OPERATIONS
DURING 2021
OPEN
MARKET
MAY
2022
A Report Prepared for the Federal Open Market Committee by
the Markets Group of the Federal Reserve Bank of New York
CONTENTS
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
This report, presented to the Federal Open Market
Committee by Lorie Logan, Executive Vice President,
Federal Reserve Bank of New York, and Manager
of the System Open Market Account, describes open
market operations of the Federal Reserve System for
the calendar year 2021. This report also describes
the Federal Reserve emergency credit and liquidity
facilities. Andrew Danzig, Halim Abourachid,
Karen Brifu, Kathryn Chen, Radhika Mithal,
Julie Remache, and Lisa Stowe were primarily
responsible for preparation of the report.
Overview ............................................................ 1
Key Developments in 2021 ......................................... 1
A Guide to this Report ................................................ 5
The Federal Reserve’s Framework for
Monetary Policy Implementation ......................... 7
Open Market Operations .................................. 9
Money Market Developments and Related Policy Measures .. 9
Reverse Repurchase Agreements .................................. 11
Repurchase Agreements ............................................ 12
Central Bank Liquidity Swaps ..................................... 13
Treasury Securities Operations ....................................15
Agency MBS and Agency CMBS Operations ................. 16
Securities Lending.................................................... 22
Foreign Reserves Management ................................... 22
Emergency Credit and Liquidity Facilities ............ 25
Selected Balance Sheet Developments ................ 31
Selected Assets ....................................................... 31
SOMA Domestic Securities Holdings ....................... 31
Portfolio Size and Composition ......................... 31
Portfolio Risk Metrics ....................................... 36
SOMA Repurchase Agreements.............................. 37
Central Bank Liquidity Swaps ................................. 37
SOMA Foreign Currency–Denominated Holdings ........ 37
Primary Credit Program ........................................ 38
Emergency Credit and Liquidity Facilities ................... 38
Selected Liabilities ................................................... 39
Reserve Balances ............................................... 39
Federal Reserve Notes ........................................ 40
Reverse Repurchase Agreements ............................. 41
Deposits ................................................................ 42
Financial Results ......................................................43
SOMA Net Income ............................................. 43
Federal Reserve Remittances ................................. 43
SOMA Unrealized Gains and Losses ....................... 44
Projections............................................................. 45
Counterparties .............................................. 51
Operational Flexibility and Resiliency ................. 55
Appendixes ....................................................... 59
Appendix 1: Terms for Desk Operations .......................59
Appendix 2: Governing Documents ............................ 66
Appendix 3: Operations Disclosures ........................... 67
Appendix 4: Summary of Projection Assumptions ............ 69
Appendix 5: Reference Web Pages ............................ 70
Endnotes ...........................................................73
Index of Charts and Tables .............................. 77
1
OVERVIEW
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
KEY DEVELOPMENTS IN 2021
During 2021, the U.S. economy continued to recover from the
nancial and economic shock created by the COVID-19 pandemic.
roughout the year, the Federal Open Market Committee (FOMC
or Committee) maintained the target range for the federal funds
rate between zero and ¼ percent. e FOMC continued to direct
the Open Market Trading Desk at the Federal Reserve Bank of
New York (the Desk) to conduct operations to maintain the federal
funds rate in this target range.
For most of the year, the FOMC maintained its established
pace of net asset purchases. rough its September meeting,
the Committee directed the Desk to increase SOMA holdings
of Treasury securities by $80 billion per month and agency
mortgage-backed securities (MBS) by $40 billion per month.
However, in November, in light of the substantial further
progress the economy had made toward the FOMC’s goals since
December 2020, the FOMC announced plans to slow the pace of
net Treasury and agency MBS purchases by $10 billion per month
and $5 billion per month, respectively. And at its December
meeting, the FOMC decided to double the pace of reductions
in monthly net asset purchases beginning in January 2022, in
light of ination developments and further improvement in the
labor market.
The FOMC also directed the Desk throughout the year
to increase holdings of Treasury securities and agency MBS
by additional amounts and until November to purchase
agency commercial mortgage-backed securities (CMBS) as
needed to sustain smooth functioning of markets for these
securities. Indicators of market functioning were stable
and the Desk did not increase holdings in excess of the
monthly amounts directed by the Committee. In March, the
Desk ceased conducting regularly scheduled operations to
purchase agency CMBS.
Asset purchases were the main driver of a $1.40 trillion
increase in the balance sheet over the year. At the end of 2021,
the Federal Reserve’s balance sheet measured $8.76 trillion, or
38 percent of nominal GDP, compared to 34 percent of GDP
at year-end 2020. e growth in Federal Reserve assets was
funded primarily by growth in bank reserves and overnight
reverse repurchase agreements (ON RRP), both of which reached
record levels during the year. Reserves grew from $2.99 trillion
to an average of $4.17 trillion in December, and the ON RRP
increased from a near-zero balance to an average of $1.60 trillion
during December. Over the course of the year, the drawdown
of the Treasury General Account (TGA) by $1.32 trillion to
$406 billion, amid disbursements of scal stimulus payments
and debt ceiling constraints, also contributed to the increases in
reserves and other liabilities.
Even as liquidity in the system continued to rise during the
year, the FOMC’s ample reserves operating framework remained
eective at controlling the federal funds rate and other overnight
interest rates. During the rst half of the year, the rise in reserves
and overall liquidity, coupled with a signicant decline in Treasury
bill supply, resulted in some downward pressure on overnight
rates, and in June, the Federal Reserve announced upward
technical adjustments of 5 basis points to the rate of interest on
excess reserves (IOER) and the ON RRP rate, to foster trading in
the federal funds market at rates well within the FOMC’s target
range and to support the smooth functioning of short-term
funding markets.
1
2
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Over the year, signicant use of the ON RRP facility helped
maintain control over the federal funds rate and broadened the
base of Federal Reserve liabilities supporting asset purchases,
relieving upward pressure on bank balance sheets from growth in
reserves. In order to ensure that the ON RRP facility continued
to support eective policy implementation, the FOMC increased
the ON RRP counterparty limit from $30 billion to $80 billion in
March, and from $80 billion to $160 billion in September. Over
the course of the year, the Federal Reserve Bank of New York
(New York Fed) also announced adjustments to the counterparty
eligibility requirements to make the ON RRP facility more
accessible, in line with broader eorts to ensure that counterparty
policies support eective policy implementation and promote a
fair and competitive marketplace.
In July, the FOMC augmented the tools used to implement its
ample reserves framework by establishing two standing repurchase
agreement (repo) facilities to serve as backstops in money markets
to support the eective implementation of monetary policy and
smooth market functioning. e standing repurchase agreement
facility (SRF) is intended to address unexpected pressures that can
occasionally arise in overnight funding markets and spill over to
the federal funds market. e standing foreign and international
monetary authorities (FIMA) repo facility, which succeeds the
temporary FIMA repo facility, provides a backstop source of
temporary U.S. dollar liquidity to approved FIMA account holders
in times of stress in global funding markets that could aect
nancial market conditions in the United States.
Global U.S. dollar funding markets remained stable
throughout the year, which resulted in limited demand from
foreign central banks to tap the Federal Reserve’s liquidity
arrangements that were available to them. e standing dollar
liquidity swap lines between the Federal Reserve and ve other
major central banks saw minimal usage, as did the temporary
dollar liquidity swap lines between the Federal Reserve and nine
additional central banks. e latter arrangements expired at the
end of the year. e temporary FIMA repurchase agreement
facility and the subsequently introduced standing FIMA repo
facility also experienced minimal take-up. For a chronology
of policy announcements, see the “Timeline of Select Policy
Actions during 2021.”
Amid generally well-functioning nancial markets, the
outstanding balances on the emergency credit and liquidity
facilities all declined in 2021. ese facilities had been
established in 2020 with the approval of the Secretary of the
Treasury in response to nancial disruptions related to the
COVID-19 pandemic. In June 2021, the Federal Reserve
announced that the Secondary Market Corporate Credit Facility
(SMCCF) would begin selling its holdings of corporate bond
exchange-traded funds (ETFs) and corporate bonds in a gradual
and orderly manner. e sales were completed at the end of
August with minimal market impact. e other emergency
facilities either wound down fully in 2021 or will close out aer
their remaining assets mature in the next several years.
In 2021, the Federal Reserve remitted $109.0 billion
to the U.S. Treasury, compared to $86.9 billion in 2020,
primarily reecting earnings from larger SOMA holdings.
e domestic portfolio ended the year in an unrealized gain
position of $128 billion, compared to an unrealized gain
position of $354 billion at the end of 2020, as market yields
increased over the year.
e Desk did not conduct any foreign exchange intervention
activity that would alter the size of the SOMA foreign currency
reserve portfolio, which at the end of the year totaled $20.3 billion.
e Desk continued to manage the SOMA foreign currency
reserve holdings in line with the portfolio’s investment objectives
of liquidity, safety, and return.
In coming years, the size and composition of the SOMA
domestic securities portfolio will depend on FOMC decisions
regarding the pace of runo, reinvestment policies, and judgments
about the level of reserves consistent with an ample reserves
regime. Sta projections, which reect information released by
the FOMC regarding its plans to reduce the size of the balance
sheet, show the portfolio declining in size for several years, then
remaining steady through reinvestments for some time, and
nally resuming growth to match the growth in Federal Reserve
liabilities. Over time, portfolio holdings begin to shi toward
Treasury securities, consistent with the FOMC’s intention to
return to a portfolio composed primarily of Treasury securities.
With interest rates assumed to increase from current levels,
3
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
the projections suggest that SOMA net income could decline
in coming years, due to the increased cost of interest-bearing
Federal Reserve liabilities, and that unrealized losses on the
portfolio could increase. Additional scenarios that consider
alternate interest rate paths show that net income could be higher
or lower than the projected baseline path and that net income
could turn negative for a period of time. Importantly, the SOMA
portfolio's income or its unrealized gains or losses have no
eect on the ability of the Federal Reserve to meet its nancial
obligations or to conduct monetary policy to meet its statutory
goals of maximum employment and price stability.
Operational resilience remained a high priority throughout
2021. e New York Fed continued to strengthen its operational
exibility and cyber and geographic resilience. e Desk also
continued its practice of undertaking small-value exercises
with counterparties in order to maintain its readiness to
implement a range of potential FOMC directives. e Desk
broadened the base of counterparties for certain SOMA
transactions, including the ON RRP facility, agency CMBS
operations, and the SRF. In addition, the New York Fed further
diversied its counterparties for certain emergency credit and
liquidity facilities.
e Federal Reserve continued to engage with other
authorities and private-sector parties on initiatives that support
structural improvements to market functioning and promote
nancial stability, including eorts to enhance Treasury market
functioning and to facilitate the transition away from LIBOR.
(See Box 1, “Interagency Work on Treasury Market Resiliency,”
page 17, and Box 2, “Industry Transition Away from USD LIBOR
and Toward SOFR,” page 53.)
4
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
TIMELINE OF SELECT POLICY ACTIONS DURING 2021
Target Range for the
Federal Funds Rate,
IOER, ON RRP
Repo, Central Bank
Liquidity Swaps, FIMA
Repo Facility
Treasury Security and
Agency MBS Purchases
Primary Credit Program,
Emergency Facilities
January 8
Authorization for MSLP expires.
March 8
Board of Governors extends
PPPLF by three months to
June 30.
Board conrms CPFF, MMLF,
and PDCF will expire March 31.
March 17
FOMC increases ON RRP
counterparty limit from
$30 billion to $80 billion.
Desk announces it will no
longer conduct regular
operations to purchase agency
CMBS. The last scheduled
operation to occur March 23.
March 31
Authorizations for CPFF, MMLF,
and PDCF expire.
April 30
New York Fed adjusts ON RRP
counterparty requirements
by eliminating minimum
thresholds for GSEs and
reducing net asset value
and reverse repo balance
thresholds for MMFs.
June 2
Board announces plan to
begin wind-down of SMCCF
portfolio.
Board announces its approval
of the nal rule amending
Regulation D to eliminate
references to IORR and IOER
and replace them with single
IORB rate effective July 29.
June 16
Board increases IOER rate
from 10 basis points to
15 basis points. FOMC
increases ON RRP offering rate
from zero to 5 basis points.
Federal Reserve extends
temporary U.S. dollar liquidity
swap arrangements with nine
foreign central banks until
December 31.
June 25
Board extends PPPLF by an
additional month until July 30.
July 28
FOMC announces the
establishment of the SRF with
minimum bid rate of
25 basis points and aggregate
operation limit of $500 billion.
Federal Reserve announces
the establishment of the
standing FIMA repo facility
with initial rate of 25 basis
points and per counterparty
limit of $60 billion.
July 29
Amendment to Regulation D
becomes effective; IORR and
IOER replaced by IORB.
July 30
Authorization for PPPLF expires.
September 22
FOMC increases ON RRP
counterparty limit from
$80 billion to $160 billion.
November 3
FOMC directs Desk to reduce
monthly purchases of agency
MBS by $5 billion and
of Treasury securities by
$10 billion each month
beginning mid-November.
FOMC eliminates directive
to Desk to purchase agency
CMBS.
December 15
FOMC directs Desk to
reduce monthly purchases of
agency MBS by $10 billion
and of Treasury securities
by $20 billion each month
beginning mid-January.
December 31
Authorization expires for
temporary U.S. dollar liquidity
swap arrangements with nine
central banks.
IOER is rate of interest on excess
reserves. IORR is rate of interest on
required reserves. IORB is rate of
interest on reserve balances.
CPFF is Commercial Paper Funding
Facility; MMLF is Money Market
Mutual Fund Liquidity Facility;
MSLP is Main Street Lending
Program; PDCF is Primary Dealer
Credit Facility; PPPLF is Paycheck
Protection Program Liquidity
Facility; SMCCF is Secondary
Market Corporate Credit Facility.
5
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
A GUIDE TO THIS REPORT
is report is divided into six main sections:
1. e Federal Reserve’s Framework for Monetary Policy
Implementation: is section provides an overview of the
Federal Reserve’s framework for monetary policy implementation,
including the purpose and usage of the various tools employed by
the Desk. (pp. 7-8)
2. Open Market Operations: is section describes the steps
taken by the Desk within the framework to implement the
FOMC’s operating directives in money markets and securities
markets during 2021. e Desk’s operations to maintain the
Federal Reserve’s portfolio of foreign currency–denominated
assets are also included in this section. (pp. 9-23)
3. Emergency Credit and Liquidity Facilities: is section describes
the Federal Reserve’s emergency credit and liquidity facilities
established in coordination with the U.S. Treasury to address nancial
disruptions related to the COVID-19 pandemic. Although they are
not open market operations, the emergency facilities are included
in this report because they have been relevant for monetary policy
implementation over the past two years. (pp. 25-29)
4. Selected Balance Sheet Developments: is section
examines the composition of the Federal Reserve’s balance
sheet, reviews nancial developments related to the domestic
SOMA portfolio, and discusses the purposes and recent trends
in the Federal Reserve’s liabilities. It also presents an illustrative
projection of the balance sheet and SOMA net income scenarios
under a set of simplifying assumptions. (pp. 31-50)
5. Counterparties: is section reviews the trading
counterparties to the Desk’s domestic and foreign open market
operations and certain of the emergency credit and liquidity
facilities. (pp. 51-53)
6. Operational Flexibility and Resiliency: is nal section
highlights actions implemented to enhance cyber resilience and
details operational readiness exercises undertaken during the
year. (pp. 55-57)
Appendix 1 provides summaries of the key terms for each of
the Desk’s operations. Appendix 2 highlights links to the governing
documents for Desk operations. Appendix 3 summarizes the
Desk’s public disclosures about its operations. Appendix 4 presents
assumptions underlying the scenarios for the SOMA portfolio
and the SOMA net income projections. Appendix 5 provides links
to web pages where source material for Federal Reserve–related
content can be found.
Underlying data for the charts shown in this report is provided
on the New York Fed’s website to the extent that its release is
permitted by data suppliers. Additional questions regarding this
report and the underlying data can be addressed to ny.mkt.soma.
annualreport@ny.frb.org.
6
7
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
THE FEDERAL RESERVE’S FRAMEWORK
FOR MONETARY POLICY IMPLEMENTATION
The Federal Reserve implements monetary policy in a
framework that includes a target range for the federal funds
rate to communicate the FOMC’s policy stance, a set of
administered rates set by the Federal Reserve, and market
operations directed by the FOMC and conducted by the Desk
to promote money market conditions consistent with the
FOMC’s target range for the policy rate. The FOMC can also
employ forward guidance for the target range for the policy
rate and alter the size and composition of the Federal Reserve
balance sheet as a mechanism for achieving its objectives.
The framework supports the FOMC’s pursuit of its maximum
employment and price stability objectives, mandated by
Congress and articulated in the Committee’s Statement on
Longer-Run Goals and Monetary Policy Strategy, which it
reaffirmed in January 2021.
2
The money market tools used by the Federal Reserve for
policy implementation serve to maintain short-term interest
rate control in an environment of ample reserve balances in
the banking system. The FOMC’s key policy rate is the federal
funds rate, which is maintained within a target range set by
the Committee. The federal funds rate is the rate at which
depository institutions and other eligible entities conduct
overnight unsecured transactions in central bank balances.
The Federal Reserve sets the administered rates—the rate
of interest on reserve balances (IORB) paid to banks with
accounts at the Federal Reserve, and the interest rate on
ON RRPs offered to a wide range of money market lenders—at
levels that will foster trading conditions that maintain the
federal funds rate well within the target range and support
smooth functioning of short-term funding markets.
3
e IORB functions by providing banks and other eligible
entities a minimum interest rate on their reserve balances at
Federal Reserve Banks. Given the safety and convenience of
maintaining reserves in Federal Reserve accounts, little incentive
exists for banks to lend to private-sector counterparties at rates
lower than the IORB rate. However, since not all money market
participants are eligible to hold Federal Reserve accounts or to
earn the IORB rate, the eective federal funds rate (EFFR) can
trade below the IORB rate. In this context, the ON RRP facility
supports control over the federal funds rate by oering a broad
range of money market participants, including those not eligible
to earn the IORB rate, an overnight investment, thereby enhancing
their bargaining power on short-term private investment
transactions. Even as reserve levels increased signicantly in
2020 and 2021 in response to asset purchases, the Federal Reserve
was able to maintain the EFFR within its target range through use
of its administered rates.
In July 2021, the FOMC introduced additional money market
tools, including the SRF and the standing FIMA repo facility,
to support eective implementation of monetary policy and
smooth functioning of markets. ese repo facilities, while oered
daily, are designed as backstops and are only expected to see
signicant use on occasions when pressures emerge in overnight
funding markets. e SRF is open to primary dealers and eligible
depository institutions. e facility’s pricing is intended to leave
room for robust private market activity under most market
conditions while limiting the potential for spikes in repo rates
that could move the federal funds rate above its target range.
e FIMA repo facility, by providing FIMA account holders an
alternative means to access temporary U.S. dollar liquidity rather
than sales of Treasury securities, can help address pressures
8
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
during times of stress in global funding markets. Indeed, the
FIMA repo facility complements the U.S. dollar liquidity swap
lines as a backstop for dollar funding.
Changes in the size or composition of the balance sheet are an
important part of the monetary policy implementation framework,
although the primary purpose for asset purchases can vary
depending on the circumstances. First, asset purchases can be used
as a means to maintain an ample level of reserves in the banking
system to support interest rate control. Such reserve management
purchases were conducted in 2019 and 2020 to sustainably li
the level of reserves in the banking system. Asset purchases can
also be conducted for the purpose of directly inuencing nancial
conditions. In circumstances where the federal funds rate is
constrained by the eective lower bound, the FOMC may direct
the Desk to conduct asset purchases to foster accommodative
nancial conditions broadly. In such cases, asset purchases put
downward pressure on longer-term interest rates by reducing the
stock of privately held debt. Such purchases were employed in
the wake of the global nancial crisis to put downward pressure
on yields and to promote a stronger economic recovery, and
more recently to foster accommodative nancial conditions in
response to the COVID-19 pandemic. Finally, on occasion, asset
purchases can be used to address severe disruptions to market
functioning. In these instances, the ow of purchases can ease
the balance sheet constraints of private market participants to
restore two-way trading and more normal market functioning.
In March 2020, asset purchases were conducted to address severe
disruptions in U.S. Treasury and agency MBS markets and support
market functioning.
9
OPEN MARKET OPERATIONS
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
To implement monetary policy, the Desk conducts open market
operations as directed by the FOMC. Domestic open market
operations in 2021 included outright purchases of Treasury securities
and agency MBS, as well as repurchase agreements and reverse
repurchase agreements. ese operations also included the securities
lending program to support smooth functioning of Treasury markets.
e Desk also manages the SOMA foreign reserves portfolio and
maintains swap arrangements with certain foreign central banks to
provide dollar liquidity to global funding markets.
MONEY MARKET DEVELOPMENTS AND
RELATED POLICY MEASURES
Over the course of 2021, the federal funds rate remained within
the FOMC’s target range of 0 to ¼ percent. e federal funds
rate and other money market rates experienced some downward
pressure over the year amid increases in liquidity generated by
ongoing asset purchases and the drawdown in the TGA, as well
as decreases in the supply of Treasury bills, a common money
market investment.
Over the year, reserve balances increased by $649 billion
and totaled $3.64 trillion by year-end (with an average of
$4.17 trillion during December), reecting the impact of ongoing
asset purchases and net changes in other Federal Reserve
liabilities. e Desk’s $1.36 trillion in net asset purchases and
the $1.32 trillion drawdown of the TGA were partially oset
by a $1.89 trillion increase in take-up at the ON RRP facility.
e TGA balance had reached historically high levels in 2020 as
a result of debt issuance in anticipation of stimulus-related
disbursements, and then decreased sharply in 2021 as scal
disbursements occurred while the debt ceiling constrained the
U.S. Treasury’s ability to issue new debt. Decreases (increases) in
non-reserve liabilities such as the TGA and ON RRP increase
(decrease) the level of reserves, all else equal.
Asset purchases and the TGA drawdown drove deposit
growth in 2021, albeit at a slower pace than in the prior year.
To limit deposit growth and overall balance sheet size, some
depository institutions (banks) reduced deposit rates and
borrowings in short-term wholesale funding markets and
encouraged customers to shi into alternative short-term
investment options such as money market funds (MMFs).
4
Indeed, assets under management of government MMFs
increased by more than $430 billion to $4.03 trillion in 2021.
However, as MMFs’ balances grew in 2021, their investment
options were limited amid a reduction in Treasury bills,
whose net supply fell by a record $1.36 trillion in 2021. e
combination of increased nancial system liquidity (reserves,
deposits, etc.) and reduced supply of investment options for
money market investors put downward pressure on overnight
rates, including the federal funds rate and market repo rates.
e EFFR, which had opened the year at 9 basis points, declined
gradually to 6 basis points by mid-June, close to the lower end
of the target range. Similarly, SOFR, which had started the year
at 10 basis points, decreased to 1 basis point by mid-March
(Charts 1 and 2).
To help maintain the federal funds rate well within the target
range, the Federal Reserve implemented a technical adjustment
to administered rates eective June 17, increasing the IOER
and ON RRP rates by 5 basis points each to 15 basis points and
5 basis points, respectively (Table 1). is adjustment resulted in
a 4 basis point increase in the EFFR to 10 basis points. Overnight
secured rates increased by a similar magnitude, while Treasury bill
10
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
and secured and unsecured term rates also increased, but to a lesser
degree. e EFFR and other money market rates generally held at
these levels for the remainder of the year.
e downward pressures on money market rates prompted
growing usage of the ON RRP facility beginning in mid-March.
