Fed revises discount window loan collateral margins

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Updated discount window and payment system risk collateral margins table, effective July 1.

June 4, 2014 – The Federal Reserve yesterday announced a new schedule of margins for collateral pledged by depository institutions – including credit unions – to secure discount window loans.

The Fed noted in its statement that the new margins, effective July 1, “reflect data and methodological improvements that better account for differences in various risk characteristics across collateral types.”

The number of credit unions that have pre-pledged collateral with the discount window has increased year over year. According to credit union call report data analyzed by NAFCU’s research team:

  • From the first quarter of 2013 to the first quarter of 2014, the percentage of credit unions that have pre-pledged collateral with the Fed discount window increased from 5.3 percent to 7.4 percent.
  • During that same time, the assets held by credit unions that have pre-pledged collateral with the Fed discount window increased from 41.3 percent to 50.4 percent of total credit union assets.

The statement clarified that there are no changes to the key principles underlying the Fed’s collateral management practices, including frequent revaluation of assets and use of margins to mitigate Reserve Bank exposure to market and credit risk, among other practices. The Fed also stated that there are no changes to the range of assets accepted as collateral.

A significant change to the collateral margins table is new separate margins for fixed-rate and floating-rate individually deposited loans, which the Fed said represents an improvement in its collateral valuation practices. Also, the Fed noted that loan collateral margins have been adjusted to better account for differences among various loans.

NCUA’s contingency planning and liquidity rule, which took effect March 31, requires larger credit unions to secure access to Central Liquidity Facility or Federal Reserve discount window funding as part of their plans. NAFCU has also urged allowing Federal Home Loan Bank membership to qualify as an emergency source as well.

Related Links:
Federal Reserve statement