DURING 2022
A Report Prepared for the
Federal Open Market Committee
by the Markets Group of the
Federal Reserve Bank of New York
APRIL
2023
MARKET
OPERATIONS
OPEN
CONTENTS
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
This report, presented to the Federal Open Market
Committee by Roberto Perli, Manager of the
System Open Market Account, describes open
market operations of the Federal Reserve System
for the calendar year 2022. Christian Cabanilla,
Shafat Alam, Aidan Brown, Kathryn Chen,
Dayna Goodwin, Radhika Mithal, Linsey Molloy,
and Julie Remache were primarily responsible for
preparation of the report.
Overview .......................................................... 1
Key Developments in 2022 ............................................1
A Guide to This Report ...................................................2
The Federal Reserve’s Framework for
Monetary Policy Implementation .........................5
Open Market Operations .................................7
Money Market Developments and Related Policy Measures .....7
Reverse Repurchase Agreements ........................................ 7
Repurchase Agreements .................................................. 9
Central Bank Liquidity Swaps ..........................................10
Treasury Securities Operations ......................................... 10
Agency MBS Operations ............................................... 14
Securities Lending ........................................................ 17
Foreign Reserves Management ........................................ 18
Selected Balance Sheet Developments ...............19
Selected Assets ........................................................... 19
SOMA Domestic Securities Holdings ............................ 19
Portfolio Size and Composition ............................... 19
Portfolio Risk Metrics ............................................ 24
SOMA Repurchase Agreements ..................................24
Central Bank Liquidity Swaps .....................................24
SOMA Foreign Currency–Denominated Holdings ............ 24
Primary Credit Program ............................................. 25
Emergency Credit and Liquidity Facilities .......................26
Selected Liabilities........................................................ 27
Reserve Balances .................................................... 29
Federal Reserve Notes ............................................. 29
Reverse Repurchase Agreements ..................................30
Deposits .................................................................... 31
Financial Results ..........................................................32
SOMA Net Income ................................................. 32
Federal Reserve Remittances ......................................32
SOMA Unrealized Gains and Losses ...........................33
Projections ...................................................................... 35
Counterparties ..............................................41
Operational Flexibility and Resiliency .................43
Appendixes ...................................................... 45
Appendix 1: Terms for Desk Operations ............................. 45
Appendix 2: Governing Documents .................................. 50
Appendix 3: Operations Disclosures ................................. 52
Appendix 4: Summary of Projection Assumptions ................. 53
Appendix 5: Reference Web Pages ................................. 54
Endnotes .......................................................... 57
Index of Charts and Tables ..............................61
1
OVERVIEW
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
KEY DEVELOPMENTS IN 2022
During 2022, ination remained above the Federal Open Market
Committee’s longer-run target and the labor market remained
strong. In response, the Federal Open Market Committee (FOMC
or Committee) increased the target range for the federal funds rate
from zero to ¼ percent to 4 ¼ to 4 ½ percent by year-end. e
Federal Reserve’s monetary policy implementation framework
continued to be eective, with the eective federal funds rate
(EFFR) remaining within its target range during the year.
The Committee also began the process of reducing the size
of the Federal Reserve’s balance sheet during 2022. In January,
the Committee released its Principles for Reducing the Size of
the Federal Reserve’s Balance Sheet.
1
The release communicated
the high-level principles regarding the Committee’s intended
approach, including information on sequencing for removing
policy accommodation. The Committee subsequently issued
its Plans for Reducing the Size of the Federal Reserve’s Balance
Sheet in May.
2
The Committee stated that it intended to reduce
the Federal Reserve’s securities holdings in a predictable
manner, primarily by adjusting the reinvested amounts of
principal payments on System Open Market Account (SOMA)
securities holdings. Beginning on June 1, principal payments
from Treasury and agency securities held in the SOMA were
reinvested to the extent that they exceeded monthly caps. The
redemption caps were subsequently raised to their current level
starting in September. After reaching a high of $8.97 trillion
following the final net asset purchases in the first quarter, the
Federal Reserve’s balance sheet decreased to $8.55 trillion at
year-end 2022. Total assets as a share of nominal GDP (NGDP)
also declined, falling from 36 percent in 2021 to 33 percent by
the end of 2022.
e composition of Federal Reserve liabilities also shied
during 2022. e size of the overnight reverse repurchase
(ON RRP) facility saw material growth during the rst half
of the year, before ending the year at an average level of
$2.18 trillion in December. In contrast, reserve balances
decreased by $1.08 trillion to an average level of $3.09 trillion
in December 2022. e Treasury General Account (TGA) saw
signicant variation during the year, peaking in the second quarter
at $964.4 billion before declining to $446.7 billion at year-end
2022. (See Box 2 on page 28 for additional details on changes in
the composition of Federal Reserve liabilities.)
e ON RRP facility continued to serve its intended purpose
of supporting eective policy implementation by providing an
investment option for a broad base of money market investors. e
signicant growth in usage of the ON RRP facility in 2022 was
driven by the attractiveness of the ON RRP rate compared
to other short-term money market rates, as well as a broader
preference for shorter-duration investments, mainly from money
market funds (MMFs).
As overnight interest rates traded well below the top of the
federal funds target range, the standing repurchase agreement
facility (SRF) was not actively used. The SRF is intended to
act as a backstop to address temporary pressures in overnight
funding markets that could spill over to the federal funds
market and potentially impair the implementation of monetary
policy. The criteria for SRF counterparty eligibility were
expanded during 2022 and fourteen depository institutions
were added to the facility over the year, bringing the total
number of SRF counterparties to seventeen, in addition to
primary dealer counterparties.
2
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
Global U.S. dollar funding markets remained stable throughout
the year amid broad increases in policy rates across several
jurisdictions and abundant dollar liquidity across the nancial
system, as reected in broadly lower average usage of U.S. dollar
central bank swap lines during 2022 compared to 2021. Usage of
the standing overnight repurchase agreement facility for foreign
and international monetary authorities (commonly referred to as
the FIMA repo facility) was limited to transactions undertaken by
FIMA account holders for operational readiness purposes.
e cumulative eect of increases in administered rates
into 2022 resulted in sharply higher interest expense, and
SOMA net income declined to $65.7 billion in 2022 from
$114.8 billion in 2021. e Federal Reserve remitted a total of
$76.0 billion to the U.S. Treasury in 2022. By September 2022,
most Reserve Banks had suspended weekly remittances to the
Treasury, and the Federal Reserve System started accumulating
a deferred asset, which totaled $16.6 billion at year-end.
3
(See
Box 3, “Understanding Net Income and Deferred Assets at
the Federal Reserve during 2022,” on page 34.) e deferred
asset, which reects the cumulative negative net income of the
Federal Reserve, has no implications for how the Federal Reserve
conducts monetary policy and does not constrain its ability to
meet its nancial obligations. e SOMA portfolio ended the
year with a signicant unrealized loss position, reecting broader
increases in market yields during the year; this unrealized position
has no eect on net income or remittances to the Treasury.
e Open Market Trading Desk at the Federal Reserve Bank
of New York (the Desk) did not conduct any foreign exchange
intervention activity during 2022, and the SOMA foreign currency
reserve portfolio totaled $18.6 billion at the end of the year. 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
Federal Reserve's balance sheet will continue to evolve. Sta
projections, which reect the FOMC’s plans for balance sheet
reduction, show the portfolio declining in size for several years,
then remaining generally steady through reinvestments, before
nally expanding to match the growth in Federal Reserve
liabilities. Over time, portfolio holdings shi toward Treasury
securities, consistent with the FOMC’s intention to return to
a portfolio composed primarily of Treasury securities. Using
survey-based assumptions about the path of interest rates, the
projections indicate that SOMA net income could remain negative
for several years, driven by the increased cost of interest-bearing
Federal Reserve liabilities, before returning to positive levels in
subsequent years.
Operational resilience is an important priority, and the
New York Fed continued to enhance its operational exiblity as
well as its cyber and geographic resilience. e Desk continued its
practice of undertaking small-value excercises with counterparties
in order to maintain its readiness to implement a range of
potiential FOMC directives.
e Federal Reserve continued to engage with other
authorities and private-sector parties on eorts that support
structural improvements to market functioning. A number of
initiatives related to enhancing Treasury market functioning
continued to make substantive progress during the year. e Desk
continues to monitor Treasury market functioning through a
suite of metrics and qualitative outreach to market participants.
(See Box 1, “Treasury Market Resiliency and Monitoring Market
Functioning,” on page 13.)
A GUIDE TO THIS REPORT
is report is divided into ve 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. 5-6)
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 2022. e Desk’s operations to manage the
Federal Reserve’s portfolio of foreign currency–denominated
assets are also included in this section. (pp. 7-18)
3
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
3. Selected Balance Sheet Developments: is section examines
the composition of the Federal Reserve’s balance sheet, reviews
developments related to the SOMA portfolio, and discusses the
purposes of and recent trends in the Federal Reserve’s liabilities. It also
presents an illustrative projection of the balance sheet and SOMA net
income under a set of simplifying assumptions. (pp. 19-40)
4. Counterparties: is section reviews the trading
counterparties to the Desk’s domestic and foreign open market
operations. (pp. 41-42)
5. Operational Flexibility and Resiliency: is nal section
highlights actions implemented to enhance cyber resilience and
details operational readiness exercises undertaken during the
year. (pp. 43-44)
Appendix 1 provides summaries of the key terms for
each of the Desk’s operations. Appendix 2 highlights links
to the FOMC documents governing 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.
4
5
THE FEDERAL RESERVE’S FRAMEWORK FOR
MONETARY POLICY IMPLEMENTATION
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
e 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. e 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. e 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 rearmed in January 2022.
4
e money market tools used by the Federal Reserve for policy
implementation are designed to maintain short-term interest
rate control in an environment of ample reserves in the banking
system. e FOMC’s policy rate is the federal funds rate, which is
maintained within a target range set by the Committee. e federal
funds rate is the rate at which depository institutions and other
eligible entities conduct overnight unsecured transactions in central
bank balances. e Federal Reserve sets two main administered
rates: e rate of interest on reserve balances (IORB) is paid to
depository institutions with accounts at the Federal Reserve, while
the ON RRP rate is oered to a wide range of money market
lenders. ese administered rates are set at levels that support the
federal funds rate trading within the target range.
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 EFFR can trade below the IORB rate. As such,
the ON RRP facility supports control over the federal funds rate
by oering a broader range of money market participants an
overnight investment, which enhances their bargaining power in
negotiating similar private-sector transactions. Amid signicant
shis in reserve levels in recent years, the Federal Reserve has
been able to maintain control of the EFFR through use of its
administered rates.
In 2021, the Committee established two standing repurchase
agreement (repo) facilities, the SRF and the FIMA repo facility,
to serve as backstops in money markets to support the effective
implementation of monetary policy and smooth market
functioning. The Federal Reserve offers daily SRF operations
on a standing basis against Treasury, agency debt, and agency
mortgage-backed securities (MBS), with pricing set above the
general level of overnight interest rates. These features of the
SRF allow the facility to limit any potential upward pressure
in repo rates that could contribute to the federal funds rate
moving above its target range. The SRF is open to primary
dealers and eligible depository institutions. The FIMA repo
facility provides account holders, which consist of central
banks and other foreign monetary authorities, an alternative
means to access temporary U.S. dollar liquidity against their
holdings of Treasury securities other than through sales of
Treasury securities. As a result, the FIMA repo facility can
help address pressures in dollar funding markets that could
otherwise affect U.S. financial conditions. In this respect, the
FIMA repo facility complements the U.S. dollar liquidity swap
lines as a backstop for dollar funding.
6
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
Changes in the size or composition of the balance sheet are an
important part of the monetary policy implementation framework,
although the purpose of these changes can vary depending on the
circumstances. Asset purchases can be used to maintain ample
levels of reserves in the banking system and support interest
rate control. Such reserve management purchases were a regular
feature of monetary policy prior to the global nancial crisis and
were also conducted in 2019 and 2020 to li the level of reserves
in the banking system.
Asset purchases can also be used to directly inuence 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 further ease nancial
conditions. In such cases, asset purchases put downward pressure
on longer-term interest rates by reducing the stock of longer-term
debt held by the public. 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.
Lastly, on occasion, asset purchases can be used to address
severe disruptions to market functioning that could impede the
transmission of monetary policy and aect broader nancial
stability. Purchases can alleviate frictions in dealer intermediation,
establish clearing prices for the assets purchased, and ease balance
sheet constraints of private market participants. As such, these
factors can help restore the functioning of private markets and
support the ow of credit to the U.S. economy. For example, in
March 2020 asset purchases were conducted to address severe
disruptions in U.S. Treasury, agency MBS, and agency commercial
mortgage-backed securities (CMBS) markets and support
market functioning.
7
OPEN MARKET OPERATIONS
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Endnotes
Federal Reserve
Framework for Monetary
Policy Implementation
To implement monetary policy, the Desk conducts open
market operations as directed by the FOMC. Domestic open
market operations in 2022 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
During 2022, the FOMC increased the target range for the federal
funds rate from 0 to ¼ percent to 4 ¼ to 4 ½ percent by year-end,
with four increases of 75 basis points each occurring between June
and November (Table 1 and Chart 1). roughout the year the
eective federal funds rate remained consistently within the target
range, generally at a spread of 8 basis points below the IORB
rate (Chart 2).
Uncertainty about the path of the economy and monetary policy
in 2022 led to greater investor preference for shorter-duration
investments, mainly from MMFs. Along with a declining supply
of Treasury bills, these factors put downward pressure on yields in
money markets. Private overnight repo rates oen traded below
the ON RRP rate and Treasury bill rates frequently traded below
comparable maturity money market rates during the year, which
increased the attractiveness of the rate oered at the ON RRP facility
and contributed to its growth, especially during the rst half of
2022.
5
In addition, deposit rates across the banking system increased
more slowly than the federal funds target range, which further
supported the amount of assets under management at MMFs and,
by extension, demand at the ON RRP facility.
As balance sheet runo proceeded into late 2022, a range of money
markets began to see some shis. ere were emerging signs of
greater competition for deposits and increases in demand for
wholesale borrowing by some banks. For example, advances from
Federal Home Loan Banks (FHLBs) and borrowing by domestic
banks in the federal funds market both saw increases into the
end of the year. In addition, Treasury bill yields and private repo
rates began to increase relative to the ON RRP rate during the
second half of 2022, in part due to higher levels of net Treasury
bill issuance. ON RRP take-up was lower on certain days, such
as Treasury settlement days, and there was a modest increase in
private repo borrowing activity toward the end of 2022.
REVERSE REPURCHASE AGREEMENTS
During 2022, the FOMC continued to direct the Desk to conduct
ON RRP operations at an oering rate 5 basis points above the
bottom of the target range for the federal funds rate. During 2022,
there were no changes to counterparty limits, overall limits on the
size of the facility, or eligibility requirements.
Operational Results
Usage of the ON RRP facility increased primarily during the rst
half of 2022 and remained more stable in the second half of the
year, outside of temporary increases near quarter- and year-end
periods. Daily take-up at the ON RRP averaged $2.18 trillion
during December, reaching a high of $2.55 trillion at year-end.
Over the year, MMFs, government-sponsored enterprises (GSEs),
8
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
Source: Federal Reserve Bank of New York.
Notes: Figures are daily. For data prior to July 29, 2021, rate of interest on reserve balances refers to the rate of interest on excess reserves.
Federal Funds Target Range, Effective Federal Funds Rate, Rate of Interest on Reserve Balances, and ON RRP Rate
Percent
Federal funds target range
Effective federal funds rate
Rate of interest on reserve balances
ON RRP rate
Chart 1
2019 2020 2021 20222018
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Table 1
Key Policy Rates Effective in 2022
FOMC Meeting
Announcing
Policy Rate
Changes
Effective Date
Range for
Policy Rates
during 2022
Federal Funds
Target Range IORB Rate ON RRP Rate
Spread between
IORB and
ON RRP Rates SRF 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 2022
March 17 to
May 4
¼ to ½ 25 0.40 25 0.30 25 10 0.50 25
May 2022
May 5 to
June 15
¾ to 1 50 0.90 50 0.80 50 10 1.00 50
June 2022
June 16 to
July 27
1½ to 1¾ 75 1.65 75 1.55 75 10 1.75 75
July 2022
July 28 to
September 21
2¼ to 2½ 75 2.40 75 2.30 75 10 2.50 75
September
2022
September 22
to November 2
3 to 3¼ 75 3.15 75 3.05 75 10 3.25 75
November 2022
November 3 to
December 14
3¾ to 4 75 3.90 75 3.80 75 10 4.00 75
December 2022
December 15 to
December 31
4¼ to 4½ 50 4.40 50 4.30 50 10 4.50 50
Sources: Federal Open Market Committee; Board of Governors of the Federal Reserve System.
