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Notes to Financial Statements
- Organization:
The Federal Reserve Bank of San Francisco ("Bank") is part
of the Federal Reserve System ("System") created by Congress
under the Federal Reserve Act of 1913 ("Federal Reserve Act")
which established the central bank of the United States. The System
consists of the Board of Governors of the Federal Reserve System ("Board
of Governors") and twelve Federal Reserve Banks ("Reserve
Banks"). The Reserve Banks are chartered by the federal government
and possess a unique set of governmental, corporate, and central bank
characteristics. Other major elements of the System are the Federal
Open Market Committee ("FOMC"), and the Federal Advisory Council.
The FOMC is composed of members of the Board of Governors, the president
of the Federal Reserve Bank of New York ("FRBNY") and, on
a rotating basis, four other Reserve Bank presidents.
Structure:
The Bank and its branches in Los Angeles, California, Portland, Oregon,
Salt Lake City, Utah, and Seattle, Washington serve the Twelfth Federal
Reserve District, which includes Alaska, California, Hawaii, Idaho,
Nevada, Oregon, Utah, Washington, and the commonwealths or territories
of American Samoa, Guam, and the Northern Mariana Islands. In accordance
with the Federal Reserve Act, supervision and control of the Bank
is exercised by a Board of Directors. Banks that are members of the
System include all national banks and any state chartered bank that
applies and is approved for membership in the System.
Board of Directors:
The Federal Reserve Act specifies the composition of the board of
directors for each of the Reserve Banks. Each board is composed of
nine members serving three-year terms: three directors, including
those designated as Chairman and Deputy Chairman, are appointed by
the Board of Governors, and six directors are elected by member banks.
Of the six elected by member banks, three represent the public and
three represent member banks. Member banks are divided into three
classes according to size. Member banks in each class elect one director
representing member banks and one representing the public. In any
election of directors, each member bank receives one vote, regardless
of the number of shares of Reserve Bank stock it holds.
- Operations and Services:
The System performs a variety of services and operations. Functions
include: formulating and conducting monetary policy; participating actively
in the payments mechanism, including large-dollar transfers of funds,
automated clearinghouse operations and check processing; distribution
of coin and currency; fiscal agency functions for the U. S. Treasury
and certain federal agencies; serving as the federal government's bank;
providing short-term loans to depository institutions; serving the consumer
and the community by providing educational materials and information
regarding consumer laws; supervising bank holding companies and state
member banks; and administering other regulations of the Board of Governors.
The Board of Governors' operating costs are funded through assessments
on the Reserve Banks.
The FOMC establishes policy regarding open market operations, oversees
these operations, and issues authorizations and directives to the FRBNY
for its execution of transactions. Authorized transaction types include
direct purchase and sale of securities, matched sale-purchase transactions,
the purchase of securities under agreements to resell, and the lending
of U.S. government securities. Additionally, the FRBNY is authorized
by the FOMC to hold balances of and to execute spot and forward foreign
exchange and securities contracts in fourteen foreign currencies, maintain
reciprocal currency arrangements ("F/X swaps") with various
central banks, and "warehouse" foreign currencies for the
U.S. Treasury and Exchange Stabilization Fund ("ESF") through
the Reserve Banks.
- Significant Accounting Policies: Accounting principles
for entities with the unique powers and responsibilities of the nation's
central bank have not been formulated by the Financial Accounting Standards
Board. The Board of Governors has developed specialized accounting principles
and practices that it believes are appropriate for the significantly
different nature and function of a central bank as compared to the private
sector. These accounting principles and practices are documented in
the "Financial Accounting Manual for Federal Reserve Banks"
("Financial Accounting Manual"), which is issued by the Board
of Governors. All Reserve Banks are required to adopt and apply accounting
policies and practices that are consistent with the Financial Accounting
Manual. The financial statements have been prepared in accordance with
the Financial Accounting Manual. Differences exist between the accounting
principles and practices of the System and generally accepted accounting
principles ("GAAP"). The primary differences are the presentation
of all security holdings at amortized cost, rather than at the fair
value presentation requirements of GAAP, and the accounting for matched
sale-purchase transactions as separate sales and purchases, rather than
secured borrowings with pledged collateral, as is required by GAAP.
