FEDERAL RESERVE BANK OF NEW YORK

BORROWER-IN-CUSTODY COLLATERAL
PROGRAM REQUIREMENTS

INTRODUCTION
The Federal Reserve Bank of New York (“FRBNY”) accepts loan pledges from qualifying depository institutions
(“DI”s) to secure borrowings from the Discount Window (“DW”) or for payment system risk (“PSR”) purposes,
subject to certain terms and conditions. The FRBNY only accepts loan collateral under the Borrower-in-Custody
(“BIC”) program. This document supplements the information found in the Pledging Collateral page of the
national DW website and outlines the requirements of the BIC program.

ELIGIBILITY REQUIREMENTS
Eligibility for the BIC program is based on the FRBNY’s comfort level with a DI’s overall financial condition, loan
administration controls, documentation practices, asset quality, and ability to meet all of the requirements of this
program. To qualify for the BIC program, a DI must be in sound financial condition in the judgment of both its
primary regulator and the FRBNY. Acceptance into the BIC program for pledging a particular loan collateral
type does not imply acceptance for another loan collateral type.

LEGAL DOCUMENTATION REQUIREMENTS

To qualify for the BIC program, a DI must have the necessary Operating Circular 10 (“OC10”) documentation on
file with the FRBNY prior to completing a BIC Certification Form. Refer to Operating Circular No. 10 for
required documentation.

UCC FILING: PERFECTION OF SECURITY INTEREST

The FRBNY’s policy is to perfect its security interest in pledged collateral. Upon execution of all required OC10
documentation, the FRBNY files a Uniform Commercial Code (“UCC”)-1 financing statement and searches for
competing UCC filings.

DIs that are members of and pledge collateral to a Federal Home Loan Bank (“FHLB”) or a corporate credit union
should be aware that a blanket lien may already be filed against its assets. DIs should also know what loan types
are pledged to the FHLB or corporate credit union and take the necessary steps to prevent any potential double-
pledging of collateral to the FRBNY. FRBNY may choose to share collateral schedule information with other lien
holders to ensure double pledging of collateral does not occur.
Eligible Loan
Types and Refer to the Discount Window and PSR Collateral Margins Table.
Margins
The following types of loans are not eligible under the BIC program:

• Insider loans (i.e., loans to a director, officer, or principal shareholder);

• Loans owned by any other entity, including a subsidiary or affiliate 1;
Ineligible • Loans collateralized by stock of the pledging DI or one of its affiliates;
Collateral • Loans issued to an Employee Stock Option Plan (ESOP) of the pledging DI or one of
its affiliates, or secured by such ESOP’s assets;
• Loans already pledged to another institution;
• Receivables acquired by the pledging institution under receivables purchase
facilities or programs administered by third parties;
• Loans documented as repurchase agreements or derivatives contracts;

1 Any company that controls the DI and any other company that is controlled by the company that controls the DI.

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 • Foreign obligor loans, defined as loans in which: (1) either the primary obligor or
any guarantor or co-obligor is incorporated outside of the U.S. or has its principal
place of business or main office outside of the U.S.; or (2) any obligor or guarantor
that is a natural person is domiciled outside of the U.S.; or (3) any material collateral
for the loan is located outside of the U.S.
• Loans that are not denominated in U.S. dollars or are not governed by U.S. law;
• Loans that are not written in English 2;
• Loans that have either been paid off, sold, matured, or will mature within 30 days
of pledge/processing date;
• Loans on non-accrual status;
• Loans in which the property taxes are not current;
• Bilateral loans or loan participations with assignability or transfer restrictions (e.g.,
borrower/agent consent required to assign, eligible assignee or disqualified
assignee lists, minimum net worth restrictions for assignees, or minimum
assignment amounts);
• Letters of credit;
• Loans under the working capital and export credit insurance programs of the
Export-Import Bank;
• Commercial type loans (e.g., agricultural loans, commercial and industrial loans &
leases, commercial real estate loans, construction loans, U.S. agency guaranteed
loans, or raw land loans) more than 30 days past due (principal and/or interest);
• Loans classified as Special Mention, Substandard, Doubtful or Loss;
• Loans that fall below the approved acceptable internal/credit risk ratings;
• Mortgage loans with combined loan-to-value (CLTV) greater than 80 percent.
• Consumer loans more than 60 days past due (principal and/or interest); and
• Loans where original paper documentation has been lost or unintentionally
destroyed
Required Loan Refer to Appendix A for documentation requirements by loan type.
Documentation
The FRBNY relies on the internal risk ratings assigned by the pledging DI to determine the
acceptability of commercial type loans. However, the FRBNY must first determine how the
DI’s loan rating system maps to the FRBNY’s acceptable ratings.