9
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Endnotes
Federal Reserve
Framework for Monetary
Policy Implementation
and primary dealers accounted for an average of 91 percent,
7 percent, and 3 percent of the participation in the ON RRP
facility, respectively (Chart 3).
6
(See the “Money Market
Developments and Related Policy Measures” section of this report
for additional detail on the increase in ON RRP usage.)
REPURCHASE AGREEMENTS
STANDING REPURCHASE AGREEMENT FACILITY
Under the SRF, the Desk oers daily overnight repo operations
against Treasury securities, agency debt securities, and agency
MBS at a backstop rate intended to limit upward pressure on
overnight interest rates. As directed by the FOMC, the Desk
oered daily overnight repo operations with a minimum bid
rate in line with the top of the federal funds target range and
an aggregate limit of $500 billion. e eligibility requirements
for SRF counterparties were adjusted in April 2022 to allow a
broader set of depository institutions to access the facility. (See the
“Counterparties” section of this report for additional detail.)
-
30
-
20
-
10
0
10
20
30
40
50
Note: Prior to July 29, 2021, interest on reserve balances (IORB) was referred
to as interest on excess reserves (IOER).
Source: Federal Reserve Bank of New York.
Chart 2
Effective Federal Funds Rate and Secured Overnight
Financing Rate Spreads to IORB
Basis points
SOFR-IORB spread
EFFR-IORB spread
Jan
2020
Apr Jul Oct Apr Jul Oct Apr Jul OctJan
2021
Jan
2022
400
0
800
1,200
1,600
2,000
2,400
2,800
Total RRP outstanding
S
ource: Federal Reserve Bank of New York.
N
ote: Figures are daily and include overnight and term operations.
B
illions of U.S. dollars
Money market funds
Government-sponsored enterprises Primary dealers
Banks
Chart 3
S
OMA Reverse Repo Amounts Outstanding by Counterparty Type
2018 2019 2020 2021 2022
10
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
Operational Results
Given continued stable funding market conditions and repo
market rates trading well below the SRF’s minimum bid rate, the
facility had little usage in 2022. SRF counterparties participated
in periodic small-value transactions during 2022 that were
conducted for operational readiness purposes.
FOREIGN AND INTERNATIONAL MONETARY
AUTHORITY (FIMA) REPO FACILITY
As directed by the FOMC, the FIMA repo facility enables approved
account holders to enter overnight repo transactions with the
Federal Reserve against Treasury securities that are held in custody
at the New York Fed. FIMA repo transactions are conducted at
an oering rate equal to the minimum bid rate for the standing
repurchase agreement facility.
Operational Results
Usage of the FIMA repo facility was limited given stable
U.S. dollar funding market conditions, ample U.S. dollar liquidity,
and the backstop nature of the facility’s pricing. During 2022, there
was modest usage of the facility by FIMA account holders for
operational readiness purposes.
CENTRAL BANK LIQUIDITY SWAPS
In 2022, 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 (BoC), Bank of England (BoE), Bank of Japan (BoJ),
European Central Bank (ECB), and Swiss National Bank (SNB).
During 2022, U.S. dollar swap operations were oered weekly at
a one-week tenor, which is the typical operating practice in stable
global dollar funding conditions.
e U.S. dollar liquidity swap lines, which involve a temporary
exchange of currencies between two central banks, provide a liquidity
backstop to ease strains in global funding markets or reduce the risk
that they could emerge, thereby helping to mitigate the eects of such
strains on the supply of credit to households and businesses, both
domestically and abroad. e foreign central bank receiving dollars
lends the dollars in secured transactions with local banks.
Operational Results
Overall, usage of U.S. dollar liquidity swap lines was modest in
2022, remaining well under $1 billion for most of the year, as
global dollar funding markets largely functioned smoothly against
a backdrop of elevated levels of bank reserves and abundant dollar
liquidity (Chart 4). Four of the ve central banks with standing
swap line arrangements drew on their lines in 2022, namely the
BoE, BoJ, ECB, and SNB. Usage reached a high of $11.3 billion
in mid-October, driven primarily by draws from the SNB, which
peaked at $11.1 billion. ese draws were associated with local
money market dynamics and were not reective of broader
oshore dollar funding strains.
7
Usage of the swap lines reverted to
low levels by late October.
TREASURY SECURITIES OPERATIONS
In early 2022, the FOMC directed the Desk to continue
slowing the pace of net purchases of Treasury securities,
50
0
100
150
200
250
300
350
400
450
500
Source: Federal Reserve Bank of New York.
Notes: Figures are daily. Temporary swap line counterparties include Bank of
Korea, Monetary Authority of Singapore, Banco de México, Reserve Bank of
Australia, Danmarks Nationalbank, and Norges Bank.
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
2020 2021 2022
11
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Endnotes
Federal Reserve
Framework for Monetary
Policy Implementation
continuing the process that began in late 2021. In line with
these directives, the Desk increased Treasury securities
holdings in the January and February monthly purchase
periods by smaller amounts than it had in previous months.
At its March meeting, the FOMC directed the Desk to reinvest
all maturing Treasury securities into newly issued Treasury
securities to maintain the size of the SOMA. Apart from
small-value exercises, the Desk did not conduct additional
operations to purchase Treasury securities after March.
Consistent with the FOMC’s Plans for Reducing the Size of
the Federal Reserve’s Balance Sheet, beginning in June SOMA
Treasury holdings were redeemed up to a monthly cap. In
months in which coupon maturities were less than the monthly
cap, Treasury bills were also redeemed in amounts needed
to meet the monthly cap. In the first phase of runoff from
June to August, the cap on redemption of Treasury securities
was $30 billion per month. Beginning in September, the cap
increased to $60 billion per month. The FOMC continued to
direct the Desk to reinvest at auction all principal payments
above the monthly redemption cap from SOMA holdings of
Treasury securities.
TREASURY SECURITY ASSET PURCHASES
Operational Results
Treasury security asset purchases during 2022 totaled $60 billion
and were conducted during the January and February monthly
purchase periods (Chart 5). e Desk’s purchases of Treasury
securities continued to be conducted across a range of maturities
roughly in proportion to the outstanding issuance of Treasury
securities (Chart 6). e Desk refrained from purchasing
Treasury bills given high investor demand and the marginal
impact of bill purchases on broader nancial conditions.
8
Oers
were generally attractive relative to indicative and theoretical
prices for these securities. Oered amounts in Treasury security
purchase operations were, on average, three times those of
securities purchased, reecting a slight increase compared to
levels from 2021.
Treasury asset purchases ended in early March 2022,
concluding the Federal Reserve’s purchases of Treasury securities
that began in March 2020. e Desk continued to conduct
small-value purchase and sales operations for operational
readiness purposes. (See the “Operational Readiness” section of
this report for a summary of small-value exercises.)
-200
200
0
400
800
1,000
2018 2019 2020 2021 2022
Source: Federal Reserve Bank of New York.
Reinvestment of maturing Treasury securities
Reserve management purchases
Reinvestment of maturing agency MBS into Treasury securities
RedemptionsTreasury security asset purchases
Billions of U.S. dollars
Chart 5
SOMA Treasury Transactions
12
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
REINVESTMENTS OF TREASURY SECURITY
PRINCIPAL PAYMENTS
Operational Results
From January to May, the Desk reinvested a total of $772.1 billion
of maturing Treasury securities at auction, composed of
$426.5 billion in Treasury bill reinvestments and $345.6 billion
in Treasury coupon reinvestments. Consistent with the FOMC’s
directives, in June the Desk began to reinvest maturing Treasury
securities only to the extent they exceeded the monthly cap.
From June through December, the Desk reinvested $715.7 billion
of maturing Treasury securities, comprising $539.5 billion
in Treasury bill reinvestments and $176.2 billion in Treasury
coupon reinvestments.
Maturing Treasury coupons were reinvested into coupon
securities and maturing Treasury bills were reinvested into
bills at auctions of newly issued Treasury securities. Bids
by the SOMA at auctions of Treasury securities are placed
as noncompetitive tenders and are treated as add-ons to
announced auctions sizes. Maturing amounts were apportioned
pro rata based on the issuance amounts of securities that settled
on thematchingmaturity date. Specifically, on mid-month
maturity dates the Desk reinvested maturing Treasury coupon
0
5
1
0
1
5
2
0
2
5
3
0
3
5
4
0
4
5
Source: Federal Reserve Bank of New York.
Note: Excludes purchases conducted for the purpose of testing operational
readiness.
B
illions of U.S. dollars
Chart 6
Distribution of SOMA Treasury Purchases across
Sectors in 2022
0-3 yrs 3-6 yrs 6-10 yrs 10-30 yrs TIPS
00
200
400
600
800
1,000
1,200
20
40
60
80
100
120
140
160
2-yr note 3-yr note 5-yr note 7-yr note 10-yr note 20-yr bond 30-yr bond TIPS FRNs Bills
(right scale)
Source: Federal Reserve Bank of New York.
Note: Bars show the cumulative amount of Treasury securities acquired through reinvestments in 2022.
Chart 7
Distribution of SOMA Reinvestments at Treasury Auctions in 2022
Billions of U.S. dollars Billions of U.S. dollars
13
Box 1
TREASURY MARKET RESILIENCY AND MONITORING MARKET FUNCTIONING
The U.S. Treasury market
remains the deepest and most
liquid securities market in the
world and is fundamental for the
transmission of monetary policy.
Maintaining these characteristics
of the U.S. Treasury market is
a goal of the Federal Reserve
and other U.S. government
agencies. The Desk actively
monitors U.S. Treasury market
functioning in support of these
goals. This box details how
the Federal Reserve monitored
U.S. Treasury market functioning
as liquidity worsened during
2022 and provides an
update on the progress of the
Inter-Agency Working Group
for Treasury Market Surveillance
(IAWG) on improving the
longer-term resiliency of the
U.S. Treasury market.
a
Monitoring
Treasury Market
Functioning
Extensive monitoring of
the U.S. Treasury market is
conducted by the Desk through
market outreach, monitoring of
market data, and analysis of
internal operations data. The
Desk conducts daily outreach
across a broad range of
market participants to gather
views on the functioning of
the Treasury markets. This
outreach complements a range
of nancial market indicators
that the Desk monitors to
assess trends in the liquidity
and functioning of Treasury
markets, which include more
common measures of liquidity
used across nancial markets,
such as relative value across
Treasury securities and the
ease with which U.S. Treasury
securities can be bought
and sold.
b
The Desk also
utilizes internal data across
the range of open market
operations it conducts to
analyze counterparty- and
aggregate-level metrics.
During 2022, an increase
in broader interest rate volatility
contributed to deterioration
in a range of Treasury market
liquidity and functioning metrics
tracked by the Desk. Market
outreach conducted by the Desk
suggested Treasury markets
continued to function effectively,
but with lower levels of liquidity.
For example, bid-ask spreads
widened modestly in 2022
but remained below the levels
observed during the onset of
the pandemic-related market
disruptions (Chart 8).
Although a range of metrics
suggested challenging liquidity
conditions, outreach by the
Desk indicated that market
participants continued to be
able to conduct trades, albeit at
higher transaction costs and in
smaller sizes. Treasury market
liquidity tends to be reduced
during periods of heightened
volatility, and the lower levels
of liquidity during 2022 were
broadly in line with the increases
in volatility during the year.
IAWG Progress
in Improving
Treasury Resilency
Market-monitoring efforts by the
Desk run parallel to the work of
the IAWG, which is focused on
improving the broader resilience
of the U.S. Treasury market.
The IAWG’s work has focused
on ve main areas—expanded
central clearing, the resilience
of market intermediation,
data quality and availability,
trading venue transparency and
oversight, and the effects of
leverage and fund liquidity risk
management. The IAWG made
signicant progress on these
goals during 2022, as detailed
in an IAWG-published Staff
Progress Report and discussed
at the 2022 U.S. Treasury
Market Conference.
c
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
2018 2019 2020 2021 2022
10-year5-year2-year
Daily Bid-Ask Spreads for On-the-Run Treasury Securities
(Five-Day Rolling Average)
Chart 8
Source: BrokerTec.
.
Note: Effective November 19, 2018, BrokerTec halved the tick size in the
two-year note from ¼ to
1
/
8
of a 32nd.
Ticks
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Endnotes
Federal Reserve
Framework for Monetary
Policy Implementation
continued on page 14
14
securities into newly issued three-, ten-, and thirty-year
Treasury securities. End-of-month maturing Treasury
securities were reinvested into newly issued two-, five-,
seven-, and twenty-year, floating rate, and inflation-linked
Treasury securities. Reinvestments of Treasury bills occurred
based on their weekly maturities, in line with U.S. Treasury
issuance cycles.
For the full year, a total of $330.0billion in Treasury securities
were redeemed and the Desk reinvested $1.49trillion of maturing
Treasury securities,downfrom $1.73trillion in2021(Chart 7,
page 12). Total bill reinvestments were $966.0 billion and total
coupon reinvestments were $521.8 billion.
9
AGENCY MBS OPERATIONS
As with Treasury securities, in early 2022, the FOMC directed
the Desk to further slow the pace of net agency MBS purchases,
continuing the process of reducing net purchases that began in
late 2021 (Chart 9). During this period, the FOMC directed the
Desk to increase agency MBS holdings by at least $20 billion
during the January purchase period and by at least $10 billion
during the nal February purchase period, and continued to
direct the Desk to reinvest principal payments of agency MBS into
agency MBS. At its March meeting, the FOMC directed the Desk
to reinvest principal payments of agency MBS to maintain the
size of the SOMA.
This progress includes:
Evaluating expanded
central clearing
. The
Securities and Exchange
Commission (SEC) proposed
a rule in September 2022
that would enhance risk
management practices for
central counterparties in the
Treasury market and result
in additional clearing of
secondary market transactions
in Treasury securities.
d
Bilateral repo data.
The
Treasury Department’s
Ofce of Financial Research
(OFR) in February 2022
announced a pilot program
to collect transaction-level
data on the historically
opaque non-centrally cleared
bilateral repo markets.
e
SEC dealer registration.
The SEC proposed new
rules in March 2022 that
would require market
participants acting in
dealer-like roles and/
or engaging in material
buying and selling of
government securities
to register with the SEC,
among other requirements.
f
Enhancements to public data
.
The SEC approved a proposal
to increase the frequency of
aggregate U.S. Treasury Trade
Reporting and Compliance
Engine, or TRACE, transaction
data releases and include
additional metrics. The SEC
also proposed an amendment
to require additional data
reporting in Form PF for
certain investment advisors.
a
The IAWG was formed by the Treasury Department, Securities and Exchange Commission (SEC), and Federal Reserve Board in 1992 to improve monitoring and
surveillance and strengthen interagency coordination with respect to the Treasury markets.
b
For example, see Michael Fleming and Claire Nelson, “How Liquid Has the Treasury Market Been in 2022?,” Federal Reserve Bank of New York Liberty Street Economics,
November 15, 2022, at https://libertystreeteconomics.newyorkfed.org/2022/11/how-liquid-has-the-treasury-market-been-in-2022; and Lorie K. Logan,
“The Federal Reserve’s Market Functioning Purchases: From Supporting to Sustaining,” remarks at SIFMA webinar, July 15, 2020,
at https://www.newyorkfed.org/newsevents/speeches/2020/log200715.
c
U.S. Treasury Department, Federal Reserve Board, Federal Reserve Bank of New York, Securities and Exchange Commission, and Commodity Futures Trading
Commission, 2021, “Recent Disruptions and Potential Reforms in the U.S. Treasury Market: A Staff Progress Report,” November 8, available at
https://home.treasury.gov/system/les/136/IAWG-Treasury-Report.pdf; and the 2022 U.S. Treasury Market Conference replay, available at
https://www.newyorkfed.org/newsevents/events/markets/2022/1116-2022.
d
See Securities and Exchange Commission, 2022, “Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer
Customer Protection Rule with Respect to U.S. Treasury Securities,” at https://www.sec.gov/rules/proposed/2022/34-95763.pdf.
e
Samuel J. Hempel, R. Jay Kahn, Vy Nguyen, and Sharon Y. Ross, “Non-centrally Cleared Bilateral Repo,” OFR Blog, Ofce of Financial Research,
August 24, 2022, available at https://www.nancialresearch.gov/the-ofr-blog/2022/08/24/non-centrally-cleared-bilateral-repo/.
f
See Securities and Exchange Commission, “Further Denition of ‘As a Part of a Regular Business’ in the Denition of Dealer and Government Securities Dealer,”
Federal Register 87, no. 74, April 18, 2022: 23054-23106, at https://www.federalregister.gov/documents/2022/04/18/2022-06960/
further-denition-of-as-a-part-of-a-regular-business-in-the-denition-of-dealer-and-government.
