Collateral Eligibility – Securities and Loans

Acceptance Criteria for Securities

1. A pledging institution must have rights in the securities that are sufficient to grant an enforceable security interest to the Reserve Bank. The Reserve Bank must be able to obtain a perfected, first priority security interest in the securities, free of the adverse claims of third parties, including the claims of an insolvency official or an affiliate of the pledging institution.
2. Securities should not be subject to any regulatory or other constraint(s) that impair their liquidation.
3. Securities may not be obligations of the pledging institution or an affiliate of the pledging institution, or otherwise correlated with the financial condition of the pledging institution.
4. In general, securities must meet the regulatory definition of “investment grade” at a minimum, and in some cases must be of "AAA" rating quality (where indicated). If a security has more than one credit rating assigned, the most conservative (lowest) rating will be utilized.
5. Intermediated securities must be pledged to the local Reserve Bank’s account at Depository Trust Company (DTC), Euroclear, or Clearstream, or the pledging institution’s restricted securities account at the Fedwire Securities Service (FSS). Certificated securities must be held at a custodian approved by the Reserve Bank or at the Reserve Bank.
6. Securities denominated in certain foreign currencies are acceptable. Eligible foreign currencies are: Japanese yen, euro, Australian dollars, Canadian dollars, British pounds, Danish krone, Swiss francs, and Swedish krona (Eligible Foreign Currencies).

Asset Eligibility Table

Acceptance Criteria for Loans

Reserve Banks accept a wide range of loan types as collateral. General acceptance criteria for loan collateral can be found below.

Eligible Reserve Bank loan types and Margin Categories correspond to report codes on the FFIEC 031/041/051 Call Report, the FBO FFIEC 002 Call Report, or NCUA Call Report, as applicable (Call Report). Call Report codes are mapped to internal collateral loan types and margin categories in order to apply a margin as defined on the Loan Types and Call Report Mapping table. For additional information on how to pledge loans, reference the Pledging Collateral page.

Acceptance Criteria for Individual Loans

1. The following loans are generally accepted if not more than 30 days past due: commercial and industrial loans; agricultural production loans; agricultural loans secured by farmland; commercial real estate loans (nonfarm nonresidential); owner occupied nonfarm nonresidential commercial real estate; 5+ family residential mortgage loans; construction loans (1-4 family, construction, and other construction loans); raw land loans (land development and other land loans); guaranteed portion of U.S. agency loans; non-guaranteed portion of U.S. agency loans, and obligations of states and political subdivisions (municipalities).
2. The following loans are generally accepted if not more than 60 days past due: consumer loans (auto, marine); consumer loans (revolving credit plans, single payment and installment loans); consumer leases (other); 1-4 family mortgage loans (second lien, home equity); 1-4 family residential mortgage loans; student loans; and credit card receivables.
3. The pledging institution must have rights in the loans that are sufficient to grant an enforceable security interest to the Reserve Bank. The Reserve Bank must be able to obtain a perfected, first priority security interest in the loans, free of the adverse claims of third parties, including the claims of an insolvency official bankruptcy trustee or an affiliate of the pledging institution.
4. Loans cannot be subject to any regulatory or other constraint(s) that impairs their liquidation, including, but not limited to, environmental law or other forms of lender liability.
5. Loans must be in readily negotiable, transferable or assignable form (i.e., loans should not be subject to restrictions on assignments or transfer, such as provisions requiring consent to an assignment or transfer). Domestic syndicated loans that contain a provision explicitly allowing the lender(s) to pledge the loan(s) to a Reserve Bank are acceptable.
6. Loans must be payable to the pledging institution, unless an alternative arrangement is approved by the Reserve Bank.
7. Loans may not be obligations of the pledging institution or an affiliate of the pledging institution, or otherwise correlated with the financial condition of the pledging institution.
8. Generally, original notes, original note amendments/assignments, and other required documentation must be stored on the pledging institution’s premises pursuant to a pre-approved Borrower-in-Custody (BIC) arrangement or at a Reserve Bank, unless an alternative arrangement is approved by the Reserve Bank. Exception: Participations may be copies if the pledging institution is not the lead bank.
9. Loans must be pledged at the note level (e.g., if a drawdown under a master note is pledged, the master note itself must also be pledged). The maturity dates and outstanding balances of all drawdowns may not exceed the maturity date and current face amount of a pledged master note.
10. Loan participations are generally eligible for pledge but must be clearly structured as purchase-sale transactions. The eligibility criteria for pledged loans also apply to loans underlying pledged loan participations and/or to the pledged participations, as the case may be.
11. Loans with any of the following characteristics are not acceptable:
    1. Loans classified as Special Mention, Substandard, Doubtful or Loss, or that are otherwise deemed unacceptable by the Reserve Bank following a review of the pledging institution’s internal risk rating policy;
    2. Loans to insiders, including loans to directors, officers or principal shareholders; and
    3. Loans to an affiliate, subsidiary or parent of the pledging institution (which may include loans to non-depository institutions, such as insurance companies and brokerages).
12. Loans secured by the stock or credit of the pledging institution or an affiliate are only acceptable in limited circumstances and with the approval of the local Reserve Bank.
13. Loans to foreign obligors are only acceptable in limited circumstances and with the prior approval of the local Reserve Bank (see below).
14. Loans signed with digital signatures and stored electronically are generally acceptable with the prior approval of the local Reserve Bank. Loans signed on paper and then imaged and stored electronically with the original paper copy destroyed may also be acceptable in certain cases with the prior approval of the local Reserve Bank.

Loans to Foreign Obligors Pledged as Collateral

Out of concern for a Reserve Bank’s ability to perfect and enforce a security interest in loans to foreign obligors, a Reserve Bank either accepts such loans as collateral only in limited circumstances or does not accept foreign obligor loans as collateral. Institutions wishing to pledge foreign obligor loans should contact their local Reserve Bank to determine whether it accepts foreign obligor loans as collateral and if so, under what conditions. The discussion below is provided only as general guidance.

Foreign obligor loans (FOL) are loans to entities or individuals that are incorporated or domiciled outside of the U.S. or whose principal place of business or main office is outside of the U.S. For loans that rely on the strength of guarantors, the domicile of the guarantor determines the classification (e.g., loans to U.S. shell companies that are guaranteed by foreign parents are considered foreign). Loan facilities with multiple borrowers and/or guarantors, some of which are domestic and some of which are foreign, present special issues that should be discussed with the local Reserve Bank before they are pledged. Due to the risk that a Reserve Bank may be unable to perfect or enforce its security interest in such collateral, the Federal Reserve restricts the eligibility of pledges of FOL collateral to include only:

• loans pledged by U.S. depository institutions, or
• loans pledged by foreign depository institutions chartered in the same jurisdiction as the obligor.

To pledge eligible FOL collateral, an institution should contact its local Reserve Bank to learn more about how to seek a legal opinion from the relevant foreign jurisdiction. Foreign counsel will need to interact closely with Reserve Bank counsel to ensure that the opinion addresses the Reserve Bank’s concerns. The cost of the foreign counsel will be borne by the pledging institution.

Any FOL collateral discovered during a routine BIC inspection that has either not been reported or has not received an acceptable legal opinion will be given zero value or the pledging institution will be required to remove the FOL collateral from the BIC pledge. Violations of this policy could result in an institution being deemed ineligible for the BIC program.