Lendable Value for
Securities or
Instruments if Market
Price Not Available
(% of Par or Current
Value)
Lendable
Value for
Loans
(% Current
Value)
U.S. Treasuries:
Bills, Notes, Bonds, Inflation Indexes
97%
Zero Coupons, STRIPs
93%
U.S. Government Guaranteed Agencies and Government Sponsored
Enterprises:
Bills, Notes, Bonds, Inflation Indexes
Zero Coupons, STRIPs
Mortgage Pass-Through Securities
International Agencies:
97%
93%
95%
95%
Bills, Notes, Bonds
Zero Coupons, STRIPs
Brady Bonds /2
93%
89%
90%
80%
Foreign Governments /2
93%
80%
Municipal Bonds
94%
75%
Corporate Bonds
95%
80%
Asset-Backed Securities - AAA (including
Collateralized Loan and Bond Obligations)
95%
85%
Asset-Backed Securities - non AAA (not including
Collateralized Loan and Bond Obligations)
92%
80%
Commercial Mortgage-Backed Securities - AAA
95%
85%
Collateralized Mortgage Obligations - AAA
95%
85%
Bankers Acceptances, Certificates of Deposit & Commercial Paper
90%
60%
95%
Commercial and Agricultural Loans:
Minimal Risk Rated /3
Normal Risk Rated /4
SBA Guaranteed Loans
90%
75%
95%
Commercial Real Estate Loans:
Time to Maturity 3 years or less
Time to Maturity over 3 years
Construction Real Estate Loans
80%
60%
75%
1-4 Family Residential Mortgages
90%
Home Equity
85%
Consumer Loans
80%
Private Banking Loans
80%