In order to assess the integrity of a DI’s loan rating system, the FRBNY may rely on
examination reports and/or discussions with the DI’s primary regulator. Provided the DI’s
Internal Risk
internal risk rating system is deemed acceptable, the FRBNY will notify the DI regarding
Ratings
the internal risk ratings that will be acceptable to pledge. The DI’s internal risk ratings will
be mapped to FRBNY’s “minimal”, “normal”, and excessive” credit quality standards used
in valuing loan collateral. This process could result in some loans classified as “Pass” by the
DI being deemed ineligible. After the initial acceptance of the DI’s internal risk ratings, it
is the DIs ongoing responsibility to immediately inform the FRBNY of any changes in its
loan rating system, including credit quality definitions and rating scale structure.

2 Loans written in Spanish may be eligible for pledge to the FRBNY. Please contact DW staff.

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 Loans pledged to the FRBNY must be in either tangible or electronic form as defined below:
Tangible Loans – are defined as loans that were originated and remain in paper form
with “wet signatures.”
Form of Pledged
Electronic Loans – are defined as (1) loans documented in tangible form that have been
Loans
converted to electronic copies and the original paper copies have been intentionally
destroyed; or (2) loans originated in electronic form.

DI’s pledging loans that have been converted to imaged form or will be converted as part of
an ongoing process will need to reference the BIC Imaging Requirements and submit the
appropriate addendum, if necessary. Refer to Appendix B for details.
Imaged Loans Note: DI’s pledging loans that were originated in electronic form are not required to
complete an addendum; but will need to review Appendix B to ensure that they are
meeting the imaging quality and controls, audit expectations, access controls and electronic
back-up requirements that are outlined.

DI’s pledging loans that were originated in electronic form are not required to complete an
Loans addendum; but will need to review Appendix B to ensure that they are meeting the imaging
Originated in quality and controls, audit expectations, access controls and electronic back-up
Electronic Form requirements that are outlined.

A DI may designate a third-party custodian (“TPC”) to provide custody services for

collateral pledged to the FRBNY. TPC arrangements involve the pledging DI and an
institution the DI contracts to hold and / or manage its pledged loans. A DI that uses a TPC
and wants to participate in the BIC program must first contact the FRBNY and request
Third-Party
approval for this pledging arrangement. The TPC may be required to complete the
Custodian
agreement found in Appendix 5 of Operating Circular 10. This is required even if the TPC
Arrangements is an affiliate of the pledging DI. The agreement should not be altered by the pledging
institution or the TPC.

For additional information on TPC arrangements, contact the DW staff.

Tangible Loans - All documents (e.g. notes and supporting documents) evidencing the
pledged loans (including promissory notes if the loans are noted) must be stored in a fire-
resistant, secured (e.g., keypad entry, lock) and controlled (e.g., limited access, log)
environment.

Electronic Loans –Loan files must clearly identify the obligor and/or obligation number for
Storing
easy retrieval by FRBNY personnel and processes must ensure that a complete and a high-
Collateral
quality image of the promissory note and supplemental documentation is captured, if
Documents applicable. In addition, controls must be in place to prevent unauthorized alterations to
and/or deletions of loan files and that a contingency plan be in place to prevent loss of files
and other file data (e.g., regular data back-up). The DI should ensure that the electronic
storage procedures as outlined in their internal policies are followed and that the audit
report provided to the FRBNY (see Independent Audit Review section below) includes a
review of the adherence to those policies.

