Frequently Asked Questions


Collateral


Last Updated: 6/3/2014

Print


The Federal Reserve Banks accept a broad range of assets as discount window collateral. Extensions of credit must be collateralized to the satisfaction of the local Reserve Bank.

The answers indicated below are intended to provide general guidance; however, depository institutions are encouraged to raise any specific questions with their Reserve Bank's discount window staff.

Show All | Hide All


  1. The Federal Reserve Banks will consider accepting as discount window or PSR collateral any assets that meet regulatory standards for sound asset quality. A detailed listing of acceptability criteria is available in The Federal Reserve System's Collateral Guidelines [PDF; 193K]. Depository institutions should direct questions regarding specific assets to discount window staff at its Reserve Bank.
  2. An institution can review its Statement of Collateral Holdings to determine the total value of its collateral as well as the collateral value for individual assets. An institution can contact the discount window staff at its Reserve Bank to sign up for electronic delivery of its collateral statements. Collateral information is also available in Account Management Information (AMI), FedLine Advantage®, and FedLine Direct®.

  3. "Minimal risk rated" loans have credit risk levels that are similar to investment grade bonds. "Normal risk rated" loans have credit risk levels that are similar to below investment grade bonds while remaining "pass" credits from a regulatory standpoint. The minimal/normal risk distinction is available for agricultural, commercial, commercial real estate, construction, and raw land loans. An institution can contact the discount window staff at its Reserve Bank to ensure it receives maximum collateral value for loan types for which the minimal/normal risk distinction can be made.
  4. These terms refer to the way the Federal Reserve Banks receive and maintain information about pledged loans in their Collateral Management System (CMS). Loans that are recorded individually into CMS are considered "individually deposited." Loans are individually deposited if they are pledged through the Automated Loan Deposit process. Loans held in the custody of a Federal Reserve Bank and pledges of small pools of loans may also be entered into CMS individually. All other loan pledges are recorded into CMS as groups and are thus considered "group deposited." On July 30th, 2012, the Federal Reserve announced the phase-in of a requirement that all loans except student loans and credit card receivables be “individually deposited." [PDF; 68K]
  5. If an institution is unable to provide its pledged loan listing in a file format that is compatible with the ALD process, an exception may be made upon approval by the Reserve Bank. If approved, the institution will be asked to provide additional summary information on pledged loans. In these circumstances, the Federal Reserve calculates an internally modeled fair market value estimate and applies a margin to the loan pool, based on the extent of the institution's ability to provide the requested additional summary information.
  6. In general, the Federal Reserve seeks to value loan collateral at a fair market value estimate. Margins are applied to the Federal Reserve's fair market value estimate and are designed to account for the risk characteristics of the pledged asset as well as the volatility of the value of the pledged asset over an estimated liquidation period. 

    The Federal Reserve uses reported cash flow characteristics and proxy credit spreads to calculate a fair market value estimate for each pledged loan. When individual loan cash flow characteristics are not available, the Federal Reserve uses general assumptions to estimate the fair market value of the loan pool. 

    Margins for loan collateral are likewise based on reported cash flow characteristics. Margins are established based on the historical volatility of risk-free rates and proxy credit spreads, measured over typical liquidation periods.
  7. In general, the Federal Reserve seeks to value securities collateral at a fair market value estimate. Margins are applied to the Federal Reserve's fair market value estimate and are designed to account for the risk characteristics of the pledged asset as well as the volatility of the value of the pledged asset over an estimated liquidation period.

    Securities are typically valued daily using prices supplied by external vendors. Eligible securities for which a price cannot readily be obtained will be assigned an internally modeled fair market value estimate based on comparable securities, and they will receive the lowest margin for that asset type.

    Margins for securities are assigned based on asset type and duration. Margins are established based on the historical price volatility of each category, measured over typical liquidation periods.
  8. The margin applied to an individually deposited loan's internally modeled fair market value estimate depends upon the type, coupon, and time to maturity of the loan, and whether the loan is fixed-rate or floating-rate. The margins for particular coupon-maturity combinations can be viewed by clicking on the margin range in the collateral margins table [MS Excel; 80K].
  9. Federal Reserve Banks accept investment grade commercial paper. Asset-backed commercial paper (ABCP) is viewed as a particular type of commercial paper and thus is eligible for consideration. Commercial paper may not be an obligation of the pledging institution or an affiliate of the pledging institution, or otherwise correlated with the financial condition of the pledging institution. Reserve Bank discount window staff may request information on the ABCP structure and/or the quality of the underlying assets in order to assign appropriate collateral value.
  10. The Federal Reserve Banks accept performing consumer loans.  This could include subprime mortgages and other subprime consumer debt.
  11. Debt obligations containing subprime mortgages are acceptable as collateral if they meet Federal Reserve Bank acceptability requirements, including credit quality and tranche type. AAA-rated collateralized debt and mortgage obligations are examples of acceptable structured debt obligations.

Show All | Hide All

Back To Top

Current Interest Rates

Primary Credit 0.75%
Secondary Credit 1.25%
Seasonal Credit 0.15%
Fed Funds Target 0 - 0.25%