Following the Federal Reserve’s adjustment to administered
Table 1
Key Policy Rates Effective in 2021
FOMC Meeting
Announcing
Policy Rate
Changes
Effective Date
Range for
Policy Rates
during 2021
Federal Funds
Target Range IORB Rate ON RRP Rate
Spread between
IORB and
ON RRP Rates
Primary Credit
Rate
Rate
(Percent)
Change
(Basis
Points)
Rate
(Percent)
Change
(Basis
Points)
Rate
(Percent)
Change
(Basis
Points)
Level
(Basis Points)
Rate
(Percent)
Change
(Basis
Points)
March 2020
January 1 to
June 16
0 to ¼ -100 0.10 -100 0 -100 10 0.25 -150
June 2021
June 17 to
December 31
0 to ¼ 0 0.15 5 0.05 5 10 0.25 0
Sources: Federal Open Market Committee; Board of Governors of the Federal Reserve System.
Note: Prior to July 29, 2021, the interest rate on reserve balances (IORB) was referred to as interest on excess reserves (IOER).
Federal Funds Target Range, Effective Federal Funds Rate, Rate of Interest on Reserve Balances, and ON RRP Rate
0
0.5
1.0
1.5
2.0
2.5
3.0
2018 2019 2020 2021
Percent
Federal funds target range
Effective federal funds rate
Rate of interest on reserve balances
ON RRP rate
Chart 1
Source: Federal Reserve Bank of New York.
Notes: Figures are daily. Rate of interest on reserve balances for data prior to July 29, 2021, refers to the rate of interest on excess reserves.
11
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
rates in June, usage of the facility continued to increase, reecting
ongoing demand from MMFs as well as shis in the balances
of government-sponsored enterprises (GSEs) from their
Federal Reserve non-interest-bearing deposit accounts to the
ON RRP. Consistent with the framework for monetary policy
implementation, the ON RRP supported the EFFR and other
money market rates by improving the ability of counterparties
to negotiate private investments at rates at or above the ON RRP
oering rate and providing an alternative investment when more
attractive rates were not available.
REVERSE REPURCHASE
AGREEMENTS
e ON RRP facility helps establish a oor on overnight money
market rates by oering an alternative investment to a broad range
of money market lenders. During the initial months of 2021,
the FOMC continued to direct the Desk to conduct ON RRP
operations at an oering rate of 0 percent, the bottom of the target
range for the federal funds rate. On June 17, the FOMC made a
technical adjustment to the ON RRP oering rate, increasing it
from 0 percent to 5 basis points, to help ensure that the EFFR
remained well within the FOMC’s target range. e FOMC kept
the ON RRP rate at this level until the end of the year.
On March 17, the FOMC directed the Desk to increase the
per counterparty limit on the ON RRP facility from $30 billion
to $80 billion. e increase reected the growth and evolution
of U.S. dollar funding markets since the limit was last changed in
2014, restoring the capacity of the facility relative to the aggregate
net asset values of MMFs to roughly the level observed when the
facility was established. On September 22, the FOMC directed the
Desk to again increase the per counterparty limit, from $80 billion
to $160 billion, to ensure that the ON RRP facility had adequate
capacity to continue to support eective policy implementation for
most foreseeable circumstances.
On April 30, the Desk announced several adjustments to
its ON RRP counterparty eligibility requirements to make
the ON RRP facility more accessible; increased accessibility
helps ensure that the facility both supports eective policy
implementation and promotes a fair and competitive marketplace.
See the “Reverse Repurchase Agreement Counterparties” section
of this report for additional details on the adjustment to ON RRP
counterparty eligibility requirements.
Operational Results
Take-up at the ON RRP facility was at near-zero levels through
most of the rst quarter of 2021 and then increased steadily,
primarily driven by investment from MMFs. Following the technical
adjustments in June, take-up in the ON RRP continued to increase,
including from GSEs, which found it a favorable alternative to their
non-interest-bearing Federal Reserve deposit accounts. ese trends
continued into the second half of the year as eligible counterparties
continued to nd the ON RRP facility attractive amid low market
rates and the decline in Treasury bill supply. e magnitude
of the take-up was in part enabled by the successive increases
in counterparty limits. Participation reached a record high of
$1.9 trillion at year-end, largely driven by increased take-up by MMF
counterparties. is jump in usage at year-end and prior quarter-end
dates in 2021 reected a typical reduction in the availability of
overnight wholesale deposits as some banks worked to contain their
balance sheet growth. Over the year, MMFs, GSEs, and primary
-30
-
20
-
10
10
0
20
30
40
50
60
70
80
Jan
2020
Apr Jul Oct Jan
2021
Apr Jul Oct
Chart 2
Effective Federal Funds Rate and Secured Overnight
Financing Rate Spreads to IORB
Source: Federal Reserve Bank of New York.
Basis points
Note: Data prior to July 29, 2021, refer to the spread to interest on excess
reserves (IOER).
SOFR-IORB spread
EFFR-IORB spread
12
OPEN MARKET OPERATIONS DURING 2021
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Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
dealers accounted for 89 percent, 9 percent, and 2 percent on average,
respectively, of the participation in the ON RRP (Chart 3). See the
“Money Market Developments and Related Policy Measures” section
of this report for additional detail on the underlying factors driving
the increase in ON RRP usage.
REPURCHASE AGREEMENTS
As directed by the FOMC, the Desk conducted repurchase operations
throughout 2021. rough July, the Desk conducted daily repo
operations with primary dealers. At its July meeting, the FOMC
introduced the SRF as a backstop facility for domestic money markets.
e temporary FIMA repo facility was also open through July, aer
which the FOMC introduced the standing FIMA repo facility.
OVERNIGHT AND TERM REPURCHASE AGREEMENTS
Through its June meeting, the FOMC directed the Desk
to conduct repo operations to support effective policy
implementation and the smooth functioning of short-term
U.S. dollar funding markets. Through late January, the Desk
offered daily overnight and weekly one-month term repos
with minimum bid rates of IOER plus 5 and 10 basis points,
respectively, continuing the practice from the prior year. In late
January, the Desk announced that the one-month term repo
operations would be discontinued in February in light of the
sustained smooth functioning of short-term U.S. dollar funding
markets. In June, the Desk increased the minimum bid rate
on overnight repos to 20 basis points, in line with the 5 basis
point technical adjustment to the IOER rate. This minimum bid
rate for overnight repos remained in effect until July 28, when
the FOMC announced the establishment of the SRF, which is
described in the next section.
Operational Results
Amid smooth functioning funding markets and market repo rates
that were generally below the Desk’s minimum bid rates, there was
no participation in the overnight and term repo operations, with
the exception of test trades, including one operation initiated by
the Desk on May 26.
0
400
800
1,200
1,600
2,000
Chart 3
S
OMA Reverse Repo Amounts Outstanding by Counterparty Type
S
ource: Federal Reserve Bank of New York.
N
otes: Figures are daily and include overnight and term operations.
Billions of U.S. dollars
Money market funds
Government-sponsored enterprises Primary dealers
Banks
2017 2018 2019 2020 2021
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Selected
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Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
STANDING REPURCHASE
AGREEMENT FACILITY
The FOMC announced the establishment of the SRF on
July 28, 2021, to serve as a backstop in domestic money markets
and thereby support effective implementation of monetary
policy and smooth market functioning. The SRF addresses
pressures in overnight funding markets that could spill over
to the federal funds markets and impair the transmission of
monetary policy. Under the SRF, the Desk conducts daily
overnight repo operations against Treasury securities, agency
debt securities, and agency MBS at a backstop rate. The SRF’s
key terms—eligible security types, auction format, and other
operational features—are substantially similar to those of the
Desk’s previous overnight repo operations but differ on pricing,
which is set to allow for robust private market activity to occur
under most market conditions while limiting upward pressure
on overnight interest rates in stressed market conditions. As
directed by the FOMC, under the SRF the Desk made available
daily overnight repo operations with a minimum bid rate of
25 basis points and an aggregate operation limit of $500 billion.
The SRF is open to primary dealers and depository
institutions meeting the eligibility criteria. Prior to the
announcement of the SRF in July, the only counterparties
eligible to participate in the Desk’s repo operations were
primary dealers. On October 1, the Desk began accepting
expressions of interest from eligible depository institutions
to become SRF counterparties. On December 17, the
New York Fed added three entities to its list of SRF
counterparties, all of which are bank affiliates of current
primary dealers. Consistent with the New York Fed’s
commitment to ensuring its policies promote a fair and
competitive marketplace, the eligibility requirements for SRF
counterparties will be adjusted over time to allow a broader
set of depository institutions access to the facility.
Operational Results
Given continued stable funding market conditions in the latter
part of 2021 along with market repo rates trading below the
SRF’s minimum bid rate, the facility had no usage apart from
small-value test transactions.
FOREIGN AND INTERNATIONAL MONETARY
AUTHORITY (FIMA) REPO FACILITY
In tandem with the establishment of the SRF, the FOMC on
July 28, 2021, also announced the standing FIMA repo facility
to help support the eective implementation of monetary policy
and smooth market functioning. e FIMA repo facility provides
FIMA account holders a backstop source of temporary U.S. dollar
liquidity that can help address pressures in global dollar funding
markets that could otherwise aect nancial market conditions
in the United States. Under the facility, approved FIMA account
holders can enter into overnight repo transactions with the
Federal Reserve against Treasury securities held in their custody
accounts at the New York Fed. As such, the facility provides these
account holders an alternative temporary source of dollar liquidity
to monetize their Treasury securities. e facility also provides a
source of U.S. dollar liquidity to FIMA account holders that do not
have liquidity swap arrangements with the Federal Reserve. e
facility was priced at a rate of 25 basis points, which, like the SRF
rate, was designed to generally be above market repo rates when
markets were functioning well, therefore positioning the facility
as a backstop.
FIMA account holders enrolled in the facility represented
a broad range of global regions, GDP levels, and stages of
economic development and accounted for a signicant share of
foreign ocial ownership of outstanding Treasury securities.
Aer being established on a temporary basis in March 2020,
the FIMA repo facility was extended by the FOMC in July and
December 2020 before the standing FIMA repo facility was
established in July 2021.
5
Operational Results
Similar to other repo operations, usage of the FIMA repo
facility was minimal throughout 2021 and largely reected
transactions undertaken by FIMA account holders for operational
readiness purposes.
CENTRAL BANK LIQUIDITY SWAPS
In 2021, the FOMC continued to direct the Desk to maintain
standing U.S. dollar and foreign currency liquidity swap lines with
a network of ve other major central banks—the Bank of Canada,
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& Tables
Contents Open Market
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Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Bank of England (BoE), Bank of Japan (BoJ), European Central
Bank (ECB), and Swiss National Bank (SNB).
6
7
The FOMC also
continued to direct the Desk to maintain temporary U.S. dollar
liquidity swap lines with nine additional central banks. Swap
lines of $60 billion were made available for the Reserve Bank
of Australia, Banco Central do Brasil, Bank of Korea, Banco
de México, Monetary Authority of Singapore, and Sveriges
Riksbank (Sweden); $30 billion swap lines were made available
for the Danmarks Nationalbank (Denmark), Norges Bank
(Norway), and Reserve Bank of New Zealand.
8
The temporary
U.S. dollar swap line arrangements were initially approved by
the FOMC in March 2020 and were extended three times before
expiring on December 31, 2021.
During 2021, the majority of U.S. dollar swap operations
under both the standing and temporary arrangements
were offered at the one-week tenor, while fewer operations
were offered at the three-month tenor. In April, in light
of improvements in dollar funding markets and low
demand at liquidity swap line operations, the BoE, BoJ,
ECB, and SNB, in consultation with the Federal Reserve,
announced that three-month U.S. dollar operations would be
discontinued as of July 1.
9
The U.S. dollar liquidity swap lines, which involve a temporary
exchange of currencies between two central banks, are designed
to provide a liquidity backstop to ease strains in global funding
markets, thereby helping to mitigate the effects of such
strains on the supply of credit to households and businesses,
both domestically and abroad.
10
The foreign central bank
receiving dollars lends the dollars in secured transactions
with local banks.
Operational Results
Usage of U.S. dollar liquidity swaps was markedly lower in
2021 compared to 2020, as global dollar funding markets
largely functioned smoothly against a backdrop of elevated
levels of bank reserves and abundant dollar liquidity across the
financial system. Four of the five central banks with standing
swap line arrangements drew on their lines in 2021, including
the BoE, BoJ, ECB, and SNB. Among temporary swap line
counterparties, only the Monetary Authority of Singapore
and Banco de México drew on their swap line arrangements
(Chart 4). The Federal Reserve did not draw on its foreign
currency liquidity swap lines with foreign central banks.
In 2021, usage of the central bank swap lines averaged
$270 million in weekly transaction volume. After starting the
year at roughly $18 billion, total aggregate outstanding swaps
declined steadily over the first quarter, as outstanding swaps
matured and were generally not rolled over. By early April,
aggregate outstanding swap balances were below the $1 billion
level, and they remained so until the final days of 2021, when
demand from central banks ahead of year-end resulted in a
modest increase in usage. At year-end, there were $3.3 billion
of swaps outstanding, primarily in one-week swaps with the
SNB and the ECB.
11
The outstanding amounts under the
temporary swaps were scheduled to mature in February 2022.
During 2021, the New York Fed also undertook small-value
test transactions of U.S. dollar and foreign currency swaps for
operational readiness purposes.
100
0
200
300
400
500
Bank of Japan
Bank of England
European Central Bank
Swiss National Bank
Temporary swap line counterparties
Billions of U.S. dollars
Chart 4
U.S. Dollar Liquidity Swaps Outstanding by Central Bank
Total
Source: Federal Reserve Bank of New York.
Notes: Figures are daily. Temporary swap line counterparties include the
Bank of Korea, Monetary Authority of Singapore, Banco de México, Reserve
Bank of Australia, Danmarks Nationalbank, and Norges Bank.
2020 2021
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Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
TREASURY SECURITIES
OPERATIONS
Until November 2021, the FOMC continued to direct the Desk
to increase the Federal Reserve’s holdings of Treasury securities
by $80 billion each month to foster smooth market functioning
and accommodative nancial conditions, thereby supporting the
ow of credit to households and businesses. On November 3, the
FOMC announced that it would begin reducing net purchases of
Treasury securities by $10 billion per month, starting with the
mid-November purchase schedule and continuing the reduction
at that pace through the mid-December purchase schedule. In
support of its decision, the FOMC cited the substantial further
progress the economy had made toward the Committee’s goals
on ination and maximum employment since December 2020.
On December 15, the FOMC announced that it would reduce
the monthly pace of the Federal Reserve’s net purchases of
Treasury securities by $20 billion, starting with the mid-January
purchase schedule, due to ination developments and the
further improvement in the labor market. In its November and
December statements, the FOMC also announced that it was
prepared to adjust the pace of purchases if warranted by changes
in the economic outlook.
In addition to the directives referenced above, in 2021 the FOMC
also directed the Desk to increase holdings of Treasury securities
as needed to sustain smooth market functioning. e Desk did not
conduct additional operations to purchase Treasury securities, as
Treasury markets, with some brief exceptions, generally functioned
well and measurably better than had been observed following the
outbreak of the pandemic in March 2020. (See Box 1, “Interagency
Work on Treasury Market Resiliency,” page 17.) e FOMC also
continued to direct the Desk to reinvest at auction all principal
payments from SOMA holdings of Treasury securities.
TREASURY SECURITY ASSET PURCHASES
Operational Results
From January until mid-November, the Desk executed net monthly
purchases of $80 billion before reducing the monthly purchase
amount to $70 billion in mid-November and $60 billion in
mid-December. Over the year, the Desk purchased approximately
$930 billion of Treasury securities in the secondary market (Chart 5).
-200
200
0
400
800
1
,000
2017 2018 2019 2020 2021
Reinvestment of maturing Treasury securities
Reserve management purchases
Reinvestment of maturing MBS into Treasury securities
RedemptionsTreasury security asset purchases
Source: Federal Reserve Bank of New York.
B
illions of U.S. dollars
Chart 5
SOMA Treasury Transactions
16
OPEN MARKET OPERATIONS DURING 2021
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AppendixesOperational
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Selected
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Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
e Desk’s Treasury securities purchase operations generally
received oers with favorable pricing relative to market and
theoretical prices. Offer-to-cover ratios, which measure total
amounts oered by primary dealers relative to the amounts
purchased, were robust. Specically, offer-to-cover ratios averaged
2.8, similar to the levels that prevailed between mid-April
and December 2020.
roughout the year, the Desk’s purchases of Treasury
securities continued to be conducted across a range of maturities
roughly in proportion to the outstanding supply of Treasury
securities. e maturity sectors for the Desk’s operations
were revised in May and November 2021 to better reect the
composition of Treasury securities outstanding, as issuance had
evolved since purchases began in March 2020. In May 2021,
the previous seven- to twenty-year maturity sector was split
into two sectors—a) seven to ten years to maturity, and b) ten to
twenty-two and a half years to maturity—reecting the increased
issuance around the twenty-year point of the yield curve following
the reintroduction of the twenty-year bond in 2020. e Desk
refrained from purchasing Treasury bills given the high investor
demand and limited supply. In addition, purchases of bills have
limited impact on nancial conditions (Chart 6).
REINVESTMENTS OF TREASURY SECURITY
PRINCIPAL PAYMENTS
Operational Results
e Desk reinvested $1.73 trillion of maturing Treasury securities
holdings at auction in 2021, up from $1.27 trillion in 2020 (Chart 7).
e principal payments from maturing Treasury securities held by
the SOMA were reinvested at auction into newly issued Treasury
securities.
12
In each case, the maturity date of the Treasury
security coincided with the issuance date of the securities that
were acquired at auction, such that all principal payments were
immediately reinvested in full. Maturing Treasury coupons were
rolled over into newly issued coupon securities, and maturing
Treasury bills were rolled over into newly issued bills. Maturing
amounts were apportioned pro rata based on the issuance amounts
of securities that settled on the matching maturity date. On
mid-month maturity dates, the Desk rolled over maturing Treasury
coupon securities into newly issued three-, ten-, and thirty-year
Treasury securities, while at the end of the month, reinvestments
occurred in newly issued two-, ve-, seven-, and twenty-year, oating
rate, and ination-linked Treasury securities. On Tuesday maturity
dates, the Desk rolled over maturing Treasury bills into newly issued
four- and eight-week Treasury bills, and on ursdays, the Desk rolled
over maturing Treasury bills into newly issued thirteen-, twenty-six-,
and y-two-week Treasury bills.
AGENCY MBS AND AGENCY
CMBS OPERATIONS
rough November 2021, the FOMC directed the Desk to
continue to increase Federal Reserve holdings of agency MBS by
approximately $40 billion per month to foster accommodative
nancial conditions and smooth market functioning. As directed
by the FOMC, the Desk continued to reinvest all principal
payments from holdings of agency debt and agency MBS in
agency MBS. In addition, the FOMC directed the Desk to conduct
dollar rolls and coupon swaps as necessary to facilitate settlement
of agency MBS transactions. On November 3, in parallel with
0
50
1
00
1
50
2
00
2
50
3
00
3
50
4
00
4
50
0-3 yrs 3-6 yrs 6-10 yrs 10-30 yrs TIPS
B
illions of U.S. dollars
Chart 6
Distribution of SOMA Treasury Purchases across
Sectors in 2021
Source: Federal Reserve Bank of New York.
17
OPEN MARKET OPERATIONS DURING 2021
The U.S. Treasury market is a
cornerstone for the operation of the
U.S. and global nancial systems and
for the transmission of monetary policy.
Recent years have witnessed several
episodes of abrupt deterioration in the
functioning of some segments of the
Treasury market. These occurrences
have prompted various industry and
ofcial-sector institutions to examine
Treasury market structure and propose
reforms to enhance market resiliency.
The Federal Reserve has a direct interest
in the functioning of the Treasury
market given its monetary policy
mandate and its role in monitoring and
mitigating risks to nancial stability.
Recent episodes of Treasury
market disruption include:
• the “ash rally” of 2014, when
the markets for Treasury securities,
futures, and related nancial
instruments experienced an
unusually high level of volatility;
• the Treasury repo market stress of
2019, when a spike in the cost of
overnight Treasury repo borrowing
and repo market volatility negatively
affected trading conditions in
segments of the Treasury cash and
futures markets that relied more
heavily on repo nancing; and
• most recently, the COVID-19
shock of late February and early
March 2020, when investors sold
large volumes of Treasury securities
to raise cash, overwhelming the
intermediation capacity in the Treasury
market and prompting a notable
deterioration in market functioning.
In the latter two of these instances,
the Federal Reserve intervened to
restore market liquidity. These market
disruptions—in concert with a sharp
increase in the amount of marketable
Treasury securities outstanding
since 2000, from about $3 trillion
to more than $22 trillion, as well as
substantial evolution in the structure of
the Treasury market—have prompted
ofcial and private-sector groups
to examine avenues to strengthen
the resilience of the Treasury market
and safeguard its ability to function
efciently in times of stress.
Reports published by the Inter-Agency
Working Group (IAWG), the Group
of Thirty Working Group on Treasury
Market Liquidity,
a
the Brookings
Institution,
b
and others have explored
the underlying causes of these market
disruptions. These reports have noted
vulnerabilities associated with abrupt
changes in demand for Treasury liquidity;
such vulnerabilities were heightened by
an increase in the amount of Treasury
securities outstanding alongside greater
balance sheet constraints on certain
broker-dealers that intermediate much of
the trading of Treasury securities. Some
reports also highlighted structural features
that contributed to these vulnerabilities,
including the procyclicality of margin
requirements, the diversity and costliness
of clearing and settlement mechanisms,
the lack of full transparency into prices
and trading venue practices, and the
growth of electronic trading and its
impact on the elasticity of liquidity supply.
Taken together, these factors were cited
as increasing the likelihood of imbalances
that may result in a deterioration in
market functioning. The reports also
cited limited real-time visibility into
trading ows and dealer/investor
positions as potentially hampering
responses from the ofcial sector.
The IAWG report indicated that it is
analyzing opportunities in ve key areas:
market intermediation, data quality and
availability, expanded central clearing,
trading venue transparency and oversight,
and leverage and liquidity risks.
Separately, private-sector reports
have suggested a range of possible
solutions to these problems, including:
1. creation of standing repo facilities
by the Federal Reserve;
2. broadening of central clearing
of Treasury securities;
3. changes to regulatory capital
requirements affecting
broker-dealers afliated with
bank holding companies; and
4. improving transparency of Treasury
market trading activity.
As proposed by these reports, a repo
facility would offer backstop nancing
Box 1
INTERAGENCY WORK ON TREASURY MARKET RESILIENCY
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
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OPEN MARKET OPERATIONS DURING 2021
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AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
the tapering of purchases of Treasury securities, the FOMC
announced that it would reduce net agency MBS purchases
by $5 billion per month, beginning with the mid-November
purchase schedule and continuing the reduction at that pace
through the mid-December purchase schedule. On December 15,
again in parallel with the tapering of purchases of Treasury
securities, the FOMC announced that it would reduce the monthly
pace of net agency MBS purchases by $10 billion, beginning with
the mid-January purchase schedule. Similar to its announcements
about tapering purchases of Treasury securities, the FOMC also
indicated that it was prepared to adjust the pace of purchases if
warranted by changes in the economic outlook.