In addition, the Bank has elected not to include a Statement of Cash
Flows, as the liquidity and cash position of the Bank are not of primary
concern to users of these financial statements. Other information regarding
the Bank's activities is provided in, or may be derived from, the Statements
of Condition, Income, and Changes in Capital. Therefore, a Statement
of Cash Flows would not provide any additional useful information. There
are no other significant differences between the policies outlined in
the Financial Accounting Manual and GAAP. The preparation of the financial
statements in conformity with the Financial Accounting Manual requires
management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates. Unique accounts and
significant accounting policies are explained below.
a. Gold Certificates
The Secretary of the Treasury is authorized to issue gold
certificates to the Reserve Banks to monetize gold held by the U.S.
Treasury. Payment for the gold certificates by the Reserve Banks is
made by crediting equivalent amounts in dollars into the account established
for the U.S. Treasury. These gold certificates held by the Reserve
Banks are required to be backed by the gold of the U.S. Treasury.
The U.S. Treasury may reacquire the gold certificates at any time
and the Reserve Banks must deliver them to the U.S. Treasury. At such
time, the U.S. Treasury's account is charged and the Reserve Banks'
gold certificate account is lowered. The value of gold for purposes
of backing the gold certificates is set by law at $42 2/9 a fine troy
ounce. The Board of Governors allocates the gold certificates among
Reserve Banks once a year based upon Federal Reserve notes outstanding
in each District at the end of the preceding year.
b. Special Drawing Rights Certificates
Special drawing rights ("SDRs") are issued by
the International Monetary Fund ("Fund") to its members
in proportion to each member's quota in the Fund at the time of issuance.
SDRs serve as a supplement to international monetary reserves and
may be transferred from one national monetary authority to another.
Under the law providing for United States participation in the SDR
system, the Secretary of the U.S. Treasury is authorized to issue
SDR certificates, somewhat like gold certificates, to the Reserve
Banks. At such time, equivalent amounts in dollars are credited to
the account established for the U. S. Treasury, and the Reserve Banks'
SDR certificate account is increased. The Reserve Banks are required
to purchase SDRs, at the direction of the U.S. Treasury, for the purpose
of financing SDR certificate acquisitions or for financing exchange
stabilization operations. The Board of Governors allocates each SDR
transaction among Reserve Banks based upon Federal Reserve notes outstanding
in each District at the end of the preceding year.
c. Loans to Depository Institutions
The Depository Institutions Deregulation and Monetary Control
Act of 1980 provides that all depository institutions that maintain
reservable transaction accounts or nonpersonal time deposits, as defined
in Regulation D issued by the Board of Governors, have borrowing privileges
at the discretion of the Reserve Banks. Borrowers execute certain
lending agreements and deposit sufficient collateral before credit
is extended. Loans are evaluated for collectibility, and currently
all are considered collectible and fully collateralized. If any loans
were deemed to be uncollectible, an appropriate reserve would be established.
Interest is recorded on the accrual basis and is charged at the applicable
discount rate established at least every fourteen days by the Board
of Directors of the Reserve Banks, subject to review by the Board
of Governors. However, Reserve Banks retain the option to impose a
surcharge above the basic rate in certain circumstances.
d. U. S. Government and Federal Agency Securities and Investments
Denominated in Foreign Currencies
The FOMC has designated the FRBNY to execute open market
transactions on its behalf and to hold the resulting securities in
the portfolio known as the System Open Market Account ("SOMA").
In addition to authorizing and directing operations in the domestic
securities market, the FOMC authorizes and directs the FRBNY to execute
operations in foreign markets for major currencies in order to counter
disorderly conditions in exchange markets or other needs specified
by the FOMC in carrying out the System's central bank responsibilities.
