SPECIAL NOTICE TO 31 CFR PART 202 COLLATERAL DEPOSITARIES, FEDERAL AGENCIES, AND FEDERAL RESERVE BANKS
The purpose of this Special Notice is to notify all participating 31 CFR Part 202 collateral depositaries, federal agencies, and Federal Reserve Banks acting as fiscal agents of the United States that, effective October 23, 2000, all collateral pledged to secure the financial interests of the Federal Government under 31 CFR Part 202, will be valued using a market valuation methodology. Previously, pledged collateral under this program was valued at the stated par value or outstanding principal balance of the pledged securities or instruments, less applicable haircuts.
On October 23, 2000, the Federal Reserve System will implement the Treasury Investment Program (TIP). With the implementation of TIP, the Federal Reserve System will have an expanded role in monitoring collateral for funds held outside of Treasury under 31 CFR Part 202 (formerly referred to as Treasury Department Circular No. 176). The Federal Reserve Bank of St. Louis will perform the collateral monitoring function. This includes an enhanced role in the monitoring and substitution of collateral, ensuring that the appropriate levels of collateral are maintained based on the amounts on deposit provided by those federal agencies responsible for funds being held outside of Treasury, and applying a mark-to-market valuation to all pledged collateral. Federal agencies must ensure the security of public money and are referred to the detailed requirements and responsibilities that are described in Volume I, Part 6, Chapter 9000 ("Securing Government Deposits in Federal Agency Accounts") of the Treasury Financial Manual.
This market valuation approach uses a risk-based methodology that employs market prices (marking-to-market), where available, adjusted by haircuts to account for potential price declines between repricing periods. For non-priced collateral, or those instruments for which market prices are not available, a haircut is applied to the outstanding principal value. Haircuts are periodically reassessed and are based on various aspects of the securities or instruments, including credit quality, interest rate, maturity date, liquidity, and current rate environment.
Financial institutions or depositaries accepting deposits of public funds and providing other financial agency services to the Federal Government are required to pledge adequate, acceptable securities as collateral. General requirements for designating depositaries and regulations governing the pledging of collateral are identified in 31 CFR Part 202 ("Depositaries and Financial Agents of the Federal Government"). Treasury's current acceptability and valuation requirements are identified in 31 CFR Part 380 ("Collateral Acceptability and Valuation") and specific eligibility and valuation guidance is provided in Treasury's procedural instructions and on Treasury's Bureau of the Public Debt website at www.publicdebt.treas.gov.
For more information on what qualifies as acceptable collateral or the market valuation of pledged collateral, including currently applied margins or haircuts, please see Treasury's Bureau of the Public Debt website. For additional information on TIP and Treasury's collateral programs, please see the Treasury/Government section on the Federal Reserve System's Financial Services website at www.frbservices.gov, or contact the Federal Reserve Bank of St. Louis' National Customer Service Area on 1-888-568-7343.
Department of the Treasury
October 13, 2000