10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-51397

Federal Home Loan Bank of New York

(Exact name of registrant as specified in its charter)

Federal (State or other jurisdiction of incorporation or organization)	13-6400946 (I.R.S. Employer Identification No.)
101 Park Avenue New York, New York (Address of principal executive offices)	10178 (Zip code)

(212) 681-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The number of shares outstanding of the issuer’s common stock as of February 28, 2009 was 54,508,530.

Federal Home Loan Bank of New York
2008 Annual Report on Form 10-K
Table of Contents

PART I
ITEM 1. BUSINESS	3
ITEM 1A. RISK FACTORS	29
ITEM 1B. UNRESOLVED STAFF COMMENTS	33
ITEM 2. PROPERTIES	33
ITEM 3. LEGAL PROCEEDINGS	33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	34
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	37
ITEM 6. SELECTED FINANCIAL DATA	38
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	170
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	176
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	258
ITEM 9A. CONTROLS AND PROCEDURES	258
ITEM 9B. OTHER INFORMATION	258
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	258
ITEM 11. EXECUTIVE COMPENSATION	269
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	305
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	306
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES	309
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	310
SIGNATURES	312
Exhibit 10.07
Exhibit 10.08
Exhibit 10.09
Exhibit 10.10
Exhibit 10.11
Exhibit 12.01
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02
Exhibit 99.01
Exhibit 99.02

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ITEM 1. BUSINESS

General

The Federal Home Loan Bank of New York (“FHLBNY” or “the Bank”) is a federally chartered corporation, exempt from federal, state and local taxes except real property taxes. It is one of twelve district Federal Home Loan Banks (“FHLBanks”). The FHLBanks are U.S. government-sponsored enterprises (“GSEs”), organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (“FHLBank Act”). Each FHLBank is a cooperative owned by member institutions located within a defined geographic district. The members purchase capital stock in the FHLBank and generally receive dividends on their capital stock investment. The FHLBNY’s defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY provides a readily available, low-cost source of funds for its member institutions. The FHLBNY does not have any wholly or partially owned subsidiaries, nor does it have an equity position in any partnerships, corporations, or off-balance-sheet special purpose entities. The Bank does have two grantor trusts related to employee benefits programs, and these are more fully described in Note 17 — Employee Retirement Plans to the financial statements.

The FHLBNY obtains its funds from several sources. A primary source is the issuance of FHLBank debt instruments, called consolidated obligations, to the public. The issuance and servicing of consolidated obligations are performed by the Office of Finance, a joint office of the FHLBanks. These debt instruments represent the joint and several obligations of all the FHLBanks. Additional sources of FHLBNY funding are member deposits, other borrowings, and the issuance of capital stock. Deposits may be accepted from member financial institutions and federal instrumentalities.

The FHLBNY combines private capital and public sponsorship to provide its member financial institutions with a reliable flow of credit and other services for housing and community development. By supplying additional liquidity to its members, the FHLBNY enhances the availability of residential mortgages and community investment credit.

Members of the FHLBNY must purchase FHLBNY stock according to regulatory requirements. (For more information, see Note 13 — Mandatorily redeemable capital stock and Note 14 — Capital to the financial statements). The business of the cooperative is to provide liquidity for our members (primarily in the form of advances referred to as “advances”) and to provide a return on members’ investment in FHLBNY stock in the form of a dividend. Since the members are both stockholders and customers, the Bank operates such that there is a trade-off between providing value to them via low pricing for advances with a relatively lower dividend versus higher advances pricing with a relatively higher dividend. The FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing.

All federally insured depository institutions, insured credit unions and insurance companies engaged in residential housing finance can apply for membership in the FHLBank in their district. All members are required to purchase capital stock in FHLBNY as a condition of membership. For the year ending December 31, 2008, community financial institutions are defined as FDIC-insured depository institutions having average total assets of $1.0 billion. Annually, the Federal Housing Finance Agency (“Finance Agency”), formerly the Finance Board, will adjust the total assets “cap” to reflect any percentage increase in the preceding year’s Consumer Price Index.

A member of another FHLBank or a financial institution that is not a member of any FHLBank may also hold FHLBNY stock as a result of having acquired an FHLBNY member. Because the Bank operates as a cooperative, the FHLBNY conducts business with related parties in the normal course of business and considers all members and non-member stockholders as related parties in addition to the other FHLBanks. (For more information, see Note 9 — Related party transactions to the financial statements. See also Item 13 — Certain Relationships and Related Transactions, and Director Independence in this Form 10-K).

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The FHLBNY’s primary business is making collateralized loans or advances to members and also the principal factor that impacts the financial condition of the FHLBNY. The FHLBNY also serves the public through its mortgage programs, which enable FHLBNY members to liquefy certain mortgage loans by selling them to the Bank. The FHLBNY also provides members with such correspondent services as safekeeping, wire transfers, depository and settlement services. Non-members that have acquired members have access to these services up to the time that their advances outstanding have been prepaid or have matured.

As of July 2008, the FHLBNY is supervised and regulated by the Federal Housing Finance Agency (“Finance Agency”), which is an independent agency in the executive branch of the U.S. government. The Finance Agency ensures that the FHLBNY carries out its housing and community development mission, remains adequately capitalized and able to raise funds in the capital markets, and operates in a safe and sound manner. However, while the Finance Agency establishes regulations governing the operations of the FHLBanks, the Bank functions as a separate entity with its own management, employees and board of directors.

The FHLBNY’s website is www.fhlbny.com. The FHLBNY has adopted, and posted on its website, a Code of Business Conduct and Ethics applicable to all of its employees and directors.

Market Area

The FHLBNY’s market area is the same as its membership district — New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are members of the FHLBNY must have their principal places of business within this market area but may also operate elsewhere. The FHLBNY had 311 and 291 members at December 31, 2008 and 2007.

The most recent market analysis performed in 2008 indicated that in the Bank’s district, there are less than 50 banks, thrifts and credit unions eligible for membership but have not joined. Of these, the FHLBNY considers only a limited number as attractive candidates for membership. An attractive candidate for membership is an institution that is likely to do sufficient advance business with the FHLBNY within a reasonable period of time so that the stock that the potential member will likely to be required to purchase under the provisions of membership will not dilute the dividend on the existing members’ stock. Characteristics that identify attractive candidates include an asset base of $100 million or greater, an established practice of wholesale funding, a high loan-to-deposit ratio, strong asset growth, sufficient eligible collateral, and management that had experience with the FHLBanks during previous employment.

The FHLBNY actively markets membership to attractive candidates through personal calling and promotional materials. The FHLBNY competes for business by explaining the competitively priced products and financial flexibility afforded by membership. Institutions join the FHLBNY primarily for access to a reliable source of liquidity. Advances are an attractive source of liquidity because they permit members to pledge relatively non-liquid assets, such as 1-4 family, multifamily and commercial real estate mortgages held in portfolio, to create liquidity for the member. Advances are attractively priced because of the FHLBNY’s access to capital markets as a Government Sponsored Enterprise and the FHLBNY’s strategy of providing balanced value to members.

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The following table summarizes the FHLBNY’s members by type of institution.

	Commercial		Thrift		Credit		Insurance
	Banks		Institutions		Unions		Companies		Total
December 31, 2008		151		115		40		5		311
December 31, 2007		139		116		35		1		291

Business Segments

The FHLBNY manages and reports on its operations as a single business segment. Senior management and the FHLBNY’s Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance . All of the FHLBNY’s revenues are derived from U.S. operations. For more information, see Note 21 — Segment Information and concentration to the financial statements.

The FHLBNY’s cooperative structure permits it to expand and contract with demand for advances and changes in membership. When advances are paid down, either because the member no longer needs the funds or because the member has been acquired by a non-member and funds are no longer needed, the stock associated with the advances is immediately redeemed. When advances are paid before maturity, the FHLBNY collects fees that make the FHLBNY financially indifferent to the prepayment. The FHLBNY’s operating expenses are very low, about 6.0-7.5 basis points on average assets. Dividend capacity, which is a function of net income and the amount of stock outstanding, is largely unaffected by the prepayment, since future stock and future income are reduced more or less proportionately. We believe that the FHLBNY will be able to meet its financial obligations and continue to deliver balanced value to members even if demand for advances drops significantly or if members are lost to acquisitions.

Products and Services

The FHLBNY offers to its members several correspondent banking services as well as safekeeping services. The fee income that is generated from these services is not significant. The FHLBNY also issues standby letters of credit on behalf of members at a fee. The total of income derived from such services was about $3.4 million for the year ended December 31, 2008 and about $3.3 million in 2007 and $3.4 million in 2006. On an infrequent basis, the FHLBNY may act as an intermediary to purchase derivative instruments for members.

The FHLBNY provides the Mortgage Partnership Finance^® program to its members as another service. However, the FHLBNY does not expect the program to become a significant factor in its operations. The interest revenues derived from this program and another inactive mortgage program aggregated $77.9 million for the year ended December 31, 2008 and $78.9 million and $76.1 million for the years ended December 31, 2007 and 2006. The revenues were not a significant source of Net interest income for the FHLBNY.

The FHLBNY’s short-term investments certificates of deposits, Federal funds sold and interest-earning deposits placed with high-rated financial institutions provide immediate liquidity to satisfy members’ needs for funds. Investments in mortgage-backed securities, classified as held-to-maturity and available-for-sale, and housing finance agency bonds, classified as held-to-maturity, provide additional earnings to enhance dividend potential for members. As a cooperative, the FHLBNY strives to provide its members a reasonable return on their investment in the FHLBNY’s capital stock. The interest income derived from investments aggregated $1.0 billion, $1.2 billion and $1.0 billion for the years ended December 31, 2008, 2007 and 2006 and represented 23.4%, 25.2% and 23.3% of total interest income for those years.

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However, advances to members are the primary focus of the FHLBNY’s operations, and are also the principal factor that impacts the financial condition of the FHLBNY. Revenues from advances to members are the largest and the most significant element in the FHLBNY’s operating results. Providing advances to members, supporting the products and associated collateral and credit operations, and funding and swapping the funds are the focus of the FHLBNY’s operations.

Advances

The FHLBNY offers a wide range of credit products to help members meet local credit needs, manage interest rate and liquidity risk, and serve their communities. The Bank’s primary business is making secured loans, called advances, to its members. These advances are available as short- and long-term loans with adjustable-variable-and fixed-rate products (including option-embedded and amortizing advances).