Purchases of securities under agreements to resell and matched
sale-purchase transactions are accounted for as separate sale and
purchase transactions. Purchases under agreements to resell are
transactions in which the FRBNY purchases a security and sells it
back at the rate specified at the commencement of the transaction.
Matched sale-purchase transactions are transactions in which the
FRBNY sells a security and buys it back at the rate specified at
the commencement of the transaction.
Reserve Banks are authorized by the FOMC to lend U.S. government
securities held in the SOMA to U.S. government securities dealers
and to banks participating in U.S. government securities clearing
arrangements, in order to facilitate the effective functioning of
the domestic securities market. These securities-lending transactions
are fully collateralized by other U.S. government securities. FOMC
policy requires the lending Reserve Bank to take possession of collateral
in amounts in excess of the market values of the securities loaned.
The market values of the collateral and the securities loaned are
monitored by the lending Reserve Bank on a daily basis, with additional
collateral obtained as necessary. The securities loaned continue
to be accounted for in the SOMA.
Foreign exchange contracts are contractual agreements between
two parties to exchange specified currencies, at a specified price,
on a specified date. Spot foreign contracts normally settle two
days after the trade date, whereas the settlement date on forward
contracts is negotiated between the contracting parties, but will
extend beyond two days from the trade date. The FRBNY generally
enters into spot contracts, with any forward contracts generally
limited to the second leg of a swap/warehousing transaction.
The FRBNY, on behalf of the Reserve Banks, maintains renewable,
short-term F/X swap arrangements with authorized foreign central
banks. The parties agree to exchange their currencies up to a prearranged
maximum amount and for an agreed upon period of time (up to twelve
months), at an agreed upon interest rate. These arrangements give
the FOMC temporary access to foreign currencies that it may need
for intervention operations to support the dollar and give the partner
foreign central bank temporary access to dollars it may need to
support its own currency. Drawings under the F/X swap arrangements
can be initiated by either the FRBNY or the partner foreign central
bank, and must be agreed to by the drawee. The F/X swaps are structured
so that the party initiating the transaction (the drawer) bears
the exchange rate risk upon maturity. The FRBNY will generally invest
the foreign currency received under an F/X swap in interest-bearing
instruments.
Warehousing is an arrangement under which the FOMC agrees to exchange,
at the request of the Treasury, U.S. dollars for foreign currencies
held by the Treasury or ESF over a limited period of time. The purpose
of the warehousing facility is to supplement the U.S. dollar resources
of the Treasury and ESF for financing purchases of foreign currencies
and related international operations.
In connection with its foreign currency activities, the FRBNY,
on behalf of the Reserve Banks, may enter into contracts which contain
varying degrees of off-balance sheet market risk, because they represent
contractual commitments involving future settlement, and counter-party
credit risk. The FRBNY controls credit risk by obtaining credit
approvals, establishing transaction limits, and performing daily
monitoring procedures.
While the application of current market prices to the securities
currently held in the SOMA portfolio and investments denominated
in foreign currencies may result in values substantially above or
below their carrying values, these unrealized changes in value would
have no direct effect on the quantity of reserves available to the
banking system or on the prospects for future Reserve Bank earnings
or capital. Both the domestic and foreign components of the SOMA
portfolio from time to time involve transactions that can result
in gains or losses when holdings are sold prior to maturity. However,
decisions regarding the securities and foreign currencies transactions,
including their purchase and sale, are motivated by monetary policy
objectives rather than profit. Accordingly, earnings and any gains
or losses resulting from the sale of such currencies and securities
are incidental to the open market operations and do not motivate
its activities or policy decisions.
U.S. government and federal agency securities and investments
denominated in foreign currencies comprising the SOMA are recorded
at cost, on a settlement-date basis, and adjusted for amortization
of premiums or accretion of discounts on a straight-line basis.
