New Fed Financial Accounting Manual Shows Creative Ways to Cook the Fed's Books. Erm, "Guidance"

Wednesday, February 03, 2010 , , , 0 Comments




The 2010 Financial Accounting Manual For Federal Reserve Banks is now available on the Board of Governors' website though don't try Googling it, you might not be able to track down this monster. And look! They trimmed it down from 325 to 321 pages. Way to go, guys. (see my June 25, 2009 Accounting at the Federal Reserve: the WTF to Beat all Previous WTFs if you have no idea what I am talking about)

Major changes to the Fed's Financial Accounting Manual are as follows (basically fudging the numbers to make AIG look better than it is, hiding currency swaps, making TALF look legit, etc etc. You know, got to worry about those Fed "profits" and all!):


Chapter 1
Paragraph 2.40 Loans – Added a requirement that the results of the quarterly evaluation of allowances for loan losses be provided to the RBOPS FRB Financial Accounting Section.

Paragraph 3.04 and Paragraph 11.88 Consolidated Money Market Investor Funding Facility– Removed the paragraphs on the MMIFF because the facility expired on October 20, 2009 without any activity.

Paragraph 3.06 and Paragraph 11.92 Federal Agency and GSE Mortgage-Backed Securities Fails – Added the description of the FR 34 accounts used to record the assets and liabilities related to Federal agency and GSE mortgage-backed securities sales and purchases. These accounts were first used in 2009 when the MBS program began.

Paragraph 3.07 AIG Allowance for Loan Modification – Added the description of the FR 34 account used to record the American International Group, Inc. (AIG) Allowance for Loan Modification related to the troubled debt restructuring discussed at paragraph 81.09. This account was first used in 2009 when the loan modification was effective.

Paragraph 3.09 AIG Loan and Capitalized Interest – Added the description of the FR 34 account used to record the amount outstanding under the AIG credit facility, which includes principal and capitalized interest. This change facilitated reporting of the AIG loan as previously the amount outstanding under the AIG credit facility was commingled with other loans in account 140-050.

Paragraph 3.10 and Paragraph 11.94 Term Asset-Backed Securities Loan Facility – Added the description of the FR 34 accounts used to record transactions related to the Term Asset-Backed Securities Loan Facility and TALF LLC. These accounts were first used in 2009 when the TALF-related transactions first occurred.

Paragraph 3.11 AIA Aurora LLC and ALICO Holdings LLC Preferred Securities – Added the description of the FR 34 accounts used to record the preferred securities transactions. These accounts were first used in 2009 when the preferred securities transactions occurred.

Paragraph 4.00 Premium on Securities – Prescribed that premiums on MBS are amortized based on an effective interest calculation.

Paragraph 4.94 and Paragraph 11.95 Central Bank Liquidity Swap Accounts – Added the description of the FR 34 accounts used to record transactions related to the foreign currency liquidity swaps, which are a type of central bank liquidity swap. These transactions were first authorized in 2009.

Paragraph 11.65 Discount on Securities – Prescribed that discounts on MBS are amortized based on an effective interest calculation.

Paragraph 11.82 Exchange Translation Liability – Central Bank Liquidity Swap – Modified this paragraph to reflect that this FR 34 account is no longer used to record unrealized gains or losses from the daily revaluation of foreign exchange liquidity swaps. The revaluation is recorded to a sub-account of the FR 34 asset or liability account used to record the related central bank liquidity swap.

Paragraph 11.93 Interest on Federal Reserve Notes – Added the description of a new FR 34 account used to record the liability or deferred asset for interest on Federal Reserve notes. Currently, these amounts are recorded in Accounts 220-400, Miscellaneous Deposit and 170-325, Suspense, respectively. This account is expected to be activated in 2010.

Paragraph 12.37 Provision for Loan Loss – Added the description of the FR 34 account used to record any provision for loan loss. Previously these amounts were required to be recorded to a subaccount of FR 34 account 330-100, Profit and Loss.

Chapter 4
Paragraph 40.23 Federal Agency and GSE Mortgage-Backed Securities – Added descriptions of the transactions and accounting treatment for Federal agency and GSE mortgage-backed securities purchases, including dollar roll transactions and unsettled commitments.

Chapter 6
General – Modified the FR 95 and FR 657 reporting requirements to reflect required changes as a result of the implementation of the Lawson ATB.

Paragraph 60.25 Accounting for Interest on Federal Reserve Notes at Year-End – Modified this paragraph to reflect the change in policy that affects the calculation and accounting for interest on FR notes at each year-end. Further revisions are being considered to change the weekly procedure and may be issued during 2010. The new FR 34 account used to record the liability or deferred asset is described in paragraph 11.93.

Chapter 7
General – Modified chapter to clarify procedures for notifying Board staff of as-of adjustments.


Chapter 8
Paragraph 81.07 Program Specific Analysis – Added guidelines for evaluating loans under the Term Asset-Backed Securities Loan Facility Program (TALF). TALF program loans, which were first extended in 2009, are subject to the general loan loss provisions of paragraphs 81.01 – 81.06; the new section provides guidance in applying the general provisions to the TALF program loans.

Paragraph 81.09 Troubled Debt Restructuring – Expanded the discussion of loan loss allowance to include the criteria that must be followed to determine if a restructuring is deemed to be a TDR. The troubled debt restructuring provisions are a special application of the general loan loss provisions and were first applied in 2009 to the AIG loan modification.

Paragraph 82.01 Consolidation – Incorporated the provisions of the newly issued accounting standard, ASC 810 (SFAS 167) “Consolidation of Variable Interest Entities.” These changes are applicable to financial statements for years beginning after November 2009, and the Reserve Banks will adopt them effective 1/1/2010.

Paragraph 83.01 Valuation of Non-SOMA Financial Assets and Liabilities - Expanded the list of financial assets covered by this paragraph to include preferred securities. The accounting treatment for preferred securities was first applied in late 2009 when the Federal Reserve Bank of New York acquired preferred securities in two AIG-related special purpose vehicles.

Appendix B.1 Payment of Dividends from Surplus – Modified the analytical support for payment of dividends out of surplus to include the Board’s General Counsel’s opinion, dated April 22, 1922.

Dividends, haha. Besides recognizing new FASB Codification rules, this is little more than a blueprint to the greatest financial crime in our country's history. Now when is the Fed going to realize the major goodwill impairment it took when it started playing around with bailouts and Monopoly money?

ZOMG!!1! It's like magic and stuff!

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.

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