How does the Federal Reserve determine the collateral value for pledged loans?
The collateral value of pledged loans depends, in part, on the manner in which the loans are pledged: For loans that are pledged through the Federal Reserve’s Automated Loan Deposit process (ALD), or “individually deposited loans,” the Federal Reserve calculates an internally modeled fair market value estimate for each pledged loan, based on loan-specific characteristics. The margin published on the Discount Window and PSR collateral margins table [MS Excel; 80K] is applied to the Federal Reserve’s internally modeled fair market value estimate for each loan, based on its type, coupon, and time to maturity, to determine collateral value. While the Federal Reserve’s internally modeled fair market value estimate for each pledged loan will fluctuate on an ongoing basis, for institutions in sound financial condition, the collateral value of individually deposited loans will never be below the value received for loans pledged through alternative means. The lendable value for any group deposi