Interest income is accrued on a straight-line basis and is reported
as "Interest on U.S. government securities" or "Interest
on foreign currencies," as appropriate. Income earned on securities
lending transactions is reported as a component of "Other income."
Gains and losses resulting from sales of securities are determined
by specific issues based on average cost. Gains and losses on the
sales of U.S. government and federal agency securities are reported
as Government securities gains, net. Foreign currency denominated
assets are revalued monthly at current market exchange rates in
order to report these assets in U.S. dollars. Realized and unrealized
gains and losses on investments denominated in foreign currencies
are reported as Foreign currency (losses), net. Foreign currencies
held through F/X swaps, when initiated by the counter party, and
warehousing arrangements are revalued monthly, with the unrealized
gain or loss reported by the FRBNY as a component of "Other
assets" or "Other liabilities," as appropriate.
Balances of U.S. government and federal agencies securities bought
outright, investments denominated in foreign currency, interest
income, amortization of premiums and discounts on securities bought
outright, gains and losses on sales of securities, and realized
and unrealized gains and losses on investments denominated in foreign
currencies, excluding those held under an F/X swap arrangement,
are allocated to each Reserve Bank. Securities purchased under agreements
to resell and the related premiums, discounts and income, and unrealized
gains and losses on the revaluation of foreign currency holdings
under F/X swaps and warehousing arrangements are allocated to the
FRBNY and not to other Reserve Banks. Income from securities lending
transactions is recognized only by the lending Reserve Bank.
e. Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated on a straight-line basis
over estimated useful lives of assets ranging from 2 to 50 years.
New assets, major alterations, renovations and improvements are capitalized
at cost as additions to the asset accounts. Maintenance, repairs and
minor replacements are charged to operations in the year incurred.
f. Interdistrict Settlement Account
At the close of business each day, all Reserve Banks and
branches assemble the payments due to or from other Reserve Banks
and branches as a result of transactions involving accounts residing
in other Districts that occurred during the day's operations. Such
transactions may include funds settlement, check clearing and automated
clearinghouse ("ACH") operations, and allocations of shared
expenses. The cumulative net amount due to or from other Reserve Banks
is reported as the "Interdistrict settlement account."
g. Federal Reserve Notes
Federal Reserve notes are the circulating currency of the
United States. These notes are issued through the various Federal
Reserve agents to the Reserve Banks upon deposit with such agents
of certain classes of collateral security, typically U. S. government
securities. These notes are identified as issued to a specific Reserve
Bank. The Federal Reserve Act provides that the collateral security
tendered by the Reserve Bank to the Federal Reserve agent must be
equal to the sum of the notes applied for by such Reserve Bank. In
accordance with the Federal Reserve Act, gold certificates, special
drawing rights certificates, U.S. government and agency securities,
loans allowed under Section 13, and investments denominated in foreign
currencies are pledged as collateral for net Federal Reserve notes
outstanding. The collateral value is equal to the book value of the
collateral tendered, with the exception of securities, whose collateral
value is equal to the par value of the securities tendered. The Board
of Governors may, at any time, call upon a Reserve Bank for additional
security to adequately collateralize the Federal Reserve notes. To
satisfy its obligation to provide sufficient collateral for its outstanding
Federal Reserve notes, the Reserve Banks have entered into an agreement
that provides that certain assets of the Reserve Banks are jointly
pledged as collateral for the Federal Reserve notes of all Reserve
Banks. In the event that this collateral is insufficient, the Federal
Reserve Act provides that Federal Reserve notes become a first and
paramount lien on all the assets of the Reserve Banks. Finally, as
obligations of the United States, Federal Reserve notes are backed
by the full faith and credit of the United States government.