Advances to members, including former members, constituted 79.4% and 75.1% of the FHLBNY’s Total assets of $137.5 billion and $109.2 billion at December 31, 2008 and 2007. In terms of revenues, interest income derived from advances was $3.0 billion, $3.5 billion, and $3.3 billion, representing 74.7%, 73.2% and 75.0% of total interest income for the years ended December 31, 2008, 2007 and 2006. These metrics have remained relatively stable over time. Most of the FHLBNY’s critical functions are directed at supporting the borrowing needs of the FHLBNY’s members, managing the members’ associated collateral positions, and providing member support operations.

Members use advances as a source of funding to supplement their deposit-gathering activities. Advances borrowed by members have grown substantially in recent years because many members have not been able to increase their deposits in their local markets as quickly as they have increased their assets. To close this funding gap, members have preferred to obtain reasonably priced advances rather than increasing their deposits by offering higher rates or forgoing asset growth. Because of the wide range of advance types, terms, and structures available to them, members have also used advances to enhance their asset/liability management. As a cooperative, the FHLBNY prices advances at minimal net spreads above the cost of its funding in order to deliver more value to members.

The FHLBNY’s members are required by the FHLBank Act to pledge collateral to secure their advances. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) Treasury and U.S. government agency securities; (3) mortgage-backed securities; and (4) certain other collateral that is real estate-related, provided that such collateral has a readily ascertainable value and that the FHLBNY can perfect a security interest in that collateral. The FHLBNY also has a statutory lien priority with respect to certain member assets under the FHLBank Act as well as a claim on FHLBNY capital stock held by its members.

Highlights of the Bank’s Advances offered to members are as follows (outstanding par amounts by Advances by product type are disclosed in a table in the MD&A section captioned Financial Condition: Assets, Liabilities, Capital, Commitments and Contingencies):

• Overnight Line of Credit Program (“OLOC”): The OLOC program gives members a short-term, flexible, readily accessible revolving line of credit for immediate liquidity needs. OLOC Advances mature on the next business day, at which time the advance is repaid. Interest is calculated on a 360-day basis, charged daily, and priced at a spread to the prevailing Federal funds rate.

• Fixed-Rate Advances: Fixed-Rate Advances are flexible funding tools that can be used by members to meet short- to long-term liquidity needs. Terms vary from 2 days to 30 years.

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• Adjustable-Rate Credit Advances (“ARC”): ARC advances are medium- and long-term loans that can be pegged to a variety of indices, such as 1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime. Members use an ARC advance to manage interest rate and basis risks by efficiently matching the interest rate index and repricing characteristics of floating-rate assets and liabilities. The interest rate is set and reset (depending upon the maturity of the advance and the type of index) at a spread to that designated index. Principal is due at maturity and interest payments are due at every reset date, including the final payment.

• Amortizing Advances: Amortizing Advances are medium- or long-term, fixed-rate loans with fixed amortizing schedules structured to match the payment characteristics of a mortgage loan or portfolio of mortgage loans held by the member. Terms offered are from one to 30 years with constant principal and interest payments.

• Convertible Advances: Convertible Advances, also referred to as putable advances are medium- to long-term loans that are structured so the member sells the Bank an option or a strip of options. If the advance is put by the Bank at the end of the lockout period, the member has the option to pay off the advance or request replacement funding to an advance product of their choice at the current market rates as established by the Bank.

Letters of Credit

The FHLBNY may issue standby financial letters of credit (“Letters of Credit”) on behalf of members to facilitate members’ residential and community lending, provide members with liquidity, or assist members with asset/liability management. Where permitted by law, members may utilize FHLBNY letters of credit to collateralize deposits made by units of state and local governments (“municipal deposits”). The FHLBNY’s underwriting and collateral requirements for securing Letters of Credit are the same as its requirements for securing advances.

Derivatives

To assist members in managing their interest rate and basis risks in both rising and falling interest-rate environments, the FHLBNY will act as an intermediary between the member and derivatives counterparty. The FHLBNY does not act as a dealer and views this as an additional service to its members. Amounts of such transactions have not been material. Participating members must comply with the FHLBNY’s documentation requirements and meet the Bank’s underwriting and collateral requirements.

Acquired Member Assets Programs

Utilizing a risk-sharing structure, the FHLBanks are permitted to acquire certain assets from or through their members. These initiatives are referred to as Acquired Member Assets (“AMA”) programs. At the FHLBNY, the Acquired Member Assets initiative is the Mortgage Partnership Finance^® (“MPF^®”) Program, which provides members with an alternative to originating and selling long-term, fixed-rate mortgages in the secondary market. In the MPF Program, the FHLBNY purchases conforming fixed-rate mortgages originated or purchased by its members. Members are then paid a fee for assuming a portion of the credit risk of the mortgages acquired by the FHLBNY. Members assume credit risk by providing a credit enhancement guarantee to the FHLBNY. This guarantee provides a double-A equivalent level of creditworthiness on the mortgages. The amount of this guarantee is fully collateralized by the member. The FHLBNY assumes the remainder of the credit risk along with the interest rate risk of holding the mortgages in its portfolio.

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In a typical MPF Program, the Participating Financial Institution (“PFI”) sells previously closed loans to the FHLBNY. In the past, the FHLBNY has also purchased loans on a flow basis (referred to as “table-funding,” which means that the PFI uses the FHLBNY’s funds to make the mortgage loan to the borrower). The PFI closes the loan “as agent” for the FHLBNY. Table funded loans are restricted to the Mortgage Partnership Finance 100 product (“MPF 100”). The Finance Agency specifically authorized table funded loans in its regulations authorizing the MPF Program and the only product initially offered for the first two years of the MPF Program was for table funded loans. The Finance Agency’s initial resolutions were specifically extended by the Acquired Member Assets Regulations (12 CFR Part 955).

The Acquired Member Assets Regulation does not specifically address the disposition of Acquired Member Assets. The main intent of that regulation is the purchase of assets for investment rather than for trading purposes. However, the FHLBanks have the legal authority to sell Mortgage Partnership Finance loans pursuant to the granting of incidental powers in Section 12 of the FHLBank Act. Section 12(a) of the FHLBank Act specifically provides that each FHLBank “shall have all such incidental powers, not inconsistent with the provisions of this chapter, as are customary and usual in corporations generally.” General corporate law principles permit the sale of investments.

On September 23, 2008, the FHLBank of Chicago announced the launch of the MPF Xtra product which provides participating FHLbanks and PFIs with an additional new balance sheet mortgage sale alternative. Loans sold to the FHLBank of Chicago through the MPF Xtra product will concurrently be sold to Fannie Mae, as a third party investor, and will not be held on the FHLBank of Chicago’s balance sheet. Unlike other MPF products, under the MPF Xtra product PFIs are not required to provide credit enhancement and would not receive credit enhancement fees. As of December 31, 2008, the FHLBNY has not participated in this program.

The FHLBNY also holds participation interests in residential and community development mortgage loans through its Community Mortgage Asset (“CMA”) program. Acquisitions of participations under the Community Mortgage Asset program were suspended indefinitely in November 2001.

Mortgage Partnership Finance Program

Introduction

The Bank invests in mortgage loans through the MPF Program, which is a secondary mortgage market structure under which eligible mortgage loans are purchased or funded from or through Participating Financial Institution members (“PFIs”) and purchase participations in pools of eligible mortgage loans are purchased from other FHLBanks (collectively, “MPF” or “MPF Loans”). MPF Loans are conforming conventional and Government i.e., insured or guaranteed by the Federal Housing Administration (“FHA”), the Department of Veterans Affairs (“VA”), the Rural Housing Service of the Department of Agriculture (“RHS”) or the Department of Housing and Urban Development (“HUD”) fixed rate mortgage loans secured by one-to-four family residential properties with maturities ranging from 5 years to 30 years or participations in such mortgage loans. MPF Loans that are Government loans, collectively referred to as “MPF Government Loans.”

There are currently five MPF Loan products from which PFIs may choose. Four of these products (Original MPF, MPF 125, MPF Plus and MPF Government) are closed loan products in which the Bank purchases loans that have been acquired or have already been closed by the PFI with its own funds. However, under the MPF 100 product, the Bank “table funds” MPF Loans that is, the Bank provides the funds through the PFI as the Bank’s agent to make the MPF Loan to the borrower. The PFI performs all the traditional retail loan origination functions under this and all other MPF products. With respect to the MPF 100 product, the Bank is considered the originator of the MPF Loan for accounting purposes since the PFI is acting as our agent when originating this MPF Loan.

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The FHLBank of Chicago developed the MPF Program in order to help fulfill the housing mission and to provide an additional source of liquidity to FHLBank members that choose to sell mortgage loans into the secondary market rather than holding them in their own portfolios. Finance Agency regulations define the acquisition of acquired member assets (“AMA”) as a core mission activity of the FHLBanks. In order for MPF Loans to meet the AMA requirements, the purchase and funding are structured so that the credit risk associated with MPF Loans is shared with PFIs.

The MPF Program enables other FHLBanks, including the FHLBNY, to purchase and fund MPF Loans with their member PFIs. In addition, the FHLBank of Chicago (“MPF Provider”) provides programmatic and operational support to those FHLBanks that participate in the program (“MPF Banks”). The current MPF Banks are the Federal Home Loan Banks of: Atlanta, Boston, Chicago, Dallas, Des Moines, New York, Pittsburgh, San Francisco and Topeka.

MPF Banks generally acquire whole loans from their respective PFIs but may also acquire them from a member PFI of another MPF Bank with permission of the PFI’s respective MPF Bank or may acquire participations from another MPF Bank. The FHLBNY has not purchased loans from another FHLBank since January 2000.

The MPF Program is designed to allocate the risks of MPF Loans among the MPF Banks and PFIs and to take advantage of their respective strengths. PFIs have direct knowledge of their mortgage markets and have developed expertise in underwriting and servicing residential mortgage loans. By allowing PFIs to originate MPF Loans, whether through retail or wholesale operations and to retain or acquire servicing of MPF Loans, the MPF Program gives control of those functions that most impact credit quality to PFIs. The MPF Banks are responsible for managing the interest rate risk, prepayment risk and liquidity risk associated with owning MPF Loans.