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
15
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Endnotes
Federal Reserve
Framework for Monetary
Policy Implementation
Beginning in June, the FOMC directed the Desk to reduce
SOMA agency MBS holdings by reinvesting agency MBS
principal payments into agency MBS only to the extent that they
exceeded a monthly cap. e cap for agency MBS was initially
set at $17.5 billion per month for the June to August purchase
periods before increasing to $35 billion per month from the
September monthly purchase period onward. e FOMC directed
the Desk to continue to conduct dollar rolls and coupon swaps as
necessary to facilitate settlement of the Federal Reserve’s agency
MBS transactions.
AGENCY MBS ASSET PURCHASES
Operational Results
e Desk purchased a total of $123.8 billion of agency MBS
during the January and February mid-month purchase
periods. ese purchases were made up of $30.0 billion in
net purchases and $93.7 billion in reinvestments of principal
payments on existing agency MBS holdings. During the March
to May 2022 mid-month purchase periods, the Desk maintained
the size of agency MBS holdings by purchasing a total of
$112.7 billion in agency MBS to reinvest principal payments on
existing holdings. e Desk purchased a total of $32.8 billion in
agency MBS during the purchase periods of June, July, and August.
No purchases were executed from the September purchase period
to the end of 2022 as principal payments on agency MBS holdings
were under the monthly cap during that time.
10
e Desk allocated its purchases in line with the agency
MBS that were issued at the time. Prior to June 2022, most
MBS purchases had coupons of 4.0 percent or lower, reecting
prevailing primary mortgage rates. However, as primary mortgage
rates increased over the rest of the year, the Desk’s purchases of
production agency MBS also shied toward higher coupons. By
July 2022, more than half of monthly purchases were in 4.5 and
5.0 percent coupons.
Over the course of 2022, the Desk purchased a total of
$306.3 billion of agency MBS in the secondary market (Table 2),
including reinvestments of principal payments on existing MBS
holdings.
11
e Desk’s agency MBS purchases spanned een- and
thirty-year uniform agency MBS (UMBS) issued by Fannie Mae
and Freddie Mac, as well as thirty-year Ginnie Mae securities
(Charts 10 and 11). e Desk’s purchases of thirty-year securities
accounted for 90 percent of its agency MBS purchases. e Desk’s
fifteen-year UMBS purchases made up 10 percent of its total
-50
50
0
100
150
200
400
450
500
2018 2019 2020 2021 2022
Source: Federal Reserve Bank of New York.
Notes: Reinvestment and agency MBS asset purchases occur from mid-month to the following mid-month. Figures may be rounded.
Billions of U.S. dollars
Agency MBS asset purchases
Redemptions
Reinvestments from principal payments on agency debt
Reinvestments from principal payments on agency MBS
Chart 9
SOMA Agency MBS Transactions
16
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
Table 2
Distribution of SOMA Agency MBS Operations in 2022
Agency
Coupon
(Percent)
Purchases
(Billions of
U.S. Dollars)
Purchases as a
Share of Gross Issuance
(Percent)
30-year
Uniform MBS 2.0 32.1 30
2.5 54.5 32
3.0 32.1 22
3.5 27.9 23
4.0 30.4 22
4.5 23.7 17
5.0 6.2 6
Ginnie Mae 2.0 6.0 15
2.5 17.8 23
3.0 14.2 21
3.5 9.3 17
4.0 11.4 16
4.5 7.7 10
5.0 1.8 3
Subtotal 274.9 18
15-year
Uniform MBS 1.5 5.2 34
2.0 11.2 36
2.5 5.9 35
3.0 3.9 35
3.5 3.7 42
4.0 1.4 21
4.5 0.1 2
Subtotal 31.4 32
Total 306.3 19
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 2022, 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 1, 2019, both Fannie Mae and
Freddie Mac securities are deliverable into Uniform MBS contracts.
20
40
60
80
100
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 to May 2019 and from October 2022 to December 2022, as
monthly principal payments of agency MBS were below the prevailing
reinvestment cap for each period.
Source: Federal Reserve Bank of New York.
a
SOMA Purchases of Fifteen-Year Agency MBS by Coupon
Percent
Chart 11
1.5%
2.0% 2.5% 3.0%
3.5% 4.0%
a
4.5%
2018 2019 2020 2021 2022
20
0
0
40
60
80
1
00
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 to May 2019 and from October 2022 to December 2022, as
monthly principal payments of agency MBS were below the prevailing
reinvestment cap for each period.
Source: Federal Reserve Bank of New York.
Chart 10
SOMA Purchases of Thirty-Year Agency MBS by Coupon
Percent
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
a
a
2018 2019 2020 2021 2022
20
40
60
80
100
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 to May 2019 and from October 2022 to December 2022, as
monthly principal payments of agency MBS were below the prevailing
reinvestment cap for each period.
Source: Federal Reserve Bank of New York.
a
SOMA Purchases of Fifteen-Year Agency MBS by Coupon
Percent
Chart 11
1.5%
2.0% 2.5% 3.0% 3.5% 4.0%
a
4.5%
2018 2019 2020 2021 2022
20
0
0
40
60
80
100
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 to May 2019 and from October 2022 to December 2022, as
monthly principal payments of agency MBS were below the prevailing
reinvestment cap for each period.
Source: Federal Reserve Bank of New York.
Chart 10
SOMA Purchases of Thirty-Year Agency MBS by Coupon
Percent
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
a
a
2018 2019 2020 2021 2022
17
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Endnotes
Federal Reserve
Framework for Monetary
Policy Implementation
purchases of agency MBS during 2022 and were concentrated in
2.0 and 2.5 percent coupon securities.
CUSIP Aggregation
In October 2022, the Desk announced plans to consolidate
many small, individual agency MBS into fewer and
larger-value securities.
12
Through this process, known as
CUSIP aggregation, several existing agency MBS with similar
characteristics—including issuing agency, coupon, and original
term to maturity—are consolidated into one larger security.
By reducing the number of individual securities held in the
SOMA portfolio, CUSIP aggregation can lower operational
risk, simplify back-office portfolio administration, and reduce
custodial costs that are assessed on an individual CUSIP
basis. During the fourth quarter of 2022, the Desk focused on
aggregating Freddie Mac MBS held in the SOMA that were issued
prior to June 2019 and had a forty-five-day payment delay. Over
the course of approximately three months, the total number of
agency MBS CUSIPs in the SOMA was reduced from 31,000 to
fewer than 30,000.
13
DOLLAR ROLLS
Operational Results
Given the forward-settling nature of the Desk’s agency MBS
transactions in the to-be-announced (TBA) market, agency
MBS can become scarce in the market during the time between
a transaction’s trade date and its settlement date. Because these
conditions could create settlement frictions, the Desk can
conduct dollar roll sales, which delay settlement of agency MBS
transactions to a future date to facilitate settlement. Dollar roll
sales allow dealers additional time to obtain securities to settle
transactions, in exchange for a market price that compensates the
Federal Reserve for the delay in settlement.
Mirroring the broader rise in primary mortgage rates,
origination of the underlying mortgages in agency MBS
shifted to higher-coupon securities during 2022. However,
as mortgage origination lags the moves in primary mortgage
rates, there was less supply of higher-coupon MBS to deliver
into TBAs for settlement, particularly in mid-2022. To facilitate
settlement, the Desk rolled a total of approximately $23 billion
of settlements during 2022, which represented approximately
5 percent of settlements, compared to 4 percent of settlements
in 2021 (Chart 12). Dollar rolls were concentrated in Ginnie
Mae securities and thirty-year UMBS.
SECURITIES LENDING
e 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 debt securities.
Lending Treasury securities, especially those in which the SOMA
holds a signicant market share, helps mitigate periods of scarcity
in the market for these securities, such as when individual
issues experience high levels of short positioning or elevated
settlement fails.
1
0
2
0
3
0
4
0
00
10
20
30
40
50
Notes: Figures are monthly by settlement month. Share of expected
settlements is calculated excluding purchases conducted for the purpose of
testing operational readiness.
Source: Federal Reserve Bank of New York.
Chart 12
SOMA Dollar Roll Sales
Billions of U.S. dollars
Percent
Total (left scale)
Share of expected settlements (right scale)
2018 2019 2020 2021 2022
18
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
Operational Results
In 2022, the Desk continued to conduct daily operations to lend
Treasury and agency debt securities from the SOMA portfolio to
primary dealers. Securities lending volumes in Treasury securities
averaged $41billion per day in 2022, up from $35 billion per day
in 2021, driven in part by higher demand for specic Treasury
securities across repo markets during 2022 (Chart13).
e slight increase in SOMA securities lending volumes
during 2022 in part reected the higher proportion of SOMA
holdings of Treasury securities to outstanding amounts compared
to previous years. Greater demand by investors across certain
Treasury issues led the volume-weighted average bid fee on
Treasury securities to rise to about16basis points in 2022, up
from 8 basis points in 2021.
FOREIGN RESERVES MANAGEMENT
The Federal Reserve holds a portfolio of euro- and
yen-denominated assets, which could be used to fund a
potential foreign exchange intervention.
14
The size and
currency composition of foreign reserve holdings are largely a
result of past intervention activity in foreign exchange markets.
In accordance with their statutory authorities, the FOMC and
U.S. Treasury make decisions on foreign exchange intervention
activity. In 2022, 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 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 Dutch, French, German, and
Japanese government securities, as well as in deposits at the Bank
for International Settlements and foreign central banks such as
the Deutsche Bundesbank, Banque de France, De Nederlandsche
Bank, and Bank of Japan.
INVESTMENT ACTIVITY
In 2022, the Desk purchased Japanese yen–denominated
foreign sovereign debt securities in the secondary market
consistent with the investment approach. Purchases of
euro-denominated foreign sovereign debt securities were not
required to meet the target allocation. The Desk also continued
to hold foreign currency reserves in deposits at various official
institutions. As of year-end 2022, the SOMA foreign currency
portfolio totaled $18.6 billion, compared with $20.3 billion at
the end of 2021.
15
Since no transactions associated with foreign
exchange intervention were undertaken and the interest income
received was minimal due to the low interest rate environment
in the euro area and Japan, changes in the portfolio’s reported
U.S. dollar market value largely reflected changes in the foreign
exchange value of the dollar against the euro and Japanese yen
over the year.
16
(Foreign currency–denominated holdings are
described further in the “Selected Balance Sheet Developments”
section of this report.)
5
10
15
20
25
30
5
0 0
1
0
1
5
2
0
2
5
3
0
3
5
4
0
4
5
5
0
S
ource: Federal Reserve Bank of New York.
N
ote: Figures are monthly averages of daily lending results.
Securities lending (left scale)
Weighted average award rate (right scale)
Chart 13
SOMA Securities Lending in Treasuries
B
illions of U.S. dollars Basis points
2018 2019 2020 2021 2022
19
SELECTED BALANCE
SHEET DEVELOPMENTS
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
e size of the Federal Reserve’s balance sheet evolved in line
with the FOMC’s directives during the year, decreasing on
net over the course of 2022 (Table 3). Specically, the FOMC
directed the Desk to continue reducing net purchases of Treasury
securities and agency MBS through early March 2022, then
maintain the size of SOMA holdings by reinvesting principal
payments through May, before starting the process of balance
sheet runo in June. is resulted in total assets reaching a high
of $8.97 trillion in the second quarter of 2022 and subsequently
declining by $363.9 billion during the second half of the year.
Total assets ended 2022 at $8.55 trillion, $205.1 billion lower
than at year-end 2021. Total assets as a share of nominal GDP also
declined, to 33 percent of GDP in 2022 from 36 percent in 2021.
Along with the decline in the size of the Federal Reserve’s
balance sheet, the composition of liabilities shied over the
course of the year. Reserve balances declined by $959.5 billion
during 2022 and reached an average level during December of
$3.09 trillion. is decline is partly attributable to a signicant
increase in the ON RRP facility during the rst half of the year.
e Treasury General Account increased on net over the year,
peaking in the second quarter at $964.4 billion, before ending
2022 at $446.7 billion.
SOMA interest income reached historically high levels during
2022, driven by the large size of the SOMA portfolio. However,
the cumulative eect of increases in administered rates in late
2022 resulted in sharply higher interest expenses, and SOMA net
income declined to $65.7 billion in 2022 from $114.8 billion in
2021. By September 2022, most Reserve Banks had suspended
weekly remittances to the Treasury and the Federal Reserve
System started accumulating a deferred asset.
17
SELECTED ASSETS
e Federal Reserve’s assets can be divided into SOMA and
non-SOMA assets. e SOMA assets make up 95.2 percent of the
Federal Reserve’s assets and are mainly composed of domestic
securities holdings, along with smaller proportions of foreign
reserve portfolios, repurchase agreements, and U.S. dollar liquidity
swaps with foreign central banks. 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. ese assets are Federal Reserve assets but
are not part of the SOMA. 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
Most of the SOMA is composed of domestic holdings of Treasury
securities and agency MBS. e SOMA domestic securities
portfolio decreased to $8.14 trillion at year-end 2022 from
$8.27 trillion in 2021. e decline in the securities portfolio over
the year was driven by a roughly $153 billion decrease in Treasury
securities, while agency MBS holdings increased slightly on net
by nearly $26 billion, reecting the net eect of purchases in early
2022.
18
(See the “Agency MBS Holdings” section of this report for
additional details on agency MBS runo.) e domestic securities
portfolio at year-end 2022 was composed of Treasury securities
totaling $5.50 trillion (68 percent), agency MBS totaling
$2.64 trillion (32 percent), agency CMBS totaling $8.5 billion
(less than 1 percent), and agency debt totaling $2.3 billion (less
than 1 percent) (Chart 14).
19
20
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Endnotes
Treasury Holdings
During 2022, SOMA Treasury securities holdings decreased
from $5.65 trillion to $5.50 trillion. is decline was mostly
driven by a $116.7 billion decrease in Treasury coupon holdings,
with the remaining decline coming from a $36.5 billion
decrease in Treasury bill holdings. Although asset purchases
of Treasury securities by the Desk ended in early March, total
holdings peaked at $5.77 trillion in the second quarter because
of increased ination compensation on holdings of Treasury
Inflation-Protected Securities (TIPS).
20
In line with the FOMC’s
Plans for Reducing the Size of the Federal Reserve’s Balance Sheet,
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 Repo
Central
Bank
Liquidity
Swaps
Primary
Credit
Program
Emergency
Credit and
Liquidity
Facilities
Other
Assets
Total
Assets
Outstanding as of:
December 31, 2021 5,652.5 2,617.9 0.0 3.3 0.6 52.8 429.3 8756.4
December 30, 2022 5,499.4 2,643.7 0.0 0.4 5.3 26.2 376.3 8,551.3
Changes in the period
Dec 31, 2021 to Dec 30, 2022 (153.1) 25.8 0.0 (2.9) 4.7 (26.6) (53.0) (205.1)
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, 2021 3,644.3 2,187.1 406.1 1,904.6 278.5 335.8 5,112.1 8,756.4
December 30, 2022 2,684.8 2,259.0 446.7 2,553.7 335.8 271.3 5,866.5 8,551.3
Changes in the period
Dec 31, 2021 to Dec 30, 2022 (959.5) 71.8 40.6 649.1 57.4 (64.5) 754.4 (205.1)
Sources: Federal Reserve Bank of New York; Board of Governors of the Federal Reserve System.