The "Federal Reserve notes outstanding, net" account
represents Federal Reserve notes reduced by cash held in the vaults
of the Reserve Banks of $18 billion, and $14 billion at December
31, 1997 and 1996, respectively.
h. Capital Paid-in
The Federal Reserve Act requires that each member bank
subscribe to the capital stock of the Reserve Bank in an amount equal
to 6% of the capital and surplus of the member bank. As a member bank's
capital and surplus changes, its holdings of the Reserve Bank's stock
must be adjusted. Member banks are those state-chartered banks that
apply and are approved for membership in the System and all national
banks. Currently, only one-half of the subscription is paid-in and
the remainder is subject to call. These shares are nonvoting with
a par value of $100. They may not be transferred or hypothecated.
By law, each member bank is entitled to receive an annual dividend
of 6% on the paid-in capital stock. This cumulative dividend is paid
semiannually. A member bank is liable for Reserve Bank liabilities
up to twice the par value of stock subscribed by it.
i. Surplus
The Board of Governors requires Reserve Banks to maintain
a surplus equal to the amount of capital paid-in as of December 31
of the prior year. This amount is intended to provide additional capital
and reduce the possibility that the Reserve Banks would be required
to call on member banks for additional capital. Reserve Banks are
required by the Board of Governors to transfer to the U.S. Treasury
excess earnings, after providing for the costs of operations, payment
of dividends, and reservation of an amount necessary to equate surplus
with capital paid-in. Prior to October 1, 1996, this payment
represented payment of interest on Federal Reserve notes outstanding.
The Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66,
Section 3002) codified the existing Board surplus policies as statutory
surplus transfers, rather than as payments of interest on Federal
Reserve notes, for federal government fiscal years 1998 and 1997
(which began on October 1, 1997 and 1996, respectively).
In addition, the legislation directed the Reserve Banks to transfer
to the U.S. Treasury additional surplus funds of $107 million and
$106 million during fiscal years 1998 and 1997, respectively. Reserve
Banks are not permitted to replenish surplus for these amounts during
this time. The Reserve Banks made these transfers on October 1, 1997
and October 1, 1996, respectively. The Bank's share of these transfers
is reported on the Statement of Changes in Capital as "Statutory
surplus transfer to the U.S. Treasury."
In the event of losses, payments to the U. S. Treasury
are suspended until such losses are recovered through subsequent
earnings. Weekly payments to the U. S. Treasury vary significantly.
j. Cost of Unreimbursed Treasury Services
The Bank is required by the Federal Reserve Act to serve
as fiscal agent and depository of the United States. By statute, the
Department of the Treasury is permitted, but not required, to pay
for these services. The costs of providing fiscal agency and depository
services to the Treasury Department that have been billed but will
not be paid are reported as the "Cost of unreimbursed Treasury
services."
k. Taxes
The Reserve Banks are exempt from federal, state, and local
taxes, except for taxes on real property, which are reported as a
component of "Occupancy expense."
- U. S. Government and Federal Agency Securities:
Securities bought outright and held under agreements to resell are held
in the SOMA at the FRBNY. An undivided interest in SOMA activity, with
the exception of securities held under agreements to resell and the
related premiums, discounts and income, is allocated to each Reserve
Bank on a percentage basis derived from an annual settlement of interdistrict
clearings. The settlement, performed in April of each year, equalizes
Reserve Bank gold certificate holdings to Federal Reserve notes outstanding.
The Bank's allocated share of SOMA balances was approximately 12.582%
and 8.470% at December 31, 1997 and 1996, respectively.
Total SOMA securities bought outright were $434,001 million and
394,261million at December 31, 1997 and 1996 respectively.
