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- 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, Arizona,
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 in the United States ("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 present a Statement of Cash
Flows or a Statement of Comprehensive Income. The Statement of
Cash Flows has not been included as the liquidity and cash position
of the Bank are not of primary concern to the users of these financial
statements. The Statement of Comprehensive Income, which comprises
net income plus or minus certain adjustments, such as the fair
value adjustment for securities, has not been included because
as stated above the securities are recorded at amortized cost
and there are no other adjustments in the determination of Comprehensive
Income applicable to the Bank. 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 or a Statement of Comprehensive Income
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.
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 accounts are
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.
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 accounts are 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.
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.
The Board of Governors established a Special Liquidity Facility
(SLF) to make discount window credit readily available to depository
institutions in sound financial condition around the century date
change (October 1, 1999, to April 7, 2000) in order to meet unusual
liquidity demands and to allow institutions to confidently commit
to supplying loans to other institutions and businesses during
this period. Under the SLF, collateral requirements are unchanged
from normal discount window activity and loans are made at a rate
of 150 basis points above FOMC's target federal funds rate.
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.
Effective April 26, 1999, FRBNY was given the sole authorization
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 FRBNY
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 FRBNY on a daily basis,
with additional collateral obtained as necessary. The securities
loaned continue to be accounted for in the SOMA. Prior to April
26, 1999 all Reserve Banks were authorized to engage in such lending
activity.
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
pre-arranged 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 and federal agency 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 (Losses),
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
Gains (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. Effective April 26, 1999,
income from securities lending transactions undertaken by FRBNY
was also allocated to each Reserve Bank. Securities purchased
under agreements to resell 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.
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.
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."
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, 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.
The Reserve Banks have entered into an agreement which provides
for certain assets of the Reserve Banks to be jointly pledged
as collateral for the Federal Reserve notes of all Reserve Banks
in order to satisfy their obligation of providing sufficient collateral
for outstanding Federal Reserve notes. 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
Bank of $20,956 million, and $17,310 million at December 31, 1999
and 1998, respectively.
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 change, 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.
Surplus
The Board of Governors requires Reserve Banks to maintain
a surplus equal to the amount of capital paid-in as of December
31. 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.
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 ended on September 30, 1998 and 1997, 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 were not permitted to replenish surplus for these
amounts during this time. Payments to the U.S. Treasury made after
September 30, 1998, represent payment of interest on Federal Reserve
notes outstanding.
The Consolidated Appropriations Act of 1999 (Public Law 106-113,
Section 302) directed the Reserve Banks to transfer to the U.S
Treasury additional surplus funds of $3,752 million during the
Federal Government's 2000 fiscal year. The Reserve Banks will
make this payment prior to September 30, 2000.
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 may vary significantly.
Income and Cost related to 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."
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 10.752% and 12.589% at
December 31, 1999 and 1998, respectively.
The Bank's allocated share of securities held in the SOMA at December
31, that were bought outright, were as follows (in millions):
| |
|
|
1999
|
1998
|
|
Par value :
|
|
|
|
Federal agency
|
$ 19
|
$ 42
|
|
U.S. government
|
|
|
| |
Bills
|
18,979
|
24,519
|
| |
Notes
|
23,489
|
23,654
|
| |
Bonds
|
8,922
|
8,746
|
| |
|
Total par value
|
51,409
|
56,961
|
| |
|
|
|
|
|
Unamortized premiums
|
978
|
930
|
|
Unaccreted discounts
|
(359)
|
(403)
|
|
Total allocated to Bank
|
$ 52,028
|
$ 57,488
|
Total SOMA securities bought outright were $483,902 million and
$456,667 million at December 31, 1999 and 1998, respectively.
The maturities of U.S. government and federal agency securities
bought outright, which were allocated to the Bank at December 31, 1999,
were as follows (in millions):
|
|
|
Par Value
|
|
Maturities of Securities Held
|
U.S.
