94-31697. Valuation of Collateral for Treasury Tax and Loan Depositaries

[Federal Register Volume 59, Number 247 (Tuesday, December 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31697]


[[Page Unknown]]

[Federal Register: December 27, 1994]


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DEPARTMENT OF THE TREASURY

Fiscal Service

 

Valuation of Collateral for Treasury Tax and Loan Depositaries

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice.

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SUMMARY: This notice informs interested parties that the Department of 
the Treasury has directed its fiscal agent, the Federal Reserve, to 
change the method of determining the value of collateral pledged by 
depositaries to secure Treasury Tax and Loan (TT&L) deposits. Current 
regulations published in the Code of Federal Regulations provide that 
collateral will be accepted at values assigned by the Federal Reserve 
Banks (FRBs). This change in collateral valuation is being implemented 
concurrently and in a manner consistent with the FRBs' new valuation 
methodology for collateral pledged by financial institutions to secure 
borrowings from the Federal Reserve. The current FRB methodology for 
TT&L and the discount window generally values securities at par value 
to which margins may be applied; the new methodology will value 
collateral at market prices, where available, to which margins may be 
applied. In addition, the FRBs are currently developing a uniform 
methodology to value definitive collateral for which no market prices 
are available. These changes will assign more equitable values to 
collateral.

DATES: Federal Reserve Bank implementation of the new collateral 
valuation methodology will begin January 1, 1995.

FOR FURTHER INFORMATION CONTACT: Sam Stokes, [phone], (Financial 
Program Specialist), or John P. Galligan, [phone], (Director, 
Cash Management Policy & Planning Division), or Steven D. Laughton, 
[phone], (Senior Attorney for Programs).

SUPPLEMENTAL INFORMATION: The Financial Management Service (Service), 
acting through the Federal Reserve as fiscal agent of the United 
States, designates Treasury Tax and Loan (TT&L) depositaries. Current 
regulations promulgated in the Code of Federal Regulations provide that 
collateral will be accepted at values assigned by the Federal Reserve 
Banks (FRBs). 31 CFR 203.14(d). Currently, the FRBs value pledged 
collateral at the outstanding principal balance or the outstanding 
principal balance reduced by a margin. A margin, or haircut, is the 
deduction of a certain percentage of the value of the collateral.
    This notice announces the FRBs' new methodology for valuing TT&L 
collateral. Under the new methodology, the FRBs will value the 
collateral using market prices, where available, or determine a value 
based on risk characteristics.
    The resulting final collateral value assigned by the FRBs may be 
more or less than par value. This new valuation system is intended to 
increase the accuracy of the value assigned to collateral in relation 
to the deposits at risk.
    The new valuation methodology will be implemented in phases, 
beginning January 1, 1995. Phase 1 will encompass definitive securities 
for which reliable and active markets exist, and for which market 
pricing is available to the FRBs. Initially, the margin applied in 
phase 1 will be the existing margins. These margins may be modified 
later.
    Phase 2, to be implemented later in 1995, will cover all remaining 
definitive collateral. The FRBs will value this definitive collateral, 
for which a reliable and active market does not exist, using an 
enhanced valuation methodology.
    Lastly, the FRBs will value collateral held in book-entry form at 
the FRBs using a market based methodology in approximately 2 years.
    The Service has sent to all TT&L depositaries, a Special Notice to 
Depositaries, which provided additional information on this change in 
the method of collateral valuation. In addition, the Federal Reserve 
has provided depositaries a separate information package.
(Authority: See e.g., 12 U.S.C. 90, 265, 266; 31 U.S.C. 323, 3122.)

    Dated: December 20, 1994.
Russell D. Morris,
Commissioner.
[FR Doc. 94-31697 Filed 12-23-94; 8:45 am]
BILLING CODE 4810-35-P