The Bank's allocated share of securities held in the SOMA at December
31, that were bought outright, were as follows (in millions):
|
Par value:
|
1997
|
|
1996
|
| |
|
|
|
|
Federal agency
|
$ 86
|
|
$ 188
|
|
U.S. government:
|
|
|
|
Bills
|
24,801
|
|
16,147
|
Notes
|
21,918
|
|
12,783
|
Bonds
|
7,474
|
|
4,179
|
|
Total par value
|
54,279
|
|
33,297
|
|
Unamortized premiums
|
780
|
|
396
|
|
Unaccreted discounts
|
(455)
|
|
(300)
|
|
|
|
|
|
|
Total allocated to Bank
|
$ 54,604
|
|
$ 33,393
|
The maturities of U.S. government and federal agency securities
bought outright, which were allocated to the Bank at December 31, 1997,
were as follows (in millions):
|
Par value |
| Maturities of Securities Held |
U.S. Government
Securities
|
Federal Agency
Obligations
|
Total |
| Within 15 days |
$ 1,630 |
$ 0 |
$ 1,630 |
| 16 days to 90 days |
12,034 |
8 |
12,042 |
| 91 days to 1 year |
17,348 |
24 |
17,372 |
| Over 1 year to 5 years |
11,956 |
19 |
11,975 |
| Over 5 years to 10 years |
5,147 |
32 |
5,179 |
| Over 10 years |
6,078 |
3 |
6,081 |
| Total |
$ 54,193 |
$ 86 |
$ 54,279 |
At December 31, 1997 and 1996, matched sale-purchase transactions
involving U.S. government securities with par values of $17 billion
and $15 billion, respectively, were outstanding, of which $2 billion
and $1 billion were allocated to the Bank. Matched sale-purchase transactions
are generally overnight arrangements.
- Investments Denominated in Foreign Currencies:
The FRBNY, on behalf of the Reserve Banks, holds foreign currency deposits
with foreign central banks and the Bank for International Settlements
and invests in foreign government debt instruments. Foreign government
debt instruments held include both securities bought outright and securities
held under agreements to resell. These investments are guaranteed as
to principal and interest by the foreign governments.
Each Reserve Bank is allocated a share of foreign-currency-denominated
assets, the related interest income, and realized and unrealized foreign
currency gains and losses, with the exception of unrealized gains
and losses on F/X swaps and warehousing transactions. This allocation
is based on the ratio of each Reserve Bank's capital and surplus to
aggregate capital and surplus at the preceding December 31. The
Bank's allocated share of investments denominated in foreign currencies
was approximately 19.180% and 13.656% at December 31, 1997 and 1996,
respectively.
The Bank's allocated share of investments denominated in foreign
currencies, valued at current exchange rates at December 31, were
as follows (in millions):
|
1997 |
|
1996 |
| German Marks: |
|
|
|
Foreign currency deposits
|
$ 1,586 |
|
$ 1,400 |
Government debt instruments including agreements
to resell
|
617 |
|
379 |
| Japanese Yen: |
|
|
|
Foreign currency deposits
|
110 |
|
87 |
Government debt instruments including agreements
to resell
|
940 |
|
753 |
| Accrued interest |
17 |
|
12 |
| Total |
$ 3,270 |
|
$ 2,631 |
Total investments denominated in foreign currencies were $17 billion
and $19 billion at December 31, 1997 and 1996, respectively. The unearned
interest balances that were allocated solely to FRBNY were $3 million
for 1997 and $5 million for 1996.
The maturities of investments denominated in foreign currencies
which were allocated to the Bank at December 31, 1997, were as follows
(in millions):
Maturities of Investments Denominated in Foreign Currencies
|
1997
|
|
|
| Within 1 year |
$ 3,216 |
| Over 1 year to 5 years |
14 |
| Over 5 years to 10 years |
40 |
|
|
| Total |
$ 3,270 |
At December 31, 1997 and 1996, the Bank had no open foreign exchange
contracts.
At December 31, 1997 and 1996, the warehousing facility
was $ 20 billion, with nothing outstanding.