Government
Securities
|
Federal
Agency
Obligations
|
Total
|
|
Within 15 days
|
$ 498
|
$ -
|
$ 498
|
|
16 days to 90 days
|
9,883
|
3
|
9,886
|
|
91 days to 1 year
|
15,038
|
2
|
15,040
|
|
Over 1 year to 5 years
|
13,351
|
1
|
13,352
|
|
Over 5 years to 10 years
|
5,495
|
13
|
5,508
|
|
Over 10 years
|
7,125
|
-
|
7,125
|
| |
|
|
|
|
| |
Total
|
$ 51,390
|
$ 19
|
$ 51,409
|
At December 31, 1999 and 1998, matched sale-purchase transactions
involving U.S. government securities with par values of $39,182
million and $20,927 million, respectively, were outstanding, of
which $4,213 million and $2,634 million were allocated to the
Bank. Matched sale-purchase transactions are generally overnight
arrangements.
At December 31, 1998, U.S. government securities with par value
of $35 million were loaned by the Bank.
- 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 16.324% and 18.064% at
December 31, 1999 and 1998, 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):
| |
|
|
1999
|
1998
|
| |
|
|
|
|
|
German Marks
|
|
|
| |
Foreign currency deposits
|
$ -
|
$ 1,888
|
| |
Government debt instruments including agreements
to resell
|
-
|
429
|
European Union Euro: |
|
|
|
Foreign currency deposits
|
707 |
- |
|
Government debt instruments including agreements
to resell
|
414 |
- |
|
Japanese Yen
|
|
|
| |
Foreign currency deposits
|
53
|
120
|
| |
Government debt instruments including agreements
to resell
|
1,453
|
1,119
|
|
Accrued interest
|
8
|
18
|
| |
|
Total
|
$ 2,635
|
$ 3,574
|
Total investments denominated in foreign currencies were $16,140
million and $19,769 million at December 31, 1999 and 1998, respectively.
The 1998 balance includes $15 million in unearned interest collected
on certain foreign currency holdings that is allocated solely
to the FRBNY.
The maturities of investments denominated in foreign currencies
which were allocated to the Bank at December 31, 1999, were as
follows (in millions):
|
Maturities of Investments Denominated in Foreign Currencies
|
|
| |
Within 1 year
|
$ 2,460
|
| |
Over 1 year to 5 years
|
81
|
| |
Over 5 years to 10 years
|
94
|
| |
Over 10 years
|
-
|
| |
|
|
Total
|
$ 2,635
|
At December 31, 1999 and 1998, there were no open foreign exchange
contracts or outstanding F/X swaps.
At December 31, 1999 and 1998, the warehousing facility
was $5,000 million with nothing outstanding.
- Bank Premises and Equipment
A summary of bank premises and equipment at December 31 is
as follows (in millions):
| |
|
1999
|
1998
|
|
Bank premises and equipment
|
|
|
| |
Land |
$ 23
|
$ 23
|
| |
Buildings |
163
|
154
|
| |
Building machinery and equipment
|
37
|
35
|
| |
Construction in progress
|
3
|
5
|
| |
Furniture and equipment
|
135
|
133
|
| |
|
361
|
350
|
|
Accumulated depreciation
|
(140)
|
(131)
|
|
Bank premises and equipment, net
|
$ 221
|
$ 219
|
Depreciation expense was $19 million and $17 million for the years
ended December 31, 1999 and 1998, respectively.
The Bank leases unused space to outside tenants. Those leases
have terms ranging from 1 to 8 years. Rental income from such
leases was $1 million for each year ended December 31, 1999 and
1998. Future minimum lease payments under agreements in existence
at December 31, 1999, were (in millions):
| 2000 |
|
$ 1.0 |
| 2001 |
|
1.0 |
| 2002 |
|
0.9 |
| 2003 |
|
1.0 |
| 2004 |
|
0.2 |
| Thereafter |
|
0.4
|
| |
|
$ 4.5 |
- Commitments and Contingencies
At December 31, 1999, the Bank was obligated under non-cancelable
leases for premises and equipment with terms ranging from 1 to
approximately 3 years. 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 $738 thousand and $589 thousand for the
years ended December 31, 1999 and 1998, respectively. Certain
of the Bank's leases have options to renew.
Future minimum rental payments under non-cancelable operating
leases and capital leases, net of sublease rentals, with terms
of one year or more, at December 31, 1999, were not
material.
Under the Insurance Agreement of the Federal Reserve Banks dated
as of March 2, 1999, 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 paid-in of the claiming Reserve Bank, up
to 50% of the total capital paid-in of all Reserve Banks. Losses
are borne in the ratio that a Reserve Bank's capital paid-in bears
to the total capital paid-in 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, 1999 or 1998.