For conventional MPF Loan products, PFIs assume or retain a portion of the credit risk on the MPF Loans they cause to be funded by or they sell to an MPF Bank by providing credit enhancement (“CE Amount”) either through a direct liability to pay credit losses up to a specified amount or through a contractual obligation to provide supplemental mortgage guaranty insurance. The PFI’s CE Amount covers losses for MPF Loans under a master commitment in excess of the MPF Bank’s first loss account. PFIs are paid a credit enhancement fee (“CE Fee”) for managing credit risk and in some instances all or a portion of the CE Fee may be performance based. See “Credit Enhancement Structure — MPF Loan Credit Risk” for a detailed discussion of the credit enhancement, risk sharing arrangements and loan product information for the MPF Program.

MPF Provider

The FHLBank of Chicago (“MPF Provider”) establishes the eligibility standards under which an MPF Bank member may become a PFI, the structure of MPF Loan products and the eligibility rules for MPF Loans. In addition, the MPF Provider manages the pricing and delivery mechanism for MPF Loans and the back-office processing of MPF Loans in its role as master servicer and master custodian. The MPF Provider has engaged Wells Fargo Bank N.A. as the vendor for master servicing and as the primary custodian for the MPF Program. The MPF Provider has also contracted with other custodians meeting MPF Program eligibility standards at the request of certain PFIs. These other custodians are typically affiliates of PFIs and in some cases a PFI acts as self-custodian.

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The MPF Provider publishes and maintains the MPF Origination Guide and MPF Servicing Guide (together “MPF Guides”), which detail the requirements PFIs must follow in originating or selling and servicing MPF Loans. The MPF Provider maintains the infrastructure through which MPF Banks may fund or purchase MPF Loans through their PFIs. This infrastructure includes both a telephonic delivery system and a web-based delivery system accessed through the eMPF^® website. In exchange for providing these services, the MPF Provider receives a fee from each of the MPF Banks.

PFI Eligibility

Members and eligible housing associates may apply to become a PFI of their respective MPF Bank. If a member is an affiliate of a holding company which has another affiliate that is an active PFI, the member is only eligible to become a PFI if it is a member of the same MPF Bank as the existing PFI. The MPF Bank reviews the general eligibility of the member, its servicing qualifications and ability to supply documents, data and reports required to be delivered by PFIs under the MPF Program. The member and its MPF Bank sign an MPF Program Participating Financial Institution Agreement (“PFI Agreement”) that provides the terms and conditions for the sale or funding of MPF Loans, including required credit enhancement, and establishes the terms and conditions for servicing MPF Loans. All of the PFI’s obligations under the PFI Agreement are secured in the same manner as the other obligations of the PFI under its regular advances agreement with the MPF Bank. The MPF Bank has the right under the advances agreement to request additional collateral to secure the PFI’s obligations.

Mortgage Standards

Mortgage loans delivered under the MPF Program must meet the underwriting and eligibility requirements in the MPF Guides, as amended by any waiver granted to a PFI exempting it from complying with specified provisions of the MPF Guides. PFIs may utilize an approved automated underwriting system or underwrite MPF Loans manually. The current underwriting and eligibility guidelines under the MPF Guides with respect to MPF Loans are broadly summarized as follows:

• Mortgage characteristics. MPF Loans must be qualifying 5- to 30-year conforming conventional or Government fixed-rate, fully amortizing mortgage loans, secured by first liens on owner-occupied one-to-four unit single-family residential properties and single unit second homes. Conforming loan size, which is established annually as required by Finance Board regulations, may not exceed the loan limits permitted to be set by the Office of Federal Housing Enterprise Oversight (“OFHEO”) each year. Condominium, planned unit development and manufactured homes are acceptable property types as are mortgages on leasehold estates (though manufactured homes must be on land owned in fee simple by the borrower).

• Loan-to-Value Ratio and Primary Mortgage Insurance. The maximum loan-to-value ratio (“LTV”) for conventional MPF Loans must not exceed 95%. AHP mortgage loans may have LTVs up to 100% (but may not exceed 105% total LTV, which compares the property value to the total amount of all mortgages outstanding against a property). Government MPF Loans may not exceed the LTV limits set by the applicable federal agency. Conventional MPF Loans with LTVs greater than 80% require certain amounts of mortgage guaranty insurance (“MI”), called primary MI, from an MI company rated at least “AA” or “Aa” and acceptable to S&P.

• Documentation and Compliance with Applicable Law. The mortgage documents and mortgage transaction must comply with all applicable laws and mortgage loans must be documented using standard Fannie Mae/Freddie Mac Uniform Instruments.

• Ineligible Mortgage Loans. The following types of mortgage loans are not eligible for delivery under the MPF Program: (1) mortgage loans that are not ratable by S&P; (2) mortgage loans not meeting the MPF Program eligibility requirements as set forth in the MPF Guides and agreements; and (3) mortgage loans that are classified as high cost, high rate, high risk, Home Ownership and Equity Protection Act (HOEPA) loans or loans in similar categories defined under predatory lending or abusive lending laws.

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The MPF Guides also contain MPF Program policies which include anti-predatory lending policies, eligibility requirements for PFIs such as insurance requirements and annual certification requirements, loan documentation and custodian requirements, as well as detailing the PFI’s servicing duties and responsibilities for reporting, remittances, default management and disposition of properties acquired by foreclosure or deed in lieu of foreclosure.

A majority of the states, and some municipalities, have enacted laws against mortgage loans considered predatory or abusive. Some of these laws impose a liability for violations not only on the originator, but also upon purchasers and assignees of mortgage loans. The FHLBNY takes measures that are considered reasonable and appropriate to reduce the Bank’s exposure to potential liability under these laws and we are not aware of any claim, action or proceeding asserting that the Bank may be liable under these laws. However, the Bank can not be certain that it will never have any liability under predatory or abusive lending laws.

MPF Loan Deliveries

In order to deliver mortgage loans under the MPF Program, the PFI and MPF Bank will enter into a best efforts master commitment (“Master Commitment”) which provides the general terms under which the PFI will deliver mortgage loans to an MPF Bank, including a maximum loan delivery amount, maximum CE amount and expiration date. PFIs may then request to enter into one or more mandatory funding or purchase commitments (each, a “Delivery Commitment”), which is a mandatory commitment of the PFI to sell or originate eligible mortgage loans. Each MPF Loan delivered must conform to specified ranges of interest rates, maturity terms and business days for delivery (which may be extended for a fee) detailed in the Delivery Commitment or it will be rejected by the MPF Provider. Each MPF Loan under a Delivery Commitment is linked to a Master Commitment so that the cumulative credit enhancement level can be determined for each Master Commitment.

The sum of MPF Loans delivered by the PFI under a specific Delivery Commitment cannot exceed the amount specified in the Delivery Commitment without the assessment of a price adjustment fee. Delivery Commitments that are not fully funded by their expiration dates are subject to pair-off fees (fees charged to a PFI for failing to deliver the amount of loans specified in a Delivery Commitment) or extension fees (fees charged to a PFI for extending the deadline to deliver loans on a Delivery Commitment), which protect the MPF Bank against changes in market prices.

In connection with each sale to or funding by an MPF Bank, the PFI makes customary representations and warranties in the PFI Agreement and under the MPF Guides that includes eligibility and conformance of the MPF Loans with the requirements in the MPF Guides, compliance with predatory lending laws and the integrity of the data transmitted to the MPF Provider. Once an MPF Loan is funded or purchased, the PFI must deliver a qualifying promissory note and certain other required documents to the designated custodian, who reports to the MPF Provider whether the documentation package matches the funding information transmitted to the MPF Provider and otherwise meets MPF Program requirements.

In the role of the MPF Provider, the FHLBank of Chicago conducts an initial quality assurance review of a selected sample of MPF Loans from each PFI’s initial MPF Loan delivery. Thereafter, it performs periodic reviews of a sample of MPF Loans to determine whether the reviewed MPF Loans complied with the MPF Program requirements at the time of acquisition. Any exception that indicates a negative trend is discussed with the PFI and can result in the suspension or termination of a PFI’s ability to deliver new MPF Loans if the concern is not adequately addressed.

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When a PFI fails to comply with the requirements of the PFI Agreement, MPF Guides, applicable law or terms of mortgage documents, the PFI may be required to provide an indemnification covering related losses or to repurchase the MPF Loans which are impacted by such failure if it cannot be cured. Reasons for which a PFI could be required to repurchase an MPF Loan may include but are not limited to MPF Loan ineligibility, breach of representation or warranty under the PFI Agreement or the MPF Guides, failure to deliver the required MPF Loan document package to an approved custodian, servicing breach or fraud.

The Bank does not currently conduct any quality assurance reviews of MPF Government Loans. However, the FHLBNY may allow PFIs to repurchase delinquent MPF Government Loans so that they may comply with loss mitigation requirements of the applicable government agency in order to preserve the insurance or guaranty coverage. The repurchase price is equal to the current scheduled principal balance and accrued interest on the MPF Government Loan. In addition, just as for conventional MPF Loans, if a PFI fails to comply with the requirements of the PFI Agreement, MPF Guides, applicable law or terms of mortgage documents, the PFI may be required to repurchase the MPF Government Loans which are impacted by such failure.

The FHLBNY has not experienced any losses related to a PFI’s failure to repurchase conventional MPF Loans or MPF Government Loans when PFIs were required to make repurchases under the terms of the MPF Guides.

MPF Products

A variety of MPF Loan products have been developed to meet the differing needs of PFIs. There are currently five MPF products that PFIs may choose from: Original MPF, MPF 100, MPF 125, MPF Plus and MPF Government. The products have different credit risk sharing characteristics based upon the different levels for the FLA and CE Amount and the types of CE Fees (performance based or fixed amount). The table below provides a comparison of the MPF products. The Bank does not offer new master commitments for the MPF 100 program.