As was the case with Treasury securities markets, the FOMC
also directed the Desk to increase SOMA holdings of agency MBS
by additional amounts and to purchase agency CMBS as needed
to sustain smooth functioning of markets for these securities. As
agency MBS markets continued to function well since recovering
of Treasury securities to a broad range
of market participants, allowing them
ready access to central bank liquidity
during times of market stress.
c
The
pricing would be set to discourage
use during normal times but not
during periods of stress. A number
of the reports suggested that broader
use of central clearing could reduce
clearing and settlement risks through
the multilateral netting of cleared
trades and provide more balance sheet
capacity for market makers. Some
reports noted that targeted changes to
bank regulatory capital requirements
(such as potential modications to the
supplementary leverage ratio) could
increase the intermediation capacity of
bank-afliated dealers. Finally, many
reports stated that improved data
collection and disclosure could enable
the ofcial sector to better monitor
risks in nonbank nancial institutions
participating in the Treasury market.
While efforts to evaluate these
proposals are ongoing, there have
been several recent developments that
address the market structure issues
raised in the reports. These include the
establishment of the SRF and the FIMA
repo facility described elsewhere in
this report. While it is not their primary
purpose, these facilities can help reduce
stress in Treasury markets, which are
critical to the transmission of monetary
policy. Additionally, to improve data
quality and transparency, the Financial
Industry Regulatory Authority (FINRA)
has proposed the collection of Treasury
secondary market transactions sooner
than end-of-day through the Trade
Reporting and Compliance Engine, or
TRACE, and the Federal Reserve Board
has adopted a new rule requiring banks
to report transactions.
d
In January 2022,
the Securities and Exchange Commission
(SEC) proposed amendments to its
Regulation Alternative Trading Systems
(Reg ATS) to cover platforms that trade
Treasury securities and Treasury repos.
The amendments would also subject
Treasury security trading platforms
with signicant volumes to Regulation
Systems Compliance Integrity (Reg SCI),
a rule that addresses the resilience
of technology infrastructure.
e
Efforts to strengthen Treasury
market resiliency are expected to
remain a key focus for the ofcial and
private sectors over the coming year.
The IAWG will discuss progress
at the annual conference on the
Treasury market, to be held at the
New York Fed, in the fall of 2022.
a
Group of Thirty Working Group on Treasury Market Liquidity, “U.S. Treasury Markets: Steps Toward Increased Resilience,” 2021. Available at
https://group30.org/publications/detail/4950.
b
Nellie Liang and Pat Parkinson, “Enhancing Liquidity of the U.S. Treasury Market Under Stress,” Hutchins Center Working Paper 72, Brookings
Institution, December 16, 2020. Available at https://www.brookings.edu/wp-content/uploads/2020/12/WP72_Liang-Parkinson.pdf.
c
The Federal Reserve’s SRF, as explained in the “Open Market Operations” section of this report, is open to primary dealers and eligible depository institutions.
d
The FR 2956 will collect detailed data on depository institutions' daily transactions of marketable U.S. Treasury securities and the debt and MBS issued by
U.S. federal government agencies, including government-sponsored enterprises (agencies). The Federal Register notice is available at https://www.federalregister.
gov/documents/2021/10/28/2021-23432/agency-information-collection-activities-announcement-of-board-approval-under-delegated-authority.
e
For more detail on the proposed rule amendments, see the SEC press release, “SEC Proposes Amendments to Include Signicant Treasury
Markets Platforms Within Regulation ATS,” January 26, 2022, at https://www.sec.gov/news/press-release/2022-10.
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AppendixesOperational
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Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
from the disruptions observed in early 2020, the Desk did not
increase SOMA holdings of MBS by additional amounts. Similarly,
the Desk undertook only limited operations early in the year to
purchase agency CMBS, as this market also functioned well. On
March 17, in light of sustained smooth market functioning for
agency CMBS, the Desk announced that aer the nal scheduled
operation on March 23 it would no longer conduct regular
operations to purchase agency CMBS. On November 3, following
sustained healthy functioning of this market, the FOMC removed
agency CMBS from its directive to the Desk.
AGENCY MBS ASSET PURCHASES
Operational Results
Over the year the Desk purchased in the secondary market
$1.32 trillion of agency MBS, including reinvestments of
principal payments on existing MBS holdings (Chart 8). e
Desk allocated the agency MBS purchases across sectors in
line with market production, which hit record levels amid the
low primary mortgage rate environment. e Desk purchased
securities with coupons between 1.5 and 3.0 percent, spread
across een- and thirty-year Uniform MBS (UMBS) issued
by Fannie Mae and Freddie Mac and thirty-year Ginnie Mae
securities (Charts 9 and 10). Thirty-year securities made up the
majority of issuance among the three agencies, corresponding to
the popularity of thirty-year mortgages among U.S. homeowners.
e Desk’s purchases of thirty-year securities accounted for
87 percent of its agency MBS purchases. In line with the market’s
production, the Desk’s purchases of thirty-year UMBS and Ginnie
Mae securities were concentrated in mostly 2.0 and 2.5 percent
coupons. e Desk’s purchases of fifteen-year UMBS amounted to
approximately 13 percent of its total purchases of agency MBS and
were concentrated in the 1.5 and 2.0 percent coupons (Table 2).
e reinvestment of principal cash ows from holdings of
existing agency MBS into new agency MBS constituted about
two-thirds of the Desk’s agency MBS purchases in 2021. Amid
near-historically low thirty-year primary mortgage rates and
record home price appreciation, many homeowners renanced
their existing mortgages, which led to elevated paydowns on
SOMA agency MBS holdings, particularly in the rst half of
the year. Between January and June, these principal payments
averaged $81 billion per month. As primary mortgage rates
increased slightly over the second half of the year, paydowns
on SOMA agency MBS holdings slowed to an average of
$62 billion per month.
0
200
400
600
800
1,000
1,200
20
0
40
60
80
1
00
1
20
1
40
1
60
1
80
2-yr note 3-yr note 5-yr note 7-yr note 10-yr note 20-yr note 30-yr bond TIPS FRNs Bills
(right scale)
Chart 7
D
istribution of Reinvestments at Treasury Auctions in 2021
Source: Federal Reserve Bank of New York.
Note: Bars show the total amount of Treasury securities acquired through rollovers in 2021.
B
illions of U.S. dollars Billions of U.S. dollars
20
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AppendixesOperational
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Developments
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Federal Reserve
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EndnotesEmergency
Credit & Liquidity
Facilities
-50
50
0
100
150
200
400
450
500
2017 2018 2019 2020 2021
Source: Federal Reserve Bank of New York.
Note: Each bar represents total transactional activity on a mid-month to mid-month basis, consistent with the Desk’s announced purchase schedules.
Billions of U.S. dollars
Agency MBS asset purchases
Redemptions
Reinvestments from principal payments on SOMA agency debt
Reinvestments from principal payments on SOMA agency MBS
Chart 8
SOMA Agency MBS Transactions
20
0
40
60
80
1
00
2017 2018 2019 2020 2021
Chart 9
SOMA Purchases of Thirty-Year Agency MBS by Coupon
Note: Figures are monthly and exclude purchases conducted for the purpose
of testing operational readiness.
a
The Desk did not conduct reinvestment purchases of agency MBS from
November 2018 through May 2019, as monthly principal payments of agency
MBS were below the $20 billion reinvestment cap.
Percent
Source: Federal Reserve Bank of New York.
1.5% 2.0% 2. 5% 3.0% 3.5% 4.0% 4.5%
a
20
0
40
60
80
100
2017 2018 2019 2020 2021
SOMA Purchases of Fifteen-Year Agency MBS by Coupon
Note: Figures are monthly and exclude purchases conducted for the purpose
of testing operational readiness.
a
The Desk did not conduct reinvestment purchases of agency MBS from
November 2018 through May 2019, as monthly principal payments of agency
MBS were below the $20 billion reinvestment cap.
Percent
Chart 10
Source: Federal Reserve Bank of New York.
1.5%
2.0% 2.5% 3.0% 3.5% 4.0%
a
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The Desk can settle agency MBS—that is, take delivery
of purchased securities—as much as three months after the
trade date. As markets largely functioned smoothly in 2021,
the Desk followed conventional forward settlement practices
in the to-be-announced (TBA) market. This contrasted with
the Desk’s activity during the severe market disruption in
March 2020, when some TBA securities were purchased with
a specific settlement date within a few days of the transaction
date (for example, two days forward as opposed to one month
forward) in order to address the heightened demand for
cash at that time.
DOLLAR ROLLS
Operational Results
Given the forward-settling nature of the Desk’s agency MBS
transactions in the TBA market, agency MBS can become
scarce in the market during the time between a transaction’s
trade date and its settlement date. In these instances, the Desk
may conduct dollar roll sales, which effectively delay settlement
to a future date to allow smooth settlement of the purchased
securities. Dollar roll sales allow dealers more time to obtain
securities required to settle transactions, in exchange for a
market price that compensates the Federal Reserve for the
delay in settlement. The Desk rolled approximately $52 billion
of settlements in 2021, with most transactions occurring early
in the year in response to limited available production at that
time. The $52 billion represents 4 percent of the Desk’s original
settling positions during the year, marking a decline from
the 10 percent of original settling positions rolled in 2020.
Amid relatively stable market conditions and record issuance
volumes, settlement of the Desk’s agency MBS purchases went
smoothly throughout 2021 (Chart 11).
AGENCY CMBS
Operational Results
e Desk purchased $314 million in agency CMBS between
January and March, bringing total purchases of agency CMBS
since March 2020 to approximately $10.5 billion. e 2021 asset
purchases were composed of $269 million of Fannie Mae
Delegated Underwriting and Servicing (FNMA DUS) pools over
the course of four operations, and $45 million of Ginnie Mae
Project Loans over the course of two operations; the Desk also
conducted two operations for Freddie Mac K-series, though no
propositions were accepted.
e Desk conducted its last agency CMBS operation on
March 23. As noted above, the Desk remained ready to conduct
agency CMBS purchases as needed to sustain smooth market
functioning, as directed by the FOMC. On November 3, the
Table 2
Distribution of Agency MBS Operations in 2021
Agency
Coupon
(Percent)
SOMA Purchases
(Billions of
U.S. Dollars)
SOMA Purchases as a
Share of Gross Issuance
(Percent)
30-year
Uniform MBS 1.5 48.5 36
2.0 510.2 46
2.5 310.6 43
Ginnie Mae 2.0 144.7 42
2.5 127.9 41
3.0 3.5 3
Subtotal 1,145.3 40
15-year
Uniform MBS 1.5 90.7 57
2.0 79.7 42
Subtotal 170.4 44
Total 1,315.6 38
Sources: Federal Reserve Bank of New York; Knowledge Decision
Services, LLC.
Notes: Figures may be rounded. Gross issuance represents all xed-rate
agency MBS issued in 2021, including non-TBA-eligible securities. Subtotal
issuance comprises all coupons, including those not purchased for the
SOMA, with original terms to maturity of fteen or thirty years. Total
issuance comprises all coupons and all original terms to maturity. For
TBA outright purchases conducted after May 1st 2019, both Fannie Mae
and Freddie Mac securities are deliverable into Uniform MBS contracts.
22
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FOMC terminated its CMBS directive. e agency CMBS
portfolio experienced principal paydowns of approximately
$916 million over the course of 2021. ese principal payments
were not reinvested.
SECURITIES LENDING
To support the eective conduct of open market operations, the
FOMC has authorized the Desk to lend eligible Treasury and
agency debt securities held in the SOMA to primary dealers on an
overnight basis. ese operations provide a secondary and temporary
source of securities to the nancing market to promote the smooth
clearing of Treasury and agency securities. Lending Treasury
securities, especially those in which the SOMA holds a signicant
market share, also helps mitigate periods of scarcity (as a result of high
levels of short positions or elevated settlement fails, for example).
Operational Results
In 2021, the Desk continued to conduct daily operations to lend
Treasury and agency debt securities from the SOMA portfolio to
primary dealers. During 2021, SOMA securities lending volumes in
Treasury securities averaged $35 billion per day, up from $30 billion
per day in 2020 (Chart 12). e increase was partly a result of the
SOMA portfolio making up a larger share of outstanding Treasury
securities than had been the case in years past, including securities
that are in high demand among market participants. Still, securities
lending volumes as a proportion of SOMA holdings of Treasury
securities and total marketable Treasury debt outstanding remained
within the ranges seen in recent years. Despite record average lending
volumes during 2021, the volume-weighted average bid fee on
Treasury securities was about 8 basis points, unchanged from 2020,
notwithstanding infrequent episodes of increased specialness.
FOREIGN RESERVES
MANAGEMENT
e Federal Reserve holds a portfolio of euro- and yen-denominated
assets, which could be used to fund a potential foreign exchange
intervention.
13
e size and currency composition of foreign reserve
holdings is largely a result of past intervention activity in foreign
exchange markets. In accordance with their respective statutory
authorities, the FOMC and U.S. Treasury make decisions on foreign
10
20
30
40
1
0
2
0
3
0
4
0
5
0
2017 2018 2019 2020 2021
Chart 11
SOMA Dollar Roll Sales
Notes: Figures are monthly by settlement month. Share of expected
settlements is calculated excluding purchases conducted for the purpose of
testing operational readiness.
Billions of U.S. dollars
Percent
S
ource: Federal Reserve Bank of New York.
00
Total (left scale)
Share of expected settlements (right scale)
5
00
10
15
20
25
30
5
10
15
20
25
30
35
40
45
2017 2018 2019 2020 2021
Securities lending (left scale)
Weighted average award rate (right scale)
Chart 12
SOMA Securities Lending in Treasuries
Source: Federal Reserve Bank of New York.
Note: Figures are monthly averages of daily lending results.
Billions of U.S. dollars Basis points
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exchange intervention activity; in 2021, the Desk was not directed to
undertake any such activity.
INVESTMENT APPROACH
e Desk is directed by the FOMC to manage the SOMA’s foreign
currency holdings in a manner that ensures sucient liquidity,
maintains a high degree of safety, and, once these objectives have been
met, provides the highest rate of return possible in each currency. e
Desk passively manages its foreign currency reserve holdings against
an internal asset allocation target, which is determined based on the
FOMC’s stated objectives and updated on an annual basis. e SOMA’s
foreign currency reserves may be invested on an outright basis in
German, French, Dutch, and Japanese government securities, as well
as in deposits at the Bank for International Settlements and at foreign
central banks such as the Deutsche Bundesbank, Banque de France,
De Nederlandsche Bank, and Bank of Japan.
INVESTMENT ACTIVITY
In 2021, the Desk purchased euro- and Japanese
yen-denominated foreign sovereign debt securities in the
secondary market consistent with the portfolio asset allocation
target. e Desk also continued to hold foreign currency
reserves in deposits at various ocial institutions. As of year-end
2021, the SOMA foreign currency portfolio, on an amortized
cost basis, totaled $20.3 billion, compared with $22.2 billion at
the end of 2020. Since no transactions associated with foreign
exchange intervention were undertaken and the interest income
was minimal given the low interest rate environment in the euro
area and Japan, changes in the portfolio’s reported U.S. dollar
market value largely reected the change in the foreign exchange
value of the dollar against the euro and Japanese yen over the
year.
14
(Foreign currency–denominated holdings are described
further in the “Selected Balance Sheet Developments” section
of this report.)
24
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EMERGENCY CREDIT AND
LIQUIDITY FACILITIES
With the improvement of financial market conditions in late
2020 and continuing into 2021, the authorizations for the
various emergency credit and liquidity facilities established in
response to financial market disruptions associated with the
COVID-19 pandemic were allowed to expire. These facilities
supported the flow of credit to households, businesses, and
state and local governments by providing backstops to key
funding markets and giving investors confidence that the
Federal Reserve would provide liquidity and credit if needed
in those markets. Following the expirations of the facilities’
authorizations to purchase assets or extend credit, the
facilities went into runoff mode.
Facilities that made short-term credit extensions—the
Commercial Paper Funding Facility (CPFF), Money Market
Mutual Fund Liquidity Facility (MMLF), and Primary Dealer
Credit Facility (PDCF)—were fully wound down in 2021.
Given continued improvements in corporate credit markets,
the Federal Reserve opted in June 2021 to begin a gradual and
orderly liquidation of the Secondary Market Corporate Credit
Facility’s holdings of corporate bond ETFs and corporate
bonds. Sales were completed by the end of August, and
the SMCCF was wound down fully by year-end. The Term
Asset-Backed Securities Loan Facility (TALF), Municipal
Liquidity Facility (MLF), Main Street Lending Program
(MSLP), and Paycheck Protection Program Liquidity Facility
(PPPLF) all experienced maturities and/or prepayments in
2021 (Chart 13). TALF and MLF assets have final maturity
dates in 2023, and MSLP and PPPLF loans have final maturity
dates in 2026; these assets also can be prepaid at each
obligor’s discretion.
e emergency credit and liquidity facilities had been
established under Section 13(3) of the Federal Reserve Act,
which allows the Federal Reserve Board in unusual and exigent
circumstances, with the approval of the Secretary of the Treasury,
to extend credit to any participant in a program or facility with
broad-based eligibility for the purpose of providing liquidity to
the nancial system. In some cases, the U.S. Treasury provided
the facilities with equity capital to protect the Federal Reserve
against potential losses.
15
Upon closure of the facilities housed
in special purpose vehicles (SPVs), any remaining Treasury
equity is fully redeemed, and residual earnings of facilities
supported by Treasury equity are distributed in 90:10 shares to the
U.S. Treasury and the facility’s host Reserve Bank, respectively. A
signicant portion of Treasury equity was redeemed in 2021 in
connection with facility closures or asset runos. e SPVs that
remain open retain Treasury equity in amounts roughly equal
to facility holdings to cover any potential losses to the host
Reserve Bank. To promote transparency, the Federal Reserve
published term sheets that described the rules for the programs,
program documentation, and FAQs explaining the purpose,
design, and operational details of the programs. As required by
statute, the Board also published periodic reports to Congress on
the facilities.
16
PRIMARY DEALER CREDIT FACILITY
e PDCF’s authority to originate new transactions expired on
March 31, 2021, and its nal transaction matured on April 16,
2021. e facility saw limited usage in 2021 due to improved
market conditions. e peak daily loan balance under the PDCF
in 2021 was $535 million, down from the 2020 peak balance of
$37 billion near the start of the pandemic.
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EndnotesEmergency
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e PDCF was announced on March 17, 2020, to allow primary
dealers to support smooth market functioning and facilitate the
availability of credit to businesses and households. rough the PDCF,
primary dealers could access both overnight and term funding for up
to ninety days from the New York Fed. e interest rate charged on
PDCF transactions was the primary credit rate, and a broad range of
investment-grade securities was accepted as collateral.
COMMERCIAL PAPER FUNDING
FACILITY
On March 31, 2021, the authorization for the CPFF to
purchase eligible commercial paper expired. All commercial
paper holdings had matured in 2020. On June 29 and
July 7, 2021, the SPV established to purchase commercial paper
(CP Funding Facility II LLC) made its nal distributions of
assets to the U.S. Treasury and the New York Fed. It repaid the
$10 billion equity investment to the Exchange Stabilization Fund
(ESF) and distributed residual earnings of $49.1 million to the
U.S. Treasury and the New York Fed at the 90:10 ratio set out in
the vehicle’s limited liability company agreement. On July 8, 2021,
the legal existence of CP Funding Facility II LLC was terminated.
e CPFF, announced on March 17, 2020, was established
to enhance the liquidity of the commercial paper market by
increasing the availability of term commercial paper funding to
issuers and by providing greater assurance to both issuers and
investors that rms and municipalities would be able to roll over
4
0
0
8
0
1
20
1
60
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
Chart 13
Usage of Primary Credit Program and Emergency Facilities
B
illions of U.S. dollars
Sources: Board of Governors of the Federal Reserve System; Federal Reserve Bank of New York.
Notes: Data reflect the weekly Wednesday level for the Primary Credit Program (PCP), the Primary Dealer Credit Facility (PDCF), the Money Market Mutual Fund
Liquidity Facility (MMLF), the Commercial Paper Funding Facility (CPFF), the Paycheck Protection Program Liquidity Facility (PPPLF), the Secondary Market
Corporate Credit Facility (SMCCF), the Municipal Liquidity Facility (MLF), the Term-Asset Backed Securities Loan Facility (TALF), and the Main Street Lending
Program (MSLP).
PCP
TALF MSLP
MLF
SMCCF
PPPLFCPFFMMLFPDCF
2020 2021
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their maturing commercial paper. Under the terms of the CPFF,
the New York Fed provided nancing to the SPV to purchase
eligible commercial paper. e pricing was the three-month
overnight index swap (OIS) rate plus 110 basis points or the
three-month OIS rate plus 200 basis points, depending on the
credit rating of the issuer. e facility also charged an initial
fee equal to 10 basis points times the maximum amount of an
issuer's commercial paper that the SPV could have purchased.
MONEY MARKET MUTUAL FUND
LIQUIDITY FACILITY
e MMLF ceased extending credit on March 31, 2021, and
remaining MMLF loans were fully repaid by April 2021.
e MMLF was announced on March 18, 2020, as part of
the program of support for the ow of credit to households and
businesses by enhancing the liquidity and functioning of crucial
money markets. Under the MMLF, the Federal Reserve Bank
of Boston (Boston Fed) provided loans to eligible borrowers—
including all U.S. depository institutions, U.S. bank holding
companies (parent companies incorporated in the United States
or their U.S. broker-dealer subsidiaries), or U.S. branches and
agencies of foreign banks—to purchase certain types of assets
from eligible MMFs, including prime, single state, or other
tax-exempt MMFs. e assets, composed of a broad range of
high-quality securities, served as collateral for the loans. e
U.S. Treasury, using funds from the ESF, committed $10 billion
of credit protection, of which $1.5 billion was advanced to
the Boston Fed. is amount has since been repaid to the
U.S. Treasury along with a facility fee for the credit protection.
e pricing of the MMLF was the primary credit rate plus up to
100 basis points, depending on the collateral pledged.
TERM ASSET-BACKED SECURITIES
LOAN FACILITY
e TALF ceased extending credit on December 31, 2020.
e TALF originated a total of $4.4 billion in loans secured
by eligible collateral in 2020, of which $3.6 billion remained
outstanding at 2020 year-end. By the end of 2021, total loans
outstanding had contracted to just $1.3 billion, primarily due to
faster-than-expected voluntary prepayments from borrowers as
well as the routine principal amortization of securities backing
the loans. e TALF has one remaining borrower, whose loans are
scheduled to mature by December 2023.
e TALF was announced on March 23, 2020, to support the
ow of credit to consumers and businesses. Under the TALF, the
New York Fed provided nancing to an SPV to make three-year
nonrecourse loans to holders of certain AAA-rated non-agency
CMBS, collateralized loan obligations (CLOs), and asset-backed
securities backed by student loans, auto loans, credit card loans,
loans guaranteed by the Small Business Administration (SBA),
and certain other consumer and commercial receivables. TALF
loans were priced as basis point spreads to OIS, SOFR, or
the top of the federal funds target range, depending upon the
type of collateral and loan term. Using funds appropriated to
the ESF through the CARES Act, the U.S. Treasury provided
a $10 billion equity investment in the SPV. Of this amount,
the TALF in January 2021 returned $6.5 billion in equity in
excess of the New York Fed’s exposure to TALF loans, and in
November returned another $2.2 billion in excess equity. Going
forward, the TALF will make similar returns of excess equity on a
routine basis twice a year.
SECONDARY MARKET CORPORATE
CREDIT FACILITY
The authorization for the SMCCF to purchase eligible assets
expired on December 31, 2020, with the SMCCF holding
$5.5 billion in corporate bonds and $8.8 billion in corporate
bond ETFs.