Notes: These gures may differ from Federal Reserve Banks Combined Financial Statements due to nancial accounting adjustments for 2022 recorded after
year-end. Securities balances are listed at par value and exclude unsettled MBS. Emergency credit and liquidity facility outstanding balances exclude nonmarketable
portion of Treasury equity. 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 and Capital include primarily non-reserve deposits.
21
OPEN MARKET OPERATIONS DURING 2022
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Endnotes
the start of balance sheet runo resulted in the Treasury portfolio
declining by roughly $270 billion during the second half of 2022.
e composition of the SOMA Treasury portfolio shied
modestly toward longer maturities by year-end. Nominal coupon
securities with less than three years to maturity, which continue
to make up the largest share of the SOMA Treasury securities
portfolio, and those with three to six years to maturity together
decreased by a total of $231.8 billion during 2022. Coupon
securities with ten to thirty years to maturity increased by
$100.5 billion over the same period (Chart 15).
e share of the outstanding Treasury universe held in the
SOMA portfolio decreased across most sectors during 2022.
e aggregate SOMA holdings of Treasury securities as a share
of the $23.93 trillion in marketable Treasury debt outstanding
(inclusive of SOMA holdings) decreased to 23 percent at the
end of 2022 from 25 percent at year-end 2021. is decline
was mainly driven by a $1.35 trillion increase in the overall
Treasury debt outstanding during the year, along with the
decrease of approximately $153 billion in SOMA Treasury
holdings. e SOMA continued to hold the greatest proportion
of outstanding Treasury securities within the ten- to thirty-year
nominal coupon sector (36 percent) (Chart 16). Approximately
40 percent of the SOMA holdings in this sector were acquired by
the Federal Reserve prior to 2020. e SOMA share of coupon
securities with up to three years remaining to maturity declined
from 30 percent to 26 percent, driven by larger Treasury issuance
in this sector during the year. e share of SOMA bills holdings
fell slightly, from 9 percent to 8 percent over the year.
e weighted average maturity of SOMA Treasury securities
(7.9 years) remained signicantly higher than that of the
outstanding Treasury universe (6.2 years). e dierence is
reective of the SOMA’s larger holdings of longer-maturity
nominal Treasury securities (ten to thirty years) relative to the
1
,000
0
2
,000
3
,000
4
,000
5
,000
6
,000
7
,000
8
,000
9
,000
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.
Chart 14
Composition of SOMA Domestic Securities Holdings
B
illions of U.S. dollars
Treasury securities
Agency MBS
Agency debt
2018 2019 2020 2021 2022
20
0
40
60
80
100
$921
$677
$335
$451
$158
$198
$517
$614
$553 $583 $964 $1,240
$139 $153 $358
$170 $326
T
otal
2018
2019
2020
2021
$326 $290
$868
$607
$1,340
2022
$2,223
$2,329
$4,689
$5,653 $5,499
$1,887
$458 $480
$903 $873 $1,829 $2,066
Source: Federal Reserve Bank of New York.
Note: Figures are as of year-end and may be rounded.
a
Less than 1 percent of holdings in 2018, 2019, 2020, 2021, and 2022 are
Floating Rate Notes (FRNs).
Percentage Share and Billions of U.S. Dollars
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
22
OPEN MARKET OPERATIONS DURING 2022
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stock of outstanding securities. Compared to year-end 2021,
the weighted average maturity of the SOMA Treasury portfolio
increased by 0.3 years, reecting the increase in Treasury holdings
with ten to thirty years to maturity coupled with decreases in the
share of Treasury securities with less than six years to maturity.
Agency MBS Holdings
On net, settled agency MBS holdings in the SOMA increased
over the course of 2022 to a total of $2.64 trillion. e SOMA’s
settled holdings of agency MBS reached its highest level in April
of $2.74 trillion and remained relatively at until September,
before decreasing through year-end. Purchases of agency MBS
generally settle one to two months in the future and the Desk
delayed some settlements during mid-2022 by conducting dollar
roll transactions. Due to these factors, settled SOMA holdings of
agency MBS started to decrease a few months aer runo began in
June. (For more details on agency MBS operations, see the “Open
Market Operations” section of this report.) e agency MBS
portfolio decreased by $77.1 billion from mid-September through
the end of the year.
e composition of the SOMA agency MBS portfolio
was broadly similar to its composition at the end of
2021 (Charts 17 and 18). e weighted average coupon of the
agency MBS held in the SOMA portfolio increased slightly
to 2.6 percent at the end of 2022 from 2.5 percent at year-end
2021. Approximately 85 percent of agency MBS holdings were
3.0 percent coupons or lower at year-end 2022, with holdings of
agency MBS coupons greater than or equal to 4.0 percent increasing
slightly from 6.6 percent to 8.5 percent during the year (Chart 19).
e sharp rise in primary mortgage rates during 2022 slowed
prepayment rates materially, resulting in an increase in the weighted
average life of the agency MBS portfolio from 5.7 years in 2021 to
8.9 years at the end of 2022.
21
Holdings of agency MBS across issuers were broadly similar
to 2021. Within the SOMA, 41 percent of agency MBS holdings
are guaranteed by Fannie Mae, 38 percent are guaranteed by
Freddie Mac, and 21 percent are guaranteed by Ginnie Mae.
22
SOMA portfolio holdings of thirty-year MBS increased slightly,
to 88 percent of the portfolio from 87 percent, as broader
renancing activity slowed and resulted in decreased origination
of fifteen-year agency MBS.
SOMA holdings of agency MBS as a share of the outstanding
stock of xed-rate agency MBS fell during 2022, from
35 percent to 33 percent. Agency MBS holdings in the SOMA
were slightly more concentrated in lower-coupon securities
than the overall agency MBS universe because of the substantial
purchases from 2020 through 2022 at historically low mortgage
rates. e weighted average coupon rate of SOMA holdings
of agency MBS at year-end 2022 of 2.6 percent was slightly
below the broader market’s weighted average coupon rate
of 2.8 percent.
Agency Debt Holdings
SOMA agency debt holdings were unchanged at $2.3 billion
during 2022. ese holdings were issued by Fannie Mae and
Freddie Mac and 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 mature between 2029 and 2032.
Sources: Federal Reserve Bank of New York; U.S. Treasury Department.
2020 2021 2022
Chart 16
SOMA Treasury Holdings as a Share of Outstanding
Treasury Supply
10
0
20
30
40
50
Bills < 3 years 3 to <6 6 to <10
years years years
10 to 30 TIPS FRNs
Percent
Note: Figures are as of year-end.
23
OPEN MARKET OPERATIONS DURING 2022
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Endnotes
0
20
40
60
80
100
Percent
Source: Federal Reserve Bank of New York.
Note: Figures may be rounded.
2018 2019 2020 2021 2022
Distribution of SOMA Holdings of Fifteen-Year Agency
MBS by Coupon
Chart 18
≥ 4.5%1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
0
≥ 4.5%
Distribution of SOMA Holdings of Thirty-Year Agency MBS
by Coupon
P
ercent
Chart 17
Source: Federal Reserve Bank of New York.
Note: Figures may be rounded.
1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
2018 2019 2020 2021 2022
20
40
60
80
1
00
2012 2013 2016 2019 20222020 2021
Pre-2011 2014 2017
2015 20182011
Vintage
0 10 20 30 40
Percent
50 60 70 80 90 100
2.0% 2.5% 3.0% 3.5% ≥4.0%
≤ 1.50%
C
oupon
Term
a
30-year 15-year
Fannie Mae Freddie Mac Ginnie Mae
Issuer
Chart 19
Distribution of SOMA Agency MBS Holdings
Notes: Figures are as of December 30, 2022. Holdings total $2.63 trillion and consist of settled holdings only.
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.
Source: Federal Reserve Bank of New York.
24
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Endnotes
Agency CMBS Holdings
SOMA agency CMBS holdings decreased by $744 million
to $8.5 billion as a result of principal payments.
23
The Desk
did not purchase any new agency CMBS during 2022 and
agency CMBS portfolio principal payments are not reinvested.
Agency CMBS holdings accounted for less than 1 percent of
total SOMA agency MBS holdings and represented around
1 percent of outstanding agency CMBS at year-end. The
composition of these holdings was approximately 79 percent
Fannie Mae securities, 10 percent Ginnie Mae securities, and
12 percent Freddie Mac securities by the end of 2022.
24
As
of year-end, the weighted average life of the SOMA CMBS
portfolio was 7.4 years.
PORTFOLIO RISK METRICS
The duration of the SOMA portfolio increased, driven
primarily by the agency MBS portfolio, as broader interest rates
moved higher. 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
flows from the security. The 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. The par-weighted average duration of the SOMA
domestic securities portfolio rose from 5.8 years to 6.3 years,
driven by the increase in agency MBS portfolio duration from
4.9 to 6.6 years (Chart 20).
25
The duration of agency MBS
is more sensitive to changes in interest rates than Treasury
securities because of the embedded prepayment option in
underlying mortgages.
26
The increase in the effective duration
of the SOMA’s holdings of agency MBS reflected the sharp
increase in primary mortgage rates during 2022. The duration
of the portfolio of Treasury securities held in the SOMA
decreased modestly from 6.2 years to 6.1 years as reductions
in duration from the aging of the existing portfolio were
partially offset by increases in duration from new net purchases
and reinvestments.
Measures of the dollar value of duration risk held in the SOMA
portfolio increased during 2022. 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 in the portfolio. e SOMA portfolio’s
ten-year equivalent measure increased from $5.29 trillion at the
end of 2021 to $6.36 trillion at the end of 2022, driven largely by
increases in market yields (Chart 21).
27
SOMA REPURCHASE AGREEMENTS
erewerenooutstanding repurchase agreements under either
the SRF or FIMA repo facility at year-end 2022. e lack of usage
of these facilities throughout 2022 reected generally stable
funding conditions and ample dollar liquidity, as well as the
backstop nature of the facilities’ pricing.(For more information on
repurchase agreements, see the “Open Market Operations” section
of this report.)
CENTRAL BANK LIQUIDITY SWAPS
e aggregate outstanding balance of U.S. dollar swap lines
decreased by $2.9 billion in 2022 to reach $412 million at
year-end. Smooth functioning and ample liquidity conditions in
global dollar funding markets led to lower usage of the swap lines
at 2022 year-end, resulting in the decline in aggregate outstanding
swaps over the year. (For more information on central bank swaps,
see the “Open Market Operations” section of this report.)
SOMA FOREIGN
CURRENCY–DENOMINATED HOLDINGS
e Federal Reserve holds foreign currency–denominated
assets, which are invested to ensure adequate liquidity to meet
potential foreign exchange intervention needs. As of year-end
2022, the SOMA foreign currency portfolio totaled $18.6 billion,
composed of $11.5 billion of euro-denominated assets and
$7.1 billion of yen-denominated assets. e portfolio decreased
by $1.8 billion in U.S. dollar terms over the year, primarily
owing to a 6 percent depreciation of the euro against the dollar
and a 13 percent depreciation of the yen against the dollar.
Government debt obligations decreased as a percentage of both
the euro-denominated and yen-denominated portfolios, while
the percentage of cash held on deposit at ocial institutions
increased (Chart 22). (For more information on the foreign
25
OPEN MARKET OPERATIONS DURING 2022
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Selected
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Endnotes
currency–denominated portfolio, see the “Open Market
Operations” section of this report.)
For euro-denominated assets, the Macaulay duration of the
portfolio fell from 25.0 months at year-end 2021 to 16.6 months at
year-end 2022 as the share of deposits in the portfolio increased.
28
For yen-denominated assets, the Macaulay duration of the portfolio
decreased from 0.4 months at year-end 2021 to less than one day at
year-end 2022 following the maturity of government debt holdings.
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.
e use of primary credit increased during 2022, as some
depository institutions’ borrowing needs rose. e primary credit
rate was increasingly competitive to some other comparable
rates, such as term FHLB advance rates, making it an attractive
alternative source of liquidity for some institutions. e
average daily outstanding loan balance under primary credit
rose from $745 million in 2021 to $3.2 billion in 2022. Small
domestic banks continued to make up most primary credit
loan originations.
Over 2022, the primary credit rate for each Reserve Bank was
raised from 0.25 percent to4.50percent, equal to the top of the
federal funds target range and increasing in line with the range
throughout the course of 2022. Primary credit loans continued to
be granted for terms up to ninety days.
29
2018 2019 2020 2021 2022
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 given the small balance of holdings.
Total SOMA Treasury securities
Agency MBS
Chart 20
Average Duration of SOMA Domestic Securities Holdings
2
0
4
6
8
10
Years
1,000
0
2,000
3,000
4,000
5,000
6,000
7,000
2018 2019 2020 2021 2022
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 given the small balance of holdings.
Billions of U.S. dollars
Chart 21
SOMA Domestic Securities Holdings in Ten-Year
Equivalents
Total SOMA Treasury securities
Agency MBS
26
OPEN MARKET OPERATIONS DURING 2022
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Selected
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Endnotes
EMERGENCY CREDIT AND LIQUIDITY FACILITIES
e total balances of the remaining emergency credit and liquidity
facilities established in response to the nancial disruptions
associated with the COVID-19 pandemic declined to $26.2 billion
in 2022, a decrease of $26.6 billion over the year.
30
e decreases
in these facilities—the Term Asset-Backed Securities Loan
Facility (TALF), Municipal Liquidity Facility (MLF), Main Street
Lending Program (MSLP), and Paycheck Protection Program
Liquidity Facility (PPPLF)—were the result of maturities and/or
prepayments during 2022.
31
Assets originated by the TALF and
MLF have nal maturities in 2023, while the MSLP and PPPLF
loans have nal maturity dates in 2026.
32
e Federal Reserve
published term sheets providing details of each program and the
Board provides periodic reports to Congress on the facilities.
TERM ASSET-BACKED SECURITIES LOAN FACILITY
The TALF was announced on March 23, 2020, to support the
flow of credit to consumers and businesses. Under the TALF,
the New York Fed provided financing to a special purpose
vehicle (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.
The TALF ceased extending credit on December 31,
2020. Of loans originated by the TALF, $1.0 billion remained
outstanding at year-end 2022, compared to $1.3 billion at
year-end 2021. The decrease over the year was primarily
because of routine principal amortization of securities pledged
to secure the loans, following a series of voluntary prepayments
from borrowers in 2021. The TALF has one remaining
borrower, whose loans are scheduled to mature between July
and December 2023. The U.S. Treasury provided a $10 billion
equity investment to the TALF SPV, which returned a total of
$340 million in equity in excess of the New York Fed’s exposure
to TALF loans to the U.S. Treasury in 2022, compared to
$8.6 billion in 2021.
MUNICIPAL LIQUIDITY FACILITY
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 using
financing provided by the New York Fed. The MLF ceased
purchasing notes as of December 31, 2020, and at year-end
2022 had a total remaining outstanding balance of $2.9 billion,
held in one note due, compared to $4.1 billion at year-end
2021. The decrease during 2022 was driven by voluntary
note prepayments by borrowers. The U.S. Treasury made an
initial equity investment of $17.5 billion in the SPV, and the
MLF returned a total of $1.3 billion in equity in excess of the
New York Fed’s exposure to MLF notes to the U.S. Treasury in
2022, compared to $13.3 billion in 2021.
Chart 22
Distribution of SOMA Foreign Currency Portfolio Holdings
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
5
0
1
0
1
5
2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
Euro portfolio Yen portfolio
Source: Federal Reserve Bank of New York.
Note: Figures reflect amortized cost.
