New Margins for Valuation of Collateral - Circulars - FEDERAL RESERVE BANK of NEW YORK

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Circular

New Margins for Valuation of Collateral

July 27, 1999

Circular No. 11172

To the Chief Executive Officers of All Depository
Institutions in the Second Federal Reserve District:

The Federal Reserve System periodically re-assesses the margins that are used in the valuation of collateral pledged to the U.S. Treasury and the Federal Reserve for Treasury Tax and Loan, Discount Window, and Payment Systems Risk purposes. This re-assessment helps to ensure that the collateral margins reflect current market conditions. These margins are used to account for various risks and are applied both to priced and to non-priced pledged collateral.

As a result of a recent re-evaluation of the current priced and non-priced collateral margins, the Federal Reserve System will update the margins effective August 30, 1999. For priced instruments, the margins decreased for only three asset types: U.S. Treasury Strips, Brady Bonds, and International Institution Bonds. While many of the non-priced margins also remained unchanged, the movement from the current margins ranged from a decrease of 5 percent to an increase of 10 percent. The updated margins are depicted in the two tables (pdf - 14kb) available. These margins will be used for all priced and non-priced collateral held by this Reserve Bank in book-entry and in definitive forms.

We would also like to take this opportunity to advise you that effective immediately, financial institutions may perform bank to bank repositioning of securities to pledged accounts, free of payment, up until the closing of the Fedwire book-entry system (normally 7:00 PM ET). Prior to this, transfers were performed only until the close of the secondary securities market. This change will allow the inter-bank movement of securities between ABAs for the pledging of collateral for Discount, Payment Systems Risk, Treasury Tax and Loan, Circular 154, Circular 176, and State and Local Government purposes.

If you have any questions regarding any of the information contained in this notice, please contact Patricia McIntosh for the Treasury Tax and Loan program, Betty Griffith for Discount Window or Gary Moorman for Payment System Risk.

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