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MPF Product Comparison Table

		PFI Credit			Servicing
		Enhancement	Credit	Credit	Fee
	MPF Bank	Size	Enhancement	Enhancement	retained
Product Name	FLA 1	Description	Fee to PFI	Fee Offset 2	by PFI
Original MPF	3 to 5 basis points/added each year based on the unpaid balance	Equivalent to “AA”	9 to 11 basis points/year — paid monthly	No	25 basis points/year
MPF 100	100 basis points fixed based on the size of the loan pool at closing	After FLA to “AA”	7 to 10 basis points/year — paid monthly; performance based after 2 or 3 years	Yes — After first 2 to 3 years	25 basis points/year
MPF 125	100 basis points fixed based on the size of the loan pool at closing	After FLA to “AA”	7 to 10 basis points/year — paid monthly; performance based	Yes	25 basis points/year
MPF Xtra	N/A	N/A	N/A	N/A	25 basis points/year
MPF Plus	Sized to equal expected losses	0-20 bps after FLA and SMI to “AA”	6 to 7 basis points/year fixed plus 6 to 7 basis points/year performance based (delayed for 1 year); all fees paid monthly	Yes	25 basis points/year
MPF Government	N/A	N/A (Unreimbursed Servicing Expenses)	N/A	N/A	44 basis points/year plus 2 basis points/year3

1	MPF Program Master Commitments participated in or held by the Bank as of December 31, 2008.
2	Future payouts of performance-based credit enhancement fees are reduced when losses are allocated to the FLA.
3	For Government Loan Master Commitments issued after February 1, 2007, only the customary 0.44% (44 basis points) per annum servicing fee is paid based on the outstanding aggregate principal balance of the MPF Government Loans.

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MPF Loan Participations

While the FHLBNY may purchase participation interests in MPF Loans from other MPF Banks and may also sell participation interests to other MPF Banks at the time MPF Loans are acquired, the FHLBNY has not purchased or sold any interest in MPF loans since July 2004. The Bank’s intent is to hold all MPF Loans for its portfolio.

The FHLBNY is responsible for evaluating, monitoring, and certifying to any participant MPF Bank the creditworthiness of each PFI initially, and at least annually thereafter. The FHLBNY is responsible for ensuring that adequate collateral is available from each of its PFIs to secure any direct obligation portion of the PFI’s CE Amount. The Bank is also responsible for enforcing the PFI’s obligations under its PFI Agreement.

Under the MPF Program, participation percentages for MPF Loans may range from 100% to be retained by the Bank to 100% participated to another MPF Bank. The participation percentages do not change during the period that a Master Commitment is open unless the MPF Banks contractually agree to change their respective shares or the Owner Bank exercised the right to require the MPF Provider to acquire 100% participation for delivery commitments for a particular day. If the specified participation percentage in a Master Commitment never changes, then the percentage for risk-sharing of losses will remain unchanged throughout the life of the Master Commitment.

The risk sharing and rights of the Owner Bank and participating MPF Bank(s) are as follows:

• each pays its respective pro rata share of each MPF Loan acquired under a Delivery Commitment and related Master Commitment based upon the participation percentage in effect at the time;

• each receives its respective pro rata share of principal and interest payments and is responsible for credit enhancement fees based upon its participation percentage for each MPF Loan under the related Delivery Commitment;

• each is responsible for its respective pro rata share of First Loss Account (“FLA”) exposure and losses incurred with respect to the Master Commitment based upon the overall risk sharing percentage for the Master Commitment; and

• each may economically hedge its share of the Delivery Commitments as they are issued during the open period.

The FLA and CE Amount apply to all the MPF Loans in a Master Commitment regardless of participation arrangements, so an MPF Bank’s share of credit losses is based on its respective participation interest in the entire Master Commitment. For example, assume a MPF Bank’s specified participation percentage was 25% under a $100 million Master Commitment and that no changes were made to the Master Commitment. The MPF Bank risk sharing percentage of credit losses would be 25%. In the case where an MPF Bank changes its initial percentage in the Master Commitment, the risk sharing percentage will also change. For example, if an MPF Bank were to acquire 25% of the first $50 million and 50% of the second $50 million of MPF Loans delivered under a Master Commitment, the MPF Bank would share in 37.5% of the credit losses in that $100 million Master Commitment, while it would receive principal and interest payments on the individual MPF Loans that remain outstanding in a given month, some in which it may own a 25% interest and the others in which it may own a 50% interest.

Effective May 2004, the FHLBNY retains 100% of loans acquired from its PFIs for its own investment.

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MPF Servicing

The PFI or its servicing affiliate generally retains the right and responsibility for servicing MPF Loans it delivers. The PFI is responsible for collecting the borrower’s monthly payments and otherwise dealing with the borrower with respect to the MPF Loan and the mortgaged property. Based on monthly reports the PFI is required to provide the master servicer, appropriate withdrawals are made from the PFI’s deposit account with the applicable MPF Bank. In some cases, the PFI has agreed to advance principal and interest payments on the scheduled remittance date when the borrower has failed to pay, provided that the collateral securing the MPF Loan is sufficient to reimburse the PFI for advanced amounts. The PFI recovers the advanced amounts either from future collections or upon the liquidation of the collateral securing the MPF Loans.

If an MPF Loan becomes delinquent, the PFI is required to contact the borrower to determine the cause of the delinquency and whether the borrower will be able to cure the default. The MPF Guides permit certain types of forbearance plans.

Upon any MPF Loan becoming 90 days or more delinquent, the master servicer monitors and reviews the PFI’s default management activities for that MPF Loan, including timeliness of notices to the mortgagor, forbearance proposals, property protection activities, and foreclosure referrals, all in accordance with the MPF Guides. Upon liquidation of any MPF Loan and submission of each realized loss calculation from the PFI, the master servicer reviews the realized loss calculation for conformity with the primary mortgage insurance requirements, if applicable, and conformity to the cost and timeliness standards of the MPF Guides. The master servicer disallows the reimbursement to the PFI of any servicing advances related to the PFI’s failure to perform in accordance with the MPF Guides. If there is a loss on a conventional MPF Loan, the loss is allocated to the Master Commitment and shared in accordance with the risk sharing structure for that particular Master Commitment. The servicer re-pays any gain on sale of real-estate owned property to the MPF Bank or, in the case of participation, to the MPF Banks based upon their respective interest in the MPF Loan. However, the amount of the gain is available to reduce subsequent losses incurred under the Master Commitment before such losses are allocated between the MPF Bank and the PFI.

The MPF Provider monitors the PFI’s compliance with MPF Program requirements throughout the servicing process and will bring any material concerns to the attention of the MPF Bank. Minor lapses in servicing are charged to the PFI. Major lapses in servicing could result in a PFI’s servicing rights being terminated for cause and the servicing of the particular MPF Loans being transferred to a new, qualified servicing PFI. In addition, the MPF Guides require each PFI to maintain errors and omissions insurance and a fidelity bond and to provide an annual certification with respect to its insurance and its compliance with the MPF Program requirements.

Although PFIs or their servicing affiliates generally service the MPF Loans delivered by the PFI, certain PFIs choose to sell the servicing rights on a concurrent basis (servicing released) or in a bulk transfer to another PFI which is permitted with the consent of the MPF Banks involved. One PFI has been designated to acquire servicing under the MPF Program’s concurrent sale of servicing option. In addition, several PFIs have acquired servicing rights on a concurrent servicing released basis or bulk transfer basis without the direct support from the MPF Program.

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Credit Enhancement Structure

Overview

The MPF Bank and PFI share the risk of credit losses on MPF Loans by structuring potential losses on conventional MPF Loans into layers with respect to each Master Commitment. The first layer or portion of credit losses that an MPF Bank is potentially obligated to incur is determined based upon the MPF Product selected by the PFI and is referred to as the “First Loss Account” (“FLA”). The FLA functions as a tracking mechanism for determining the point after which the PFI, in its role as credit enhancer, would be required to cover losses. The FLA is not a cash collateral account and does not give an MPF Bank any right or obligation to receive or pay cash or any other collateral. For MPF products with performance based credit enhancement fees (“CE Fees”), the MPF Bank may withhold CE Fees to recover losses at the FLA level essentially transferring a portion of the first layer risk of credit loss to the PFI.

The portion of credit losses that a PFI is potentially obligated to incur is referred to as its credit enhancement amount (“CE Amount”). The PFI’s CE Amount represents a direct liability to pay credit losses incurred with respect to a Master Commitment or the requirement of the PFI to obtain and pay for a supplemental mortgage guaranty insurance (“SMI”) policy insuring the MPF Bank for a portion of the credit losses arising from the Master Commitment. The PFI may procure SMI to cover losses equal to all or a portion of the CE Amount (except that losses generally classified as special hazard losses are covered by the PFI’s direct liability or the MPF Bank, not by SMI). The final CE Amount is determined once the Master Commitment is closed (i.e., when the maximum amount of MPF Loans are delivered or the expiration date has occurred). For a description of how the PFI’s CE Amount is determined, see “Credit Risk — MPF Program Credit Risk — Setting Credit Enhancement Levels.”

The PFI receives a CE Fee in exchange for providing the CE Amount which may be used to pay for SMI. CE Fees are paid monthly and are determined based on the remaining unpaid principal balance of the MPF Loans under the Master Commitment. The CE Fee and CE Amount may vary depending on the MPF product selected. CE Fees payable to a PFI as compensation for assuming credit risk are recorded as an offset to MPF Loan interest income when paid by the Bank. The Bank also pays performance CE Fees which are based on actual performance of the pool of MPF Loans in each Master Commitment. To the extent that losses in the current month exceed performance CE Fees accrued, the remaining losses may be recovered from withholding future performance CE Fees payable to the PFI.

Loss Allocation

Credit losses on conventional MPF Loans not absorbed by the borrower’s equity in the mortgaged property, property insurance or primary mortgage insurance are allocated between the MPF Bank and PFI as follows:

• First, to the MPF Bank, up to an agreed upon amount, called a First Loss Account.

Original MPF. The FLA starts out at zero on the day the first MPF Loan under a Master Commitment is purchased but increases monthly over the life of the Master Commitment at a rate that ranges from 0.03% to 0.05% (3 to 5 basis points) per annum based on the month end outstanding aggregate principal balance of the Master Commitment. The FLA is structured so that over time, it should cover expected losses on a Master Commitment, though losses early in the life of the Master Commitment could exceed the FLA and be charged in part to the PFI’s CE Amount.