27
OPEN MARKET OPERATIONS DURING 2022
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PAYCHECK PROTECTION PROGRAM LIQUIDITY FACILITY
e PPPLF was authorized by the Federal Reserve Board
on April 8, 2020, to provide a source of liquidity to nancial
institutions that lend to small businesses through the SBA’s
Paycheck Protection Program. e PPPLF ceased extending credit
on July 30, 2021, and had $11.4 billion in outstanding advances
as of year-end 2022, compared to $33.9 billion in 2021. e last
maturing loan within the PPPLF will expire on July 31, 2026,
although most, if not all, loans are expected to be prepaid due to
PPP loan forgiveness.
MAIN STREET LENDING PROGRAM
The MSLP was authorized by the Federal Reserve
Board 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 COVID-19 pandemic. The Federal Reserve Bank of
Boston established one SPV to manage and operate all five
facilities under the MSLP.
33
The MSLP ceased purchasing
participations in eligible loans on January 8, 2021, and had
an outstanding balance, net of loss allowance, of $10.8 billion
at year-end 2022, compared to $13.4 billion as of year-end
2021. The SPV returned to the U.S. Treasury $1.8 billion of
the equity investment on May 20, 2022, and $2.4 billion of the
equity investment on November 18, 2022. This reduced the
U.S. Treasury’s remaining equity contribution to $11.5 billion,
which fully protects the Boston Fed against losses from the
MSLP loan portfolio.
SELECTED LIABILITIES
With the start of balance sheet reduction during 2022,
total liabilities and capital of the Federal Reserve declined
to $8.55 trillion at year-end, compared to $8.76 trillion at
year-end 2021 (Chart 23). Although the overall decrease in
liabilities over 2022 was driven by balance sheet reduction,
the composition of Federal Reserve liabilities was influenced
by the broader demand for these liabilities.
34
(For more
1,000
0
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1
0,000
Billions of U.S. dollars
Source: Board of Governors of the Federal Reserve System.
Note: Figures are weekly.
Chart 23
Federal Reserve Liabilities
Federal Reserve notes
Reserve balances
Treasury General Account balances
FIMA reverse repo pool
ON RRP
Term deposits
Other liabilities
2018 2019 2020 2021 2022
28
OPEN MARKET OPERATIONS DURING 2022
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Selected
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Framework for Monetary
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Endnotes
As the size of the Federal Reserve’s
liabilities declined in 2022, the
composition of liabilities also shifted.
These changes occurred within the context
of rapid increases in policy rates by the
FOMC and the start of balance sheet
runoff. The Committee intends to slow
and then stop the decline in the size of
the balance sheet when reserve balances
are somewhat above the level it judges
to be consistent with ample reserves. This
path to the Committee’s intended level of
reserves will depend on shifts in broader
money market conditions and the evolution
of the Federal Reserve’s liabilities.
As a key tool in the Federal Reserve’s
monetary policy implementation
framework, the ON RRP facility
provides an alternative investment
to a broad range of money market
participants, thereby supporting control
of the federal funds rate. As designed,
ON RRP take-up tends to increase
when rates on alternative investments,
such as private repo or Treasury bills,
are near or below that offered at the
facility. As the Federal Reserve began
to raise its administered rates and
net Treasury bill issuance reached
its lowest levels of the year, ON RRP
usage moved signicantly higher. Over
the second half of 2022, continued
investor demand for risk-free, overnight
investments resulted in continued
high levels of take-up at the facility.
The ON RRP continued to operate
as expected amid these conditions,
with usage increasing in 2022 by a
cumulative $649.1 billion by year-end
and representing 30 percent of the
Federal Reserve’s liabilities and capital
compared to 22 percent in 2021.
Other liabilities changed by smaller
magnitudes, with Federal Reserve
notes, the FIMA reverse repo pool,
and TGA balances increasing by a
total of $169.8 billion over the year.
The significant variation in liabilities,
particularly the growth in the ON RRP
facility, had a greater impact on
reserve levels during 2022 than
asset runoff. Nonetheless, the start of
asset runoff in June began a longer
process of reducing reserves in the
banking system. By year-end, reserves
had decreased by $959.5 billion to
their lowest levels since July 2020
and accounted for 31 percent of the
Federal Reserve’s liabilities, compared
to 42 percent at year-end 2021.
Deposit rates at banks generally
lagged increases in the target range
of the federal funds rate during
2022, resulting in an outflow of
deposits and associated reserves over
the year. Nonetheless, reserve balances
remained abundant at year-end 2022.
Usage of the ON RRP facility is
expected to decline over time, which
should slow the decline in reserves as
balance sheet runoff continues. This
process would occur as declining reserve
levels increase competition for private
money market funding and draw funds
out of the ON RRP. All else equal, this
would shift funds back into the banking
system. During periods in late 2022,
these dynamics were evident as overnight
repo rates increased to levels above the
ON RRP rate and became more attractive
than the facility rate, resulting in lower
ON RRP usage. In addition, when MMF
managers have more certainty about
the path of the economy and the peak
level of policy rates, they would likely
begin to extend their weighted-average
maturities by investing in longer-duration
alternatives to the ON RRP facility,
such as Treasury bills or other assets.
These factors should lower ON RRP
facility usage over time and result in
continued shifts in the composition of
the Federal Reserve’s liabilities.
Box 2
SHIFTS IN THE COMPOSITION OF FEDERAL RESERVE LIABILITIES OVER 2022
information on Federal Reserve liability composition, see
Box 2, “Shis in the Composition of Liabilities over 2022,”
above.) Federal Reserve liabilities provide safe and liquid assets
to a range of parties including depository institutions, ON RRP
counterparties, foreign ocial account holders, the U.S. Treasury,
and holders of paper currency. Overall, the growth of the ON RRP
facility and the contraction in reserves represented the most
signicant changes in Federal Reserve liabilities during 2022.
29
RESERVE BALANCES
Reserves declined $959.5 billion during 2022 and reached an
average in December of $3.09 trillion; the $2.68 trillion year-end
reserve balance was the lowest level since July 2020 (Chart 24).
Most of the decline in reserves resulted from increases in the
ON RRP facility, mainly during the rst half of the year when
reserves fell by a total of $1.07 trillion. Increases in the TGA,
Federal Reserve notes, and the FIMA reverse repo pool, as well
as the balance sheet runo in the second half of the year, also
contributed to the decline in reserves. Smaller domestic depository
institutions had a larger drop in reserves during 2022, while larger
domestic banks had a more modest decrease. In contrast, reserves
held by foreign banks increased modestly in 2022 and remained
near historical highs. Reserves continued to be the largest liability
of the Federal Reserve, though reserves as a share of total
liabilities declined.
FEDERAL RESERVE NOTES
Federal Reserve notes, commonly known as currency in circulation
(currency), increased by $71.8 billion during 2022 to $2.26 trillion
at year-end. For 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. In addition, demand for U.S. currency can also
originate from abroad. 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.
Federal Reserve notes outstanding increased by about
3 percent in 2022, continuing the slowdown in currency
growth since 2020 to a level below that of the years prior to
2020 (Chart 25). Compared to 2021, the absence of economic
impact payments and other stimulus-related outlays diminished
domestic growth in currency in circulation. Foreign demand
for U.S. currency related to tourism began to recover during
2022 but as of year-end was still below previous levels. In
addition, increases in broader interest rates have generally
resulted in lower incentives to hold currency, compared to
interest-bearing investments.
OPEN MARKET OPERATIONS DURING 2022
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REVERSE REPURCHASE AGREEMENTS
OVERNIGHT REVERSE REPOS
e ON RRP facility increased from an average level of
$1.60 trillion in December 2021 to an average of $2.18 trillion
in December 2022, temporarily reaching its highest daily level of
$2.55 trillion at year-end 2022. e broader growth in the ON RRP
facility over the year in part reected increased uncertainty among
investors about the near-term path of policy rates, which prompted
a preference for shorter-duration assets. e ON RRP facility
continued to operate as expected by providing an investment
option for a broad base of money market investors, and its
increased usage during 2022 reected these ongoing dynamics
across short-term money markets. (For more information about
the ON RRP operations, see the “Open Market Operations” section
of this report.)
FIMA REVERSE REPO POOL
The New York Fed has long offered its foreign official and
international account holders an overnight reverse repo
investment service, the FIMA reverse repo pool, also known
as the foreign reverse repo pool. At the end of each business
day, account holders’ cash balances are swept into an overnight
reverse repo secured by the SOMA domestic securities
holdings. Upon maturity on the following business day, the
securities are repurchased by the SOMA at a price that includes
a return calculated at a rate generally equal to the New York
Fed’s ON RRP rate. This service enables central banks to
hold dollar liquidity buffers at the Federal Reserve for cash
management and clearing and settlement needs for securities
in these accounts. The Federal Reserve offers this service as
part of a suite of banking and custody services to central banks,
governments, and international official institutions.
e FIMA reverse repo pool’s interest rate increased from
5 basis points to 4.30 percent during 2022, in line with increases in
the federal funds rate throughout the year. rough the rst half
of 2022, aggregate FIMA reverse repo pool balances experienced
signicant swings, and in November reached a weekly average high
of $373.4 billion, compared to the previous year’s weekly average high
of $309.4 billion (Chart 26). Like trends in the ON RRP facility, the
combination of higher interest rates paid on FIMA reverse repo pool
balances and demand for shorter-duration investments contributed
to inows into the FIMA reverse repo pool.
0
4
8
12
16
20
2018 2019 2020 2021 2022
Percent
Source: Board of Governors of the Federal Reserve System.
Note: Figures reflect annual growth rates based on year-end Wednesday levels.
Chart 25
Annual Changes in Federal Reserve Notes
0
0.
5
1.
0
1.
5
2.
0
2.
5
3.
0
3.
5
4.
0
4.
5
50
0
100
150
200
250
300
350
400
Sources: Board of Governors of the Federal Reserve System; Federal
Reserve Bank of New York.
Chart 26
FIMA Reverse Repo Pool
Billions of U.S. dollars Percent
Weekly average balance (left scale)
Quarterly average rate (right scale)
2018 2019 2020 2021 2022
31
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DEPOSITS
TREASURY GENERAL ACCOUNT
By statute, the Federal Reserve acts as the scal agent for the
federal government, and the U.S. Treasury maintains a cash
balance at the Federal Reserve known as the Treasury General
Account. e U.S. Treasury uses the TGA to deposit individual
and corporate taxes paid to the U.S. government, disburse
payments, pay interest on federal debt, and settle Treasury security
issuance, maturities, and buybacks. TGA balances typically exhibit
signicant variation around Treasury auction settlement dates,
as well as when there are signicant expenditures, such as those
related to Social Security or military spending, and on dates
when tax payments are due. 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 including the gross volume of maturing
marketable debt, subject to a minimum of roughly $150 billion.
e U.S. Treasury oen holds a TGA balance above the level
necessary to meet its projected cash needs to support its regular
and predictable approach to issuing debt.
35
roughout the year, the TGA exhibited material uctuations,
driven by increases in the rst half of the year and a reversion
back to levels in line with pre-pandemic balances later in
2022 (Chart 27). During January and February, the TGA
increased as the Treasury rebuilt its cash balances following the
increase of the statutory debt limit in late 2021. is was followed
by another sharp increase to an annual weekly average high of
$945.7 billion in early May amid large tax receipts. ereaer, the
TGA declined by $499.0 billion over the remainder of the year.
Compared to 2020 and 2021, TGA balances were much closer
to historical ranges as the Treasury reduced its balances from
the elevated COVID-era levels that were a result of signicant
borrowing to fund disbursements related to scal stimulus. e
weekly average balance of the TGA over 2022 ended $98.7 billion
lower than the average of $725.8 billion during 2021.
FOREIGN OFFICIAL AND OTHER DEPOSITS
e Federal Reserve has long oered deposit services to
international and multilateral organizations, government-sponsored
enterprises, and, more recently, to designated nancial market
utilities (DFMUs). GSEs are nancial intermediaries chartered
by the federal government that primarily facilitate the ow
of credit to the housing and agriculture sectors. Title VIII of
the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 authorized the Board of Governors to authorize
Federal Reserve Banks to establish and maintain accounts
for designated nancial market utilities. DFMUs provide the
infrastructure for transferring, clearing, and settling payments,
securities, and other nancial transactions. 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 institutions or another rate determined
by the Board from time to time, not to exceed the general level of
short-term interest rates. As of 2017, the Federal Reserve Banks had
opened accounts for all eight DFMUs.
In 2022, average aggregate balances of foreign ocial and other
deposits declined by about $55.9 billion to $242.7 billion but have
remained at higher levels since 2020. e aggregate decline was
driven in part by declines in DFMU balances, partially reecting
0
200
400
600
800
1
,000
1
,200
1
,400
1
,600
1
,800
2
,000
Source: Board of Governors of the Federal Reserve System.
Note: Weekly figures are the average of daily figures; annual figures are the
average of the weekly figures for the year.
Chart 27
Treasury General Account Balances
Weekly average Annual average
2018 2019 2020 2021 2022
B
illions of U.S. dollars
32
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reduced proportions of cash received by DFMUs as collateral
against open positions.
GSE account balances continued to vary through each
month, with large increases in balances when GSEs positioned
cash in their Federal Reserve accounts ahead of principal and
interest payment dates. As rates rose during the year and agency
MBS prepayments were lower, these peaks in GSE deposits also
declined. Foreign ocial deposits were stable over the year at a
level of between $5 and $10 billion.
FINANCIAL RESULTS
SOMA portfolio net incomedecreasedin 2022, with weekly
net income turning negative during the third quarter. The
downward trend in net income during the year was driven
mainly by higher interest expense from the sharp increases in
the Federal Reserve’s administered rates. The Federal Reserve
remitted a total of $76.0 billion to the U.S. Treasury in 2022.
Beginning in September 2022, most Federal Reserve Banks
suspended weekly remittances to the U.S. Treasury and started
accumulating a deferred asset. This deferred asset is expected
to increase in size in the coming years but has no implications
for the Federal Reserve’s conduct of monetary policy or its
ability to meet its financial obligations.
SOMA NET INCOME
In 2022, SOMA income increased modestly to $126.1billion,
driven by an increase in interest income from a larger domestic
securities portfolioand higher income from holdings of
TIPS in the SOMA, offset by higher interest expense on the
ON RRP facility and the FIMA reverse repo pool (Table 4).
SOMA net income, which considers the costs of funding
the portfolio,decreasedto $65.7billion from $114.8 billion
in 2021 as these costs increased significantly in line with
administered rates. Though less pronounced, additional
drivers of net income included losses on the revaluation of
foreign currency–denominated asset holdings amid broader
dollar strength.
FEDERAL RESERVE REMITTANCES
e Federal Reserve remits its earnings to the U.S. Treasury
Department 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
Table 4
SOMA Net Income
Billions of U.S. Dollars
2022 2021
Interest income
Repurchase agreements 0.0 0.0
Treasury securities 115.9 92.6
Agency debt 0.1 0.1
Agency MBS 54.0 29.6
Other
0.0 0.0
170.0 122.3
Interest expense
Reverse repurchase agreements
Overnight and term RRP (36.7) (0.3)
FIMA reverse repo pool (5.3) (0.1)
Other 0.0 0.0
(42.0) (0.4)
Non-interest income (loss)
Foreign currency translation gains (losses) (1.8) (1.9)
Other (0.1) 0.0
(1.9) (1.9)
SOMA income 126.1 120.1
Assumed funding cost (60.4) (5.3)
SOMA net income 65.7 114.8
Sources: Federal Reserve Bank of New York; Board of Governors of the
Federal Reserve System.
Notes: Assumed funding cost represents the interest expense on interest-
bearing liabilities assumed to be associated with SOMA net assets in
excess of Federal Reserve notes outstanding and the TGA balance held
at the New York Fed. Actual interest expense on all non-SOMA interest-
bearing liabilities of the Federal Reserve (including reserves and term
deposits) totaled $60.4 billion for 2022 and $5.3 billion for 2021. These
liabilities fund non-SOMA assets of the Federal Reserve in addition to
SOMA net assets.
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the specified limit of approximately $6.8 billion.