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 Electronic and tangible loans must be clearly identified as being pledged to the FRBNY in
the DI’s general ledger or information management system. Additionally, if the loans are in
tangible form, they must be physically segregated from other loan documents and at least
one of the following is required:

Collateral • Label on individual physical files indicating that the loans are pledged to the
Identification FRBNY; or
• Label on file cabinets indicating that the loans are pledged to the FRBNY; or
• Visible notice in specific custody area indicating that the loans are pledged to the
FRBNY.

A DI may not establish a new location (internally or externally) for its BIC loan files
without prior written notification to and approval from the FRBNY. The notification
Establishing a must be made at least 30 days prior to the intended move date in order to ensure the
New BIC necessary protective measures are taken.
Location
A DI must request approval to internally or externally re-locate its BIC loan files by
completing a New Location Questionnaire.

A DI must immediately contact DW staff if the promissory notes, loan agreements and
Damaged Loan other supporting documentation relating to the pledged loans are damaged due to a flood,
Documentation fire or any other reason. The FRBNY will work with the DI to determine the extent of the
damage and may make appropriate adjustments to the value of the collateral.

A DI must provide a collateral schedule in the automated loan data (ALD) format each
month or on a more frequent basis as deemed necessary by the FRBNY. ALD is the
Federal Reserve's process for recording loan pledges at the individual loan detail level
in its Collateral Management System (CMS). A separate file is required for each loan
type (e.g., commercial loans, commercial real estate, home equity loans, etc.).

In-Scope DIs
In-scope institutions will send a plain text file of vertical pipe (|) separated fields
Collateral
containing the required loan fields on loans pledged as collateral. Detailed information
Reporting can be found at the following link: In-Scope File Format Specifications and Definitions
Requirements
Out-of-Scope DIs
Out-of-scope institutions will send either a fixed formatted text file or Excel
spreadsheet. For those DIs who want to submit an Excel spreadsheet, please contact the
DW staff for further instructions and a mapping template.

File formats should not be changed between submissions without prior approval
from the DW.
In-Scope vs The definition of in-scope is found under the File Specifications section of the Pledging
Out-of-Scope Collateral page of frbdiscountwindow.org. Once an institution meets the criteria of being
DIs in-scope, it remains in-scope. Any DI that has not yet met the criteria of being in-scope is
considered an out-of-scope institution.

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 The FRBNY requires that DIs use one of the following secure methods for transmitting
information or documentation pertaining to pledged BIC loan collateral: Federal
Reserve Secure Message Center (FRSecure provided by ZixMail), Intralinks or Email
with Mandatory Transport Layer Solution (“TLS”).

All pledge submissions should be sent to the FRBNY’s BIC mailbox at the following e-
mail address: [email protected]. Pledges will only be accepted from authorized pledgers
Data listed on the institution’s Official OC-10 Authorization List
Submission
If your DI would like to use Intralinks or TLS, contact the DW staff for additional
information.
All pledge submissions should be submitted in a timely manner; zero collateral value
may be assigned to DIs that do not submit its BIC Pledge Cover Letter and collateral
schedule in a timely manner.

A BIC Pledge Cover Letter and updated collateral schedule must be submitted to the
FRBNY monthly and at any time the outstanding principal balance of the pledged collateral
declines by 10 percent or more from the date of the most recent collateral schedule
submitted. The email accompanying an intra-month pledge should clearly indicate that
there was a decline of 10 percent or more from the previous submission and provide a brief
explanation of what caused the decline. If a decline of 10 percent or more coincides with the
regular monthly pledge, please indicate this and the reason in the accompanying email.