17
With corporate credit markets continuing to
function well as 2021 unfolded, the SMCCF began gradual
and orderly sales of its holdings of corporate bond ETFs on
June 7, 2021, and of its holdings of corporate bonds on July 12,
2021. As of August 31, 2021, all of the SMCCF’s holdings of
corporate bonds had either matured or been sold and its ETFs
had been sold. The SMCCF asset sales occurred with eligible
counterparties including primary dealers and a set of expanded
counterparties including minority-, women-, or veteran-owned
business entities. See the “Emergency Credit and Liquidity
Facilities Counterparties” section of this report for further
discussion of SMCCF counterparties.
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OPEN MARKET OPERATIONS DURING 2021
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The SPV housing the SMCCF (Corporate Credit
Facilities LLC) distributed the $515 million generated over
the life of the facility in installments at a 90:10 ratio to the
U.S. Treasury and the New York Fed, as set forth in the
SPV’s limited liability company agreement. These payments
occurred on November 19, 2021, and December 14, 2021. The
SPV returned a portion of the Treasury’s equity investment
on January 5, 2021, following the expiration of the facility’s
authorization, and the remainder of the equity investment on
September 24, 2021, following the completion of sales. The SPV
was terminated on December 17, 2021.
e SMCCF was originally announced on March 23, 2020, to
support credit to employers by providing liquidity to the market
for outstanding corporate bonds.
18
e SMCCF purchased in the
secondary market eligible corporate bonds and U.S.-listed ETFs
that provided broad exposure to the market for U.S. corporate
bonds. e U.S. Treasury made an initial equity investment of
$37.5 billion in the SPV and committed to make up to a total of
$75 billion in equity investment.
19
MUNICIPAL LIQUIDITY FACILITY
e MLF ceased purchasing notes as of December 31, 2020. While
active, the MLF purchased a total of $6.6 billion in eligible notes
across four issues, of which $6.3 billion remained outstanding at
year-end 2020. By year-end 2021, total notes held had declined
to $4.1 billion due to both voluntary note prepayments and the
maturity of one of the notes.
20
The MLF was announced on April 9, 2020, to help state
and local governments manage cash flow stresses caused
by the pandemic. The MLF purchased eligible short-term
municipal securities directly from eligible issuers through an
SPV established by the New York Fed. The pricing was a fixed
interest rate based on the maturity-matched OIS rate plus a
credit spread based on the long-term rating of the security.
Issuers also paid an origination fee equal to 10 basis points of
the principal amount of the issuer’s notes purchased by the
SPV. The U.S. Treasury made an initial equity investment of
$17.5 billion in the SPV, using funds appropriated to the ESF
through the CARES Act. In January 2021, the MLF returned
to the U.S. Treasury $11.2 billion in equity in excess of the
New York Fed’s exposure to MLF holdings and another
$2.1 billion in excess equity in November. In the future,
the MLF will make similar returns of excess equity on a
routine basis twice a year.
PAYCHECK PROTECTION PROGRAM
LIQUIDITY FACILITY
The authorization for the PPPLF to originate new loans expired
on July 30, 2021. The loan balance under the PPPLF, which
started the year at $50.4 billion, rose to a high of $91.3 billion
in June before steadily declining, as prepayments arising from
the SBA’s Paycheck Protection Program (PPP) loan forgiveness
began to exceed new loan originations. The loan balance
ended the year at $33.9 billion, with a total of 8,765 loans
outstanding to 206 institutions. Most of the new PPPLF loan
activity in 2021 was driven by the relaunch of the PPP, which
had expired on August 8, 2020, but was revived on January 11,
2021, following passage of the Coronavirus Response and
Relief Supplemental Appropriations Act, which allocated
$284.5 billion for additional PPP loans.
A total of $96.3 billion consisting of 11,825 loans was
originated under the PPPLF in 2021, a decrease from the prior
year when 15,262 loans totaling $111.8 billion were originated
under the PPPLF. e nal loan maturity date under the PPPLF
is July 31, 2026, although most, if not all, loans are expected to be
prepaid due to PPP loan forgiveness.
e PPPLF was announced on April 9, 2020, to bolster
the eectiveness of the SBA’s PPP by supplying liquidity to
participating nancial institutions through term nancing
backed by PPP loans to small businesses. Under the PPPLF, all
PPP lenders approved by the SBA, including nondepository
institutions, could participate in the program by requesting
advances from their local Federal Reserve Bank. e pool
of eligible collateral consisted of PPP loans, including those
purchased from another PPP lender. e interest rate on PPPLF
loans was set at 35 basis points, 10 basis points higher than the
primary credit program rate.
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OPEN MARKET OPERATIONS DURING 2021
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Balance Sheet
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Federal Reserve
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EndnotesEmergency
Credit & Liquidity
Facilities
MAIN STREET LENDING PROGRAM
e MSLP ceased purchasing participations in eligible loans on
January 8, 2021. Loan participations outstanding under the MSLP
increased gradually during 2020 and peaked at $16.6 billion in
January 2021. e MSLP outstanding balance at year-end 2021 was
$13.4 billion, and the nal maturities of the loans are in 2026.
21
The MSLP was announced on April 9, 2020, to support
lending to small and medium-sized businesses and nonprofit
organizations that were in sound financial condition before
the onset of the pandemic. Under MSLP, the Boston Fed set up
one SPV to manage and operate five facilities: three business
loan facilities (for new loans, priority loans, and expanded
loans) and two nonprofit facilities (for new loans and expanded
loans). All loans charged an interest rate of LIBOR plus
300 basis points. Fees ranged from 0 to 1 percent depending on
the type, facility, and loan size.
22
The U.S. Treasury, using funds appropriated to the ESF
through the CARES Act, provided a $37.5 billion initial
equity investment in the SPV and committed to make up to a
total of $75 billion in equity investments. The SPV returned
to the U.S. Treasury $20.9 billion of the equity investment
on January 8, 2021, and an additional $0.9 billion on
November 19, 2021, reducing the U.S. Treasury’s remaining
equity investment to $15.7 billion, which fully protects the
Boston Fed against losses from the MSLP loan portfolio. Going
forward, the MSLP will make similar returns of excess equity
on a routine basis twice a year, subject to a minimum equity
floor of $1 billion for the SPV.
30
31
SELECTED BALANCE
SHEET DEVELOPMENTS
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
During 2021, the size of the Federal Reserve’s balance sheet
increased by $1.40 trillion, or 19 percent, to a record high level
of $8.76 trillion, driven by growth in the SOMA portfolio as
the FOMC continued to direct the Desk to purchase Treasury
securities and agency MBS to foster smooth market functioning
and accommodative nancial conditions. Monthly net asset
purchases continued at a steady pace until mid-November, when
tapering began. Although signicant, the balance sheet growth
experienced in 2021 was considerably less than the record growth
that occurred in 2020 as a result of large asset purchases to address
the COVID-19 pandemic–driven disruptions to nancial markets
starting in March 2020.
e increase in total assets in 2021 reected a $1.54 trillion
increase in the SOMA securities portfolio, which totaled
$8.27 trillion at year-end. e increase in the SOMA portfolio
was partially oset by a $40.0 billion decrease in emergency
credit and liquidity facility balances, a $14.6 billion decrease in
central bank swaps outstanding, and an $85.0 billion decrease
in other assets, reecting among other things, redemptions of
equity provided by the U.S. Treasury for certain of the emergency
facilities (Table 3).
23
As of year-end 2021, the Federal Reserve’s
balance sheet measured 38 percent of nominal GDP, compared to
34 percent at year-end 2020, and was roughly double the size of
the balance sheet in February 2020.
SELECTED ASSETS
The Federal Reserve’s assets can be divided into SOMA
and non-SOMA assets. The SOMA assets consist of
the Federal Reserve’s domestic securities holdings and
foreign portfolios, repos, and short-term credit that the
Federal Reserve extends to foreign central banks through
U.S. dollar liquidity swaps. Non-SOMA assets include loans
to depository institutions through the primary and secondary
credit programs, and asset holdings from the emergency
credit and liquidity facilities. These assets are Federal Reserve
assets but are not part of the SOMA. (See the “Primary Credit
Program” and “Emergency Credit and Liquidity Facilities”
sections of this report for further details on non-SOMA assets.)
All else equal, an increase (decrease) in holdings of a particular
asset leads to a corresponding increase (decrease) in reserve
balances or other liabilities.
SOMA DOMESTIC
SECURITIES HOLDINGS
PORTFOLIO SIZE AND COMPOSITION
e vast majority of the SOMA is composed of domestic securities
holdings. As of year-end 2021, the domestic securities portfolio
was composed of Treasury securities totaling $5.65 trillion
(68 percent), agency MBS totaling $2.61 trillion (32 percent),
agency CMBS totaling $9.24 billion (less than 1 percent), and
agency debt totaling $2 billion (less than 1 percent) (Chart 14).
24
Holdings of Treasury securities and agency MBS during
2021 increased roughly in proportion to the holdings of these
securities at the beginning of the year.
Treasury Holdings
In 2021, the Treasury portfolio increased from $4.69 trillion
to $5.65 trillion, reecting the Desk’s steady pace of Treasury
security purchases of approximately $80 billion per month for
much of the year before tapering to $70 billion per month in
mid-November and $60 billion per month in mid-December.
32
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Table 3
Changes in Selected Federal Reserve Assets and Liabilities
Billions of U.S. Dollars
Assets
U.S.
Treasury
Securities
Agency
MBS,
Agency Debt,
and Agency
CMBS
a
Repo
Central
Bank
Liquidity
Swaps
Primary
Credit
Program
Emergency
Credit and
Liquidity
Facilities
Other
Assets
Total
Assets
Outstanding as of:
December 31, 2020 4,688.9 2,041.8 1.0 17.9 1.6 92.8 516.7 7,358.4
December 31, 2021 5,652.5 2,617.9 – 3.3 0.6 52.8 431.7 8,756.4
Changes in the period
Dec 31, 2020 to Dec 31, 2021 963.6 576.0 (1.0) (14.6) (1.0) (40.0) (85.0) 1,398.0
Liabilities and Capital
Reserves
Federal
Reserve
Notes
Treasury
General
Account ON RRP
FIMA
Reverse
Repo
Pool
Other
Liabilities
and
Capital
Subtotal of
Non-Reserve
Liabilities
Total
Liabilities
and
Capital
Outstanding as of:
December 31, 2020 2,994.9 2,040.3 1,728.6 9.7 206.4 378.5 4,363.5 7,358.4
December 31, 2021 3,644.3 2,187.1 406.1 1,904.6 278.5 335.8 5,112.1 8,756.4
Changes in the period
Dec 31, 2020 to Dec 31, 2021 649.3 146.8 (1,322.5) 1,894.9 72.1 (42.7) 748.6 1,398.0
Sources: Federal Reserve Bank of New York; Board of Governors of the Federal Reserve System.
Notes: Emergency credit and liquidity facility outstanding balances exclude nonmarketable portion of Treasury equity. Securities balances are listed at par value.
Other assets include primarily unamortized net premium and accrued interest receivable on securities, foreign currency–denominated holdings, and the LLC’s
investments of U.S. Treasury equity in nonmarketable Treasury securities. Other Liabilities within Other Liabilities and Capital include primarily non-reserve
deposits.
a
Excludes unsettled MBS.
33
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
e Desk also reinvested proceeds of maturing Treasury
securities at auctions.
Desk purchases were conducted in general proportion
to the maturity distribution of Treasury coupon securities
outstanding. At year-end, nominal coupon securities with
less than three years to maturity made up the largest share of
the Treasury securities portfolio (Chart 15). On net over the
year, the shares in the portfolio of nominal coupon securities
with three to six years to maturity and ten to thirty years
to maturity increased modestly, while the shares of coupon
securities with less than three years to maturity decreased
modestly. The share of the portfolio held in floating rate
notes (FRNs) is minimal, reflecting the U.S. Treasury’s limited
issuance of these instruments. On net over the year, the share
of bills in the portfolio declined slightly since the Desk did
not increase its net bill holdings, both to avoid increasing
scarcity value in these securities arising from strong investor
demand and because bill purchases have little impact on
financial conditions.
SOMA holdings of Treasury securities as a share of the
$22.6 trillion in Treasury debt held by the public (inclusive of
SOMA holdings) increased to 25 percent at the end of 2021,
compared to 22 percent at the end of 2020. Although overall
Treasury debt outstanding increased by $1.6 trillion during
the year, that growth was outpaced in percentage terms by the
increase in SOMA holdings of Treasury securities.
25
e sectors with the largest shares of outstanding Treasury
securities held in the SOMA were securities with ten to thirty
years remaining until maturity, at 38 percent, and coupon
securities with up to three years remaining until maturity,
at 30 percent. e SOMA’s share of outstanding Treasury
Ination-Protected Securities (TIPS) rose from 23 percent to
27 percent—more quickly than the rise in other sectors—as
1
,000
0
2
,000
3
,000
4
,000
5
,000
6
,000
7
,000
8
,000
9
,000
2017 2018 2019 2020 2021
Chart 14
Composition of SOMA Domestic Securities Holdings
Source: Board of Governors of the Federal Reserve System.
Notes: Figures are weekly and include unsettled holdings. Agency CMBS are
included in agency MBS amount.
B
illions of U.S. dollars
Treasury securities
Agency MBS
Agency debt
20
0
40
60
80
100
2017 2018 2019 2020 2021
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end and may be rounded.
a
Less than 1 percent of holdings in 2017, 2018, 2019, 2020 and 2021 are
Floating Rate Notes (FRNs).
Percentage Share and Billions of U.S. Dollars
-
$677 $921$335$581
$147
$1,034
$198
$517
$614
$547 $583 $964
$358 $458
$1,240
$130
$451
$158
$903 $873
$1,829 $2,066
$553
$139 $153
$170 $326 $326
Total $2,454 $2,223 $2,329 $4,689 $5,653
Percent
<3 years
3 to <6 years
6 to <10 years
10 to 30 years
FRNs
a
TIPS
Bills
Chart 15
Distribution of SOMA Treasury Holdings
34
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
net issuance of TIPS rose more slowly than other sectors over
the year. e SOMA’s share of outstanding Treasury bills, while
remaining low, increased slightly to about 9 percent, as the
SOMA’s holdings of Treasury bills remained constant while the
stock of outstanding Treasury bills fell sharply as a result of debt
ceiling dynamics (Chart 16).
Consistent with the SOMA’s concentrated holdings in
longer-term Treasury securities relative to the stock of
outstanding securities, the weighted average maturity of the
SOMA Treasury securities portfolio (7.6 years) was greater than
that of the outstanding stock of Treasury debt (6.0 years) at the
end of 2021. Relative to year-end 2020, the weighted average
maturity of the SOMA Treasury portfolio increased slightly,
by 0.3 years, reflecting the increase in the share of Treasury
coupon securities holdings and the decrease in the share
of bill holdings.
10
0
20
30
40
50
Bills < 3 years 3 to <6 6 to <10
years years years
10 to 30 TIPS FRNs
2019 2020 2021
Chart 16
SOMA Treasury Holdings as a Share of Outstanding
Treasury Supply
Sources: Federal Reserve Bank of New York; U.S. Treasury Department.
Note: Figures are as of year-end.
Percent
Chart 17
Notes: Figures are as of December 31, 2021. Holdings total $2.62 trillion and consist of settled holdings only.
Source: Federal Reserve Bank of New York.
a
Less than 1 percent of holdings are ten- and twenty-year agency MBS, which may be delivered into fifteen- and thirty-year TBA contracts, respectively.
0 10 20 30 40
Percent
50 60 70 80 90 100
Distribution of SOMA Agency MBS Holdings
30-year 15-year
Term
a
Coupon
2.0% 2.5% 3.0% 3.5% ≥4.0%
≤ 1.50%
Issuer
Fannie Mae Freddie Mac Ginnie Mae
Vintage
Pre-2011
2012 2013
2014
2015
2016
2017
2018
2019
2020
2021
2011
35
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Agency MBS Holdings
e SOMA’s holdings of agency MBS increased by $576 billion
on net during 2021 to $2.62 trillion, reecting new purchases
of roughly $40 billion per month through mid-November, at
which time the pace slowed to $35 billion per month, and then
declined to $30 billion per month beginning in mid-December.
26
roughout the year, the Desk also reinvested principal
payments from the agency MBS portfolio. Given the Desk’s
operational approach of purchasing agency MBS in the TBA
market, specically in recently produced coupons, agency MBS
delivered to the SOMA were generally concentrated in recently
issued securities.
Over the year, the composition of the SOMA agency MBS
portfolio evolved across various dimensions—including the
issuers, terms, coupons, and vintages of the securities held—as
a result of high prepayment activity during the beginning of
the year as well as new purchases (Charts 17, 18, and 19).
Forty-one percent of the agency MBS portfolio was held in
agency MBS guaranteed by Fannie Mae, 38 percent in agency
MBS guaranteed by Freddie Mac, and 22 percent in agency MBS
guaranteed by Ginnie Mae.
27
Roughly 87 percent of the portfolio
was held in thirty-year MBS, with most of the remainder in
fifteen-year MBS.
e share of the agency MBS portfolio held in securities with
coupons less than or equal to 2.5 percent increased over the year
from 41 percent to 64 percent. e weighted average coupon
of the agency MBS held in the SOMA portfolio decreased to
2.5 percent at the end of 2021 from 2.9 percent at year-end 2020.
e MBS holdings experienced signicant principal prepayments
over the year such that, as of year-end, 44 percent of the MBS
portfolio had been originated in 2021. e prepayments and the
Desk’s continued purchases of new production securities resulted
in a sharp increase in the portfolio’s weighted average life and an
increase in the concentration of lower-coupon securities. As of the
end of 2021, the weighted average life of the agency MBS portfolio
was 5.7 years, compared to 3.1 years at year-end 2020.
28
SOMA’s agency MBS holdings increased more quickly than
the outstanding universe of agency MBS. SOMA holdings of
agency MBS as a share of the outstanding stock of fixed-rate
0
20
40
60
80
1
00
≥ 4.5%
Distribution of SOMA Holdings of Thirty-Year Agency MBS
by Coupon
P
ercent
Chart 18
Source: Federal Reserve Bank of New York.
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% ≥ 4.5%1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
2017 2018 2019 2020 2021
0
20
40
60
80
100
Percent
Source: Federal Reserve Bank of New York.
2017 2018 2019 2020 2021
Distribution of SOMA Holdings of Fifteen-Year Agency
MBS by Coupon
Chart 19
36
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
agency MBS rose during 2021 from 30 percent to 34 percent.
e characteristics of agency MBS holdings in the SOMA are
broadly consistent with those of the outstanding agency MBS
market, although the portfolio is slightly more concentrated in
lower-coupon securities. At the end of 2021, the weighted average
coupon rate of SOMA holdings of agency MBS was 2.5 percent,
slightly below the broader market’s weighted average coupon
rate of 2.6 percent. Similarly, the weighted average age of loans
in the agency MBS portfolio was 29 months, while the weighted
average age of loans in the broader market was 32 months.
ese dierences are driven by the Desk’s practice of purchasing
securities in line with the composition of new originations
(rather than the composition of the universe of agency MBS);
the resulting new holdings referenced lower-coupon and newly
issued mortgages.
Agency Debt Holdings
SOMA agency debt holdings were unchanged at $2.3 billion
during 2021. ese holdings consist of the remainder of the
$172 billion of agency debt acquired by the Federal Reserve
between 2008 and 2010 as part of its rst large-scale asset
purchase program. ese holdings were issued by Fannie Mae and
Freddie Mac and will mature between 2029 and 2032.
Agency CMBS Holdings
SOMA agency CMBS holdings decreased slightly in 2021, totaling
$9.2 billion by year-end, as minimal additional purchases were made
over the year and the portfolio was partially paid down. Agency
CMBS holdings account for less than 1 percent of total SOMA
agency MBS holdings and represent around 1 percent of outstanding
agency CMBS. e composition of these holdings was approximately
77.4 percent in Fannie Mae securities, 11.4 percent in Ginnie Mae
securities, and 11.2 percent in Freddie Mac securities by the end of
2021. As of year-end, the weighted average life of the SOMA CMBS
portfolio stood at 8.3 years. In contrast to the SOMA’s Treasury
security and MBS portfolios, in which principal payments are
reinvested, CMBS portfolio principal payments are not reinvested.
PORTFOLIO RISK METRICS
During 2021, the par-weighted average duration of the SOMA
domestic securities portfolio rose from 4.9 years to 5.8 years,
primarily due to an increase from 2.5 to 4.9 years in the duration
of the agency MBS portfolio (Chart 20).
29
30
Duration measures
the sensitivity of a security’s price to changes in interest rates
and may be thought of as the present value–weighted average
time to maturity of cash ows from the security. e longer the
duration of a security, the more sensitive it is to changes in interest
rates. Duration is generally greater for longer-maturity and
lower-coupon securities.
e duration of the portfolio of Treasury securities held in the
SOMA increased modestly from 6.0 years 6.2 years as reductions
in duration from the aging of the existing portfolio were more
than oset by increases in duration from new net purchases and
reinvestments.
2
0
4
6
8
10
2017 2018 2019 2020 2021
Chart 20
Average Duration of SOMA Domestic Securities Holdings
Source: Federal Reserve Bank of New York.
Notes: Figures are as of month-end. Calculations are par-weighted. The
rise in agency debt duration during 2018 is due to a maturity that left a
small number of agency debt securities with longer tenors in the
portfolio. Total SOMA and Agency MBS do not include agency CMBS.
Years
Total SOMA
Treasury securities
Agency MBS
Agency debt
37
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
e increase in the eective duration of the SOMA’s holdings
of agency MBS is consistent with the decrease in the average
coupon of SOMA agency MBS holdings and the increase in
mortgage rates over the course of 2021. e sensitivity of MBS
duration to changes in interest rates highlights how prepayments
impact the SOMA portfolio. Increases in mortgage rates can
decrease prepayment speeds whereas decreases in mortgage
rates can increase prepayment speeds.
31
(For more information,
see Open Market Operations during 2017, Box 3, “Agency MBS
Prepayment Uncertainty.”)
Measures of the dollar value of duration risk held in the SOMA
portfolio increased in 2021. One method of measuring dollar
duration is in terms of ten-year equivalents—that is, the amount
of ten-year Treasury securities that would be needed to match
the duration risk of the portfolio. is metric also provides a
risk-adjusted metric of the holdings in the SOMA portfolio. e
SOMA portfolio’s ten-year equivalent measure increased from
$3.60 trillion at the end of 2020 to $5.29 trillion at the end of
2021, driven primarily by the increases in holdings of Treasury
securities and agency MBS (Chart 21).
32
SOMA REPURCHASE AGREEMENTS
There were no outstanding repurchase agreements at year-end
2021. Amid stable conditions in funding markets, there was
minimal take-up over the year at the scheduled repo operations
and at the standing repurchase agreement facility, with activity
only involving transactions undertaken for operational
readiness testing. ere were also no outstanding FIMA repo
transactions at year-end 2021. Usage was limited throughout
2021 and primarily reected transactions undertaken for purposes
of operational readiness testing. (For more information on
repurchase agreements, see the “Open Market Operations”
section of this report.)
CENTRAL BANK LIQUIDITY SWAPS
e aggregate outstanding balance of the U.S. dollar swap lines
decreased by $14.6 billion in 2021 to $3.3 billion at year-end.
Smooth functioning and ample liquidity conditions in global
dollar funding markets led to lower usage of the swap lines,
resulting in the decline in aggregate outstanding swaps over the
year. (For more information on central bank liquidity swaps, see
the “Open Market Operations” section of this report.)