MPF 100 and MPF 125. The FLA is equal to 1.00% (100 basis points) of the aggregate principal balance of the MPF Loans funded under the Master Commitment. Once the Master Commitment is fully funded, the FLA is expected to cover expected losses on that Master Commitment, although the MPF Bank may economically recover a portion of losses incurred under the FLA by withholding performance CE Fees payable to the PFI.

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MPF Plus. The FLA is equal to an agreed upon number of basis points of the aggregate principal balance of the MPF Loans funded under the Master Commitment that is not less than the amount of expected losses on the Master Commitment. Once the Master Commitment is fully funded, the FLA is expected to cover expected losses on that Master Commitment, although the MPF Bank may economically recover a portion of losses incurred under the FLA by withholding performance CE Fees payable to the PFI.

• Second, to the PFI under its credit enhancement obligation, losses for each Master Commitment in excess of the FLA, if any, up to the CE Amount. The CE Amount may consist of a direct liability of the PFI to pay credit losses up to a specified amount, a contractual obligation of the PFI to provide SMI or a combination of both. For a description of the CE Amount calculation see “Setting Credit Enhancement Levels,” below.

• Third, any remaining unallocated losses are absorbed by the MPF Bank.

With respect to participation interests, MPF Loan losses allocable to the MPF Bank are allocated amongst the participating MPF Banks pro ratably based upon their respective participation interests in the related Master Commitment. For a description of the risk sharing by participant MPF Banks see “MPF Program — MPF Loan Participations.”

Setting Credit Enhancement Levels

Finance Board regulations require that MPF Loans be sufficiently credit enhanced so that our risk of loss is limited to the losses of an investor in an “AA” rated mortgage-backed security, unless the Bank maintains additional retained earnings in addition to a general allowance for losses. The MPF Provider also analyzes the risk characteristics of each MPF Loan (as provided by the PFI) using S&P’s LEVELS^® model in order to determine the required CE Amount for a loan or group of loans to be funded or acquired by an MPF Bank (“MPF Program Methodology”). The PFI’s CE Amount (including the SMI policy for MPF Plus) is calculated using the MPF Program Methodology to equal the difference between the amount needed for the Master Commitment to have a rating equivalent to a “AA” rated mortgage-backed security and our initial FLA exposure (which is zero for the Original MPF product). The FHLBNY determines the FLA exposure by taking the initial FLA and reducing it by the estimated value of any performance based CE Fees that would be payable to the PFI.

For MPF Plus, the PFI is required to provide an SMI policy covering the MPF Loans in the Master Commitment and having a deductible initially equal to the FLA. Depending upon the amount of the SMI policy (determined in part by the amount of the CE Fees paid to the PFI), the PFI may or may not have any direct liability on the CE Amount.

The Bank will recalculate the estimated credit rating of a Master Commitment if there is evidence of a decline in credit quality of the related MPF Loans.

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Credit Enhancement Fees

The structure of the CE Fee payable to the PFI depends upon the product type selected. For Original MPF, the PFI is paid a monthly CE Fee between 0.09% and 0.11% (9 to 11 basis points) per annum and paid monthly based on the aggregate outstanding principal balance of the MPF Loans in the Master Commitment.

For MPF 100 and MPF 125, the PFI is paid a monthly CE Fee between 0.07% and 0.10% (7 and 10 basis points) per annum and paid monthly on the aggregate outstanding principal balance of the MPF Loans in the Master Commitment. The PFI’s monthly CE Fee is performance based in that it is reduced by losses charged to the FLA. For MPF 100, the CE Fee is fixed for the first two or three years of a Master Commitment and thereafter becomes performance based. For MPF 125, the CE Fee is performance based for the entire life of the Master Commitment.

For MPF Plus, the performance based portion of the CE Fee is typically between 0.06% and 0.07% (6 and 7 basis points) per annum and paid monthly on the aggregate outstanding balance of the MPF Loans in the Master Commitment. The performance based CE Fee is reduced by losses charged to the FLA and is paid one year after accrued based on monthly outstanding balances. The fixed portion of the CE Fee is typically 0.07% (7 basis points) per annum and paid monthly on the aggregate outstanding principal balance of the MPF Loans in the Master Commitment. The lower performance CE Fee is for Master Commitments without a direct PFI CE amount.

Only MPF Government Loans are eligible for sale under the MPF Government Product. The PFI provides and maintains insurance or a guaranty from the applicable federal agency (i.e., the FHA, VA, RHS or HUD) for MPF Government Loans and the PFI is responsible for compliance with all federal agency requirements and for obtaining the benefit of the applicable insurance or guaranty with respect to defaulted MPF Government Loans. Monthly, the PFI receives the customary 0.44% (44 basis points) per annum servicing fee that is retained by the PFI on a monthly basis based on the outstanding aggregate principal balance of the MPF Loans. In addition, for Master Commitments issued prior to February 1, 2007, the PFI is paid a monthly government loan fee equal to 0.02% (2 basis points) per annum based on the month end outstanding aggregate balance of the Master Commitment. Only PFIs that are licensed or qualified to originate and service Government loans by the applicable federal agency or agencies and that maintain a mortgage loan delinquency ratio that is acceptable to the Bank and that is comparable to the national average and/or regional delinquency rates as published by the Mortgage Bankers Association are eligible to sell and service MPF Government Loans under the MPF Program.

Credit Risk Exposure on MPF Loans

The Bank’s credit risk on MPF Loans is the potential for financial loss due to borrower default and depreciation in the value of the real estate collateral securing the MPF Loan, offset by the PFI’s credit enhancement protection. Under the MPF Program, the PFI’s credit enhancement protection (“CEP Amount”) may take the form of a contingent performance based CE Fee whereby such fees are reduced by losses up to a certain amount arising under the Master Commitment and the CE Amount (which represents a direct liability to pay credit losses incurred with respect to that Master Commitment or may require the PFI to obtain and pay for an SMI policy insuring the MPF Bank for a portion of the credit losses arising from the Master Commitment). Under the AMA Regulation, any portion of the CE Amount that is a PFI’s direct liability must be collateralized by the PFI in the same way that advances are collateralized. The PFI Agreement provides that the PFI’s obligations under the PFI Agreement are secured along with other obligations of the PFI under its regular advances agreement and further, that the FHLBNY may request additional collateral to secure the PFI’s obligations.

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The Bank also faces credit risk of loss on MPF Loans to the extent such losses are not recoverable from the PFI either directly or indirectly through performance based CE Fees, or from an SMI insurer, as applicable. However, because the typical MPF Loan to value ratio is less than 100% and PMI covers loan to value ratios in excess of 80%, a significant decline in value of the underlying property would have to occur before the Bank is exposed to credit losses.

Correspondent Banking Services

The FHLBNY offers its members an array of correspondent banking services, including depository services, wire transfers, settlement services, and safekeeping services. Depository services include processing of customer transactions in “Overnight Investment Accounts”, the interest-bearing demand deposit account each customer has with the FHLBNY. All customer-related transactions (e.g., deposits, Federal Reserve Bank settlements, advances, securities transactions, and wires) are posted to these accounts each business day. Wire transfers include processing of incoming and outgoing domestic and foreign wire transfers, including third-party transfers. Settlement services include automated clearinghouse and other transactions received through the FHLBNY’s accounts at the Federal Reserve Bank as correspondent for its members and passed through to customers’ Overnight Investment Accounts at the FHLBNY. Through a third party, the FHLBNY offers customers a range of securities custodial services, such as settlement of book entry (electronically held) and physical securities. The FHLBNY encourages members to access these products through 1Link^sm, an Internet-based delivery system developed as a proprietary service by the FHLBNY. Members access the 1Link system to obtain account activity information or process wire transfers, book transfers, security safekeeping and advance transactions.

Affordable Housing Program and Other Mission Related Programs

Federal Housing Finance Agency regulation Part 952.5 (a) (“Community Investment Cash Advance Programs”) states in general that each FHLBank shall establish an Affordable Housing Program in accordance with part 951, and a Community Investment Program. As more fully discussed under the section “Assessments” in this Form 10-K, annually, the 12 FHLBanks, including the FHLBNY, must set aside for the Affordable Housing Program the greater of $100 million or 10 percent of regulatory defined net income.

The FHLBank may also offer a Rural Development Advance program, an Urban Development Advance program, and other Community Investment Cash Advance programs.

Affordable Housing Program (“AHP”). The FHLBNY meets this requirement by allocating 10 percent of its previous year’s regulatory defined net income to its Affordable Housing Program each year. The Affordable Housing Program helps members of the FHLBNY meet their Community Reinvestment Act responsibilities. The program gives members access to cash grants and subsidized, low-cost funding to create affordable rental and home ownership opportunities, including first-time homebuyer programs. Within each year’s AHP allocation, the FHLBNY has established a set-aside program for first-time homebuyers called the First Home Club^sm. A total of 15% of each AHP allocation has been set aside for this program. Household income qualifications for the First Home Club are the same as for the competitive AHP. Qualifying households can receive matched funds at a 4:1 ratio, up to $7,500, as closing cost and/or down payment assistance. Households are also required to attend counseling seminars that address personal budgeting and home ownership skills training.

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Other Mission Related Activities. The Community Investment Program (“CIP”), Rural Development Advance, and Urban Development Advance are community-lending programs that provide additional support to members in their affordable housing and economic development lending activities. These community-lending programs support affordable housing and economic development activity within low- and moderate-income neighborhoods and other activities that benefit low- and moderate-income households. Through the Community Investment Program, Rural Development Advance, and Urban Development Advance programs, the FHLBNY provides reduced-interest-rate advances to members for lending activity that meets the program requirements. The FHLBNY also provides letters of credit (“Letters of Credit”) in support of projects that meet the CIP, Rural Development Advance, and Urban Development Advance program requirements. These project-eligible Letters of Credit are offered at reduced fees. Providing community lending programs (Community Investment Project, Rural Development Advance, Urban Development Advance, and Letters of Credit) at advantaged pricing that is discounted from the FHLBNY’s market interest rates and fees represents an additional income allocation in support of affordable housing and community economic development efforts. In addition, overhead costs and administrative expenses associated with the implementation of the FHLBNY’s Affordable Housing and community lending programs are absorbed as general operating expenses and are not charged back to the AHP allocation. The foregone interest and fee income, as well as the administrative and operating costs are above and beyond the annual income contribution to the AHP Loans offered under these programs, are accounted for on their contractual terms consistent with standard accounting practices and no separate benefits are recorded.