For example: If the DI normally submits its pledge file on the first business day of the month and has
a decline of 10 percent or more on the tenth business day of the month, the DI must promptly notify
the FRBNY by updating its collateral schedule on the tenth business day. The DI must not wait
until its next regularly scheduled monthly update. If the DI is not able to update its collateral
schedule on the same day as the decline is detected, The DI should promptly contact DW staff by
phone or send an e-mail to [email protected]. Contact information for DW staff is found on page
seven of this document.
Collateral
Updates and For DIs with multiple BIC arrangements (e.g. commercial loans, commercial real estate,
Monitoring consumer loans), the monitoring requirement is at the individual BIC arrangement level.
Please note that it is also possible for a DI to have multiple BIC arrangements under one
loan type. For example, a DI may have multiple commercial loan BICs such as floor plan
loans, commercial loans, equipment lease commercial loans, etc. If your DI is not clear as to
the number of BIC arrangements it has or what constitutes a separate BIC arrangement or
monitoring requirements, please contact the DW staff for guidance.

At a minimum, weekly monitoring is required. If your DI pledges a pool of loans for which
the outstanding balance frequently fluctuates, daily monitoring may be more appropriate.
Failure to properly monitor for and notify the FRBNY of declines of 10 percent or more
between reporting dates may result in the termination of BIC privileges.

The FRBNY will make every effort to promptly process collateral schedule updates. DIs can
access real-time collateral information using the Account Management Information (“AMI”)
system. DIs may also subscribe to email delivery of collateral statements (see Statement of
Collateral Holdings section).

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 The FRBNY requires DIs to conduct and provide an audit report of their BIC collateral
prepared by an internal or external auditor. The audit report should not exceed a period of
24 months. The audit must include a review and assessment of the DI’s compliance with
Independent FRBNY’s BIC requirements. The DI shall immediately notify the FRBNY of any
Audit Review irregularities discovered during any audits. A complete audit report, including any
findings and management’s response and corrective action plan, should be sent along with
the annual BIC certification form.
When establishing a BIC, the most recent audit report completed for that business area
should be provided.

The BIC certification (“Certification”) form attests to the controls and other procedures in
place to safeguard the pledged loans and related documentation. There are two certification
forms, one for credit card receivables and one for all other loan types. To be considered for
the BIC program, a DI must complete and submit an initial Certification, and thereafter, an
updated Certification on an annual basis (every 12 months based upon the date of
establishment of the BIC). It is the responsibility of the DI to keep track of its Certification
due date. Zero collateral value may be assigned to DIs that do not submit an updated
Certification form in a timely manner.

If applicable, DIs should also submit the appropriate BIC certification addendum(s) (e.g.,
Certification “Image and Destroy” or “Image and Store“). If your DI images and stores on-site (i.e., not
Forms with a third-party custodian, including an affiliate) then an image and store addendum is
not required.

It is a requirement that one or two (see note below) authorized individual(s) and an auditor
sign off on the certification form. In the case where the DI does not have an internal audit
department, a director or a senior level officer that is not directly responsible for DW
borrowing or collateral pledging may sign the form.

Note: The number of authorized signers required on the certification depends on the designation
provided in the OC10 Authorizing Resolutions for Borrowers on file with the FRBNY.

Handwritten certifications and older versions of the forms will not be accepted.

All BIC arrangements require periodic review by FRBNY staff of the loan documentation
and operational controls supporting the arrangements. The frequency of the review will be
at the discretion of the FRBNY, but will generally depend on the DIs financial condition,
identified operational control weaknesses, or documentation issues relating to the BIC
program.

The purpose of the review is to validate that the DI is in compliance with BIC program
requirements. The review will cover a number of program requirements, including, but not
limited to: (1) verification of pledged collateral and reported key metrics such as maturity
Periodic date, loan balance, interest rate; (2) properly maintained loan documentation; and (3) other
Reviews responses on the Certification form that may need review. All reviews will be conducted
with relatively short notice to the DI, to ensure a review of actual current conditions and
practices.

At the discretion of the FRBNY, reviews will either be conducted on a remote or on-site
basis. The duration of a review will depend on, among other things, the number of pledged
loans.
a. Remote Review: Requires the DI to electronically deliver requested loan
documentation to the FRBNY to be reviewed in-house.

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 b. On-Site Review: Requires the DW reviewer to travel to the DI’s BIC site to
review the requested loan documentation.