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 with contributions fully funded
by participating employers. No separate accounting is maintained
of assets contributed by the participating employers. The Bank's
projected benefit obligation and net pension costs for the BEP
at December 31, 1999 and 1998, and for the years then ended, are
not material.
Thrift Plan
Employees of the Bank may also participate in the defined
contribution Thrift Plan for Employees of the Federal Reserve
System ("Thrift Plan"). The Bank's Thrift Plan contributions totaled
$5 million for each year ended December 31, 1999 and 1998, 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 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 Bank funds benefits payable under the medical and life insurance
plans as due and, accordingly, has no plan assets. Net postretirement
benefit cost is actuarially determined using a January 1 measurement
date.
Following is a reconciliation of beginning and ending balances
of the benefit obligation (in millions):
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1999
|
1998
|
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Accumulated postretirement benefit obligation at January
1
|
$ 33.1
|
$ 32.1
|
|
Service cost - benefits earned during the period
|
0.8
|
0.7
|
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Interest cost of accumulated benefit obligation
|
1.9
|
2.0
|
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Actuarial gain
|
(5.0)
|
(0.3)
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Contributions by plan participants
|
0.2
|
0.2
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Benefits paid
|
(1.2)
|
(1.6)
|
|
Accumulated postretirement benefit obligation at December
31
|
$ 29.8
|
$ 33.1
|
Following is a reconciliation of the beginning and ending balance
of the plan assets, the unfunded postretirement benefit obligation,
and the accrued postretirement benefit cost (in millions):
|
|
1999
|
1998
|
|
Fair value of plan assets at January 1
|
$ -
|
$ -
|
|
Actual return on plan assets
|
-
|
-
|
|
Contributions by the employer
|
1.0
|
1.4
|
|
Contributions by plan participants
|
0.2
|
0.2
|
|
Benefits paid
|
(1.2)
|
(1.6)
|
|
Fair value of plan assets at December 31
|
$ -
|
$ -
|
|
Unfunded postretirement benefit obligation
|
$ 29.8
|
$ 33.1
|
|
Unrecognized prior service cost
|
14.3
|
15.9
|
|
Unrecognized net actuarial gain
|
15.7
|
11.1
|
|
Accrued postretirement benefit cost
|
$ 59.8
|
$ 60.1
|
Accrued postretirement benefit cost is reported as a component
of "Accrued benefit cost."
The weighted-average assumption used in developing the postretirement
benefit obligation as of December 31, 1999 and 1998, was 7.5%
and 6.25%, respectively.
For measurement purposes, an 8.75% annual rate of increase in
the cost of covered health care benefits was assumed for 2000.
Ultimately, the health care cost trend rate is expected to decrease
gradually to 5.50% by 2006, and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect
on the amounts reported for health care plans. A one percentage
point change in assumed health care cost trend rates would have
the following effects for the year ended December 31, 1999 (in
millions):
|
|
1 Percentage Point Increase
|
1 Percentage Point Decrease
|
|
Effect on aggregate of service and interest cost
components of net periodic postretirement
benefit cost
|
$ 0.2
|
$ (0.2)
|
|
|
|
|
|
Effect on accumulated postretirement
benefit obligation
|
1.9
|
(1.8)
|
The following is a summary of the components of net periodic postretirement
benefit cost for the years ended December 31 (in millions):
|
|
1999
|
1998
|
|
|
|
|
|
Service cost-benefits earned during the period
|
$ 0.8
|
$ 0.6
|
|
Interest cost of accumulated benefit obligation
|
1.9
|
2.0
|
|
Amortization of prior service cost
|
(1.6)
|
(1.6)
|
|
Recognized net actuarial gain
|
(0.5)
|
(0.6)
|
|
Net periodic postretirement benefit cost
|
$ 0.6
|
$ 0.4
|
Net periodic postretirement benefit cost is reported as a component
of "Salaries and other benefits."
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, 1999 and 1998, were $10 million and $9
million, respectively. This cost is included as a component of
"Accrued benefit cost." Net periodic postemployment benefit costs
included in 1999 and 1998 operating expenses were $2 million for
each year.
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