Investments

The FHLBNY maintains portfolios of investments to provide additional earnings and for liquidity purposes. Investment income also bolsters the FHLBNY’s capacity to fund Affordable Housing Program projects, to cover operating expenditures, and to satisfy the Resolution Funding Corporation (REFCORP) assessment. To help ensure the availability of funds to meet member credit needs, the FHLBNY maintains a portfolio of short-term investments issued by highly-rated financial institutions. The investments include overnight Federal funds, term Federal funds, interest-bearing deposits, and certificates of deposit. The FHLBNY further enhances interest income by holding long-term investments classified as held-to-maturity, and investments classified as available-for-sale. These portfolios primarily consist of mortgage-backed securities issued by government-sponsored mortgage enterprises and U.S. government agencies. The FHLBNY’s securities portfolio also includes a smaller portfolio of privately issued mortgage-backed and residential asset-backed securities, which were primarily acquired prior to 2004. Investments in mortgage-backed securities must carry, at the time of acquisition, the highest credit ratings from Moody’s Investors Service (“Moody’s”) or Standard & Poor’s (“S&P”). The FHLBNY also has investments in housing-related obligations of state and local governments and their housing finance agencies, which are required to carry ratings of AA or higher at time of acquisition. Housing-related obligations help to liquefy mortgages that finance low- and moderate-income housing. The long-term investment portfolio generally provides the FHLBNY with higher returns than those available in the short-term money markets. For more information about investments, see section Asset Quality and Concentration — Advances, Investment securities, and Mortgage Loans, in this MD&A.

The FHLBNY is prohibited from investing in certain types of securities, including:

• Instruments such as common stock that represent ownership in an entity. Exceptions include stock in small business investment companies and certain investments targeted at low-income persons or communities;

• Instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks; and

• Non-investment-grade debt instruments. Exceptions include certain investments targeted at low-income persons or communities and instruments that were downgraded after purchase.

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The FHLBNY also limits the book value of the FHLBNY’s investments in mortgage-backed and residential asset-backed securities, collateralized mortgage obligations (“CMOs”), Real Estate Mortgage Investment Conduits “REMICs”), and other eligible asset-backed securities, collectively mortgage-backed securities or “MBS”, to not exceed 300% of the Bank’s previous month-end capital on the day it purchases the securities. At the time of purchase, all securities purchased must carry the highest rating assigned by Moody’s or S&P.

The FHLBNY is prohibited from purchasing:

• Interest-only or principal-only stripped mortgage-backed securities;

• Residual-interest or interest-accrual classes of collateralized mortgage obligations (CMOs) and real estate mortgage investment conduits (REMICs);

• Fixed-rate or floating-rate mortgage-backed securities that, on the trade date are at rates equal to their contractual caps and whose average lives vary by more than six years under an assumed instantaneous interest rate change of 300 basis points; and

• Non-U.S. dollar denominated securities.

Debt Financing — Consolidated Obligations

The primary source of funds for the FHLBNY is the sale of debt securities, known as consolidated obligations, in the U.S. and Global capital markets. Consolidated obligations are the joint and several obligations of the FHLBanks, backed only by the financial resources of the twelve FHLBanks. Consolidated obligations are not obligations of the United States, and the United States does not guarantee them. Consolidated obligations are currently rated Aaa/P-1 by Moody’s and AAA/ A-1+ by S&P. These are the highest ratings available for such debt from a Nationally Recognized Statistical Rating Organization (NRSRO). These ratings indicate that the FHLBanks have an extremely strong capacity to meet their commitments to pay principal and interest on consolidated obligations and that the consolidated obligations are judged to be of the highest quality with minimal credit risk. The ratings on the FHLBanks’ consolidated obligations also reflect the FHLBank System’s status as a government-sponsored enterprise (GSE). These ratings have not been affected by rating actions taken with respect to individual FHLBanks. The FHLBNY is also currently rated Aaa/P-1 by Moody’s and AAA/ A-1+ by S&P. Investors should note that a rating issued by an NRSRO is not a recommendation to buy, sell or hold securities and that the ratings may be revised or withdrawn by the NRSRO at any time. Investors should evaluate the rating of each NRSRO independently.

At December 31, 2008 and 2007, the par amounts of consolidated obligations outstanding, bonds and discount notes, for all 12 FHLBanks aggregated $1,251.5 billion and $1,189.7 billion. In comparison, the par amounts of the FHLBNY’s consolidated obligations outstanding at December 31, 2008 and 2007 aggregated $127.4 billion and $101.0 billion.

Although the FHLBNY is primarily liable for its portion of consolidated obligations (i.e., those issued on its behalf), the FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. If the principal or interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when due, the following rules apply: the FHLBNY may not pay dividends to, or redeem or repurchase shares of stock from, any member or non-member stockholder until the Finance Agency, the regulator of the FHLBanks, approves the FHLBNY’s consolidated obligation payment plan or other remedy and until the FHLBNY pays all the interest or principal currently due under all its consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations.

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To the extent that a FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from the non-complying FHLBank. However, if the Finance Agency determines that the non-complying FHLBank is unable to make the payment, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks in proportion to each FHLBank’s participation in all consolidated obligations outstanding or on any other basis determined by the Finance Agency.

Finance Agency regulations state that the FHLBanks must maintain, free from any lien or pledge, the following types of assets in an amount at least equal to the face amount of consolidated obligations outstanding:

• Cash;

• Obligations of, or fully guaranteed by, the United States;

• Secured advances;

• Mortgages that have a guaranty, insurance, or commitment from the United States or any agency of the United States;

• Investments described in section 16(a) of the FHLBank Act, including securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located; and

• Other securities that are rated Aaa by Moody’s or AAA by Standard & Poor’s.

The FHLBanks issue consolidated obligations through the Office of Finance (“OF”, or the “Office of Finance”), which has authority to issue joint and several debt on behalf of the FHLBanks. Consolidated obligations are distributed through dealers selected by the OF using various methods including competitive auction and negotiations with individual or syndicates of underwriters. Some debt issuance is in response to specific inquiries from underwriters. Many consolidated obligations are issued with the FHLBank concurrently entering into derivatives agreements, such as interest rate swaps. To facilitate issuance, the Office of Finance may coordinate communication between underwriters, individual FHLBanks, and financial institutions executing derivative agreements with the FHLBanks.

Issuance volume is not concentrated with any particular underwriter.

The Office of Finance may reject the FHLBNY’s request, and the requests of other FHLBanks, to raise funds through the issuance of consolidated obligations on particular terms and conditions if the Office of Finance determines that its action is consistent with its Finance Agency’s mandated policies that require consolidated obligations to be issued efficiently and at the lowest all-in cost of funds over time. The FHLBNY has never been denied access under this policy for all periods reported.

The Office of Finance also services all outstanding debt; provides the FHLBanks with rating information received from Nationally Recognized Statistical Rating Organizations (“NRSROs”) for counterparties to which the FHLBanks have unsecured credit exposure; serves as a source of information for the FHLBanks on capital market developments; administers the Resolution Funding Corporation and the Financing Corporation; and manages the FHLBanks’ relationship with the rating agencies with respect to the consolidated obligations.

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Consolidated obligation Bonds. Consolidated obligation bonds satisfy the FHLBNY’s long-term funding requirements. Typically, the maturity of these securities ranges from one to ten years, but the maturity is not subject to any statutory or regulatory limit. Consolidated obligation bonds can be fixed or adjustable rate and callable or non-callable. Consolidated obligation bonds can be issued and distributed through negotiated or competitively bid transactions with underwriters approved by the Office of Finance or members of a selling group.

The FHLBanks also conduct the TAP Issue Program for fixed-rate, non-callable bonds. This program combines bond issues with specific maturities by reopening these issues daily during a three-month period through competitive auctions. The goal of the TAP program is to aggregate frequent smaller issues into a larger bond issue that may have greater secondary market liquidity. The FHLBanks also participate in the “Global Issuances Program.” The Global Issuance Program commenced in 2002 through the Office of Finance with the objective of providing funding to FHLBanks at lower interest costs than consolidated bonds issued through the TAP program because issuances occur less frequently, are larger in size, and are placed by dealers to investors via a syndication process.

Consolidated obligation Discount Notes. Consolidated obligation discount notes provide the FHLBNY with short-term funds. These notes have maturities of up to one year and are offered daily through a dealer-selling group. The notes are sold at a discount from their face amount and mature at par.

On a daily basis, FHLBanks may request that specific amounts of discount notes with specific maturity dates be offered by the Office of Finance for sale through the dealer-selling group. One or more other FHLBanks may also request that amounts of discount notes with the same maturities be offered for sale for their benefit on the same day. The Office of Finance commits to issue discount notes on behalf of the participating FHLBanks when dealers submit orders for the specific discount notes offered for sale. The FHLBanks receive funding based on the time of the request, the rate requested for issuance, and the trade settlement, and maturity dates. If all terms of the request are the same except for the time of the request, then a FHLBank may receive from zero to 100 percent of the proceeds of the sale of the discount notes issued depending on: the time of the request; the maximum costs the FHLBank or other FHLBanks, if any, participating in the same issuance of discount notes are willing to pay for the discount notes; and the amount of orders for the discount notes submitted by dealers.

Twice weekly, FHLBanks may also request that specific amounts of discount notes with fixed maturity dates ranging from 4 to 26 weeks be offered by the Office of Finance through a competitive auction conducted with securities dealers in the discount note selling group. One or more of the FHLBanks may also request that amounts of those same discount notes be offered for sale for their benefit through the same auction. The discount notes offered for sale through competitive auction are not subject to a limit on the maximum costs the FHLBanks are willing to pay. The FHLBanks receive funding based on their requests at a weighted average rate of the winning bids from the dealers. If the bids submitted are less than the total of the FHLBanks’ requests, a FHLBank receives funding based on that FHLBank’s capital relative to the capital of other FHLBanks offering discount notes.

Regardless of the method of issuance, the Office of Finance can only issue consolidated obligations when an FHLBank provides a request for and agrees to accept the funds.