SOMA FOREIGN CURRENCY–DENOMINATED
HOLDINGS
The Federal Reserve holds foreign currency–denominated
assets, which are invested to ensure adequate liquidity to
meet anticipated foreign exchange intervention needs. As of
year-end 2021, the SOMA foreign currency portfolio totaled
$20.4 billion, composed of $12.3 billion of euro-denominated
assets and $8.1 billion of yen-denominated assets. The portfolio
decreased by $1.9 billion in U.S. dollar terms over the year,
primarily owing to a 7 percent depreciation of the euro against
the dollar and a 10 percent depreciation of the yen against the
dollar. The share of government debt obligations decreased
in the euro-denominated portfolio, while the share of cash
500
0
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
2017 2018 2019 2020 2021
Source: Federal Reserve Bank of New York.
Notes: Figures are as of month-end. Calculations are par-weighted. Total
SOMA and Agency MBS do not include agency CMBS. Agency debt is not
shown owing to its minimal value.
Billions of U.S. dollars
Chart 21
SOMA Domestic Securities Holdings in Ten-Year
Equivalents
Total SOMA Treasury securities
Agency MBS
38
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
held on deposit at official institutions increased; the share of
government debt obligations in the yen-denominated portfolio
was eectively unchanged (Chart 22). (For more information
on the foreign currency–denominated portfolio, see the “Open
Market Operations” section of this report.)
For euro-denominated assets, the Macaulay duration of the
portfolio fell from 27.0 months at year-end 2020 to 25.0 months
at year-end 2021.
33
For yen-denominated assets, purchases of
government debt obligations increased the Macaulay duration of
the portfolio from 0.2 months at year-end 2020 to 0.4 months
at year-end 2021.
PRIMARY CREDIT PROGRAM
e Federal Reserve’s primary credit program serves as a backup
source of liquidity for depository institutions in generally sound
nancial condition and with appropriate collateral pledged to a
Reserve Bank. Loans are initiated by depository institutions and
approved by Reserve Banks. In 2021, the primary credit rate for
each Reserve Bank was maintained at 0.25 percent, unchanged
since March 2020. Primary credit loans continued to be granted
for terms of up to ninety days.
Banks’ use of primary credit fell steadily throughout 2021, as
their borrowing needs declined amid elevated levels of reserves
in the banking system. e total loan balance under primary
credit ended the year at $555 million, down from a year-end
balance of $1.6 billion in 2020 and a peak balance of $51.3 billion
near the start of the pandemic. Term borrowing represented
11.3 percent of total advances under the primary credit program.
As in 2020, small domestic banks accounted for the vast majority
of primary credit loan originations in 2021. Loans to foreign
banking organizations accounted for 6.4 percent of total advances
in 2021, down from 17.2 percent in the prior year. ere were
no borrowings by domestic global systemically important
banks (G-SIBs), except for occasional test borrowings for
nominal amounts.
EMERGENCY CREDIT AND
LIQUIDITY FACILITIES
e total outstanding principal amount across the emergency
credit and liquidity facilities was $52.8 billion at the end of the
year, down from $92.8 billion at year-end 2020. e PPPLF had
the largest outstanding balance at year-end of $33.9 billion,
followed by the MSLP at $13.4 billion, the MLF at $4.1 billion,
and the TALF at $1.3 billion. e MLF and TALF assets have
nal maturities in 2023 while PPPLF and MSLP loans have nal
maturities in 2026, although holdings from any of these facilities
may prepay. A portion of PPPLF loans is expected to be paid
down as a result of the SBA’s PPP loan forgiveness. (For more
information on each facility, see the “Emergency Credit and
Liquidity Facilities” section of this report.)
5
0
1
0
1
5
2017 2018 2019 2020 2021 2017 2018 2019 2020 2021
Chart 22
Distribution of SOMA Foreign Currency Portfolio Holdings
S
ource: Federal Reserve Bank of New York.
N
ote: Figures reflect amortized cost.
B
illions of U.S. dollars
Euro deposits at official institutions
French sovereign debt
German sovereign debt
Dutch sovereign debt
Yen deposits at official institutions
Japanese sovereign debt
Euro portfolio Yen portfolio
39
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
SELECTED LIABILITIES
e Federal Reserve’s assets are funded by a variety of liabilities
and capital; as explained further below, these liabilities provide
safe and liquid assets for the public (for example, Federal Reserve
notes), the U.S. Treasury, the banking system, and other entities
such as ON RRP counterparties and foreign ocial institutions.
Total Federal Reserve liabilities increase (decrease) when the
balance sheet expands (contracts), and the composition of
individual liabilities can also shift.
During 2021, the total level of liabilities and capital increased
by $1.40 trillion to $8.76 trillion. e net increase in liabilities
included a $649 billion increase in reserves and a record
$1.89 trillion increase in ON RRP balances, partially oset by
a $1.32 trillion decrease in the TGA (Chart 23). e primary
drivers of the increase in reserves and ON RRP balances were
the Desk’s asset purchases, aimed at fostering smooth market
functioning and accommodative nancial conditions, and the
drawdown of the TGA balance from historically high levels to its
lowest level since September 2017. e TGA drawdown resulted
from unprecedented outows related to the pandemic scal
response and the U.S. Treasury reducing its cash balance amid
debt ceiling dynamics. In turn, the ON RRP facility served, as
intended, to absorb a signicant portion of the liquidity created
by the asset purchases and the TGA drawdown. Federal Reserve
notes increased by $147 billion, remaining above the average
annual increase of $87 billion from 2010 to 2019, as domestic
demand for currency increased at the beginning of the year. All
else equal, an increase (decrease) in non-reserve liabilities leads to
a corresponding decrease (increase) in reserve balances.
RESERVE BALANCES
Reserve balances, which are deposits held by depository
institutions at the Federal Reserve, grew by $649 billion to
$3.64 trillion at year-end and represented the largest liability of
the Federal Reserve throughout 2021.
34
During much of the rst
quarter, ongoing purchases of Treasury securities and agency
MBS drove the signicant growth in reserve balances. Starting
in March and continuing through much of the remainder of the
1,000
0
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2017 2018 2019 2020 2021
Chart 23
Federal Reserve Liabilities
Source: Board of Governors of the Federal Reserve System.
Note: Figures are weekly.
Billions of U.S. dollars
Federal Reserve notes
Reserve balances
Treasury General Account balances
FIMA reverse repo pool
RRPs
Term deposits
Other liabilities
40
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Credit & Liquidity
Facilities
year, the drawdown of the TGA from historically high levels
also contributed to the increase in reserves, which peaked at
nearly $4.3 trillion in December. However, downward pressure
on rates associated with elevated reserve levels contributed to
an increase in ON RRP balances, attenuating further expansion
in reserves. Some banks discouraged customer deposits to
contain growth in their balance sheets. In this environment,
MMFs received large inows that, amid a dearth of attractive
investments, put downward pressure on overnight rates, making
ON RRP use more attractive. e midyear upward technical
adjustments in the administered ON RRP rate also encouraged
some eligible counterparties to place more funds in the ON RRP
facility (Chart 24).
FEDERAL RESERVE NOTES
Federal Reserve notes, commonly known as currency in
circulation (currency), increased by $147 billion during 2021 to
$2.19 trillion by year-end.
35
To U.S. households and rms,
currency is an asset that can be readily exchanged for goods and
services and serves as a store of value.
36
In addition to domestic
demand, demand for U.S. currency can also originate from abroad
where it serves similar purposes in certain countries. e rate of
growth of currency outstanding has generally reected the pace
of expansion of domestic economic activity in nominal terms.
Heightened nancial or political uncertainty can also drive growth
in currency, as during 2020, when the adverse outlook for the
economy and shutdowns associated with the pandemic prompted
investors, businesses, and households to move rapidly toward cash
and cash-like instruments.
37
Federal Reserve notes outstanding increased by about
7 percent in 2021, less than half of the 16 percent increase
recorded in 2020 and in the range observed during the last
decade (Chart 25). During March, there was an uptick in
growth of Federal Reserve notes outstanding, corresponding
with the latest round of economic impact payments and
other stimulus-related outlays following the passage of a
third COVID-19 relief bill. Despite the overall increase
in Federal Reserve notes for the year, the pace of monthly
growth from April through year-end was generally slower
than historical averages.
41
OPEN MARKET OPERATIONS DURING 2021
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EndnotesEmergency
Credit & Liquidity
Facilities
REVERSE REPURCHASE AGREEMENTS
OVERNIGHT REVERSE REPOS
The amount of ON RRP outstanding at the end of 2021 was
$1.90 trillion, compared to $9.7 billion at the end of 2020,
reflecting significant growth that began in March and
continued steadily throughout the remainder of the year.
As noted above, the increase in ON RRP balances occurred
in parallel with the growth in reserves held by depository
institutions and the drawdown of the TGA. The two increases
in the ON RRP counterparty limit, first from $30 billion
to $80 billion, and then from $80 billion to $160 billion,
accommodated greater usage of the facility by eligible
counterparties. For more information on ON RRP operations,
see the “Open Market Operations” section of this report.
FIMA REVERSE REPO POOL
The New York Fed has long offered its FIMA account holders
an overnight reverse repo investment service, the FIMA
reverse repo pool, also known as the foreign repo pool. At the
end of each business day, account holders’ cash balances are
routinely swept into an overnight reverse repo secured by the
SOMA domestic securities holdings.
38
Upon maturity on the
following business day, the securities are repurchased by the
SOMA at a repurchase price that includes a return calculated
at a rate generally equivalent to the ON RRP rate, although
the New York Fed may vary the rate of return at any time
without prior notice.
This service addresses a preference by many central
banks to hold significant dollar liquidity buffers at the
Federal Reserve for policy purposes, and supports operational
liquidity needs to clear and settle securities in these accounts.
Like other reserve currency central banks, the Federal Reserve
offers this service as part of a suite of banking and custody
services to central banks, governments, and international
official institutions.
Through the first half of 2021, aggregate balances remained
roughly unchanged from 2020 year-end levels that were just
over $200 billion. In June, the upward technical adjustment
in the ON RRP offering rate and an associated increase in the
FIMA reverse repo pool’s interest rate from 0 to 5 basis points
contributed to inflows at a fairly steady pace over the
-2
-1
0
1
2
3
4
5
Historical average from 2010 to 2019 2020 2021
Percent
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
S
ource: Federal Reserve Bank of New York.
Note: Figures reflect the growth rate of month-end levels.
Chart 25
M
onthly Changes in Federal Reserve Notes
42
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remainder of the year; the balance reached a weekly average
record of $309 billion in mid-December, above the previous
year’s weekly average high of $282 billion. The inflows included
transfers from customers’ non-interest-bearing FIMA operating
accounts at the New York Fed and increases in the customers’
COVID-19-related liquidity buffers (Chart 26).
DEPOSITS
TREASURY GENERAL ACCOUNT
By statute, the Federal Reserve acts as scal agent for the federal
government. Consequently, the U.S. Treasury maintains a cash
balance at the Federal Reserve—the Treasury General Account—to
deposit corporate and individual taxes paid to the U.S. government
and to disburse payments, pay interest on federal debt, and settle
Treasury security transactions.
39
TGA balances typically exhibit
signicant variation around Treasury auction settlement dates and
debt limit–related deadlines, and they are also aected by the timing
of the receipt of tax payments. To ensure it can meet its obligations
even if the ability to borrow new funds is temporarily disrupted,
the U.S. Treasury generally strives to maintain a TGA balance that
is large enough to ensure that it can cover one week of net outgoing
payments and the gross volume of maturing marketable debt,
subject to a minimum of roughly $150 billion; the U.S. Treasury
oen holds a TGA balance above the level necessary to meet its
projected cash need in order to support its regular and predictable
approach to issuing debt.
40
e TGA opened the year at just over $1.73 trillion, still
elevated as a result of the signicant U.S. Treasury borrowing
in 2020 to fund disbursements related to the scal stimulus
legislation passed in response to the pandemic. e balance
decreased steadily over much of the year, as payments were made
to cover scal outlays, including pandemic-related expenditures,
and as the U.S. Treasury managed the TGA balances around
debt limit–related events. e TGA balance reached a trough in
December of about $40 billion ahead of passage of legislation
that raised the debt limit by $2.5 trillion and then rose to a
year-end level of $406 billion. e average weekly TGA balance
during 2021 was about $730 billion, or roughly 60 percent of
the $1.2 trillion average weekly TGA balance during 2020; the
weekly uctuations in the balance were roughly the same as
those in 2020 though still markedly more volatile than in prior
years (Chart 27).
FOREIGN OFFICIAL AND OTHER DEPOSITS
The Federal Reserve has long offered deposit services to
government-sponsored enterprises and international and
multilateral organizations. More recently, it has offered deposit
accounts to designated financial market utilities (DFMUs).
41
GSEs are financial intermediaries chartered by the federal
government that primarily facilitate the flow of credit to
housing and agriculture. DFMUs provide the infrastructure
for transferring, clearing, and settling payments, securities,
and other financial transactions among financial institutions.
Access to deposit accounts at the Federal Reserve enables
these entities to store their cash in a safe and liquid facility.
Unlike deposits held by FIMA customers and GSEs at the
New York Fed, deposits held by DFMUs may be remunerated
at the rate paid on reserve balances maintained by depository
00
0.5
1.0
1.5
2.0
2.5
3.0
3.5
50
100
150
200
250
300
350
2017 2018 2019 2020 2021
Chart 26
FIMA Reverse Repo Pool
S
ources: Board of Governors of the Federal Reserve System; Federal
R
eserve Bank of New York.
B
illions of U.S. dollars Percent
Weekly average balance (left scale)
Quarterly average rate (right scale)
43
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institutions or another rate determined by the Board from time
to time, not to exceed the general level of short-term interest
rates. All eight DFMUs were approved to open accounts at the
Federal Reserve in 2013.
In 2021, aggregate balances of foreign ocial and other
deposits rose to record high levels, averaging $299 billion,
well above the average of $106 billion observed since 2017.
e increase was driven by a signicant rise in DFMU account
balances, which remained elevated throughout the year as
DFMUs deposited cash received as collateral and earned interest
at rates oered by Federal Reserve Banks. GSE account balances
continued to vary widely, temporarily shiing higher ahead
of agency MBS principal and interest payment dates; balances
declined generally throughout the second half of the year as GSEs
increased their participation in the ON RRP facility following the
technical adjustment in the ON RRP oering rate. Foreign ocial
deposits declined signicantly throughout the second half of the
year due to FIMA customers’ preferences to shi funds from their
uninvested deposits to the FIMA reverse repo pool following the
rate adjustment in June.
FINANCIAL RESULTS
SOMA portfolio net income increased in 2021, continuing the
trend from 2020, and as a result, contributed to greater levels of
Federal Reserve income and remittances to the U.S. Treasury. Between
2014 and 2019, SOMA net income and remittances had declined due
to higher funding costs associated with rising short-term interest rates
and lower average SOMA domestic securities holdings.
SOMA NET INCOME
SOMA income—income directly attributable to the SOMA
portfolio—was $120.1 billion in 2021, up $17.4 billion from the prior
year, due primarily to a sharp increase in interest income on Treasury
securities from rising Treasury security holdings, which was modestly
oset by a decrease in interest income on agency MBS holdings.
e decrease in MBS interest income is attributable to reinvestment
of principal payments into lower-coupon new issuance, which was
partially oset by the additional interest income from the net growth
in MBS holdings. SOMA income also reected a modest decrease
in interest expense on reverse repos on SOMA securities (primarily
reecting lower interest expense on the FIMA reverse repo pool) and
a loss resulting from the revaluation of foreign currency–denominated
asset holdings at current exchange rates.
SOMA net income, a measure that recognizes the total
cost of funding SOMA assets on the Federal Reserve’s balance
sheet—inclusive of the assumed cost of interest-bearing,
non-SOMA liabilities—totaled $114.8 billion, a $20 billion
increase from 2020. This increase primarily reflects higher total
SOMA income and to a lesser extent the modest decrease in
interest costs of the non-SOMA liabilities (Table 4).
FEDERAL RESERVE REMITTANCES
e Federal Reserve remits excess earnings to the U.S. Treasury
on a weekly basis, aer providing for the cost of operations,
payment of dividends, and any amount necessary to maintain
aggregate Reserve Bank capital surplus up to a specied limit.
e Federal Reserve remitted a total of $109.0 billion to the
U.S. Treasury during 2021, up from $86.9 billion in 2020. e
$22.1 billion increase in remittances stemmed primarily from a
rise in SOMA net income (Chart 28).
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2017 2018 2019 2020 2021
Chart 27
Treasury General Account Balances
Source: Board of Governors of the Federal Reserve System.
Note: Figures are averages of daily balances.
Billions of U.S. dollars
Weekly average Annual average
44
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SOMA UNREALIZED GAINS AND LOSSES
The market value of the SOMA securities portfolio fluctuates
with changes in the prevailing level of interest rates. During
2021, due to an increase in market interest rates across the
yield curve, the portfolio’s unrealized gain position declined
to $128 billion from the record high of $354 billion at
year-end 2020, which had occurred in an environment of
lower market rates on Treasury securities and agency MBS and
record growth in portfolio holdings (Chart 29). The Treasury
securities portfolio’s unrealized gain position decreased to
roughly $135 billion from $299 billion at the end of 2020,
and the agency MBS portfolio moved to a loss of roughly
$7 billion at the end of 2021 from a gain of $54 billion at
the end of 2020. Unrealized gains on the foreign portfolio
decreased to $68 million at the end of 2021 from $170 million
at the end of 2020.
Unrealized gains and losses are calculated as the dierence
between the market value of the portfolio and its book value
(which reects amortized cost). e SOMA’s unrealized gain or
loss position has no eect on net income or Federal Reserve
remittances to the U.S. Treasury unless assets are sold and those
Table 4
SOMA Net Income
Billions of U.S. Dollars
2021 2020
Interest income
Repurchase agreements – 0.7
Treasury securities 92.6 67.5
Agency debt 0.1 0.1
Agency MBS 29.6 32.3
Other
– 0.5
122.3 101.2
Interest expense
Reverse repurchase agreements
Overnight and term RRP (0.3) (0.0)
FIMA reverse repo pool (0.1) (0.7)
Other 0.0 0.0
(0.4) (0.7)
Non-interest income (loss)
Foreign currency translation gains (losses) (1.9) 1.5
Other – 0.7
(1.9) 2.2
SOMA income 120.1 102.7
Assumed funding cost (5.3) (7.9)
SOMA net income 114.8 94.8
Sources: Federal Reserve Bank of New York; Board of Governors of the
Federal Reserve System.
Notes: Assumed funding cost represents interest expense on interest-
bearing, non-SOMA liabilities (reserves and certain other deposits)
assumed to be associated with SOMA assets. Actual interest expense on
all non-SOMA interest-bearing liabilities of the Federal Reserve, including
reserves and term deposits, totaled $5.3 billion for 2021 and $7.9 billion
for 2020. These liabilities fund non-SOMA assets of the Federal Reserve in
addition to SOMA net assets.
20
0
40
60
80
1
00
1
20
2017 2018 2019 2020 2021
Chart 28
SOMA Net Income and Federal Reserve Remittances
to the U.S. Treasury
Billions of U.S. dollars
Sources: Federal Reserve Bank of New York; Board of Governors of the
Federal Reserve System.
a
Represents the transfer of capital from Federal Reserve Banks to
comply with the statutory limit on the aggregate Federal Reserve
surplus. The limit was reduced in 2018 from $10 billion to $7.5 billion
and then to $6.825 billion. In 2021, the limit was reduced further to
$6.785 billion by the National Defense Authorization Act for 2021,
resulting in a $40 million transfer by Reserve Banks from their capital
surplus. Given the scale of the chart, the 2021 transfer is not visible.
SOMA net income
Earnings remittances
Transfer of capital surplus
a
-100
-50
50
0
100
150
200
250
300
350
2017 2018 2019 2020 2021
Chart 29
SOMA Domestic Portfolio Unrealized Gains and
Losses
Source: Board of Governors of the Federal Reserve System.
Note: Figures are as of year-end.
Billions of U.S. dollars
Treasury securities
Agency MBS
Agency debt
45
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gains or losses are realized. When securities are held to maturity,
their unrealized gains or losses fall to zero over time as their price
reverts to par at maturity. Unrealized gains and losses do not aect
the ability of the Federal Reserve to implement monetary policy.
PROJECTIONS
In the last quarter of 2021, the FOMC began to slow the pace
of its net asset purchases, which were conducted to foster
accommodative financial conditions and smooth market
functioning. At its January 2022 meeting, the Committee
decided to continue its ongoing reduction in the monthly
pace of net asset purchases, bringing them to an end in early
March, and issued Principles for Reducing the Size of the
Balance Sheet, providing information on its planned approach
for significantly reducing the size of the Federal Reserve’s
balance sheet. At the May meeting, the Committee issued its
Plans for Reducing the Size of the Federal Reserve’s Balance
Sheet (Plans). The projections presented here incorporate
these Plans, illustrating a possible path for the SOMA
portfolio in coming years. The outlook for the balance sheet
remains uncertain and the projections are meant to be purely
illustrative. The projections demonstrate the overall contours
of the path of the portfolio and the balance sheet under one set
of assumptions. The actual path of the portfolio will depend
primarily on Committee judgments about ample reserves and
policy decisions. The projections also include portfolio income
and market value gains and losses under a baseline interest
rate scenario and under alternative interest rate scenarios.
In addition to Committee communications, the assumptions
underlying the projections also reflect market participant
expectations from the results of the Desk’s Surveys of Primary
Dealers and Market Participants (Desk Surveys) and simple
rules used to proxy the evolution of Federal Reserve liabilities.
42
Based on these assumptions, the projections suggest that the
SOMA portfolio will decline in a predictable manner over coming
years, at a pace roughly twice that of the previous episode of
balance sheet runo during 2017 through 2019, as proceeds
from principal payments are only reinvested to the extent that
they exceed monthly caps. As part of its Plans, the Committee
intends to slow and then stop the decline in the balance sheet
when reserve balances are somewhat above the level it judges
to be consistent with ample reserves. Once balance sheet runo
has ceased, reserve balances will likely continue to decline for
a time, until the Committee judges that reserve balances are at
an ample level. When reserve balances reach an ample level,
the portfolio is projected to resume growth through reserve
management purchases.
In addition to providing an illustrative path for the SOMA
portfolio, the projections also indicate an illustrative path for
portfolio income, as well as potential unrealized gains and losses
on portfolio holdings. Under the assumed path, interest rates
rise over the projection horizon and the portfolio’s net income is
projected to decline substantially from recent levels. Additional
scenarios that consider alternate interest rate paths show that net
income could be higher or lower than the projected path and net
income could turn negative for a short period of time.
e unrealized gain position at year-end 2021 turned negative
in early 2022 and this loss is projected to grow with the projected
20
0
40
60
80
100
120
2017 2018 2019 2020 2021
Chart 28
SOMA Net Income and Federal Reserve Remittances
to the U.S. Treasury
Billions of U.S. dollars
Sources: Federal Reserve Bank of New York; Board of Governors of the
Federal Reserve System.
a
Represents the transfer of capital from Federal Reserve Banks to
comply with the statutory limit on the aggregate Federal Reserve
surplus. The limit was reduced in 2018 from $10 billion to $7.5 billion
and then to $6.825 billion. In 2021, the limit was reduced further to
$6.785 billion by the National Defense Authorization Act for 2021,
resulting in a $40 million transfer by Reserve Banks from their capital
surplus. Given the scale of the chart, the 2021 transfer is not visible.