36
The
Federal Reserve remitted a total of $76.0 billion to the
U.S. Treasury in 2022, compared to $109.0 billion in 2021. Weekly
remittances were higher during the rst half of 2022, reecting
more earnings from the larger SOMA holdings and relatively low
interest expenses. In the second half of 2022, weekly remittances
decreased and eventually were suspended in September for most
Reserve Banks as increases in interest expenses exceeded SOMA
interest income (Chart 28).
e Federal Reserve recorded a deferred asset of $16.6 billion
at the end of 2022, which represents the amount of future earnings
that Reserve Banks will need to realize before remittances to
the Treasury resume. Once Federal Reserve net income turns
positive again, this deferred asset will be reduced and eventually
extinguished. (See the “Projections” section of this report for
further details.) e deferred asset does not impact the ability of
the Federal Reserve to implement monetary policy or meet any of
its nancial obligations.
SOMA UNREALIZED GAINS AND LOSSES
e market value of the SOMA securities portfolio uctuates with
changes in the prevailing level of interest rates. 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 remittances to the Treasury under the accounting
rules of the Federal Reserve unless assets are soldand those gains
or losses are realized. For securities that are held to maturity,
unrealized gains or losses fall to zero over time as their price
reverts to par at maturity. Unrealized gains and losses have no
eect on the conduct of monetary policy.
e increase in market interest rates across the yield curve
during 2022 drove an unrealized loss position for the domestic
portfolioof $1.08 trillion, compared to an unrealized gain
positionof $127.9billion in 2021(Table 5).e Treasury
portfolio decreasedfroma $134.6 billionunrealized gain
position at the end of2021to a $672.8 billionunrealized loss
positionat the end of 2022,and the agency MBS portfolio moved
from an unrealizedloss of$7.4 billion at the end of 2021 to an
20
0
40
60
80
100
120
140
2018 2019 2020 2021 2022
Chart 28
SOMA Net Income and Federal Reserve Remittances
to the U.S. Treasury
B
illions of U.S. dollars
SOMA net income Remittances
Transfer of capital surplus
a
Sources: Federal Reserve Bank of New York; Board of Governors of the
Federal Reserve System.
Note: Reflects the sum of all positive weekly remittances during 2022.
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.
Table 5
SOMA Domestic Portfolio Unrealized Gains
and Losses
Billions of U.S. Dollars
Year
Treasury
Securities
Agency
MBS
Agency
Debt Total
2018 35.5 (42.2) 0.5 (6.2)
2019 139.1 20.8 0.7 160.6
2020 298.7 54.4 0.9 354.0
2021 134.6 (7.4) 0.7 127.9
2022 (672.8) (407.7) 0.2 (1,080.4)
Source: Board of Governors of the Federal Reserve System.
Note: Figures are as of year-end.
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The Federal Reserve’s consoli-
dated net income turned negative
in September 2022, resulting in a
deferred asset being recorded in
2022.
a
This negative net income is a
result of policy rate increases under-
taken by the Federal Reserve in its
pursuit of its congressional mandate
of maximum employment and price
stability. Indeed, income is not a policy
objective for the FOMC, but rather
an outcome of conducting policy to
achieve its employment and price
stability objectives, which benet all
Americans. Over time, net income would
be expected to turn positive again.
The Federal Reserve’s net income is
mainly based on the difference between
the interest income generated from
its SOMA securities holdings and the
interest expense associated with its
liabilities. Most of the Federal Reserve’s
interest income is generated by its
holdings of securities in the SOMA,
with more negligible amounts from
other assets such as discount window
lending and other credit and liquidity
facilities. Interest expense is driven
by several remunerated liabilities,
including reserve balances and the
ON RRP facility, which are directly
tied to administered rates set by the
Federal Reserve. In addition, roughly
one-third of the Federal Reserve’s
liabilities are unremunerated, includ-
ing currency in circulation and the
TGA. Apart from interest expenses, the
Federal Reserve also incurs operational
expenses, although these are smaller
in comparison to interest expenses.
b
Negative net income at the
Federal Reserve is the result of past
and current monetary policy decisions
made by the FOMC in seeking to
achieve its congressional mandate
of maximum employment and price
stability. Asset purchase programs
directed by the FOMC to provide
accommodative nancial conditions
and support market functioning
during extraordinary circumstances,
such as the COVID-19 pandemic,
have resulted in a larger SOMA
portfolio. The increase in the size of
the SOMA portfolio has contributed
to substantially higher net income and
remittances to the U.S. Treasury, which
have totaled more than $1 trillion
since 2008. As the FOMC increased
the federal funds target range in 2022
from near zero to 4 ¼ to 4 ½ percent,
interest expenses eventually
surpassed interest income, resulting
in net income turning negative and
remittances sharply dropping. In the
longer run, projections suggest that
net interest income will turn positive
again as interest expense goes down
as short-term interest rates move
lower, coupled with increases in
interest income owing to reinvestments
and reserve management purchases
into higher-yielding securities. (See
the “Projections” section of this
report for further details.) Although
the policy measures taken by the
FOMC in support of the overall
economy affect the net income of the
Federal Reserve, net income itself is
not a policy consideration. Current
trends in the Federal Reserve’s net
income are best viewed from a
longer-term perspective and in the
context of its actions in achieving its
core policy mandates and objectives.
Box 3
UNDERSTANDING NET INCOME AND DEFERRED ASSETS AT
THE FEDERAL RESERVE DURING 2022
a
For more discussion of the concepts related to the Federal Reserve's income and its evolution in recent years, see “An Analysis of the Interest Rate Risk of
the Federal Reserve’s Balance Sheet, Part 1: Background and Historical Perspective,” Board of Governors of the Federal Reserve System FEDS Notes,
July 15, 2022, available at https://www.federalreserve.gov/econres/notes/feds-notes/an-analysis-of-the-interest-rate-risk-of-the-federal-reserves-balance-
sheet-part-1-20220715.html.
b
Operational expenses include such things as salaries, pension benets, occupancy, and equipment. In 2022, operational expenses totaled
$5.6 billion compared to $102.4 billion in interest expenses.
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unrealizedloss of$407.7 billion.e foreign portfolio moved to
an unrealizedloss position of $452 million from anunrealized
gain positionof$68 million at the end of 2021.
PROJECTIONS
e projections presented here illustrate how the SOMA portfolio
may evolve in coming years under the FOMC’s Plans for Reducing
the Size of the Federal Reserve’s Balance Sheet (Plans), released at
its May 2022 meeting. Reecting the Plans, the projections shown
here illustrate a possible path for the portfolio. However, the
outlook for the balance sheet remains uncertain. e projections
demonstrate possible paths of the portfolio and the balance sheet
under one set of assumptions and are purely illustrative. e
actual path of the portfolio will depend on the Committee’s future
decisions about the balance sheet as well as economic and market
developments. In addition to Committee communications, the
assumptions underlying the projections reect market participant
expectations drawn from results of the Desk’s Surveys of Primary
Dealers and Market Participants (Desk Surveys) and simple rules
used to proxy for the evolution of Federal Reserve liabilities.
37
e projections suggest that the size of the SOMA portfolio will
continue to decline over coming years at a pace roughly twice that
of the balance sheet runo that occurred from 2017 through 2019.
ey also reect the FOMC’s intention to slow and then stop the
decline in the size of the balance sheet when reserve balances are
somewhat above the level the Committee judges to be consistent with
ample reserves. Once reduction in the size of the balance sheet has
ceased, reserve balances will 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 resumes growth
through reserve management purchases of Treasury securities. In the
longer run, the portfolio is composed primarily of Treasury securities.
e projections also illustrate possible dynamics related to the
composition of Federal Reserve liabilities during balance sheet
reduction. However, these dynamics are highly uncertain. For
example, a decline in ON RRP facility balances will depend on the
attractiveness and appetite for alternative investments as well as bank
behavior regarding deposit pricing. Reserve balances may absorb
more or less of the balance sheet reduction as a result.
38
In addition to providing illustrative paths for the SOMA
portfolio and reserve balances, the projections also include
illustrative paths for portfolio income and the market value of
portfolio holdings. Under the baseline path, the portfolio’s net
income is projected to decline from recent levels before increasing
in subsequent years. Additional scenarios that consider alternate
interest rate paths show that in an environment of higher interest
rates, net income could be lower than the projected path and
remain negative for longer, whereas if interest rates were lower, net
income could be higher than the baseline.
While the unrealized loss position of the SOMA portfolio
grew throughout 2022, this trend is projected to reverse and the
unrealized loss to decrease as market rates for Treasury securities
and agency MBS are assumed to decline over time and as gains
and losses on held-to-maturity securities converge to zero in
the longer run. Alternate scenarios suggest that the unrealized
gain or loss position of the portfolio could vary depending upon
the path of market rates. Net income and unrealized gains or
losses do not impact the Federal Reserve’s ability to implement
monetary policy.
ASSUMPTIONS
is section reviews the assumptions about SOMA portfolio
runo, Federal Reserve 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 size of the SOMA portfolio will
evolve in three phases: portfolio reduction, portfolio maintenance,
and portfolio growth. During portfolio reduction, 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 maintained at $60 billion and
$35 billion for Treasury securities and agency securities, 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
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to the remainder under the cap. To slow balance sheet reduction, the
redemption caps on Treasury and agency securities are assumed to be
lowered by half.
39
In discussion at the March 2022 FOMC meeting, Committee
participants generally agreed that it would be appropriate to consider
agency MBS sales aer balance sheet runo was well underway to
enable suitable progress toward a longer-run portfolio composed
primarily of Treasury securities. As in past Open Market Operations
reports, because no plans have been established for such a program,
these projections assume that reductions in the portfolio are achieved
only through redemptions of maturing securities without asset sales;
if the FOMC were to introduce sales of agency MBS, the path of the
portfolio would diverge from what is presented here.
Consistent with the Plans, the decline in the portfolio stops and
its size is maintained at a roughly constant level when reserves are
somewhat above the level assumed to be consistent with an ample
reserves regime. At this point, all principal payments—including
those from agency security 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. Reserves continue to decline during the portfolio maintenance
phase due to growth in non-reserve liabilities. (See the “Liabilities
and Capital” section below.) Once reserves reach an ample level,
the portfolio enters the growth phase, at which point purchases
of Treasury securities resume at a pace that maintains reserves at
an ample level.
e timing of the transition between these three phases is
determined by the level of reserves as a share of nominal GDP,
where the assumed nominal rate of growth for GDP is based
on median responses to the January/February 2023 Survey of
Primary Dealers. e median expected longer-run growth rates
of real GDP and headline personal consumption expenditures
(PCE) price ination were 1.8 percent and 2.0 percent,
respectively, consistent with a long-run level of nominal
GDP growth of 3.8 percent. To slow balance sheet reduction,
redemption caps are lowered when reserves reach approximately
10 percent of NGDP. To stop balance sheet reduction and
maintain a stable SOMA portfolio size, full reinvestments
resume when reserves reach approximately 9 percent of NGDP.
e portfolio is assumed to enter the growth phase when
reserve balances reach an ample level. e amount of reserves
needed in an ample reserves regime is highly uncertain, and
the projections reect a simple assumption for the long-run
level of reserves. In practice, the Committee will continue
to monitor money market conditions and adjust its policy
implementation tools accordingly. As an approximation, the
projections assume that the level of reserves needed in an ample
reserves regime is equivalent to the average level of reserves as a
share of NGDP in December 2019, or approximately 8 percent,
similar to the assumptions employed in recent Open Market
Operations reports.
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 December 2022 levels and grow
over the projection horizon in line with nominal GDP.
ere are two exceptions to this approach. First, the TGA is
assumed to rise to $550 billion by the second quarter of 2023, a level
in line with the cash balance guidance provided in the Treasury’s
February 2023 Quarterly Refunding Statement. ereaer, the
TGA is assumed to grow with nominal GDP, like other non-reserve
liabilities.
40
Second, ON RRP facility balances are assumed to decline
to a minimal level by the time balance sheet reduction ends, at a pace
roughly similar to the pace of portfolio reduction.
INTEREST RATES
e baseline paths for the federal funds rate and longer-term
interest rates are drawn from responses to the January/
February 2023 Desk Surveys. In the survey responses, the median
expected midpoint of the federal funds target range rises from
4.375 percent at year-end 2022 to 4.875 percent by year-end
2023, before falling to 2.375 percent in the longer term. e
ten-year Treasury yield and thirty-year xed primary mortgage
rate are expected to fall to 3 percent and 5.2 percent, respectively,
in the longer run. 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, in line with recent settings.
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Contents Open Market
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Framework for Monetary
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Endnotes
e projection exercise also considers a range of outcomes
for net income and portfolio market values assuming lower and
higher interest rates; these alternate scenarios assume interest
rates are 100 basis points higher or lower than the values obtained
from the January/February 2023 Desk Surveys. e data les
for this report also include scenarios in which interest rates are
200 basis points higher or lower than the values obtained from the
January/February 2023 Desk Surveys.
PROJECTION RESULTS
PATH OF PORTFOLIO HOLDINGS AND
RESERVE BALANCES
Starting with the SOMA domestic securities portfolio as of
December 2022 and incorporating the assumptions described
above results in the path of the SOMA through 2030 shown in
Chart 29. e portfolio declines through mid-2025 as maturing
principal payments are allowed to run o, subject to caps. e
pace of decline is more rapid early in the projection period,
with monthly declines averaging close to $80 billion through
mid-2024, aer which the pace slows as the caps are reduced. e
ON RRP facility is assumed to decline in line with the reduction
in the portfolio, and reserves decline due to growth in other
non-reserve liabilities. Aer falling 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 maintained at roughly
$6.0 trillion—about 21 percent of NGDP—for a little over one
year (Chart 30); meanwhile, the ON RRP facility reaches and
remains at a minimal level and reserves continue to decline as
most other liabilities continue to grow (Charts 31 and 32). e
contours of the path of reserves also reects the evolution of the
deferred asset, although the eect is small. (See the “SOMA Net
Income and Remittances” section below.)
Once reserves reach the assumed ample level, the portfolio
resumes growth at the end of 2026 to match the assumed growth
in demand for most Federal Reserve liabilities. By 2030, the
SOMA totals $7.2 trillion—or 20 percent of NGDP.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Billions of U.S. dollars
Chart 29
Projected SOMA Domestic Securities Holdings
2010 2014 2018 2022 2026 2030
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end and are rounded. Figures for 2010-22 are
shaded and represent historical balances.
Projections assumptions are primarily based on publicly available
information further detailed in Appendix 4 of this report.
0
10
20
30
40
50
Chart 30
Projected SOMA Domestic Securities Holdings as a
Share of NGDP
Percent
2010 2014 2018 2022 2026 203
0
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end and are rounded. Figures for 2010-22 are
shaded and represent historical balances.
Projections assumptions are primarily based on publicly available information
further detailed in Appendix 4 of this report.
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OPEN MARKET OPERATIONS DURING 2022
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Selected
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Developments
Counterparties Index of Charts
& Tables
Contents Open Market
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Federal Reserve
Framework for Monetary
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Endnotes
While the precise level of the SOMA and reserves in the longer
run is unknown due to uncertainty in demand for Federal Reserve
liabilities, the projections shown here illustrate the dynamics that
will prevail in the coming years. As discussed earlier, the pace of
decline in the ON RRP balances is highly uncertain and will depend
on several factors, including the behavior of banks and other money
market investors and money market conditions. Accordingly, the
path of reserves on the way to their longer-run level may not follow
the linear decline shown in these projections.
PORTFOLIO COMPOSITION
As the size of the SOMA portfolio declines in coming years
through the redemption of maturing securities under the
caps, the composition of the portfolio between Treasury
securities and agency MBS is roughly unchanged. Through
2025, the portfolio is composed of roughly 66 percent
Treasury securities and 34 percent agency securities.
During the periods when the portfolio is held constant
and resumes growth, all principal payments from agency
securities 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 into new
Treasury securities at auction. When the portfolio resumes
growth, reserve management purchases are conducted
in Treasury securities. As a result, the proportion of the
portfolio allocated to agency securities gradually declines
starting in 2025. By 2030, the SOMA portfolio is composed
of 83 percent Treasury securities and 17 percent agency
securities (Chart 33).
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 the
statutory limit. SOMA net income—a measure that reects interest
income and interest expense associated with the SOMA portfolio,
Billions of U.S. dollars
Chart 31
Projected Reserve Balances
2010 2014 2018 2022 2026 2030
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end and are rounded. Figures for 2010-22 are
shaded and represent historical year-end balances calculated as averages of
December daily reserve balances.