Deposits

The FHLBank Act allows the FHLBNY to accept deposits from its members, and other FHLBanks and government instrumentalities. For the FHLBNY, member deposits are also a source of funding, but the FHLBNY does not rely on member deposits to meet its funding requirements. For members, deposits are a low-risk earning asset that may satisfy their regulatory liquidity requirements. The FHLBNY offers several types of deposit programs to its members, including demand and term deposits.

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Retained Earnings and Dividends

The FHLBNY’s Board of Directors adopted the Retained Earnings and Dividend Policy in order to: (1) establish a process to assess the adequacy of retained earnings in view of the Bank’s assessment of the financial, economic and business risks inherent in its operations; (2) establish the priority of contributions to retained earnings relative to other distributions of income; (3) establish a target level of retained earnings and a timeline to achieve the target; and (4) establish a process to ensure maintenance of appropriate levels of retained earnings. The objective of the Retained Earnings and Dividend Policy is to preserve the value of the members’ investment in the Bank.

The FHLBNY may pay dividends from retained earnings and current income. The FHLBNY’s Board of Directors may declare and pay dividends in either cash or capital stock. Dividends and the dividend policy of the FHLBNY are subject to Finance Agency regulations and policies.

To preserve the value of the members’ investments, the level of retained earnings should be sufficient to: (1) protect the members’ paid in capital from losses related to market, credit, operational, and other risks (including legal and accounting) within a defined confidence level under normal operating conditions; and (2) provide members with a predictable dividend stream. The FHLBNY’s level of retained earnings should provide management with a high degree of confidence that reasonably foreseeable losses will not impair paid in capital thereby preserving the par value of the stock, and to supplement dividends when current earnings are low or losses occur.

As of December 31, 2008 and 2007, management determined that the amounts of retained earnings necessary to achieve the objectives based on the risk profile of the FHLBNY’s balance sheet were $212.2 million and $159.2 million. Actual unrestricted retained earnings as of December 31, 2008 and 2007 were $382.9 million and $418.3 million. Management has not determined at this time its expected dividend payout ratios in 2009. Management is also in the process of re-evaluating the retained earnings target due to prevailing market conditions. The new methodology is likely to establish a higher retained earnings target.

The Retained Earnings and Dividend Policy establishes a dividend payout after determining a retained earnings target amount, based on an assessment methodology approved by the Board of Directors, that reasonably identifies and quantifies all material risks faced by the FHLBNY. The final dividend payout is subject to Board of Directors’ approval and the applicable Finance Agency regulations.

The following table summarizes the impact of dividends on the FHLBNY’s retained earnings for the years ended December 31, 2008, 2007, and 2006 (in thousands):

	2008			2007			2006
Retained earnings, beginning of year	$	418,295		$	368,688		$	291,413
Net Income for the year		259,060			323,105			285,195
		677,355			691,793			576,608
Dividend paid in the year 1		(294,499	)		(273,498	)		(207,920	)
Retained earnings, end of year	$	382,856		$	418,295		$	368,688

¹ Dividends are not accrued at quarter end; they are declared and paid in the month following the end of the quarter.

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Competition

Demand for advances is affected by, among other things, the availability to members of other sources of liquidity, including retail deposits, and the cost of those other sources. Because members generally grow their balance sheets at a faster pace than they grow retail deposits and capital, the FHLBNY competes with other suppliers of wholesale funding, both secured and unsecured, to fill the members’ potential funding gaps. Such other suppliers of funding may include investment banking firms and commercial banks. Certain members may have access to alternative wholesale funding sources such as through lines of credit, wholesale CD programs, and sales of securities under agreements to repurchase. Large members may also have independent access to the national and global credit markets. The availability of alternative funding sources can vary as a result of market conditions, member creditworthiness, and availability of collateral as well as other factors.

The FHLBNY competes for funds raised through the issuance of unsecured debt in the national and global debt markets. Competitors include Federal National Mortgage Association “Fannie Mae”, Federal Home Loan Mortgage Corp. “Freddie Mac” and other Government Sponsored Enterprises, as well as corporate, sovereign, and supranational entities. The FHLBanks have begun to face competition from several government programs created in light of the credit crisis, which have provided competitive alternatives to their members, including the Troubled Asset Relief Program (TARP), the Federal Reserve’s Term Auction Facility, and the Temporary Liquidity Guarantee Program (TLGP). Increases in the supply of competing debt products could, in the absence of increases in demand, result in higher debt costs or lesser amounts of debt issued at the same cost than otherwise would be the case. In addition, the availability and the cost of funds can be adversely affected by regulatory initiatives that could reduce demand for Federal Home Loan Bank system debt. Although the available supply of funds has kept pace with the funding needs of the FHLBNY’s members, there can be no assurance that this will continue to be the case indefinitely.

The FHLBNY competes for the purchase of mortgage loans held-for-portfolio. For single-family products, the FHLBNY competes primarily with the Fannie Mae and Freddie Mac. The FHLBNY competes primarily on the basis of price, products, structures, and services offered.

In addition, the sale of callable debt and the simultaneous execution of callable derivatives that mirror the debt have been an important source of competitively priced funding for the FHLBNY. Therefore, the liquidity of markets for callable debt and derivatives are an important determinant of the FHLBNY’s relative cost of funds. There is considerable competition among high credit quality issuers in the markets for callable debt and derivatives. There can be no assurance that the current breadth and depth of these markets will be sustained.

Competition among the twelve member banks of the Federal Home Loan Bank system (“FHLBanks”) is limited. A member bank holding company with multiple banking charters may operate in multiple Federal Home Loan Bank districts. If the member has a centralized treasury function, it is possible that there could be competition for advances. A limited number of financial institutions who are members of the FHLBNY are part of bank holding companies with multiple charters, and could therefore be affiliated with other FHLBanks. The FHLBNY does not believe that the amount of advances borrowed, or the amount of capital stock held, is material in the context of its competitive environment. Certain large member financial institutions, operating in the FHLBNY’s district may borrow unsecured Federal funds from other FHLBanks. The FHLBNY is not prohibited by regulation from purchasing short-term investments from its members. However, the FHLBNY’s current practice is not to permit members to borrow unsecured funds from the FHLBNY. Therefore the FHLBNY does not compete with other FHLBanks in the unsecured Federal funds market.

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An indirect but growing source of competition is the acquisition of a FHLBNY member bank by a member of another FHLBank. Under Finance Agency regulations, the acquired member is no longer a member of the FHLBNY and cannot borrow additional funds from the FHLBNY. In addition, the non-member may not renew advances when they mature. Former members of the FHLBNY, who by virtue of being acquired attained non-member status, had advances borrowed and outstanding of $2.7 billion and $3.3 billion at December 31, 2008 and 2007. Such non-members also held capital stock, which was reported as Mandatorily redeemable capital stock of $143.1 million and $238.6 million at December 31, 2008 and 2007 and classified as a liability in the Statements of Condition.

Oversight, Audits, and Examinations

The FHLBNY is supervised and regulated by the Federal Housing Finance Agency (“Finance Agency”), which was created on July 30, 2008, when the President signed into law the Housing and Economic Recovery Act of 2008. The Act created a regulator with all of the authorities necessary to oversee vital components of our country’s secondary mortgage markets — Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. In addition, this law combined the staffs of the Office of Federal Housing Enterprise Oversight (OFHEO), the Federal Housing Finance Board (FHFB), and the GSE mission office at the Department of Housing and Urban Development (HUD). The establishment of FHFA will promote a stronger, safer U.S. housing finance system, affordable housing and community investment through safety and soundness oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. James B. Lockhart III, is the Director (CEO) and Chairman of the Oversight Board of the Federal Housing Finance Agency, regulator of Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. He assumed that position with the signing of the Housing and Economic Recovery Act on July 30, 2008. He was the Director of OFHEO, which is now part of FHFA. He was nominated by President Bush to that position and confirmed by the Senate in June 2006.

The FHLBNY is required to comply with the rules, regulations, guidelines, and orders issued under the Federal Housing Enterprises Financial Safety and Soundness Act Housing Act and the FHLBank Act. The FHLBNY also carries out its statutory mission only through activities that are authorized under and consistent with the Federal Housing Enterprises Financial Safety and Soundness Act Housing Act and the FHLBank.

The Government Corporation Control Act provides that, before a government corporation may issue and offer obligations to the public, the Secretary of the Treasury shall: prescribe the form, denomination, maturity, interest rate, and conditions of the obligations; the way and time issued; and the selling price. The U.S. Department of the Treasury receives the Finance Agency’s annual report to Congress, monthly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks.

The FHLBNY has an internal audit department; the FHLBNY’s Board of Directors has an Audit Committee; an independent registered public accounting firm audits the annual financial statements of the FHLBNY. The independent registered public accounting firm conducts these audits following auditing standards established by the Public Company Accounting Oversight Board (United States). The FHLBanks, the Finance Agency, and Congress all receive the audit reports. The FHLBNY must also submit annual management reports to Congress, the President, the Office of Management and Budget, and the Comptroller General. These reports include: Statements of financial condition, operations, and cash flows; a Statement of internal accounting and administrative control systems; and the Report of the independent registered public accounting firm on the financial statements and internal controls over financial reporting.

The Comptroller General has authority under the FHLBank Act to audit or examine the Finance Agency and the FHLBanks, including the FHLBNY, and to decide the extent to which they fairly and effectively fulfill the purpose of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of the FHLBNY’s financial statements conducted by a registered independent public accounting firm. If the Comptroller General conducts such a review, then he or she must report the results and provide his or her recommendations to Congress, the Office of Management and Budget and the FHLBNY. The Comptroller General may also conduct his or her own audit of any financial statements of the FHLBNY.

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Personnel

As of December 31, 2008 the FHLBNY had 247 full-time and 4 part-time employees. At December 31, 2007, there were 238 full-time and 8 part-time employees. The employees are not represented by a collective bargaining unit, and the FHLBNY considers its relationship with its employees to be good.

Tax Status

The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for local real estate tax.

Assessments

Resolution Funding Corporation (“REFCORP”) Assessments. Although the FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax, it is required to make payments to REFCORP.

REFCORP was established by Act of Congress in 1989 to help facilitate the U.S. government’s bailout of failed financial institutions. The REFCORP assessments are used by the Treasury to pay a portion of the annual interest expense on long-term obligations issued to finance a portion of the cost of the bailout. Principal on those long-term obligations will be paid from a segregated account containing zero-coupon U.S. government obligations, which were purchased using funds that Congress directed the FHLBanks to provide for that purpose.

