July 1 date for new Fed collateral margins
WASHINGTON (6/13/14)--The Federal Reserve will have new collateral margins for discount window lending and payment system risk purposes starting July 1.
According to the Fed, the changes are a result of the most recent periodic review of margins and valuation practices, with updated market data incorporated.
The most significant change from the current collateral margins table is separate margins for fixed-rate and floating-rate individually deposited loans. For example, the margin requirement for consumer loans and leases has dropped to 46% for fixed-rate loans and 50% for floating rate loans, from 76%. This will increase the collateral requirement for credit unions who issue those type of loans.
The upper margin ranges have either stayed the same or dropped one percentage point, while the lower bound of the margin ranges have been reduced significantly across the categories for typical credit union loans.
Currently 493 credit unions have pre-pledged collateral at the Fed. As of March, total credit union borrowings from the Fed were $2.97 million by four credit unions.
Under National Credit Union Administration rules, federally insured credit unions with assets of $250 million or more are required to have access to a backup federal liquidity source for emergency situations through the Fed's discount window or NCUA's Central Liquidity Facility.
There are no changes to the principles behind the Fed's collateral management practices of frequent revaluation of assets; use of margins to mitigate Reserve Bank exposure to market and credit risk; use of the best available data and periodic reassessments of model assumptions. There are no changes to the range of assets accepted as collateral.
The Fed has indicated it will notify credit unions before the July 1 implementation date if their pledged collateral is insufficient.
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