- Bank Premises and Equipment:
A summary of bank premises and equipment at December 31 is
as follows (in millions):
|
1997 |
|
1996 |
| Bank premises and equipment: |
|
|
|
| Land |
$ 23 |
|
$ 23 |
| Buildings |
150 |
|
145 |
| Building machinery and equipment |
35 |
|
35 |
| Construction in progress |
1 |
|
2 |
| Furniture and equipment |
128 |
|
124 |
|
337 |
|
329 |
| Accumulated depreciation |
(119) |
|
(109) |
| Bank premises and equipment, net |
$ 218 |
|
$ 220 |
Depreciation expense was $16 million each year for the years ended
December 31, 1997 and 1996, respectively.
The Bank leases unused space to outside tenants. These leases have
terms ranging from 1 to 10 years. Rental income from such leases was
$1 million each year for the years ended December 31, 1997
and 1996. Future minimum lease payments under agreements in existence
at December 31, 1997, were (in millions):
| 1998 |
|
$ 1 |
| 1999 |
|
1 |
| 2000 |
|
1 |
| 2001 |
|
1 |
| 2002 |
|
1 |
| Thereafter |
|
4 |
|
|
$ 9 |
- Commitments and Contingencies:
At December 31, 1997, the Bank was obligated under noncancelable
leases for premises and equipment with terms of approximately 1 year.
These leases provide for increased rentals based upon increases in
real estate taxes, operating costs or selected price indices.
Rental expense under operating leases for certain operating facilities,
warehouses, and data processing and office equipment (including taxes,
insurance and maintenance when included in rent), net of sublease
rentals, was $438 thousand and $459 thousand for the years ended December 31, 1997
and 1996, respectively. Certain of the Bank's leases have options
to renew.
Future minimum rental payments under noncancelable operating leases
and capital leases, net of sublease rentals, with terms of one year
or more, at December 31, 1997, were (in thousands):
|
|
Operating |
|
Capital |
|
|
|
|
|
| 1998 |
|
$ 357 |
|
$ 0 |
| 1999 |
|
89 |
|
0 |
| 2000 |
|
0 |
|
0 |
| 2001 |
|
0 |
|
0 |
| 2002 |
|
0 |
|
0 |
| Thereafter |
|
0 |
|
0 |
|
|
$ 446 |
|
$ 0 |
| Amount representing interest |
|
|
|
(0) |
Present value of net minimum
lease payments |
|
|
|
$446 |
There were no other commitments and long-term obligations in excess
of one year at December 31, 1997.
Under the Insurance Agreement of the Federal Reserve Banks dated
as of June 7, 1994, each of the Reserve Banks has agreed to bear,
on a per incident basis, a pro rata share of losses in excess of 1%
of the capital of the claiming Reserve Bank, up to 50% of the total
capital and surplus of all Reserve Banks. Losses are borne in the
ratio that a Reserve Bank's capital bears to the total capital of
all Reserve Banks at the beginning of the calendar year in which the
loss is shared. No claims were outstanding under such agreement at
December 31, 1997 or 1996.
The Bank is involved in certain legal actions and claims arising
in the ordinary course of business. Although it is difficult to predict
the ultimate outcome of these actions, in management's opinion, based
on discussions with counsel, the aforementioned litigation and claims
will be resolved without material adverse effect on the financial
position or results of operations of the Bank.
- Retirement and Thrift Plans:
Retirement plans:
The Bank currently offers two defined benefit retirement
plans to its employees, based on length of service and level of compensation.
Substantially all of the Bank's employees participate in the Retirement
Plan for Employees of the Federal Reserve System ("System Plan")
and the Benefit Equalization Retirement Plan ("BEP").
The System Plan is a multi-employer plan. Contributions to the
System Plan are actuarially determined and fully funded by participating
employers at amounts prescribed by the Plan Administrator (with
the exception of a mandatory contribution of 7% of salary by certain
employees of the Board of Governors that participate in the plan).
No separate accounting is maintained of assets contributed by the
participating employers. It is the System's policy to fund the pension
liability as accrued. No contributions by the Bank were required
to the System Plan during 1997 or 1996.
The BEP is an unfunded plan that was established January 1, 1996.