SOMA net income
Earnings remittances
Transfer of capital surplus
a
-100
-50
50
0
100
150
200
250
300
350
2017 2018 2019 2020 2021
Chart 29
SOMA Domestic Portfolio Unrealized Gains and
Losses
Source: Board of Governors of the Federal Reserve System.
Note: Figures are as of year-end.
Billions of U.S. dollars
Treasury securities
Agency MBS
Agency debt
46
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increases in market rates for Treasury securities and agency MBS.
Alternate scenarios shown suggest that the unrealized gain or loss
position of the portfolio could vary widely depending upon the
path of market rates. Unrealized gains or losses do not impact the
Federal Reserve’s ability to implement monetary policy.
ASSUMPTIONS
is section reviews the assumptions about portfolio runo,
liabilities, and interest rates that are used for the projections; a
complete list of key assumptions can be found in Appendix 4.
BALANCE SHEET
Assets
e projections assume that the portfolio will evolve in three
phases: portfolio reduction, portfolio maintenance, and portfolio
growth. Starting in June 2022, monthly principal payments from
Treasury coupon securities and agency securities are reinvested
only to the extent that they exceed monthly redemption caps. e
redemption caps are initially set at $30 billion and $17.5 billion
per month for Treasury and agency securities, respectively, and
aer three months, rise to $60 billion and $35 billion, respectively.
Treasury coupon principal payments are redeemed up to the
monthly Treasury cap, and Treasury bills are redeemed when
coupon principal payments are less than the monthly cap, with bill
redemptions equal to the remainder under the cap.
In discussion at the March 2022 FOMC meeting, Committee
participants generally agreed that agency MBS sales would be
considered aer balance sheet runo was well underway in order
to make suitable progress toward a portfolio composed primarily
of Treasury securities. However, these projections assume that
reductions in the portfolio are achieved only through redemptions
of maturing securities without asset sales, as no plans have been
established for such a program.
Consistent with the Plans, the decline in the portfolio slows and then
stops when reserves are above the level assumed to be consistent with
an ample reserves regime. e amount of reserves needed in an ample
reserves regime is highly uncertain, and the projection shows just
one illustrative path for the portfolio. e projection assumes that the
level of reserves needed in an ample reserves regime is equivalent to
the average level of reserves in December 2019 as a share of nominal
GDP (NGDP), or 8 percent, in line with the projection assumptions in
Open Market Operations during 2020.
Consistent with the plans to slow and then stop the decline in
the portfolio before reserves reach this level, redemption caps
are reduced when reserves reach 10 percent of NGDP and full
reinvestments resume when reserves reach 9 percent of NGDP,
resulting in a stable SOMA portfolio. Aer this point, caps are
removed and all principal payments—including those from
agency MBS holdings—are reinvested into Treasury securities,
in line with the FOMC’s stated objective of holding a portfolio
primarily composed of Treasury securities in the longer run.
e portfolio is assumed to enter the growth phase when reserve
balances reach 8 percent of NGDP, at which point purchases of
Treasury securities resume at a pace that maintains reserves at
an ample level.
Liabilities and Capital
Demand for most Federal Reserve liabilities is anticipated to grow
over time. Accordingly, most non-reserve liabilities and capital are
assumed to begin at their average February 2022 levels and grow over
the projection horizon in line with nominal GDP; the nominal rate
of growth for GDP is set based on median responses to the March
Desk Surveys. e median projected long-run growth rates of real
GDP and headline personal consumption expenditures (PCE) price
ination were 1.9 percent and 2.0 percent, respectively, implying a
long-run level of nominal GDP growth of 3.9 percent.
43
ere are two exceptions to this approach. First, ON RRP balances
are assumed to decline to a minimal level over time. is would be
consistent with overnight market interest rates rising relative to IORB
as the size of the portfolio declines. Second, the TGA is assumed to
rise to $700 billion by the end of the second quarter of 2022, a level
in line with the cash balance guidance provided in the Treasury’s
February 2022 Quarterly Refunding Statement. ereaer, the TGA
is assumed to grow with nominal GDP, similar to other liabilities.
As discussed above, the level of reserves needed to maintain ample
conditions is assumed to be 8 percent of GDP for the purposes of
these projections. ere is substantial uncertainty about the level
47
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of reserves needed to maintain ample conditions in the long run,
and as such these projections are merely illustrative.
INTEREST RATES
e baseline paths for the federal funds rate and longer-term
interest rates are drawn from responses to the March Desk
Surveys. In these surveys, the median expected level of the
eective federal funds rate is assumed to rise to 2.625 percent
by year-end 2024 and to fall to 2.25 percent in the longer term.
In the surveys, the ten-year Treasury yield and thirty-year xed
primary mortgage rates rise to 2.5 percent and 4.4 percent,
respectively, in the longer run.
e projection exercise also considers a range of outcomes
assuming lower and higher interest rates. e charts below also
show income and the market value of the portfolio in scenarios
where interest rates are 100 basis points higher or lower than
the values obtained from the March Desk Surveys. e data les
for this report also include scenarios where interest rates are
200 basis points higher or lower than the values obtained from the
March Desk Surveys.
e IORB rate is assumed to be set 10 basis points below the top
of the target range and the ON RRP oering rate is assumed to
be set 5 basis points above the bottom of the target range. ese
assumptions for the administered rates are consistent with the
FOMC’s March 2022 Implementation Note.
PROJECTION RESULTS
PATH OF PORTFOLIO HOLDINGS AND RESERVE BALANCES
Starting with the SOMA domestic securities portfolio as of
February 2022 and incorporating the assumptions described above
results in the projected path of the SOMA through 2030 shown in
Chart 30. e portfolio declines through mid-2025 as maturing
principal payments are allowed to run o, subject to caps,
starting in mid-2022. e pace of decline is more rapid early in
the projection period, with monthly declines averaging roughly
$80 billion through 2024, aer which the pace slows as the caps are
reduced. Aer declining by about $2.5 trillion from the peak size
reached in the rst half of 2022, the portfolio stops declining in
mid-2025, at which point it is held constant at $5.9 trillion, about
22 percent of GDP, for roughly one year (Chart 31); meanwhile,
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end, and projected figures are rounded. Figures
for 2010-21 are shaded and represent historical balances. Although not
discernible here, the SOMA is held constant from roughly the middle of 2025
through the middle of 2026.
Projections assumptions are based on publicly available information further
detailed in Appendix 4 of this report.
Billions of U.S. dollars
Chart 30
Projected SOMA Domestic Securities Holdings
2010 2014 2018 2022 2026 2030
0
10
20
30
40
50
Percent
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end, and projected figures are rounded. Figures
for 2010-21 are shaded and represent historical data.
Projections assumptions are based on publicly available information further
detailed in Appendix 4 of this report.
Chart 31
Projected SOMA Domestic Securities Holdings as a
Share of GDP
2010 2014 2018 2022 2026 203
0
48
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reserves continue to decline as most other liabilities continue to
grow. Once reserves reach the assumed long-run level, the portfolio
resumes growth in mid-2026 to match the assumed growth in
demand for Federal Reserve liabilities (Charts 32 and 33). By 2030,
the SOMA totals $7.2 trillion, or 22 percent of GDP. While the
precise level of the SOMA and reserves in the long run is uncertain
due to inherent uncertainty in demand for Federal Reserve
liabilities, the dynamics shown here illustrate the broad contours
expected to prevail in the coming years.
PORTFOLIO COMPOSITION
As the SOMA portfolio declines in coming years through
the redemption of maturing securities under the caps, the
composition of the portfolio is roughly unchanged. Through
2025, the portfolio is composed of roughly 68 percent Treasury
securities and 32 percent agency securities. During the period
when the portfolio is held constant and resumes growth, the
projection assumes that all principal payments from agency
MBS are reinvested into Treasury securities—consistent with
the Committee’s intention to return to a portfolio composed
primarily of Treasury securities—and principal payments
from Treasury securities are reinvested at auction. When the
portfolio resumes growth, new reserve management purchases
are assumed to be conducted in Treasury securities. As a result,
the proportion of the portfolio allocated to agency securities
gradually declines starting in 2025. By 2030, the portfolio is
composed of 86 percent Treasury securities and 14 percent
agency securities (Chart 34).
SOMA NET INCOME AND
REMITTANCES
As discussed earlier in this report, the Federal Reserve remits
excess earnings to the U.S. Treasury aer providing for the cost of
operations, the payment of dividends, and any amount necessary to
maintain an aggregate Reserve Bank capital surplus up to a specied
limit. SOMA net income—a measure that reects income and
interest expense associated with the SOMA portfolio, including its
assumed funding costs—is the primary driver of Federal Reserve
remittances. Income reects coupon income from SOMA holdings,
while interest expenses reect those from interest-bearing
0
1
,000
2
,000
3
,000
4
,000
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end, and projected figures are rounded. Figures
for 2010-21 are shaded and represent historical data.
Projections assumptions are based on publicly available information further
detailed in Appendix 4 of this report.
B
illions of U.S. dollars
Chart 32
Projected Reserve Balances
2010 2014 2018 2022 2026 2030
0
5
10
15
20
25
Percent
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end, and projected figures are rounded. Figures
for 2010-21 are shaded and represent historical data.
Projections assumptions are based on publicly available information further
detailed in Appendix 4 of this report.
Chart 33
Projected Reserve Balances as a Share of GDP
2010 2014 2018 2022 2026 2030
49
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
liabilities, including reserves and ON RRP. A substantial portion
of Federal Reserve liabilities are not remunerated, including
currency and the Treasury General Account.
In this projection exercise, SOMA net income is projected
to decline notably in the portfolio reduction phase through
2024 (Chart 35).
44
Funding costs associated with reserve
balances and the ON RRP increase sharply as a result of interest
rate increases, while coupon income declines modestly as the
size of the portfolio is reduced. Then, in the reinvestment
phase, net income begins to increase as funding costs
decrease, in line with the continued decline in reserves, and as
reinvestments into higher-yielding securities resume.
To illustrate the sensitivity of SOMA net income to alternative
interest rate paths, Chart 35 also shows the outcomes for net
income assuming short- and long-term interest rates that are
100 basis points higher and lower than in the baseline.
When
interest rates are 100 basis points higher than indicated in
the March Desk Surveys, net portfolio income is negative for
a short time due to higher funding costs of interest paid on
reserves.
45
If interest rates were to rise 200 basis points higher
than indicated in the March Surveys, the net portfolio income
would be negative for roughly two to three years.
46
Remittances to the U.S. Treasury are not shown here. However, the
projections for net income in higher interest rate scenarios would
likely result in the cessation of remittances to the U.S. Treasury for a
period of time, and a deferred asset recorded on the Federal Reserve’s
balance sheet, reecting the accumulated net loss.
47
As net income
gradually increases above zero, the deferred asset is reduced, and
remittances resume once the deferred asset is extinguished.
In the scenarios where interest rates are lower, funding costs fall
relative to the baseline, resulting in materially higher net income
early in the projection horizon.
0
1
,000
2
,000
3
,000
4
,000
5
,000
6
,000
7
,000
Treasury securities Agency MBS
Chart 34
Projected SOMA Domestic Securities Holdings by
Asset Class
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end, and projected figures are rounded. Figures
for 2010-21 are shaded and represent historical data.
Projections assumptions are based on publicly available information further
detailed in Appendix 4 of this report.
B
illions of U.S. dollars
2010 2014 2018 2022 2026 2030
-100
-60
-20
20
0
60
100
140
180
Baseline Baseline + 100 bps
Baseline - 100 bps
Chart 35
Projected SOMA Net Income
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end, and projected figures are rounded.
Figures for 2010-21 are shaded and represent historical data.
Projections assumptions are based on publicly available information further
detailed in Appendix 4 of this report.
Billions of U.S. dollars
2010 2014 2018 2022 2026 2030
50
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
SOMA UNREALIZED GAINS AND LOSSES
e market value of securities holdings—and, accordingly, the
portfolio’s unrealized gains or losses—uctuates with changes
in the prevailing level of market rates for Treasury and agency
securities. Importantly, the SOMA portfolio’s unrealized gain or loss
position does not aect the ability of the Federal Reserve to meet
its nancial obligations and does not reect the expected evolution
of SOMA net income.
48
Assuming the baseline path of market
rates, the current unrealized loss on the portfolio, calculated as the
dierence between the market value of the portfolio and its book
value (which reects amortized cost), continues to decline through
2023, reaching roughly $300 billion, or about 5 percent of the par
value of the SOMA portfolio (Chart 36). is pattern follows the
path of assumed Treasury and agency rates, which rise sharply over
the period. Toward the end of the horizon, as these rates reach their
long-run levels, the unrealized loss begins to decrease as rates stay
steady while the portfolio ages.
49
Similar to the sensitivity of net income, when interest rates are
100 basis points higher than indicated in the March Desk Surveys,
the unrealized loss on the portfolio reaches nearly $800 billion
(roughly 11 percent of the portfolio). If interest rates were to
rise 200 basis points higher than indicated in the March Desk
Surveys, the unrealized loss would be much higher.
50
ese gures
are included in the data le associated with this report. As noted
earlier, the Federal Reserve’s earnings, gains, or losses have no
impact on its ability to fulll its nancial obligations or implement
monetary policy in pursuit of its statutory goals.
-25
-20
-15
-10
-5
0
5
10
Percent
Chart 36
Projected SOMA Unrealized Gains and Losses as a Share
of the SOMA Portfolio
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end, and projected figures are rounded. Figures
for 2010-21 are shaded and represent historical data.
Projections assumptions are based on publicly available information further
detailed in Appendix 4 of this report.
Baseline Baseline + 100 bps
Baseline - 100 bps
2010 2014 2018 2022 2026 203
0
51
COUNTERPARTIES
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
e New York Fed relies on a robust network of trading
counterparties to supply the necessary operational capacity to
execute domestic and foreign open market operations. is
network of counterparties is diverse and geographically dispersed
to ensure that the New York Fed can continue to conduct open
market operations in a range of scenarios.
51
From time to time, the
Desk revisits its counterparty policies to ensure that they promote
a fair and competitive marketplace and that they continue to
support eective implementation of monetary policy.
PRIMARY DEALERS
Primary dealers are trading counterparties of the New York
Fed in its implementation of monetary policy and are expected
to participate consistently and competitively in open market
operations. ey are also expected to make markets for the
New York Fed on behalf of its ocial account holders as needed,
and to bid on a pro rata basis in all Treasury auctions at reasonably
competitive prices.
52
e New York Fed also expects primary
dealers to provide ongoing insight into market developments in
the daily market monitoring activities that the Desk conducts
to support the formulation and implementation of monetary
policy. As of December 31, 2021, there were twenty-four primary
dealers. Although the total number of primary dealers remained
unchanged from 2020, one primary dealer switched its dealership
from its U.S. broker-dealer to a U.S. bank branch.
AGENCY CMBS COUNTERPARTIES
For its CMBS operations, the Desk used a diverse set of
counterparties, including primary dealers and a range
of other broker-dealers including minority-, women-, or
veteran-owned firms, all of which helped ensure effective
execution of CMBS operations.
53
In 2021, the New York Fed
approved three additional agency CMBS counterparties.
As noted previously, the FOMC terminated its directive to
purchase agency CMBS in November.
REVERSE REPURCHASE
AGREEMENT COUNTERPARTIES
To enhance its ability to support the monetary policy
objectives of the FOMC, the New York Fed has arrangements
with an expanded set of counterparties with whom the Desk
can conduct reverse repo transactions. These counterparties—
which include money market funds, GSEs, and banks—
augment the existing set of primary dealer counterparties
with which the New York Fed can conduct reverse repos.
In April, to allow for broader participation in its ON RRP
operations, the Desk adjusted its RRP counterparty criteria
by eliminating minimum thresholds for GSEs and reducing
net asset value and reverse repo balance thresholds for MMFs.
The changes to counterparty eligibility criteria are designed
to make the ON RRP facility more accessible, in line with the
New York Fed’s efforts to ensure that its counterparty policies
both support effective policy implementation and promote
a fair and competitive marketplace.During 2021, the Desk
added nine ON RRP counterparties, increasing the diversity
of the counterparty base. As of December 31, 2021, there were
129 expanded RRP counterparties, comprising ninety-nine
money market funds from twenty-nine investment
management firms, fifteen GSEs, and fifteen banks.
52
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
STANDING REPURCHASE
AGREEMENT FACILITY
COUNTERPARTIES
In addition to primary dealers, participation in the SRF is open to
depository institutions that meet current eligibility requirements.
On December 17, the New York Fed announced the addition of
three depository institution SRF counterparties.
FOREIGN EXCHANGE
COUNTERPARTIES
Foreign exchange counterparties are trading counterparties of
the New York Fed in its foreign exchange operations conducted
on behalf of the Federal Reserve and the U.S. Treasury. These
counterparties are expected to provide competitive two-way
pricing, as needed, to support the Desk’s periodic foreign
exchange operations as well as service the Desk’s transactions
that relate to the currency needs of the New York Fed’s official
account holders and agencies of the U.S. government. In
addition, the New York Fed relies on its foreign exchange
counterparties for ongoing insight into global financial market
developments as it conducts daily market monitoring activities
to support the formulation and implementation of policy by
U.S. monetary authorities. As of December 31, 2021, there were
twenty-one foreign exchange counterparties.
FOREIGN RESERVES MANAGEMENT
COUNTERPARTIES
e New York Fed transacts with foreign reserves management
counterparties to invest the foreign currency reserves of the
Federal Reserve and the U.S. Treasury. ese counterparties are
expected to participate consistently and competitively in the Desk’s
periodic investment operations. As of December 31, 2021, there
were twenty-four foreign reserves management counterparties,
representing sixteen parent nancial firms.
EMERGENCY CREDIT AND LIQUIDITY
FACILITIES COUNTERPARTIES
The emergency credit and liquidity facilities launched in 2020 in
response to the COVID-19 pandemic included a wide range
of counterparties. In 2021, the New York Fed continued to add
counterparties to support certain of these facilities. Nine additional
rms were onboarded in 2021, including eight new counterparties
for the SMCCF and one new dealer for the CPFF.
54
Over the life
of these facilities, counterparties encompassed a diverse set of
rms by size, business model, and ownership prole, including
minority-, women-, or veteran-owned broker-dealers, regional
bank–aliated broker-dealers, independent broker-dealers, and
broker-dealers aliated with electronic trading platforms. e
addition of these counterparties helped support eective trade
execution, including the sales of the SMCCF’s portfolio holdings
that took place from June to August 2021.
53
OPEN MARKET OPERATIONS DURING 2021
a
See Federal Reserve Board, “Agencies Issue Statement on LIBOR Transition,” November 30, 2020, at https://www.federalreserve.gov/newsevents/pressreleases
/bcreg20201130a.htm.
b
See Alternative Reference Rates Committee, “Year-End Progress Report: The Transition from U.S. Dollar LIBOR,” December 2021, at
https://www.newyorkfed.org/medialibrary/Microsites/arrc/les/2021/20211216-ARRC-Press-Release-Year-End-Progress-Report.pdf.
c
See https://www.newyorkfed.org/medialibrary/media/markets/IOSCO-statement-of-compliance-jul2021.
Following a multiyear effort prompted
by concerns that continued use of LIBOR
posed nancial stability risks, 2021
marked a key year in the transition
away from LIBOR. Publication of a
range of LIBOR tenors, including less
frequently used one-week and two-month
U.S. dollar (USD) LIBOR tenors, ceased
immediately after December 31, 2021.
In addition, while the publication of
remaining USD LIBOR tenors is set to
cease immediately after June 30, 2023,
their continued publication is primarily
intended to allow legacy contracts to
mature naturally and is not intended
to support the use of USD LIBOR in
new contracts after the end of 2021.
Specically, U.S. supervisory guidance
encouraged banks to cease entering
into new contracts that use USD LIBOR
as a reference rate by December 31,
2021, noting that use after that date
posed safety and soundness risks.
a
The Alternative Reference Rates
Committee (ARRC) is the industry body
convened by the Federal Reserve Board
and the New York Fed to help ensure a
successful transition from USD LIBOR. It
has recommended SOFR as its preferred
alternative to USD LIBOR. The ARRC
released a progress report in late 2021
that noted considerable progress in
the transition away from USD LIBOR to
SOFR in cash and derivatives markets
heading into the 2021 year-end
deadline.
b
Areas of progress highlighted
in the report included sharp growth
in SOFR swaps volumes, further
consolidation of SOFR use in debt
and mortgage markets, and growth
in the issuance of SOFR-linked loans.
Looking forward, the ARRC indicated
that it would be monitoring the further
adoption of SOFR, including the shift
out of Eurodollar futures and into SOFR
futures, and that it would continue to
support the transition of legacy contracts
ahead of mid-2023, including work to
support legislative solutions for legacy
contracts. Overall, the ARRC noted that
“the momentum now underway from
USD LIBOR towards SOFR will put the
global nancial system on a more stable
and enduring foundation, with a rate
that is transparent, well-designed, and
grounded in market transactions.”
In July 2021, the New York Fed, in
connection with its role as benchmark
administrator for SOFR, published a
statement of its compliance with the
International Organization of Securities
Commissions (IOSCO) Principles for
Financial Benchmarks.
c
As a matter of
policy, the New York Fed is committed to
administering SOFR and other benchmarks
in a manner consistent with the principles.
With respect to its own market
operations, the New York Fed worked
with its counterparties to amend its
relevant counterparty contracts to remove
any existing references to LIBOR and to
replace them with references to alternative
benchmark rates, specically to forms
of SOFR. Making these changes was
consistent with the goal of the industry
transition away from LIBOR to more
robust benchmark reference rates,
both in order to reduce vulnerabilities
associated with LIBOR and to promote
sustained global nancial stability.
Box 2
INDUSTRY TRANSITION AWAY FROM USD LIBOR AND TOWARD SOFR
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
54
55
OPERATIONAL FLEXIBILITY
AND RESILIENCY
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Over the course of 2021, the New York Fed remained in its pre-
dominately work-from-home posture that began in 2020 and con-
tinued eorts to enhance its operational exibility and resiliency
by maintaining a robust and geographically dispersed network of
counterparties (as described in the previous section) and opera-
tional capabilities. e New York Fed’s remote capabilities ensured
that the Desk was able to conduct operations to implement
monetary policy in accordance with FOMC directives throughout
2021. In addition, the Desk continued to undertake operational
readiness exercises and initiatives to enhance cyber resiliency.
OPERATIONAL READINESS
e Desk continued its practice of conducting small-value
transaction exercises of certain domestic and foreign SOMA
operations for the purpose of maintaining operational readiness.
During these exercises, transactions were conducted end-to-end,
from trade execution through settlement, and were modest in size.
ese exercises test the operational capability to execute a range of
operation types that may be required to eectively implement future
policy directives; however, conducting these operations should not
be interpreted as a signal about the future timing or direction of
changes in policy.
e Desk also conducts small-value exercises as part of its
contingency preparedness eorts, using backup tools for certain
ongoing critical operations. ese exercises test the Desk’s
ability to execute these critical operations under a scenario
in which primary tools such as the proprietary FedTrade
electronic trading platform are unavailable. In 2021, testing of
backup tools covered ON RRP, overnight repos, and securities
lending operations.
e benet of conducting small-value exercises and
undertaking other planning exercises to maintain operational
readiness was especially evident in recent years as the Desk
expeditiously implemented policy directives to address market
stress related to the COVID-19 pandemic. Looking ahead,
these activities will remain important components of the Desk’s
eorts to maintain operational readiness to respond to evolving
policy environments.