Projections assumptions are primarily based on publicly available information
further detailed in Appendix 4 of this report.
0
1
,000
2
,000
3
,000
4
,000
5
,000
0
5
10
15
20
25
Percent
Chart 32
Projected Reserve Balances as a Share of NGDP
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end and are rounded. Figures for 2010-22 are
shaded and represent historical year-end balances calculated as averages of
December daily reserve balances as a share of year-end NGDP.
Projections assumptions are primarily based on publicly available information
further detailed in Appendix 4 of this report.
2010 2014 2018 2022 2026 203
0
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OPEN MARKET OPERATIONS DURING 2022
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Endnotes
and the portfolio’s assumed funding costs—is the primary
driver of Federal Reserve remittances. A substantial portion
of Federal Reserve liabilities are not remunerated, including
Federal Reserve notes and the Treasury General Account.
In this exercise, SOMA net income is projected to decline
notably during the portfolio reduction phase through
2024 (Chart 34).
41
It is projected to do so because costs associated
with reserve balances and the ON RRP facility increase as a
result of short-term interest rate increases, while interest income
declines modestly as the size of the portfolio is reduced. However,
the declining trend in net income then reverses as short-term
interest rates decline in the longer run. To a lesser extent, the
income from higher-yielding securities added to the portfolio
through reinvestments and reserve management purchases also
contributes to increases in net income. e projections for negative
net income suggest that remittances to the U.S. Treasury will be
suspended for some time, and that the deferred asset recorded on
the Federal Reserve’s balance sheet reecting the accumulated
net loss will continue to grow.
42
As net income gradually increases
above zero, the deferred asset will be reduced, and remittances
resume once the deferred asset is extinguished.
To illustrate the sensitivity of SOMA net income to alternative
interest rate paths, Chart 34 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 scenario.
43
When interest rates are 100 basis points higher than indicated in
the January/February 2023 Desk Surveys, net portfolio income is
negative for roughly one quarter longer than in the baseline due to
higher expenses from interest paid on reserves.
44
In the scenarios
in which interest rates are lower, interest expenses are lower
relative to the baseline, resulting in higher net income throughout
most of the projection horizon.
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
0
1
,000
2
,000
3
,000
4
,000
5
,000
6
,000
7
,000
Treasury
Agency MBS
B
illions of U.S. dollars
Chart 33
Projected SOMA Domestic Securities Holdings by
Asset Class
2010 2014 2018 2022 2026 2030
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end and are rounded. Figures for 2010-22 are
shaded and represent historical balances.
Projections assumptions are primarily based on publicly available information
further detailed in Appendix 4 of this report.
-150
-100
-50
0
50
100
150
200
Baseline Baseline + 100 bps
Baseline - 100 bps
Chart 34
Projected SOMA Net Income
Billions of U.S. dollars
Source: Federal Reserve Bank of New York.
Notes: Figures are annual totals and are rounded. Figures for 2010-22 are
shaded and represent historical values.
Projections assumptions are primarily based on publicly available information
further detailed in Appendix 4 of this report.
2010 2014 2018 2022 2026 2030
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Endnotes
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.
45
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), is projected to have peaked at roughly
$1.3 trillion during 2022, before ending the year at $1.2 trillion, or
about 13 percent of the par value of the SOMA portfolio at year-end
(Chart 35), primarily reecting the decrease in longer-term rates
on Treasury and agency securities. Later, as these rates decline
and stabilize at their assumed long-run levels, the unrealized loss
continues to decrease and the market value of securities converges
to par value as the portfolio ages.
Similar to the sensitivity of net income, when interest rates
are 100 basis points higher than indicated in the January/
February 2023 Desk Surveys, the unrealized loss on the portfolio
becomes more negative, reaching roughly 14 percent of the
portfolio.
46
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 35
Projected SOMA Unrealized Gains and Losses as a Share
of the SOMA Portfolio
Baseline Baseline + 100 bps
Baseline - 100 bps
2010 2014 2018 2022 2026 2030
Source: Federal Reserve Bank of New York.
Notes: Figures are as of year-end and are rounded. Figures for 2010-22 are
shaded and represent historical values.
Projections assumptions are primarily based on publicly available information
further detailed in Appendix 4 of this report.
41
COUNTERPARTIES
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
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 could continue to
conduct open market operations in a range of scenarios. e
New York Fed transacts primarily with regulated banks and
broker-dealers, considering other types of counterparties only
when appropriate to execute its responsibilities, and seeks to
transact with counterparties that do not pose an undue level of
credit risk exposure to the New York Fed or to the parties on
whose behalf the New York Fed executes market operations.
47
Among other requirements, counterparties are expected to operate
in accordance with the best practices for xed income and foreign
exchange markets published by New York Fed-sponsored and
related groups.
48
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.
49
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. e Desk announced one new primary
dealer during the year, bringing the total to twenty-ve
primary dealers.
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. ese RRP counterparties—which include
money market funds, government-sponsored enterprises, and
banks—augment the existing set of primary dealer counterparties
with which the New York Fed can conduct reverse repos. As of
December 31, 2022, there were 136 expanded RRP counterparties,
comprising 105 money market funds from thirty-one investment
management rms, sixteen government-sponsored enterprises,
and een banks. During the year eight RRP counterparties were
added and one was removed.
STANDING REPURCHASE AGREEMENT
FACILITY COUNTERPARTIES
SRF counterparties, which include primary dealers and eligible
depository institutions, may participate in SRF operations. e Desk
announced fourteen new SRF counterparties during 2022, bringing
the total to seventeen as of December 31. Consistent with the
New York Fed’s commitment to ensuring that its policies promote
a fair and competitive marketplace, the eligibility requirements for
SRF counterparties were adjusted in April 2022 to allow a broader
set of depository institutions to access the facility.
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. ese
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Framework for Monetary
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Endnotes
counterparties are also expected to make reasonable markets for
Desk transactions that relate to the currency needs of the New York
Fed’s ocial 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 nancial 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, 2022, 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. e Desk also relies
on its foreign reserves management counterparties for ongoing
insight into global nancial market developments in its daily
market monitoring activities to support the formulation and
implementation of policy by the U.S. monetary authorities. As
of December 31, 2022, there were twenty-four foreign reserves
management counterparties, representing sixteen parent
financial firms.
43
OPERATIONAL FLEXIBILITY
AND RESILIENCY
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
Over the course of 2022, the New York Fed continued eorts to
enhance operational exibility and resiliency by maintaining a
robust and geographically dispersed network of counterparties
(as described in the previous section) and operational capabilities.
New York Fed sta operated in a hybrid posture for most of the
year, which helped support readiness to conduct operations in a
range of scenarios to implement monetary policy in accordance
with FOMC directives. 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 exercisesfor certaindomestic and foreign SOMA
operationsto maintainoperational readiness. During these
exercises, transactions were conducted end-to-end, from trade
execution through settlement, and weremodest 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. For example, the Desk developed plans
to conduct monthly small-value purchases and sales of Treasury
and agency securities to maintain operational readiness following
the Committee’s decision to conclude outright purchases of these
securities in March 2022. However, conducting small-value
exercises should not be interpreted as a signal about the possible
future timing or direction of changes in policy.
e Desk also conducts small-value exercises leveraging
back-up tools as part of its contingency preparedness eorts.
ese exercises test the Desk’s ability to execute certain
critical operations under a scenario in which primary
tools such as the proprietaryFedTradeelectronic trading
platform are unavailable.In 2022, tests using back-up tools
encompassedovernight reverse repo, overnight repo, and
securities lending operations.
e aggregate par value of all transactions conducted for the
purpose of testing operational readiness did not exceed their
authorized limits during 2022. ese tests covered domestic and
foreign outright operations, as well as repo and reverse repo
transactions. Small-value exercises for domestic operations
were announced in advance and the results were posted on
the New York Fed’s website(Table 6). Results of small-value
Table 6
Small-Value Exercise Results in 2022: Domestic
Operations
Operation Type
Operation Amount
(Millions of
U.S. Dollars)
Treasury outright purchases and sales 250
Agency MBS outright sales 285
Agency MBS coupon swaps 40
Overnight reverse repurchase agreement
transactions with back-up tool
94
SRF transactions 61
SRF transactions with back-up tool 61
Securities lending with back-up tool 130
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.
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OPEN MARKET OPERATIONS DURING 2022
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Endnotes
central bank liquidity swap transactions were also posted on the
New York Fed’swebsite (Table 7).
OPERATIONAL AND CYBER RESILIENCY
e Federal Reserve operates in an increasingly complex
environment in which trading and payment systems and
information infrastructure are evolving and becoming more
sophisticated. As part of a long-standing commitment to
proactively manage security risks, the Federal Reserve continues
to invest in initiatives to improve physical and information
security while also enhancing operational resilience.
In recent years, the New York Fed has enhanced resiliency
through initiatives focused on improving physical and information
security, while proactively identifying and monitoring cyber threats.
e Federal Reserve remains focused on tracking signicant
malicious actors and their methods of attack to better understand
and prepare for the risks they pose.Relatedly, the Federal Reserve
also tracks and monitors emerging technologies used by these actors
that could be used in novel ways to threaten the cyber security or
operations of the Federal Reserve in the future. e New York Fed
regularly refreshes its cyber security strategy to adapt to the realities
of a dynamic cyber threat environment. is includes focusing on
cloud security to increase cyber resiliency, reducing exposures to
potential cyberattacks, identifying emerging threats in near real
time, and expanding information sharing and collaboration with
other nancial and central banking counterparts.
50
During 2022, the Federal Reserve and most of its service
providers, counterparties, and customers operated in a hybrid
posture. is approach required additional technology and
operational assurance since some portions of Desk operations
were conducted from the oce and some from home. e
New York Fed plans to continue to operate in a hybrid model,
with sta working remotely and at the office.
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
2022, the Desk continued to enhance its operational exibility
and resiliency by maintaining a robust, geographically dispersed
network of counterparties and Desk operations.
To sustain the resiliency of the Desk’s operations, the
New York Fed continued to operate 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 can 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 test geographically dispersed primary
and secondary locations to ensure that robust end-to-end
participation in open market operations could still be conducted
amid any wide-scale disruption.
Table 7
Small-Value Exercise Results in 2022:
Foreign Operations
Operation Type Operation Amount
Foreign reserves management transactions
Euro portfolio €16,600,000
Yen portfolio ¥1,900,000,000
U.S. dollar liquidity swaps with standing
swap line central banks
$220,000
Foreign currency liquidity swaps with
standing swap line central banks
Bank of England £51,000
Bank of Japan ¥51,000
Source: Federal Reserve Bank of New York.
Note: Figures may be rounded.
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Endnotes
APPENDIX 1:
Terms for Desk Operations
e following tables summarize the key terms for Desk
operations as they were implemented in 2022. 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.
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,
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 $160 billion
Maximum offer rate January 1 to March 16: 0.05 percent
March 17 to May 4: 0.30 percent
May 5 to June 15: 0.80 percent
June 16 to July 27: 1.55 percent
July 28 to September 21: 2.30 percent
September 22 to November 2: 3.05 percent
November 3 to December 14: 3.80 percent
December 15 to December 31: 4.30 percent
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 propo-
sitions. 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
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Endnotes
Standing Repurchase Agreement Facility
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
Minimum bid rate January 1 to March 16: 0.25 percent
March 17 to May 4: 0.50 percent
May 5 to June 15: 1.00 percent
June 16 to July 27: 1.75 percent
July 28 to September 21: 2.50 percent
September 22 to November 2: 3.25 percent
November 3 to December 14: 4.00 percent
December 15 to December 31: 4.50 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
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Endnotes
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
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.
One-week maturity operations were offered weekly throughout 2022 by four of the ve
standing swap line central banks.
Per counterparty limit None specied
Price For price details, see operation results at https://www.newyorkfed.org/markets/
desk-operations/central-bank-liquidity-swap-operations.
Outright Treasury Purchases
Treasury Security Asset Purchases
For more information, visit the FAQs at https://www.newyorkfed.org/markets/treasury-reinvestments-purchases-faq.
Counterparties Primary dealers
Eligible securities All outstanding U.S. Treasury securities
Operation size and frequency The Desk published a tentative schedule of operations for each applicable 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.
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
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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
Endnotes
Reinvestments of Treasury Securities
For more information, visit the FAQs at https://www.newyorkfed.org/markets/treasury-rollover-faq.
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 in excess of any applicable redemption
cap amount as directed by the Committee was rolled over at each auction into newly
issued securities. Reinvestments were allocated proportionally across new issues by the
announced offering amounts.
Holding 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. These
bids were treated as add-ons to announced auction sizes.
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.
Term Overnight
Eligible securities U.S. Treasury and agency 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 fourteen or more days was available for lending each day (the “theoretical
amount” available to borrow).
Per counterparty limit Maximum of 25 percent of the theoretical amount 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
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& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
Dollar Rolls
Term One month
Eligible securities Agency MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae
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
cont. from page 48
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 Held as competitive multiple-price auctions for each security at noon each business day
Execution platform FedTrade, the Desk’s proprietary 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
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Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
cont. from page 49
Per counterparty limit Not applicable
Bid submission Request for quote from dealers for dollar amount nanced
Awards Best price
Execution platform Tradeweb, a commercial trading platform
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; and voice trading.
APPENDIX 2:
Governing Documents
On January 31, 2023, after the period covered by this report, a new governing document, the “FOMC Authorizations and
Continuing Directives for Open Market Operations,” became effective. This new governing document incorporates:
• authorizations previously within the Committee’s Authorization for Domestic Open Market Operations and Authorization
for Foreign Currency Operations,
• a new continuing directive that incorporates the SRF and FIMA repo resolutions as well as direction to the Desk to continue
to conduct other ongoing operations,
• the foreign currency directive, and
• two other authorizations related to contingency situations.
The new, unied document improves clarity and transparency but does not make substantive changes to governance of Desk activities.
https://www.federalreserve.gov/monetarypolicy/les/FOMC_AuthorizationsContinuingDirectivesOMOs.pdf
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Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
AUTHORIZATIONS AND RESOLUTIONS
FOR DOMESTIC AND FOREIGN OPERATIONS
EFFECTIVE IN 2022
On January 25, 2022, the FOMC voted to rearm the following
governing documents:
https://www.federalreserve.gov/monetarypolicy/files/FOMC_
RulesAuthPamphlet_202202.pdf
Authorization for Domestic Open Market Operations (page 58)
Authorization for Foreign Currency Operations (page 60)
Foreign Currency Directive (page 64)
Standing Repurchase Agreement Facility Resolution (page 65)
Standing FIMA Repurchase Agreement Resolution (page 66)
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 2022.
https://www.federalreserve.gov/monetarypolicy/files/FOMC_
FederalAgencyIssues.pdf
DOMESTIC POLICY DIRECTIVES
ISSUED TO THE FEDERAL RESERVE BANK
OF NEW YORK
In 2022, 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. The domestic policy directives
issued by the FOMC from January 1 to December 31 are
available at the link below.
https://www.federalreserve.gov/monetarypolicy/
fomccalendars.htm
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Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
Operations Disclosures
Operation Type Operation Schedule Operation Results
Additional
Operations Data
a
Transaction Data
b
Domestic open market operations
Standing repurchase agreement transactions
c
ü ü ü
Overnight reverse repurchase agreement
transactions
c
ü ü ü
Treasury outright purchases
ü ü ü ü
Treasury rollovers
ü
d
Treasury securities lending
c
ü ü ü
Agency MBS outright purchases
ü ü ü ü
Agency MBS dollar rolls
ü ü ü
Foreign currency operations
Foreign reserves management transactions
ü
Central bank liquidity swaps
ü
e
Small-value exercises
Repurchase agreement transactions
ü ü ü ü
Reverse repurchase agreement transactions
ü ü ü ü
Treasury outright sales
ü ü ü ü
Treasury outright purchases
ü ü ü
Treasury securities lending
ü ü ü
ü
Agency MBS outright sales
ü ü ü
ü
Agency MBS coupon swaps
ü ü ü ü
Foreign reserves management transactions
ü
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 reverse repurchase agreement transactions, standing repurchase agreement transactions, 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.