Net pension cost for the period is actuarially determined and is
based on the same economic and mortality assumptions used for the
System Plan. The Bank's projected benefit obligation and net pension
costs for the BEP at December 31, 1997 and 1996, and for the years
then ended, are not material.
Thrift Plan:
Employees of the Bank may also participate in the Thrift
Plan for Employees of the Federal Reserve System ("Thrift Plan").
The Thrift Plan is a defined contribution plan. Under the Thrift Plan,
employees may contribute a percentage of their salaries up to a maximum
20% limit. Matching contributions by the Bank are based on a fixed
percentage of each employee's basic contribution. Currently, the Bank
matches 80% of the first 6% of salary contributed by the employee.
The Bank's Thrift Plan contributions totaled $5 million each year
for the years ended December 31, 1997 and 1996, respectively,
and are reported as a component of "Salaries and other benefits."
- Postretirement Benefits Other Than Pensions and Postemployment
Benefits:
Postretirement benefits other than pensions:
In addition to the Bank's defined benefit retirement plans,
employees who have met certain age and length of service requirements
are eligible for both medical benefits and life insurance coverage
during retirement. The retiree medical plan is contributory and provides
benefits to retirees, their covered dependents, and beneficiaries.
The life insurance plan is noncontributory and covers retirees only.
The Bank funds benefits payable under the medical and life insurance
plans as due. Net postretirement benefit cost is actuarially determined,
using a January 1 measurement date. The following is a reconciliation
between the plan's funded status and the amounts recognized as of
December 31 (in millions).
|
1997 |
|
1996 |
| Accumulated postretirement benefit obligation: |
|
|
| Retirees and covered spouses |
$ 22 |
|
$ 22 |
| Actives eligible to retire |
2 |
|
3 |
| Other actives and disableds |
9 |
|
10 |
Total accumulated postretirement benefit obligation
|
33 |
|
35 |
|
|
|
|
| Unrecognized net gain (loss) |
11 |
|
11 |
| Unrecognized prior service cost |
17 |
|
16 |
Accrued postretirement benefit cost
|
$ 61 |
|
$ 62 |
Accrued postretirement benefit cost is reported as a component
of "Accrued benefit cost."
The assumptions used in developing the postretirement benefit
obligation are as follows:
|
1997 |
|
1996 |
| Discount rate |
7.00% |
|
7.25% |
| Rate of increase in health |
9.00% |
|
9.50% |
| Rate of increase in health |
5.00% |
|
5.50% |
The ultimate health care cost rate is expected to be achieved
in 2005.
The following is a summary of the components of net periodic postretirement
cost for the years ended December 31 (in millions).
|
1997 |
|
1996 |
| Service cost |
$ 1 |
|
$ 1 |
| Interest cost of accumulated benefit obligation |
2 |
|
2 |
| Net amortization and deferal |
(2) |
|
(2) |
| Net periodic postretirement cost |
$ 1 |
|
$ 1 |
Net periodic postretirement cost is reported as a component
of "Salaries and other benefits."
Changing the assumed health care cost trend rates by one percentage
point in each year would change the accumulated postretirement benefit
obligation at December 31, 1997 and 1996, by approximately
$ 3 million and $4 million, respectively, and would change the aggregate
service and interest cost components of net periodic postretirement
benefit cost for the years ended December 31, 1997 and
1996, by approximately $333 thousand and $300 thousand, respectively.
Postemployment benefits:
The Bank offers benefits to former or inactive employees.
Postemployment benefit costs are actuarially determined and include
the cost of medical and dental insurance, survivor income, and disability
benefits. Costs were projected using the same discount rate and health
care trend rates as were used for projecting postretirement costs.
The accrued postemployment benefit costs recognized by the Bank at
December 31, 1997 and 1996, were $ 8 million and $8 million,
respectively. This cost is included as a component of "Accrued
benefit cost." Net periodic postemployment benefit costs included
in both 1997 and 1996 operating expenses was $2 million and $2 million,
respectively.
|