During the review, DIs are expected to promptly respond to any issues found and submit
additional documentation as needed. Following the review, FRBNY staff will formally
document any findings and recommendations in a letter to the DI. The DI must promptly
correct each exception found, if not already corrected during the review, or remove the
problematic loan(s) from the pledge by submitting a new collateral schedule excluding all
such loans.

If the review uncovers severe breaches of the BIC program requirements, participation in
the program may be suspended or terminated.

Consolidated collateral statements that report all DW pledges, including loans and
Statement of securities, are available to DIs, upon request. To request collateral statements, a DI must
Collateral complete a CMS Reports Request Form for each intended recipient. It is the responsibility
Holdings of the DI to manage who has access to collateral statements and inform the FRBNY when
distribution changes need to be made.

A DI may either temporarily withdraw or terminate its BIC by submitting a BIC

Termination Withdrawal Form. DW staff will review the request and confirm that there are
BIC no outstanding loans before releasing the collateral to the DI.
Terminations
and Temporary A temporary withdrawal can be for up to twelve months. If at the end of twelve months the
Actions DI has not re-pledged eligible collateral, the BIC will be considered terminated.

Additionally, the FRBNY may temporarily remove collateral value from a BIC due to
findings during a BIC documentation review, certification review, audits, etc. If the reason
for removing collateral value is not addressed by the DI within the agreed upon timeframe,
the BIC may be terminated.

To re-establish a terminated BIC, the DI should contact DW staff.

Toll-free Phone Number: 866-226-5619

Discount General E-mail address for non-BIC-related inquiries: [email protected]

Window E-mail address for BIC pledges: [email protected]
Contact
Mailing Address: Federal Reserve Bank of New York, Discount Window Staff, 33 Liberty
Information
Street; New York, NY 10045

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Appendix A
Below is a list of minimum required supporting documentation by loan type. For loan type definitions please
consult FFIEC and NCUA call report codes which can be found in the Loan Types and Call Report Mapping
section of the Pledging Collateral page of the national DW website.

Minimum documentation requirements are subject to change and the FRBNY reserves the right to request
additional supporting documentation evidencing the debtor’s obligation, including payment status and history. If
a loan is noteless; a note need not be provided; if a loan is unsecured or not guaranteed, a security agreement or
guaranty agreement need not be provided.

Please note that references to the credit agreement include loan agreements, participation agreements, syndication
agreements, or any other agreement that details the terms and conditions of the loan.

Any modifications, amendments and addendums to the supporting documentation should also be included in your
files.

Evidence of recording is required for all documents that are required to be recorded.

Margin Category Required Documentation May Include

Agricultural Loans • Promissory Note
• Credit Agreement
• Recorded Mortgage/Deed of Trust
• Assignment and Assumption Agreement
• Security Agreement
• Guarantor Agreement
• Appraisal
• Crop insurance
• Documentation evidencing borrower’s payment
status/history

Commercial and Industrial Loans & Leases • Promissory Note

• Credit Agreement
• Allocation/Commitment schedule for
participations and syndications
• Assignment and Assumption Agreement
• Lease Agreement
• Security Agreement
• Guarantor agreement
• Documentation evidencing borrower’s payment
status/history

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 Commercial Real Estate Loans • Promissory Note
• Credit Agreement
• Allocation/Commitment schedule for
participations and syndications
• Assignment and Assumption Agreement
• Recorded Mortgage/Deed of Trust
• Lease Agreement
• Security Agreement
• Guarantor Agreement
• Documentation evidencing borrower’s payment
status/history

Construction Loans • Promissory Note

• Credit Agreement
• Allocation/Commitment schedule for
participations and syndications
• Assignment and Assumption Agreement
• Recorded Mortgage/Deed of Trust
• Lease Agreement
• Security Agreement
• Guarantor Agreement
• Documentation evidencing borrower’s payment
status/history

Raw Land Loans • Promissory Note

• Credit Agreement
• Allocation/Commitment schedule for
participations and syndications
• Assignment and Assumption Agreement
• Recorded Mortgage/Deed of Trust
• Lease Agreement
• Security Agreement
• Guarantor Agreement
• Documentation evidencing borrower’s payment
status/history