Consistent with the Authorization for Domestic Open Market
Operations approved by the FOMC, the aggregate par value
of domestic outright operations conducted for the purpose
of testing operational readiness did not exceed the limit of
$5 billion per calendar year, and the outstanding amount of repo
and reverse repo transactions conducted for this purpose did
not exceed $5 billion at any given time. Domestic small-value
exercises were announced in advance and the operation results
were posted on the New York Fed’s website (Table 5). e
aggregate amount of foreign currency operations conducted for
the purpose of testing operational readiness did not exceed the
limit of $2.5 billion per calendar year (Table 6) specied in the
Authorization for Foreign Currency Operations. e results of
small-value central bank liquidity swap transactions were posted
on the New York Fed’s website.
OPERATIONAL AND CYBER RESILIENCY
e Federal Reserve, its counterparties, and its customers operate
in an increasingly complex environment in which trading and
payment systems and an information infrastructure of growing
sophistication open up new opportunities to obtain and manage
information, conduct business, and communicate. During 2021,
56
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
the impact of the pandemic continued to present significant
operational challenges, as the Federal Reserve and the majority
of its service providers, counterparties, and customers
maintained a full or partial work-from-home posture. In the
latter half of 2021, the New York Fed implemented a partial
“return to the office” program. This approach provided
additional technology and operational assurance since some
portions of Desk operations were conducted from the office.
The New York Fed’s near-term objective is to operate a hybrid
model with staff working remotely and at the office, which
enhances overall resilience and flexibility as COVID-19-related
health risks and safety protocols evolve.
As part of a long-standing commitment to proactively manage
security risks, the Federal Reserve has continually invested in
initiatives to improve physical and information security while
also enhancing operational resilience, including collecting and
analyzing threat intelligence, implementing defensive measures,
and augmenting its detective and reactive capabilities. In recent
years, the New York Fed has enhanced the resiliency of its
operational infrastructure through initiatives that have added
protections for key transactional systems to address risks posed by
cyber threats. Relatedly, the New York Fed continues to annually
attest to the SWIFT Customer Security Programme (CSP) rolled
out in 2017. Cyber resilience remained at the forefront of risk
management during 2021 with media reporting numerous cyber
events at a range of institutions and industries. e New York Fed
continues to progress on its Cyber Security Strategy by articulating
strategic choices and prioritizing investments to enhance its
resiliency against cyberattacks.
GEOGRAPHIC RESILIENCY
In the event of wide-scale disruptions in large metropolitan
areas (in particular, the New York region, where many market
participants are located), the Federal Reserve must continue to
conduct open market operations and settlement activities. In
2021, the Desk continued to maintain its operational exibility
and resiliency by maintaining a robust, geographically dispersed
network of counterparties and operating capabilities to support
Desk operations.
Table 5
Small-Value Exercise Results in 2021: Domestic Operations
Operation Type Time Frame
Operation Amount
(Millions of U.S. Dollars)
Treasury outright sales
First half 25
Second half 25
Agency MBS outright sales
First half 168
Second half 83
Agency MBS coupon swaps
First half 20
Second half 20
Overnight repurchase agreement with back-up tool First half 46
Overnight reverse repurchase agreement with back-up tool First half 77
Securities lending with back-up tool
First half 67
Second half 63
Source: Federal Reserve Bank of New York.
Notes: Figures may be rounded. Further details for each small-value exercise are available on the Federal Reserve Bank of New York's website.
57
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
To sustain the resiliency of the Desk’s operations, the
New York Fed operates alternative sites for trading and
settlement of open market operations in other Reserve
Bank locations across the Federal Reserve System. ese
arrangements ensure that the Desk has the resources needed
to carry out critical operational and analytical activities
should a contingency scenario aect the greater New York area.
Similarly, all primary dealers have established and regularly
tested geographically dispersed primary and secondary
locations to ensure that robust end-to-end participation in
open market operations would still be possible amid any
wide-scale disruption.
Table 6
Small-Value Exercise Results in 2021: Foreign Operations
Operation Type Time Frame Operation Amount
Euro-denominated repurchase agreements
First half €6.0 million
Second half €3.0 million
Euro-denominated sovereign debt sales
First half €2.4 million
Second half €1.2 million
Euro-denominated sovereign debt purchases
First half €2.4 million
Second half €1.2 million
Early liquidation of euro-denominated term deposit at ofcial institution
Second half €2.0 million
Yen-denominated sovereign debt sales
First half ¥600 million
Second half ¥300 million
Yen-denominated sovereign debt purchases
First half ¥600 million
Second half ¥300 million
U.S. dollar liquidity swaps with standing swap line central banks
Second half $222,000
Foreign currency liquidity swaps
Swiss National Bank
First half CHF 51,000
Bank of Canada
First half CAD 51,000
Bank of England
Second half £51,000
European Central Bank
First half € 10,000
Bank of Japan Second half ¥51,000
Source: Federal Reserve Bank of New York.
Notes: Figures may be rounded. Further details for each small-value exercise are available on the Federal Reserve Bank of New York’s website.
58
59
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
APPENDIX 1:
Terms for Desk Operations
Overnight Reverse Repurchase Agreements
For more information, visit the FAQs at https://www.newyorkfed.org/markets/rrp_faq.
Term Overnight
Eligible securities U.S. Treasury securities
Counterparties Primary dealers, eligible 2a-7 money market funds, government-sponsored enterprises
(GSEs), and banks
Aggregate operation limit These operations were limited by the value of Treasury securities held outright in the
SOMA that was available for such operations.
Frequency Daily
Per counterparty limit One proposition per counterparty in an amount not to exceed the per counterparty limit
• January 1 to March 17: $30 billion
• March 18 to September 22: $80 billion
• September 23 to December 31: $160 billion
Maximum offer rate January 1 to June 16: 0 percent
June 17 to December 31: 0.05 percent
Offer submission Counterparty proposition not to exceed offering rate
Awards The ON RRP facility is conducted as a xed-price, single-price auction. If the total amount
of propositions received was less than or equal to the amount of available securities,
all awards were made at the specied offer rate to all counterparties that submitted
propositions. In the highly unlikely event that the value of propositions received exceeded
the amount of available securities, awards would be made at the rate at which this size
limit was achieved (the stop-out rate), with all propositions below this rate awarded in full
and all propositions equal to this rate awarded on a pro rata basis.
Execution platform FedTrade, the Desk’s proprietary trading platform
e following tables summarize the key terms for Desk
operations as they were implemented in 2021. For more
information on each open market operation, including
frequently asked questions (FAQs), visit the Markets & Policy
Implementation page of the New York Fed’s website, at
https://www.newyorkfed.org/markets.
60
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Repurchase Agreements
Overnight and Term Repurchase Agreements
For more information, visit the FAQs at https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-
implementation/repo-reverse-repo-agreements.
Term Overnight (until July 28, 2021)
28 day (until February 9, 2021)
Eligible securities U.S. Treasury securities, agency debt securities, and agency MBS
Counterparties Primary dealers
Aggregate operation limit $500 billion
Frequency Overnight: daily until July 28, 2021
Term: weekly until February 9, 2021
Per counterparty limit Two propositions up to $20 billion per eligible security type
Minimum bid rate Overnight: IOER (IORB) plus 5 basis points
Term: IOER plus 10 basis points
Awards Repo operations are auctions conducted in a multiple-price format. If the total amount
bid in an individual operation was less than or equal to the aggregate operation limit,
all propositions were accepted at their submitted rates. If the aggregate amount bid
exceeded the aggregate operation limit, bids were accepted at their submitted rates
starting with the highest rate bid relative to the benchmark rate set internally for each
collateral type and working down until the aggregate operation limit was reached. After
that, individual propositions were either partially awarded or not awarded based on their
proximity to those benchmark rates for each security type.
Execution platform FedTrade, the Desk’s proprietary trading platform
Standing Repurchase Agreement Facility (effective July 29, 2021)
For more information, visit the FAQs at https://www.newyorkfed.org/markets/repo-agreement-ops-faq.
Term Overnight
Eligible securities U.S. Treasury securities, agency debt securities, and agency MBS
Counterparties Primary dealers and eligible depository institutions
Aggregate operation limit $500 billion
Frequency Daily
Per counterparty limit Two propositions of up to $20 billion per eligible security type at rates no lower than the
minimum bid rates
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Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Central Bank Liquidity Swaps
For more information, visit the FAQs at https://www.federalreserve.gov/newsevents/pressreleases/swap-lines-faqs.htm.
Maturity Up to 88 days
Counterparties • Foreign central banks with standing swap line arrangements
• Foreign central banks with temporary swap line arrangements (expired December 31,
2021)
Frequency The central bank liquidity swap counterparties hold U.S. dollar liquidity-providing
operations according to a schedule pre-approved by the Chair of the FOMC.
For participating standing swap central banks, one-week maturity operations were offered
weekly throughout 2021. Three-month maturity operations were conducted weekly from
January 1 through June 30.
Per counterparty limit • Standing swap central banks: no per counterparty limit is specied
• Temporary swap central banks: up to $60 billion each for the Reserve Bank of Australia,
the Banco Central do Brasil, the Bank of Korea, the Banco de México, the Monetary
Authority of Singapore, and the Sveriges Riksbank; $30 billion each for the Danmarks
Nationalbank, the Norges Bank, and the Reserve Bank of New Zealand
Price For pricing details of liquidity swap operations for standing and temporary swap
counterparties, see operation results at https://www.newyorkfed.org/markets/desk-
operations/central-bank-liquidity-swap-operations.
cont. from page 60
Minimum bid rate 0.25 percent
Awards SRF operations are auctions conducted in a multiple-price format. If the total amount
bid in an individual operation was less than or equal to the aggregate operation limit,
all propositions were accepted at their submitted rates. If the aggregate amount bid
exceeded the aggregate operation limit, propositions were accepted at their submitted
rates starting with the highest-rate bid relative to the benchmark rate set internally for
each security type and working down until the aggregate operation limit was reached.
After that, individual propositions were either partially awarded or not awarded based on
their proximity to those benchmark rates for each security type.
Execution platform FedTrade, the Desk’s proprietary trading platform
62
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Offer submission Counterparties were allowed to submit nine propositions per security across the range of
eligible securities for an operation.
Awards Offers were evaluated based on their proximity to prevailing market prices at the close of
the multiple-price auction, as well as measures of relative value. Relative value measures
were calculated using the New York Fed’s proprietary model.
Execution platform FedTrade, the Desk’s proprietary trading platform
Reinvestments of Treasury Securities
For more information, visit the FAQs at https://www.newyorkfed.org/markets/treasury-rollover-faq.html
Counterparties U.S. Treasury
Eligible securities All securities issued at auction by the U.S. Treasury
Operation size and frequency The value of all maturing Treasury securities was rolled over at each auction into newly
issued securities. Reinvestments were allocated proportionally across new issues by the
announced offering amounts.
Holdings limits SOMA holdings were limited to a maximum of 70 percent of the total outstanding amount
of any individual Treasury security.
Bid submission The Desk places noncompetitive bids for the SOMA portfolio at Treasury auctions equal
in par amount to the value of holdings maturing on the issue date of the securities being
auctioned. These bids were treated as add-ons to announced auction sizes.
Outright Treasury Purchases
Treasury Security Asset Purchases
For more information, visit the FAQs at https://www.newyorkfed.org/markets/treasury-reinvestments-purchases-faq.html.
Counterparties Primary dealers
Eligible securities All outstanding U.S. Treasury securities
Operation size and frequency The Desk published a tentative schedule of operations each month, detailing operation
dates and times, the security types and maturity range, and maximum purchase amount
for each operation.
Holdings limits SOMA holdings were limited to a maximum of 70 percent of the total outstanding amount
of any individual Treasury security.
Excluded securities Securities trading with heightened scarcity value in the repo market for specic collateral,
newly issued nominal coupon securities, securities that were cheapest to deliver into
active Treasury futures contracts, cash management bills, TIPS with one year or less
to maturity, other securities with four weeks or less to maturity, STRIPS, and securities
trading in the when-issued market. The specic issues excluded from consideration were
announced at the start of each operation.
63
OPEN MARKET OPERATIONS DURING 2021
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AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
cont. from page 62
Awards Noncompetitive bidders receive the stop-out rate, yield, or discount margin determined by
the competitive auction process.
Execution platform TAAPs, the New York Fed’s auction platform for issuance of Treasury securities
Securities Lending
For more information, visit the FAQs at https://www.newyorkfed.org/markets/sec_faq.htm
Term Overnight
Eligible securities U.S. Treasury securities (for securities loaned and collateral received)
Counterparties Primary dealers
Aggregate operation limit The value of Treasury and agency debt securities held outright in the SOMA that was
available for such operations
Frequency Daily
Aggregate lending limit Ninety percent of each Treasury and agency debt security owned by the SOMA with a
maturity of greater than thirteen days was available for lending each day (“theoretical
amount” available to borrow).
Per counterparty limit Maximum of 25 percent of theoretical supply available to borrow per issue and $5 billion
total par in outstanding securities loans at any one time.
Per issue bid limit Up to two bids per issue
Fee Primary dealers bid a fee to borrow the security; the fee is economically equivalent to a
spread between the overnight general collateral repo rate and the overnight specials rate
for the borrowed security. The minimum fee is 5 basis points.
Awards Based on competitive bidding in a multiple-price auction held for each security at noon
each business day
Execution platform FedTrade, the Desk’s proprietary trading platform
64
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Dollar Rolls
Term One month
Eligible securities Agency MBS
Counterparties Primary dealers that transact in the agency MBS market
Operation size As appropriate to facilitate settlement associated with the Federal Reserve’s agency MBS
transactions
Frequency As appropriate to facilitate settlement associated with the Federal Reserve’s agency MBS
transactions
Counterparty limits Not applicable
Bid submission Request for quote from dealers for dollar amount nanced
Awards Best price
Execution platform Tradeweb, a commercial trading platform
Agency MBS
Asset Purchases including Reinvestment Purchases
For more information, visit the FAQs at https://www.newyorkfed.org/markets/ambs-treasury-faq
Counterparties Primary dealers that transact in the agency MBS market
Eligible securities MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae
Operation size and frequency The Desk published a tentative schedule of planned agency MBS operations approximately
every two weeks, detailing operation dates and times, the type of securities to be purchased
(including agency, term, and coupon), and the maximum purchase amounts.
Excluded securities No specic exclusions
Offer submission Counterparties were allowed to submit up to ten offers per TBA security across the range
of eligible securities in a multiple-price auction, meaning that each offer at or below the
stop-out rate was transacted at the offer rate.
Awards Offers were evaluated based on their proximity to prevailing market prices at the auction
close.
Execution platform FedTrade, the Desk’s proprietary trading platform
65
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Agency CMBS (terminated November 4, 2021)
For more information, visit the FAQs at https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-
implementation/agency-commercial-mortgage-backed-securities/agency-commercial-mortgage-backed-securities-faq.
Counterparties Subset of primary dealers and other approved broker-dealers
Eligible securities Fannie Mae DUS, Freddie Mac K Series, Ginnie Mae Project Loans
Operation size and frequency The Desk published a tentative schedule of planned agency CMBS operations
approximately every one to two weeks, detailing operation dates and times, the type of
securities to be purchased, and the maximum purchase amounts.
Offer submission No specic limitation
Excluded securities Re-securitization of real estate mortgage investment conduits (Re-REMICS), interest-only
certicates, principal-only certicates, and residual certicates
Awards Operations are conducted using a multiple-price auction. Offers were evaluated based
on their relative value to market prices. Relative value measures were calculated by
evaluating risk characteristics and competitiveness of offers compared to market pricing.
Execution platform BlackRock Financial Markets Advisory executed trades with approved counterparties on
behalf of the Desk.
Foreign Reserves Management
For more information, see https://www.newyorkfed.org/markets/international-market-operations/foreign-reserves-management.
Counterparties Foreign Reserves Management counterparties
Eligible assets The SOMA’s foreign currency reserves may be invested on an outright basis in German,
French, Dutch, and Japanese government securities, as well as in deposits at the Bank for
International Settlements and at foreign central banks such as the Deutsche Bundesbank,
Banque de France, De Nederlandsche Bank, and Bank of Japan.
Execution platform Tradeweb and Bloomberg, commercial trading platforms; voice trading.
66
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
APPENDIX 2:
Governing Documents
AUTHORIZATION FOR DOMESTIC OPEN MARKET
OPERATIONS
On January 26, 2021, by unanimous vote, the FOMC voted to
rearm the Authorization for Domestic Open Market Operations.
https://www.federalreserve.gov/monetarypolicy/les/FOMC_
RulesAuthPamphlet_202101.pdf
See page 50: Authorization for Domestic Open Market Operations
GUIDELINES FOR THE CONDUCT OF SYSTEM OPEN
MARKET OPERATIONS IN FEDERAL-AGENCY ISSUES
e Guidelines for the Conduct of System Open Market Operations
in Federal-Agency Issues, which were temporarily suspended on
January 27, 2009, remained suspended throughout 2021.
https://www.federalreserve.gov/monetarypolicy/les/FOMC_
FederalAgencyIssues.pdf
DOMESTIC POLICY DIRECTIVES ISSUED TO THE
FEDERAL RESERVE BANK OF NEW YORK
In 2021, the FOMC authorized and directed the Open Market
Desk at the Federal Reserve Bank of New York to execute
transactions in the SOMA in accordance with domestic policy
directives. e following is a list of links to the domestic policy
directives issued by the FOMC from January 1 to December 31.
Open Market Operations from January 1 to January 27
e FOMC issued the following domestic policy directive on
December 16, 2020.
https://www.federalreserve.gov/newsevents/pressreleases/
monetary20201216a1.htm
Open Market Operations from January 28 to March 17
e FOMC issued the following domestic policy directive on
January 27, 2021.
https://www.federalreserve.gov/newsevents/pressreleases/
monetary20210127a1.htm
Open Market Operations from March 18 to April 28
e FOMC issued the following domestic policy directive on
March 17, 2021.
https://www.federalreserve.gov/newsevents/pressreleases/
monetary20210317a1.htm
Open Market Operations from April 29 to June 16
e FOMC issued the following domestic policy directive on
April 28, 2021.
https://www.federalreserve.gov/newsevents/pressreleases/
monetary20210428a1.htm
Open Market Operations from June 17 to July 28
e FOMC issued the following domestic policy directive on
June 16, 2021.
https://www.federalreserve.gov/newsevents/pressreleases/
monetary20210616a1.htm
Open Market Operations from July 29 to September 22
e FOMC issued the following domestic policy directive on
July 28, 2021.
https://www.federalreserve.gov/newsevents/pressreleases/
monetary20210728a1.htm
67
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Operations Disclosures
APPENDIX 3:
Open Market Operations from September 23 to November 3
e FOMC issued the following domestic policy directive on
September 22, 2021.
https://www.federalreserve.gov/newsevents/pressreleases/
monetary20210922a1.htm
Open Market Operations from November 4 to December 15
e FOMC issued the following domestic policy directive on
November 3, 2021.
https://www.federalreserve.gov/newsevents/pressreleases/
monetary20211103a1.htm
Open Market Operations from December 16 to December 31
e FOMC issued the following domestic policy directive on
December 15, 2021.
https://www.federalreserve.gov/newsevents/pressreleases/
monetary20211215a1.htm
STANDING REPURCHASE AGREEMENT
FACILITY RESOLUTION
On July 27, 2021, by unanimous vote, the FOMC voted to
establish the Standing Repurchase Agreement Facility. e public
announcement was on the following day.
https://www.federalreserve.gov/monetarypolicy/les/FOMC_
StandingRepoFacilityResolution.pdf
STANDING FIMA REPURCHASE AGREEMENT
RESOLUTION
On July 27, 2021, the FOMC voted to establish the Standing
FIMA Repurchase Agreement Facility. e public announcement
was on the following day.
https://www.federalreserve.gov/monetarypolicy/les/FOMC_
StandingFIMARepoResolution.pdf
AUTHORIZATION FOR FOREIGN CURRENCY
OPERATIONS AND FOREIGN CURRENCY DIRECTIVE
On January 26, 2021, by unanimous vote, the FOMC voted to
rearm without change the Authorization for Foreign Currency
Operations and the Foreign Currency Directive.
https://www.federalreserve.gov/monetarypolicy/les/FOMC_
RulesAuthPamphlet_202101.pdf
See: Page 52: Authorization for Foreign Currency Operations
Page 56: Foreign Currency Directive
e following table summarizes the types of information disclosed
by the Desk about various SOMA operations. To access the
data listed in the table, visit the Markets Data Dashboard on the
New York Fed’s website, at https://www.newyorkfed.org/markets/
data-hub. For Treasury data, see https://www.treasurydirect. gov/
instit/annceresult/annceresult_query.htm.
68
APPENDIX #:
Authorization for Domestic Open Market Operations
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Operations Disclosures
Operation Type Operation Schedule Operation Results
Additional
Operations Data
a
Transaction Data
b
Domestic open market operations
Overnight repo
ü ü ü ü
Term repo
ü ü ü ü
Standing Repo Facility (SRF)
c
ü ü ü
Overnight reverse repo
c
ü ü ü
Treasury outright purchases
ü ü ü ü
Treasury rollovers
ü
d
Treasury rollovers with bills
ü
d
Treasury securities lending
c
ü ü ü
Agency MBS outright purchases
ü ü ü ü
Agency MBS dollar rolls
ü ü ü
Agency CMBS purchases
ü ü ü ü
Foreign open market operations
Foreign sovereign debt purchases
ü
Central bank liquidity swaps
ü
e
Small-value exercises
Repos
ü ü ü ü
Reverse repos
ü ü ü ü
Treasury outright sales
ü ü ü ü
Securities lending
ü ü ü
Agency MBS outright sales
ü
ü ü ü
Agency MBS coupon swaps
ü ü
ü ü
Foreign sovereign debt sales
ü
Foreign sovereign debt purchases
ü
Foreign currency repos
f
ü
Foreign deposit liquidation
Source: Federal Reserve Bank of New York.
a
Additional data could include details about types of counterparties, pricing, and higher-frequency transaction data.
b
The New York Fed discloses transaction data with market counterparties on a quarterly basis with a two-year lag, in accordance with the Dodd-Frank Act.
Details include: the date and amount of the transaction; the counterparty to the transaction; the price, interest rate, or exchange rate at which the transaction was
conducted; other relevant terms; and for certain types of transactions, information about the collateral.
c
Since overnight RRP, SRF, and Treasury securities lending are daily facilities, a regular calendar is not released; schedule changes are typically announced at
least one business day prior to the operation. Note the SRF was established in July 2021 (see https://www.federalreserve.gov/newsevents/pressreleases/mone-
tary20210728b.htm).
d
SOMA awards are released by the U.S. Treasury after each auction.
e
Transactions between the New York Fed and foreign central bank counterparties are reported weekly by the New York Fed; foreign central banks’ operation
results are reported immediately after the completion of their respective auctions.
f
In the Dodd-Frank Act transaction data disclosures for foreign currency repos and foreign currency reverse repos, the transaction category is reclassied to
match the perspective of the New York Fed’s counterparty.
69
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
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Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Summary of Projection Assumptions
APPENDIX 4:
e assumptions underlying the scenarios for the SOMA
portfolio and the SOMA net income projection exercise
are presented below. Sources for these assumptions
include the March 2022 Surveys of Primary Dealers and
Market Participants.
INTEREST RATE ASSUMPTIONS:
◆ e following interest rates are set based on combined
responses to the March 2022 Surveys of Primary Dealers and
Market Participants:
■ the eective federal funds rate,
■ the ten-year Treasury yield, and
■ the thirty-year xed primary mortgage rate.
◆ e IORB rate is set 10 basis points below the top of the
target range.