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.
APPENDIX 3:
Operations Disclosures
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/
auctions/announcements-data-results/.
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Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
APPENDIX 4:
Summary of Projection Assumptions
e assumptions underlying the scenarios for the SOMA portfolio
and the SOMA net income projection exercise are presented below.
Sources for these assumptions include market expectations from
the January/February 2023 Surveys of Primary Dealers and Market
Participants, Plans for Reducing the Size of the Federal Reserve’s
Balance Sheet (Plans) released at the May 2022 FOMC
meeting, and simple rules used to proxy for the evolution of
Federal Reserve liabilities.
INTEREST RATE ASSUMPTIONS:
◆ e following interest rates are set based on combined
responses to the January/February 2023 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.
BALANCE SHEET ASSUMPTIONS:
◆ Projections start with the Federal Reserve balance sheet as of
December 30, 2022.
◆ Asset-related assumptions:
■ e initial size of the redemption caps is drawn from the
Plans released at the May 2022 FOMC meeting. e caps
for Treasury and agency securities are set at $60 billion
and $35 billion per month, respectively. Treasury bills are
redeemed when Treasury coupon maturities fall below
the monthly cap.
■ When the pace of portfolio decline slows, the monthly
Treasury and agency security redemption caps are
decreased to $30 billion and $17.5 billion, respectively.
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 pace with
the growth in liabilities and capital, while principal
payments on agency securities are reinvested into
Treasury securities.
◆ Liability-related assumptions:
■ Longer-run levels of capital and non-reserve liabilities
other than the TGA and ON RRP facility are assumed
to grow from their average December 2022 levels over
the projection horizon in line with nominal GDP. e
nominal GDP growth rate is based on responses to
the January/February 2023 Survey of Primary Dealers.
e median projected longer-run growth rates of real
GDP and headline personal consumption expenditures
(PCE) price ination are 1.8 percent and 2.0 percent,
respectively, consistent with a long-run level of nominal
GDP growth of 3.8 percent, assuming 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.
■ e long-run level of reserves is set such that the ratio of
reserves to nominal GDP equals 8 percent.
■ e TGA rises to $550 billion by end Q2 2023 and
grows in line with nominal GDP starting in Q3 2023 to
$728 billion by end-2030.
■ ON RRP facility balances are assumed to decline to a
minimal level by the end of 2025 at a pace similar to that of
balance sheet reduction.
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Contents Open Market
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Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
APPENDIX 5:
Reference Web Pages
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 and interest on
reserve balances
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm
Detailed transaction information about discount window
lending to depository institutions
https://www.federalreserve.gov/regreform/discount-window.htm
Federal Reserve System financial reports
https://www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm
FEDERAL RESERVE BANK OF NEW YORK
Markets and Policy Implementation
https://www.newyorkfed.org/markets/index.html
Markets Data Dashboard and historical open market
operations data
https://www.newyorkfed.org/markets/data-hub
https://www.newyorkfed.org/markets/omo_transaction_data
Electronic version of this report and the underlying data for the
charts and tables
https://www.newyorkfed.org/markets/annual_reports
OPERATIONAL POLICIES 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/domestic-market-operations/
monetary-policy-implementation/repo-reverse-repo-agreements
Treasury open market and securities lending operations
https://www.newyorkfed.org/markets/domestic-market-operations/
monetary-policy-implementation/treasury-securities
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
International market operations
https://www.newyorkfed.org/markets/international-market-operations
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Counterparties Index of Charts
& Tables
Contents Open Market
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Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
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
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
https://www.newyorkfed.org/data-and-statistics/data-visualization/
system-open-market-account-portfolio
Consolidated list of statements and operating policies across all
Desk open market operations
https://www.newyorkfed.org/markets/op_policies
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://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
56
57
ENDNOTES
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
1
See https://www.federalreserve.gov/newsevents/pressreleases/
monetary20220126c.htm.
2
See https://www.federalreserve.gov/newsevents/pressreleases/
monetary20220504b.htm.
3
Remittances to the U.S. Treasury are sent weekly, in arrears, by
each of the twelve Federal Reserve Banks. See the 2022 Federal
Reserve System Audited Financial Statements, available at https://
www.federalreserve.gov/aboutthefed/audited-annual-financial-
statements.htm.
4
See https://www.federalreserve.gov/newsevents/pressreleases/
monetary20220126b.htm.
5
See also Gara Afonso, Marco Cipriani, and Gabriele
La Spada, “Banks’ Balance-Sheet Costs, Monetary Policy, and
the ON RRP,” Federal Reserve Bank of New York Sta Reports,
no. 1041, December 2022, at https://www.newyorkfed.org/
research/staff_reports/sr1041.
6
Figures may not sum to 100 because of rounding.
7
See Andréa M. Maechler and omas Moser, “Return to
Positive Interest Rates: Why Reserve Tiering?,” remarks at the
Swiss National Bank Money Market Event, Geneva, Switzerland,
November 17, 2022, https://www.snb.ch/en/mmr/speeches/id/
ref_20221117_amrtmo/source/ref_20221117_amrtmo.en.pdf.
8
e Desk also refrained from purchasing Treasury oating-
rate notes (FRNs) given limited supply.
9
Treasury bills that matured on Tuesdays were reinvested into
newly issued four-,eight-, and seventeen-week Treasury bills,
while Treasury bills that matured on ursdays were reinvested
into newly issued thirteen-, twenty-six-, and y-two-week
Treasury bills.
10
Principal payments on SOMA MBS holdings averaged more
than $40 billion per month through April before slowing to
an average of $27 billion per month for the rest of the year as
the sharp rise in primary mortgage rates signicantly reduced
homeowners’ incentive to renance their mortgages.
11
is includes purchases conducted in January from the
December 2021 mid-month purchase period.
12
See Federal Reserve Bank of New York, “Statement Regarding
Aggregation of Agency Mortgage-Backed Securities Holdings,”
October 6, 2022, at https://www.newyorkfed.org/markets/opolicy/
operating_policy_221006.
13
e three prior rounds of CUSIP aggregation that began
in 2011, 2015, and late 2019 focused only on Fannie Mae and
Freddie Mac securities, while one round in early 2019 focused
exclusively on Ginnie Mae holdings. ese aggregations reduced
the portfolio’s individual CUSIP count by more than 125,000.
14
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.
15
Reported on an amortized cost basis.
16
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.
17
Remittances to the U.S. Treasury are sent weekly, in arrears, by
each of the twelve Federal Reserve Banks. See the 2022 Federal
Reserve System Audited Financial Statements, available at https://
www.federalreserve.gov/aboutthefed/audited-annual-financial-
statements.htm.
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Endnotes
18
Further information on balance sheet run-o dynamics can
be found in “e ‘How and When’ of the Fed’s Balance Sheet
Runo,” available at https://medium.com/new-york-fed/the-how-
and-when-of-the-feds-balance-sheet-runoff-3c37787fa948.
19
Percentages may not sum to 100 because of rounding.
20
Increases in the consumer price index result in an
adjustment higher in the ination compensation associated
with SOMA TIPS holdings, which increases the par value of
Treasury securities.
21
For instance, over the course of 2022, thirty-year Fannie
Mae and Freddie Mac conditional prepayment rates (CPRs)
decreased from 14 percent to 4 percent, while Ginnie Mae CPRs
decreased from roughly 23 percent to 6 percent. Estimates of
the weighted average life of an MBS refers to the expected time
outstanding until the underlying mortgage principal is repaid
and is dependent on a model of future prepayments that is
subject to uncertainty.
22
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.
23
Purchases of agency CMBS concluded in November 2021.
24
Percentages may not sum to 100 because of rounding.
25
“Modied duration” is used to calculate the duration of
Treasury 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
securities. Eective duration, 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. Due to the
relatively small size of agency debt and CMBS holdings, they are
excluded from summary risk statistics.
26
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.
27
e ten-year equivalent is calculated using end-of-day prices
for ten-year Treasury securities and current time to maturity.
28
Macaulay duration is the weighted average time of future
cash flows.
29
e narrower spread and availability of term loans were
changes to the program implemented in March 2020.
30
e emergency credit and liquidity facilities were established
under Section 13(3) of the Federal Reserve Act. In some cases, the
U.S. Treasury provided the facilities with equity capital to protect the
Federal Reserve against potential losses. 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. 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.
31
e Commercial Paper Funding Facility, Money Market
Mutual Fund Liquidity Facility, Primary Dealer Credit Facility,
and Secondary Market Corporate Credit Facility were all
fully wound down during 2021. See “Board of Governors of
the Federal Reserve System - Reports to Congress Pursuant
to Section 13(3) of the Federal Reserve Act in Response to
COVID-19,” available at https://www.federalreserve.gov/
publications/reports-to-congress-in-response-to-covid-19.htm.
32
ese assets originated or purchased by the facilities can also
be prepaid at each obligor’s discretion.
33
ese include the Main Street New Loan Facility (MSNLF),
Main Street Expanded Loan Facility (MSELF), Main Street
Priority Loan Facility (MSPLF), Nonprot Organization New
Loan Facility (NONLF), and Nonprot Organization Expanded
Loan Facility (NOELF).
34
Total Federal Reserve liabilities and capital increase (decrease)
when the balance sheet expands (contracts). e composition of
liabilities and capital can also shi when there is no change in the
total size of the balance sheet.
35
For more information on Treasury cash balance policy, see
“Quarterly Refunding Statement of Deputy Assistant Secretary
for Federal Finance Brian Smith,” February 2, 2022, at https://
home.treasury.gov/news/press-releases/jy0581.
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Endnotes
36
e Federal Reserve is restricted by statute from building
capital above a certain limit.
37
e assumptions for this report are primarily drawn from
results of the January/February 2023 Surveys of Primary Dealers
and Market Participants.
38
For a discussion of how ON RRP balances aect the mechanics
of balance sheet runo, see “e Fed’s Balance Sheet Runo and
the ON RRP Facility,” a Liberty Street Economics blog post by
Marco Cipriani, James Clouse, Lorie Logan, Antoine Martin,
and Will Riordan, at https://libertystreeteconomics.newyorkfed.
org/2022/04/the-feds-balance-sheet-runoff-and-the-on-rrp-facility.
39
e cap on agency MBS is assumed to decline to $17.5 billion;
however, in the baseline scenario, monthly paydowns are
projected to be below that level and there are no agency MBS
reinvestments.
40
e TGA declined from nearly $1 trillion in April 2022 to
$447 billion at the end of 2022 ahead of the Debt Issuance
Suspension Period announced in January 2023. For further
information, see the press release from the U.S. Department of the
Treasury at https://home.treasury.gov/news/press-releases/jy1231.
41
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.
42
For further information, see Sections 11.96 and 60.55
of the Financial Accounting Manual for Federal Reserve
Banks at https://www.federalreserve.gov/aboutthefed/files/
bstfinaccountingmanual.pdf.
43
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.
44
If interest rates were 200 basis points higher than indicated in
the January/February 2023 Desk Survey, net portfolio income
would be negative for roughly three years, about one year longer
than in the baseline.
45
For further discussion of the impact of unrealized losses, see
“SOMA’s Unrealized Loss: What Does It Mean,” a FEDS Note 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.html; and “An
Analysis of the Interest Rate Risk of the Federal Reserve’s
Balance Sheet, Part 1: Background and Historical Perspective,” a
FEDS Note by Alyssa Anderson, Dave Na, Bernd Schlusche, and
Zeynep Senyuz, at https://www.federalreserve.gov/econres/notes/
feds-notes/an-analysis-of-the-interest-rate-risk-of-the-federal-
reserves-balance-sheet-part-1-20220715.html.
46
Interest rate increases and decreases are modeled as parallel
shocks, with rates oored at zero for negative shocks. As 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, a scenario in which the curve steepens
or attens would only have a signicant negative eect on
unrealized gains and losses on the portfolio to the extent longer-
term rates rise.
47
For details about the New York Fed policy on counterparties
for market operations, see https://www.newyorkfed.org/markets/
counterparties/policy-on-counterparties-for-market-operations.
48
ese include the Treasury, agency debt, and agency MBS
best practices published by the New York Fed–sponsored
Treasury Market Practices Group as well as the FX Global Code
promulgated by the Global Foreign Exchange Committee and the
New York Fed–sponsored Foreign Exchange Committee.
49
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.
50
e Federal Reserve adheres to the SWIFT Customer Security
Program (CSP) and uses this program to help strengthen the
cyber security and resiliency of the central banking community.
60
Charts
1. Federal Funds Target Range, Effective Federal Funds Rate,
Rate of Interest on Reserve Balances, and ON RRP Rate ............ 8
2. Effective Federal Funds Rate and Secured Overnight
Financing Rate Spreads to IORB ......................................... 9
3. SOMA Reverse Repo Amounts Outstanding
by Counterparty Type .....................................................9
4. U.S. Dollar Liquidity Swaps Outstanding by Central Bank .......10
5. SOMA Treasury Transactions ...........................................11
6. Distribution of SOMA Treasury Purchases
across Sectors in 2022 .................................................. 12
7. Distribution of SOMA Reinvestments at Treasury
Auctions in 2022 .........................................................12
8. Daily Bid-Ask Spreads for On-the-Run Treasury Securities
(Five-Day Rolling Average) ..............................................13
9. SOMA Agency MBS Transactions ..................................... 15
10. SOMA Purchases of Thirty-Year Agency MBS by Coupon .......16
11. SOMA Purchases of Fifteen-Year Agency MBS by Coupon .....16
12. SOMA Dollar Roll Sales .................................................17
13. SOMA Securities Lending in Treasuries ...............................18
14. Composition of SOMA Domestic Securities Holdings .............21
15. Distribution of SOMA Treasury Holdings .............................21
16. SOMA Treasury Holdings as a Share of
Outstanding Treasury Supply ...........................................22
17. Distribution of SOMA Holdings of Thirty-Year Agency
MBS by Coupon ..........................................................23
18. Distribution of SOMA Holdings of Fifteen-Year Agency
MBS by Coupon ..........................................................23
19. Distribution of SOMA Agency MBS Holdings .......................23
20. Average Duration of SOMA Domestic Securities Holdings .......25
21. SOMA Domestic Securities Holdings in Ten-Year Equivalents .... 25
22. Distribution of SOMA Foreign Currency Portfolio Holdings ....... 26
23. Federal Reserve Liabilities ..............................................27
24. Sources of Cumulative Change in Reserve Balances ..............29
25. Annual Changes in Federal Reserve Notes .........................30
26. FIMA Reverse Repo Pool.................................................30
27. Treasury General Account Balances ...................................31
28. SOMA Net Income and Federal Reserve Remittances to the
U.S. Treasury ..............................................................33
29. Projected SOMA Domestic Securities Holdings ..................... 37
30. Projected SOMA Domestic Securities Holdings
as a Share of NGDP .....................................................37
31. Projected Reserve Balances ............................................. 38
32. Projected Reserve Balances as a Share of NGDP ..................38
33. Projected SOMA Domestic Securities Holdings
by Asset Class ............................................................. 39
34. Projected SOMA Net Income ..........................................39
35. Projected SOMA Unrealized Gains and Losses as a Share of the
SOMA Portfolio ...........................................................40
Tables
1. Key Policy Rates Effective in 2022 ......................................8
2. Distribution of SOMA Agency MBS Operations in 2022 ........16
3. Changes in Selected Federal Reserve Assets
and Liabilities ..............................................................20
4. SOMA Net Income .......................................................32
5. SOMA Domestic Portfolio Unrealized Gains and Losses ..........33
6. Small-Value Exercise Results in 2022: Domestic Operations .....43
7. Small-Value Exercise Results in 2022: Foreign Operations .......44
Appendix 1 Table: Terms for Desk Operations ...................... 45
Appendix 3 Table: Operations Disclosures ..........................52
61
INDEX OF CHARTS
AND TABLES
OPEN MARKET OPERATIONS DURING 2022
Overview
AppendixesOperational
Flexibility &
Resiliency
Selected
Balance Sheet
Developments
Counterparties Index of Charts
& Tables
Contents Open Market
Operations
Federal Reserve
Framework for Monetary
Policy Implementation
Endnotes