U.S. Agency Guaranteed Loans • Promissory Note

• Credit Agreement
• Allocation/Commitment schedule for
participations and syndications
• Assignment and Assumption Agreement
• Documentation evidencing borrower’s payment
status/history

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 One-to-Four Family Mortgage Loans (First Lien) i • Promissory Note
• Recorded Mortgage/Deed of Trust
• Title Policy, Attorney Certificate, or Torrens
Certificate
• Appraisal
• Homeowner’s Insurance Coverage
• Evidence of Private Mortgage Insurance Coverage
if LTV is greater than 80%
• Evidence of property tax payment
• Documentation evidencing borrower’s payment
status/history

One-to-Four Family Mortgage Loans (Second Lien, • Promissory Note

Home Equity)i • Recorded Mortgage/Deed of Trust
• Appraisal

Consumer Loans & Leases (auto, boat, etc.)

• Promissory Note
• Installment Contract
• Credit Application
• Documentation evidencing borrower’s FICO score
• Documentation evidencing borrower’s payment
status/history
• Credit Agreement
• Guaranty Agreement
• Security Agreement
• Loan Agreement
• Lease Agreement
• Recorded Mortgage/Deed of Trust
• Marine Mortgage
• Title

Consumer Loans Unsecured

• Promissory Note
• Installment Contract
• Credit Application
• Documentation evidencing borrower’s FICO score
• Documentation evidencing borrower’s payment
status/history
Credit Card Receivables
• Credit Application
• Documentation evidencing borrower’s FICO score
• Documentation evidencing borrower’s payment
status/history
Credit Card Receivables Subprime
• Credit Application
• Documentation evidencing borrower’s FICO score
• Documentation evidencing borrower’s payment
status/history

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 Student Loans • Promissory Note
• Credit Application
• Documentation evidencing borrower’s FICO score
• Documentation evidencing borrower’s payment
status/history
Obligations of States & Political Subdivisions
• Promissory Note
(municipalities)
• Credit Agreement
• Allocation/Commitment schedule for
participations and syndications
• Assignment and Assumption Agreement
• Lease Agreement
• Security Agreement
• Guarantor agreement
• Documentation evidencing borrower’s payment
status/history

i A mortgage loan originated by another organization, including an affiliate mortgage company, and subsequently

purchased by an institution will be eligible collateral under the BIC program only if (i) the note has been properly
endorsed and (ii) the mortgage has been assigned to such institution. A mortgage that is in the name of the
mortgage company or an affiliate is not eligible under this BIC program unless the institution provides evidence
acceptable to the FRBNY that it has legal title to the mortgage.

A mortgage loan originated by another organization that was subsequently acquired by an institution will be
eligible collateral under the BIC program only if such institution provides evidence acceptable to the FRBNY that
the mortgage loan (i) was subject to the acquisition transaction and (ii) is owned by such institution. In the case of
any merger that resulted in a name change, an institution should provide evidence of the merger to affirm that such
institution is in fact the successor and sole owner of the pledged mortgage loan.

Appendix B - BIC Imaging Requirements

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Introduction

The FRBNY accepts pledges of “imaged loans” from qualifying DIs. An imaged loan is a loan that was originated in
tangible form and has then been converted to an electronic copy and the original paper copy has been stored away
for safekeeping or has been destroyed. The storage of the original paper copies can be at the pledging DI’s facility or
may be stored at a third-party custodian, which includes a Records and Information Management company (“RIM”)
or an affiliate.

DI’s wishing to pledge imaged loans to the FRBNY generally must complete either, the “Image and Destroy” or
“Image and Store” BIC certification addendum, which includes questions about the processes, procedures, and
controls the pledging institution has established to ensure that its loan documentation is securely maintained. If your
institution destroys loan documentation only after the loan has been paid off, you are not required to complete an
image and destroy addendum. However, you may be required to complete an image-and-store addendum to attest
to your safekeeping process while the loans are still active and pledged to FRBNY. Similarly, if your institution
images and stores on-site (i.e., not with a third-party custodian, including an affiliate) then an image and store
addendum is not required.