◆ e ON RRP oering rate is set 5 basis points above the
bottom of the target range.
◆ In alternate interest rate scenarios, the interest rates are
bounded below by 0 percent.
BALANCE SHEET ASSUMPTIONS:
◆ Projections start with the Federal Reserve balance sheet as of
February 28, 2022.
◆ Asset-related assumptions:
■ Combined responses to the March 2022 Surveys of
Primary Dealers and Market Participants for the timing of
an end to reinvestments
■ e terminal size and phase in period of caps is drawn from
the Minutes from the March FOMC Meeting. e terminal
caps for Treasuries and agency securities are set at $60 billion
and $35 billion per month respectively and are phased in
over a three-month period. Treasury bills are redeemed only
when Treasury coupon maturities fall below the monthly cap.
■ When the pace of portfolio decline decreases, all
reinvestments are allocated to Treasury securities.
■ Once reserve balances reach their assumed long-run level
(see below), reserve management purchases are conducted
in Treasury securities to keep up with the growth in
liabilities and capital, while principal payments on MBS
are reinvested into Treasury securities.
◆ Liability-related assumptions:
■ Longer-run levels of non-reserve liabilities and
capital (excluding the TGA and ON RRP) are based on
their average February 2022 level and grow over the
projection horizon in line with nominal GDP, where the
nominal GDP growth is based on combined responses
to the March 2021 Surveys of Primary Dealers and
Market Participants.
■ e long-run level of reserves is set such that the ratio of
reserves to GDP equals 8 percent.
■ e TGA rises to $700 billion by end
Q2 2022 and grows with nominal GDP starting in
Q3 2022 to $965 billion by end 2030.
■ Take-up in the ON RRP is assumed to gradually
decline to 0 by 2025.
■ Currency grows to $3.1 trillion by end 2030.
■ FIMA Reverse Repo Pool grows to $373 billion by end 2030.
■ DFMU balances grow to $322 billion by end 2030.
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AppendixesOperational
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Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Reference Web Pages
APPENDIX 5:
Policies, communications, and data discussed in this document
can be found online at the websites for the Board of Governors
of the Federal Reserve System and the Federal Reserve Bank of
New York. Below, we provide the primary web pages where this
source material can be found.
FEDERAL RESERVE BOARD
FOMC rules and authorizations
https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm
FOMC statements, implementation notes, minutes, and
information about policy normalization
http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
https://www.federalreserve.gov/monetarypolicy/policy-normalization.htm
Background on reserve requirements, interest on
reserves, and IORB
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
http://www.federalreserve.gov/monetarypolicy/reqresbalances.htm
Detailed transaction information about discount window lending
to depository institutions and historical open market operations
https://www.federalreserve.gov/regreform/discount-window.htm
https://www.newyorkfed.org/markets/omo_transaction_data
Federal Reserve System financial reports
https://www.federalreserve.gov/monetarypolicy/bst_fednancials.htm
Operational results, announcements, and other details regarding
the Term Deposit Facility
https://www.federalreserve.gov/monetarypolicy/tdf.htm
Federal Reserve System COVID-19 Resources
https://www.federalreserve.gov/covid-19.htm
FEDERAL RESERVE BANK OF NEW YORK
Markets & Policy Implementation
https://www.newyorkfed.org/markets/index.html
Electronic version of this report and the underlying data for the
charts and tables
https://www.newyorkfed.org/markets/annual_reports.html
OPERATIONAL POLICIES, FAQS, OPERATION RESULTS, AND
OTHER DETAIL REGARDING:
Domestic market operations
https://www.newyorkfed.org/markets/domestic-market-operations
Repurchase and reverse repurchase agreements
https://www.newyorkfed.org/markets/rrp_op_policies.html
https://apps.newyorkfed.org/markets/autorates/temp
Treasury open market and securities lending operations
https://www.newyorkfed.org/markets/domestic-market-operations/
monetary-policy-implementation/treasury-securities
http://nyapps.newyorkfed.org/markets/pomo/operations/index.html
https://www.newyorkfed.org/markets/domestic-market-operations/
monetary-policy-implementation/securities-lending
Agency MBS open market operations
https://www.newyorkfed.org/markets/domestic-market-operations/
monetary-policy-implementation/agency-mortgage-backed-securities
https://www.newyorkfed.org/markets/ambs/operations/results
71
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Agency CMBS open market operations
https://www.newyorkfed.org/markets/domestic-market-operations/
monetary-policy-implementation/agency-commercial-mortgage-
backed-securities
https://www.newyorkfed.org/markets/domestic-market-operations/
monetary-policy-implementation/agency-commercial-mortgage-backed-
securities/agency-commercial-mortgage-backed-securities-operations
International market operations
https://www.newyorkfed.org/markets/international-market-operations
Foreign currency operations, including foreign reserves
management, central bank liquidity swaps, and foreign exchange
quarterly reports
https://www.newyorkfed.org/markets/international-market-operations/
foreign-reserves-management
https://www.newyorkfed.org/markets/international-market-operations/
central-bank-swap-arrangements
https://www.newyorkfed.org/markets/quar_reports.html
New York Fed counterparties for market operations
https://www.newyorkfed.org/markets/counterparties
System Open Market Account holdings
https://www.newyorkfed.org/markets/soma-holdings
Consolidated list of statements and operating policies across all
Desk open market operations
https://www.newyorkfed.org/markets/op_policies.html
Desk statement regarding small-value exercises
https://www.newyorkfed.org/markets/operational-readiness
Desk surveys of primary dealers and market participants
https://www.newyorkfed.org/markets/primarydealer_survey_questions
https://www.newyorkfed.org/markets/survey_market_participants
FR 2420 Report of Selected Money Rates
https://www.newyorkfed.org/markets/reference-rates
https://apps.newyorkfed.org/markets/autorates/obfr
https://www.newyorkfed.org/markets/obfrinfo
https://www.newyorkfed.org/medialibrary/media/markets/EFFR-
technical-note-070815.pdf
Services for central banks and international institutions
https://www.newyorkfed.org/markets/central-bank-and-international-
account-services
New York Fed actions related to COVID-19
https://www.newyorkfed.org/markets/new-york-fed-actions-related-to-
covid-19
72
73
ENDNOTES
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
1
OnJune 2, 2021, the Board announced its approval of a nal
rule amending Regulation D that covers reserve requirements
of depository institutions. e rule, eective July 29, 2021,
eliminates references in Regulation D to the interest on
required reserves (IORR) and IOER rates and replaces them
with a single interest on reserve balances (IORB) rate. View
the press release at https://www.federalreserve.gov/newsevents/
pressreleases/bcreg20210602a.htm. For additional information
about Regulation D, see https://www.federalregister.gov/
documents/2021/06/04/2021-11758/regulation-d-reserve-
requirements-of-depository-institutions.
2
See Federal Open Market Committee, “Statement on Longer-
Run Goals and Monetary Policy Strategy,” as rearmed
eective January 25, 2022, at https://www.federalreserve.gov/
monetarypolicy/files/fomc_longerrungoals.pdf. is statement is
identical to the statement the FOMC rearmed on January 26,
2021, and adopted on August 27, 2020, aer an extensive review.
3
Pursuant to the Federal Reserve Act, the Board has authority
over setting the interest rate paid on deposits and the FOMC has
authority over rates for repurchase transactions.
4
See Federal Reserve Board, “Senior Financial Ocer Survey,”
November 2021, at https://www.federalreserve.gov/data/sfos/files/
senior-financial-officer-survey-202111.pdf, for views from banks
on reserve management experiences, expectations for balance
sheet management, and wholesale funding market activity,
among other topics.
5
For more on the standing FIMA repo facility, see https://
www.federalreserve.gov/monetarypolicy/files/FOMC_
StandingFIMARepoResolution.pdf.
6
For technical details on swap arrangements, see https://www.
newyorkfed.org/markets/international-market-operations/
central-bank-swap-arrangements.
7
Separately, the Desk also maintains reciprocal currency
arrangements of $2 billion with the Bank of Canada and
$3 billion with Banco de México. ese arrangements were
established in 1994 under the North American Framework
Agreement to promote orderly currency exchange markets. See
https://www.newyorkfed.org/markets/international-market-
operations/central-bank-swap-arrangements.
8
e Federal Reserve also established temporary swap lines with
these nine central banks during the global nancial crisis of 2008 via
announcements on two separate dates: September 2008 (https://www.
federalreserve.gov/newsevents/pressreleases/monetary20080924a.
htm) and October 2008 (https://www.federalreserve.gov/newsevents/
pressreleases/monetary20081029b.htm).
9
e announcements detailing the discontinuation of the three-
month U.S. dollar operations can be found at the following links:
European Central Bank: https://www.ecb.europa.eu/press/pr/
date/2021/html/ecb.pr210423_1~d99570068c.en.html
Bank of Japan: https://www.boj.or.jp/en/announcements/
release_2021/rel210423a.pdf
Bank of England: https://www.bankofengland.co.uk/markets/
market-notices/2021/april/changes-to-the-provision-of-us-dollar-
repo-operations-from-july-2021-market-notice-april
Swiss National Bank: https://www.snb.ch/en/mmr/reference/
pre_20210423/source/pre_20210423.en.pdf.
10
In a U.S. dollar liquidity swap, a foreign central bank (FCB)
transfers a specied amount of its currency to the New York Fed
in exchange for U.S. dollars at the prevailing market exchange
rate. At the same time, the New York Fed and the FCB agree that
the transfer will unwind on a specied future date at the same
exchange rate as the initial transaction. At the conclusion of the
second transaction, the FCB compensates the New York Fed
at a market-based interest rate. e foreign currency liquidity
swap lines also provide the Federal Reserve with the capacity to
oer liquidity in foreign currencies to U.S. nancial institutions
should the FOMC judge that such actions are appropriate.
74
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
11
Results of central bank liquidity swap operations can be found
at https://www.newyorkfed.org/markets/desk-operations/central-
bank-liquidity-swap-operations.
12
Bids by SOMA at auctions of Treasury securities are placed as
noncompetitive tenders and are treated as add-ons to announced
auction sizes.
13
e New York Fed is authorized by the FOMC to intervene
in the foreign exchange market by executing foreign exchange
transactions for the SOMA as directed by the FOMC and in its
capacity as scal agent of the United States for the Treasury’s
Exchange Stabilization Fund.
14
Further details can be found in the New York Fed’s Treasury and
Federal Reserve Foreign Exchange Operations quarterly reports.
See https://www.newyorkfed.org/markets/quar_reports.html.
15
e Treasury used funds appropriated to the Exchange
Stabilization Fund (ESF) through the Coronavirus Aid, Relief,
and Economic Security (CARES) Act for certain of the equity
contributions to facility SPVs.
16
See information on the credit and liquidity facilities at https://
www.federalreserve.gov/funding-credit-liquidity-and-loan-
facilities.htm.
17
Bond holdings as of December 31, 2020, were presented at
amortized cost and ETFs at fair market value.
18
In conjunction with the SMCCF, the Federal Reserve had
also established the Primary Market Corporate Credit Facility
(PMCCF), whose authorization to purchase eligible assets also
expired on December 31, 2020.
19
Of the $75 billion equity commitment, $25 billion was
allocated to the SMCCF; $50 billion was allocated to the Primary
Market Corporate Credit Facility (PMCCF).
20
e State of Illinois prepaid the entire balance of its remaining
note in January 2022. e Metropolitan Transportation
Authority prepaid the outstanding balance for one of its two
remaining notes in March 2022, leaving just one $2.9 billion note
maturing in December 2023 outstanding.
21
e outstanding balance of $13.4 billion as of December 31,
2021, reects the gross balance of $15.4 billion less an allowance
for loan losses of $2.0 billion.
22
In connection with the industry phaseout of LIBOR, lenders
may request loan modications to use an alternative reference
rate. e Boston Fed will approve one-month and three-month
term SOFR at specied spreads and consider lender requests for
use of other reference rates on a case-by-case basis. For specic
detail, see item J.11. in the Boston Fed’s Frequently Asked
Questions at https://www.bostonfed.org/-/media/Documents/
special-lending-facilities/mslp/legal/frequently-asked-questions-
faqs-post-termination.pdf?la=en.
23
Other assets includes the portion of the SPV equity from the
U.S. Treasury invested in nonmarketable Treasury instruments.
It does not reect the portion of the equity that was held in cash
deposits at Reserve Banks because such amounts are eliminated
upon consolidation of the SPVs’ accounting balances with those
of Federal Reserve Banks.
24
Since agency MBS purchases are conducted in the TBA market,
a gap exists between the purchase date and the settlement
date; there is a similar but shorter gap between purchase and
settlement dates for agency CMBS. Figures for the domestic
portfolio size include settled agency MBS and agency CMBS
purchase amounts, unless otherwise stated. As of year-end 2021,
net unsettled commitments to purchase agency MBS totaled
$99 billion, while for agency CMBS this value was $0.
25
Further information can be found at https://www.
treasurydirect.gov/govt/reports/pd/mspd/2021/opds122021.pdf.
26
e $576 billion increase in agency MBS outstanding is on a
settled basis. It includes $195 billion in trades executed in 2020
that settled in 2021 and excludes $99 billion in trades executed in
2021 that had not settled by year-end.
27
As a result of the UMBS program, some securities held in the
SOMA consisted of mortgages guaranteed by both Fannie Mae
and Freddie Mac; however, for purposes here, such mortgages are
counted as being guaranteed by their most recent guarantor.
28
e weighted average life of an MBS refers to the expected
time outstanding until the underlying mortgage principal
is repaid. is calculation is dependent on a model of future
prepayments and is therefore subject to some uncertainty and
model sensitivity.
29
“Modied duration” is used to calculate the duration of
Treasury and agency debt securities, while “eective duration”
is employed to measure the duration of MBS. Modied duration
approximates the percentage change in the price of a xed-
income security given a 100 basis point parallel shi in the yield
curve and is most applicable to securities with xed cash ows,
such as Treasury and agency debt securities. Eective duration,
75
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
which accounts for the potential alterations in cash ows as
interest rates change, is suitable for capturing the duration of
MBS because it is aected by mortgage borrowers’ decisions to
exercise or forgo their prepayment option. Duration measures
of the portfolio throughout this report are calculated on a
par-weighted average basis.
30
Due to the relatively small size of CMBS holdings, they are
excluded from summary risk statistics.
31
Homeowners’ option to prepay their mortgage at any time
without penalty adds uncertainty to the agency MBS holder’s
expected cash ows. In general, lower mortgage rates encourage
homeowners to renance their loans, thereby shortening the
duration of the MBS securitizing these loans, while higher
mortgage rates discourage homeowners from renancing,
thereby lengthening the duration of MBS.
32
e ten-year equivalent is calculated using end-of-day prices
for ten-year Treasury securities and current time to maturity,
a change from past practice. Previous ten-year equivalent
calculations assumed prices equal to par value and constant ten-
year time to maturity, resulting in a reported $3.56 trillion in ten-
year equivalents at the end of 2020, as shown in the “Portfolio
Risk Metrics” section of Open Market Operations during 2020.
33
Macaulay duration is the weighted average time of future cash ows.
34
Reserve balances are composed of balances held by eligible
institutions for many reasons, including the need to meet
intraday payments, to manage liquidity risk, and to help meet
associated regulatory requirements.
35
In this discussion, Federal Reserve notes outstanding are
net of the holdings of Federal Reserve Banks. The Federal
Reserve pays no interest on notes; however, Reserve Banks
pay expenses incidental to the issuance and retirement of
currency (such as costs related to manufacturing, shipping,
educational services, and research and development). These
expenses do not vary with the level of interest rates, unlike
those associated with some other liabilities. Currency costs
were $1 billion in 2021.
36
More than 99 percent of all U.S. currency in circulation is in
the form of Federal Reserve notes; the remainder includes United
States notes, national bank notes, and silver certicates, all of
which remain legal tender.
37
For a detailed discussion of factors aecting the amount of
currency outstanding, see omas Haasl, Sam Schulhofer-Wohl,
and Anna Paulson, “Understanding the Demand for Currency at
Home and Abroad,” Chicago Fed Letter 396, 2018, https://www.
chicagofed.org/publications/chicago-fed-letter/2018/396.
38
Upon initiation of the transaction, each participant has an
undivided interest, proportional to its investment, in a pool of
securities from the SOMA that has been allocated to the FIMA
reverse repo pool.
39
For a detailed discussion of the evolution of Treasury cash
management, see Paul J. Santoro, “e Evolution of Treasury
Cash Management during the Financial Crisis,” Federal Reserve
Bank of New York Current Issues in Economics and Finance
18, no. 3, 2012, https://www.newyorkfed.org/medialibrary/media/
research/current_issues/ci18-3.pdf.
40
For details, see U.S. Department of the Treasury, “Quarterly
Refunding Statement of Acting Assistant Secretary for Financial
Markets Seth B. Carpenter,” May 6, 2015, at https://home.
treasury.gov/news/press-releases/jl10045, and U.S. Department
of the Treasury, “Quarterly Refunding Statement of Deputy
Assistant Secretary for Federal Finance Brian Smith,” February 2,
2022, at https://home.treasury.gov/news/press-releases/jy0581.
41
A nancial market utility may be designated as systematically
important by the Financial Stability Oversight Council under
Title VIII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (Dodd-Frank Act). Title VIII of the Dodd-
Frank Act also allows these designated nancial market utilities
to establish and maintain Reserve Bank accounts.
42
e assumptions for this report are drawn from results of the
March 2022 Surveys of Primary Dealers and Market Participants.
43
is assumes that GDP and PCE ination evolve similarly, and
that both PCE ination and the growth rate of the GDP deator
imply an equivalent rate of growth of nominal GDP.
44
All net income gures presented here assume that securities
are held to maturity and that asset sales are not conducted.
Any losses (gains) from sales would result in lower (higher) net
income.
45
Interest rate increases and decreases are modeled as parallel
shocks, with rates oored at zero for negative shocks. If upward
rate shocks were instead modeled such that rates increased more
at the short end, net income would decline further than shown
here. is is because interest costs associated with IORB are
one of the prominent drivers of net income over the redemption
period.
76
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
46
Data associated with the 200 basis point shocks are included in
the data le that accompanies this report.
47
For further information, see Sections 11.96 and 60.55
of the Financial Accounting Manual for Federal Reserve
Banks. https://www.federalreserve.gov/aboutthefed/files/
bstfinaccountingmanual.pdf.
48
For further discussion of the impact of unrealized losses, see
“SOMA’s Unrealized Loss: What Does It Mean,” a FEDS Note
prepared by Brian Bonis, Lauren Fiesthumel, and Jamie Noonan,
at https://www.federalreserve.gov/econres/notes/feds-notes/
somas-unrealized-loss-what-does-it-mean-20180813.htm.
49
e market value of securities converges to par value at maturity,
thus resulting in the gradual reduction of unrealized losses.
50
Interest rate increases and decreases are modeled as parallel
shocks, with rates oored at zero for negative shocks. A non-
parallel shock where shocks to longer-term rates are smaller
than shocks to shorter-term rates would have a smaller eect on
the unrealized gains and losses on the portfolio. is is because
the gains and losses on the portfolio are largely driven by gains
and losses on longer-dated holdings whose market value is more
sensitive to changes in interest rates.
51
For details about the New York Fed policy on counterparties
for market operations and links to additional information
on counterparties, see https://www.newyorkfed.org/markets/
counterparties/policy-on-counterparties-for-market-operations.
52
e U.S. Treasury promulgates rules and provides guidelines
for Treasury auctions that are applicable to primary dealers and
other bidders. Primary dealers are expected to bid their pro rata
share of each auction, an amount that is determined as the total
amount auctioned, divided by the number of primary dealers at
the time of the auction.
53
See https://www.newyorkfed.org/markets/domestic-market-
operations/monetary-policy-implementation/agency-commercial-
mortgage-backed-securities/agency-commercial-mortgage-
backed-securities-counterparties.
54
For additional information on CPFF and SMCCF
counterparties, see https://www.newyorkfed.org/markets/
commercial-paper-funding-facility/commercial-paper-funding-
facility-dealers and https://www.newyorkfed.org/markets/
secondary-market-corporate-credit-facility/secondary-market-
corporate-credit-facility-eligible-sellers.
77
INDEX OF CHARTS
AND TABLES
OPEN MARKET OPERATIONS DURING 2021
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
EndnotesEmergency
Credit & Liquidity
Facilities
Charts
1. Federal Funds Target Range, Effective Federal Funds Rate, Rate
of Interest on Reserve Balances, and ON RRP Rate ................10
2. Effective Federal Funds Rate and Secured Overnight
Financing Rate Spreads to IORB .......................................11
3. SOMA Reverse Repo Amounts Outstanding by
Counterparty Type ........................................................12
4. U.S. Dollar Liquidity Swaps Outstanding by
Central Bank ............................................................... 14
5. SOMA Treasury Transactions ...........................................15
6. Distribution of SOMA Treasury Purchases across
Sectors in 2021 ...........................................................16
7. Distribution of Reinvestments at Treasury Auctions in 2021 .......19
8. SOMA Agency MBS Transactions .....................................20
9. SOMA Purchases of Thirty-Year Agency MBS by Coupon .......20
10. SOMA Purchases of Fifteen-Year Agency MBS by Coupon .....20
11. SOMA Dollar Roll Sales .................................................22
12. SOMA Securities Lending in Treasuries ...............................22
13. Usage of Primary Credit Program and Emergency Facilities ......26
14. Composition of SOMA Domestic Securities Holdings .............33
15. Distribution of SOMA Treasury Holdings .............................33
16. SOMA Treasury Holdings as a Share of Outstanding
Treasury Supply ............................................................34
17. Distribution of SOMA Agency MBS Holdings .......................34
18. Distribution of SOMA MBS Holdings of Thirty-Year Agency
MBS by Coupon ..........................................................35
19. Distribution of SOMA MBS Holdings of Fifteen-Year Agency
MBS by Coupon ..........................................................35
20. Average Duration of SOMA Domestic Securities Holdings .......36
21. SOMA Domestic Securities Holdings in
Ten-Year Equivalents ...................................................... 37
22. Distribution of SOMA Foreign Currency Portfolio Holdings .......38
23. Federal Reserve Liabilities ..............................................39
24. Annual Source of Changes in Reserve Balances ....................40
25. Monthly Changes in Federal Reserve Notes ........................41
26. FIMA Reverse Repo Pool.................................................42
27. Treasury General Account Balances ...................................43
28. SOMA Net Income and Federal Reserve Remittances to the
U.S. Treasury ..............................................................44
29. SOMA Domestic Portfolio Unrealized Gains and Losses .......... 45
30. Projected SOMA Domestic Securities Holdings ..................... 47
31. Projected SOMA Domestic Securities Holdings
as a Share of GDP .......................................................47
32. Projected Reserve Balances ............................................. 48
33. Projected Reserve Balances as a Share of GDP ....................48
34. Projected SOMA Domestic Securities Holdings
by Asset Class ............................................................. 49
35. Projected SOMA Net Income ..........................................49
36. Projected SOMA Unrealized Gains and Losses as a
Share of the SOMA Portfolio ...........................................50
Tables
1. Key Policy Rates Effective in 2021 ....................................10
2. Distribution of Agency MBS Operations in 2021 ..................21
3. Changes in Selected Federal Reserve Assets
and Liabilities ..............................................................32
4. SOMA Net Income .......................................................44
5. Small-Value Exercise Results in 2021: Domestic Operations ..... 56
6. Small-Value Exercise Results in 2021: Foreign Operations ....... 57
Appendix 1 Table: Operational Approaches .......................59
Appendix 3 Table: Operations Disclosures ..........................68