Imaging Process and Quality Control

Pledged loans must be maintained in compliance with BIC program requirements at all times. For DIs that use an
image-and- destroy procedure for pledged loans, this includes before and during the imaging process. For DIs that
use an image-and-store procedure for pledged loans, this includes before, during and after the imaging process.
Loan documentation sent externally for imaging should not be pledged until the imaging process is complete and
verified by the DI.

Robust controls must be in place to ensure that a complete and a high-quality image of the promissory note and
supplemental documentation is captured, and to prevent unauthorized alterations to and/or deletions of the imaged
documents.

Audit Expectations

The FRBNY requires the pledging institution to have an audited loan documentation imaging process. Periodic
reviews of image-and-destroy and image-and-store processes should be conducted as part of the pledging
institutions overall audit of the institution’s compliance with BIC program requirements to be conducted at least
every two years. The pledging institution shall immediately notify the FRBNY of any irregularities discovered
during any audits. The audit must include a review and assessment of compliance with all BIC imaging and storage
requirements, including an assessment of third-party custodian processes if applicable. A complete audit report
including any findings and management’s response and corrective action plan must be included with the annual BIC
certification form.

Access to Imaged Documents

Imaged document file names must clearly identify the obligor and/or obligation number for easy retrieval by FRBNY
personnel.

Electronic Back-Up

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A robust contingency plan must be in place to prevent loss of imaged files and other file data, including a regular
schedule for replicating images to serve as back-up copies.

Destruction or Storage of Original Paper Documents

Once original paper documents have been imaged, they may be destroyed or stored at a third-party custodian. Based
on the protocol adopted by the pledging institution, the process must include:

1) Destroyed: Prior to the destruction of the original documents, institutions shall maintain such documents in
accordance with BIC program requirements if pledged to the FRBNY. The pledging institution must monitor and
verify that the original documents are completely destroyed within six months of imaging and a log or receipts
evidencing the completion of the destruction process are retained for as long as the loans evidenced by the documents
are pledged to the FRBNY.

2) Stored at a third-party custodian (e.g., a RIM or an affiliate): Prior to the storage of the original documents at a
third-party custodian, institutions shall maintain such documents in accordance with BIC program requirements if
pledged to the FRBNY. Loans should not be pledged to the FRBNY while supporting documentation is in-transit to
a third-party custodian unless a verified image has been captured prior to shipment. Opting to store original paper
documents at a third-party custodian does not excuse the pledging institution from taking the necessary steps to
ensure that the documents are protected from loss, fire, theft, and other dangers at the third-party custodian. The
FRBNY expects the pledging institution to periodically inspect the third-party custodian’s premises and verify
appropriate storage of pledged loan documents. FRBNY staff may require submission of documentation evidencing
the pledging institution’s inspections of the third-party custodian’s premises.

For pledged loans maintained at a third-party custodian, the location / box numbers of these stored documents must
be included with the “Image and Store” BIC certification addendum. In addition, the FRBNY expects generally
infrequent recall of pledged loans from a third-party custodian by the pledging institution.

The FRBNY expects the pledging institution to ensure its third-party custodian will (and Appendix 5 of Operating
Circular No. 10 requires the third-party custodian to agree to):
• Allow the FRBNY the right at any time to inspect and, upon demand, the right to remove and take possession
of the pledged collateral;
• Upon FRBNY’s request, provide to the FRBNY any copies of reports pertaining to the collateral that are
provided to the pledging institution;
• Follow any other of FRBNY’s instructions with regard to the pledged collateral to the extent the instructions
would have been within the scope of the pledging institution’s power set forth in its agreement with the
third-party custodian, all without first receiving the consent or permission from the pledging institution; and
• Agree that all representations, warranties and covenants, and agreements regarding access to or information
about the pledged collateral, made by the third-party custodian in its agreement with the pledging institution
shall inure to the benefit of the FRBNY, without consent of the pledging institution.

The use of a third-party custodian requires the completion of the Form of Agreement for Third Party Custodian to
Hold Collateral, which can be found in Appendix 5 of Operating Circular No. 10. For more information, please
contact FRBNY staff at [email protected].

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