Each FHLBank is required to make payments to REFCORP (20% of annual GAAP net income after payment of AHP assessments) until the total amount of payments actually made is equivalent to a $300.0 million annual annuity whose final maturity date is April 15, 2030. The Regulator will shorten or lengthen the period during which the FHLBanks must make payments to REFCORP depending on actual payments relative to the referenced annuity. In addition, the Regulator, in consultation with the U.S. Secretary of the Treasury, selects the appropriate discounting factors used in calculating the annuity.

The REFCORP assessment of the FHLBanks was a negative $99.0 million (cash payment of $35.0 million) for the fourth quarter of 2008 and $210.0 million (cash payment of $209.0 million) for the fourth quarter of 2007. The REFCORP assessment of the FHLBanks was $412.0 million (cash payment of $611.0 million) for 2008 and $704.0 million (cash payment of $703.0 million) for 2007. The cash payments are made based on preliminary GAAP net income amounts due to the timing requirement of the payment. Any FHLBank with a net loss for a quarter is not required to pay the REFCORP assessment for that quarter. As specified in the applicable regulation that implements section 607 of the Gramm-Leach-Bliley Act of 1999 (GLB Act), the amount by which the REFCORP payment for any quarter exceeds the $75.0 million benchmark payment is used to simulate the purchase of zero-coupon U.S. Treasury bonds to “defease” all or a portion of the most-distant remaining quarterly benchmark payment. The defeased benchmark payments (or portions thereof) can be reinstated if future actual REFCORP payments fall short of the $75.0 million benchmark in any quarter. The $40.0 million by which the fourth quarter 2008 REFCORP payment fell short of the $75.0 million quarterly benchmark, along with the $182.0 million of credits due to FHLBanks that overpaid their 2008 annual REFCORP assessment, reinstated the $49.0 million defeasance of the benchmark payment due on July 15, 2012, the defeasance of the entire benchmark payments due on October 15, 2012 and January 15, 2013, and the defeasance of $32.0 million of the benchmark payment due on April 15, 2013.

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As a result of both the $40.0 million by which the fourth quarter 2008 REFCORP payment fell short of the $75 million quarterly benchmark and the $182.0 million of credits due to FHLBanks that overpaid their 2008 annual REFCORP assessment, the overall period during which the FHLBanks must continue to make quarterly payments was extended to April 15, 2013, effective at December 31, 2008, from July 15, 2012, effective at September 30, 2008. This date assumes that the FHLBanks will pay exactly $300.0 million annually after December 31, 2008 until the annuity is fully satisfied. This compares to the outside date of October 15, 2013, effective at December 31, 2007, based on REFCORP payments made through 2007.

The following table summarizes assessments due from the 12 FHLBanks to REFCORP (dollars in millions):

	REFCORP Reinstatement Summary
	For the Fourth Quarter 2008 Payment
				Interest Rate Used
	Amount of			To Discount the			Present Value OF
	Benchmark Payment			Future Benchmark			Benchmark Payment
	Reinstated			Payment			Reinstated
Payment Due Date
July 15, 2012	$	(49	)		0.98	%	$	(47	)
October 15, 2012		(75	)		1.06	%		(72	)
January 15, 2013		(75	)		1.03	%		(72	)
April 15, 2013 (most distant remaining payment)		(32	)		1.15	%		(31	)
Total	$	(231	)				$	(222	)

The cumulative amount to be paid to REFCORP by the FHLBNY is not determinable at this time because it depends on the future earnings of all FHLBanks and interest rates. If the FHLBNY experienced a net loss during a quarter, but still had net income for the year, the Bank’s obligation to the REFCORP would be calculated based on the Bank’s full year net income. If the FHLBNY had net income in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the FHLBNY experienced a net loss for a full year, the FHLBNY would have no obligation to the REFCORP for the year.

Affordable Housing Program (“AHP” or “Affordable Housing Program”) Assessments. Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the AHP the greater of $100.0 million or 10 percent of regulatory net income. Regulatory net income is defined as GAAP net income before interest expense related to mandatorily redeemable capital stock under Statement of Financial Accounting Standard No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”) and the assessment for Affordable Housing Program, but after the assessment for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. The FHLBNY accrues the AHP expense monthly.

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The FHLBNY charges the amount set aside for Affordable Housing Program to income and recognizes the amounts set aside as a liability. The Bank relieves the AHP liability as members use subsidies. In periods where the FHLBNY’s regulatory income before Affordable Housing Program and REFCORP is zero or less, the amount of AHP liability is equal to zero, barring application of the following. If the result of the aggregate 10 percent calculation described above is less than $100 million for all 12 FHLBanks, then the Act requires the shortfall to be allocated among the FHLBanks based on the ratio of each FHLBank’s income before Affordable Housing Program and REFCORP to the sum of the income before Affordable Housing Program and REFCORP of the 12 FHLBanks. There was no shortfall in the years ended 2008, 2007, or 2006.

ITEM 1A. RISK FACTORS

The following risk factors along with all of the other information set forth in this Annual Report on Form 10-K, including the financial statements and accompanying notes, should be considered. If any of the events or developments described in this section were to occur, the business, financial condition or results of operations could be adversely affected.

The financial crises in the U.S. markets and economy intensified in the third quarter of 2008 and is expected to continue in 2009 and beyond, resulting in a further decline in investor confidence. Loss of investor confidence may lead to curtailed or inconsistent purchase of FHLBank issued bonds. The FHLBNY’s primary source of funds is the sale of consolidated obligations in the capital markets. The FHLBNY’s ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, which are beyond the FHLBNY’s control. The actions taken by the U.S. government (i.e., conservatorship for Fannie Mae and Freddie Mac, AIG loan facility, guaranty program for money market mutual funds and the Troubled Asset Relief Program, and other actions), have also reduced dealer and investor sponsorship for long-term debt issued by the FHLBanks, which resulted in increased funding costs. Because of these factors the FHLBNY may not be able to obtain funding on terms consistent with the past. If the FHLBNY cannot access funding when needed on reasonable terms, its ability to support and continue operations could be adversely affected, which could negatively affect their financial condition and results of operations.

The FHLBNY’s funding depends on its ability to access the capital markets. The FHLBNY’s primary source of funds is the sale of consolidated obligations in the capital markets. The FHLBNY’s ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, which are beyond the FHLBNY’s control. Accordingly, the FHLBNY may not be able to obtain funding on acceptable terms, if at all. If the FHLBNY cannot access funding when needed on acceptable terms, its ability to support and continue operations could be adversely affected, which could negatively affect their financial condition and results of operations.

Changes in the credit ratings on FHLBank System consolidated obligations may adversely affect the cost of consolidated obligations, which could adversely affect FHLBNY’s financial condition and results of operations. FHLBank System consolidated obligations have been assigned Aaa/P-1 and AAA/A-1+ ratings by Moody’s and S&P. Rating agencies may from time to time change a rating or issue negative reports, which may adversely affect the cost of funds of one or more FHLBanks, including the FHLBNY, and the ability to issue consolidated obligations on acceptable terms. A higher cost of funds or the impairment of the ability to issue consolidated obligations on acceptable terms could also adversely affect the FHLBNY’s financial condition and results of operations.

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The FHLBNY relies upon derivative instrument transactions to reduce its interest-rate risk, and changes in its credit ratings may adversely affect its ability to enter into derivative instrument transactions on acceptable terms. The FHLBNY’s financial strategies are highly dependent on its ability to enter into derivative instrument transactions on acceptable terms to reduce its interest-rate risk. Rating agencies may from time to time change a rating or issue negative reports, which may adversely affect the FHLBNY’s ability to enter into derivative instrument transactions with acceptable parties on satisfactory terms in the quantities necessary to manage its interest-rate risk on consolidated obligations or other financial instruments. This could negatively affect the FHLBNY’s financial condition and results of operations.

The FHLBanks are governed by federal laws and regulations, which could change or be applied in a manner detrimental to the FHLBNY’s operations. The FHLBanks are government-sponsored enterprises (“GSEs”), organized under the authority of the FHLBank Act, and, as such, are governed by federal laws and regulations of the Finance Agency, an independent agency in the executive branch of the federal government. From time to time, Congress has amended the FHLBank Act in ways that have significantly affected the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency could have a negative effect on the FHLBanks’ ability to conduct business or its costs of doing business.

Changes in regulatory or statutory requirements or in their application could result in, among other things, changes in: the FHLBNY’s cost of funds; retained earnings requirements; debt issuance; dividend payment limits and the form of dividend payments; capital redemption and repurchase limits; permissible business activities; the size, scope; or nature of the FHLBNY’s lending, investment, or mortgage purchase program activities; or increased compliance costs. Changes that restrict dividend payments, the growth of the FHLBNY’s current business, or the creation of new products or services could negatively affect the FHLBNY’s results of operations and financial condition. Further, the regulatory environment affecting members could be changed in a manner that would negatively affect their ability to acquire or own an FHLBNY’s capital stock or take advantage of an FHLBNY’s products and services.

As a result of these factors, the FHLBank System may have to pay a higher rate of interest on consolidated obligations to make them attractive to investors. If the FHLBNY maintains its existing pricing on advances, the resulting increase in the cost of issuing consolidated obligations could cause the FHLBNY’s advances to be less profitable and reduce their net interest margins (the difference between the interest rate received on advances and the interest rate paid on consolidated obligations). If, in response to this decrease in net interest margin, the FHLBNY changes the pricing of its advances, the advances may no longer be attractive to its members, and outstanding advances balances may decrease. In either case, the increased cost of issuing consolidated obligations could negatively affect the FHLBNY’s financial condition and results of operations.

Changes in interest rates could significantly affect the FHLBNY’s financial condition and results of operations. The FHLBNY realizes income primarily from the spread between interest earned on its outstanding advances, investments and shareholders’ capital, and interest paid on its consolidated obligations and other liabilities. Although the FHLBNY uses various methods and procedures to monitor and manage its exposure to changes in interest rates, the FHLBNY may experience instances when either its interest-bearing liabilities will be more sensitive to changes in interest rates than interest-earning assets, or vice versa. In either case, interest rate movements contrary to the FHLBNY’s position could negatively affect its financial condition and results of operations. Moreover, the effect of changes in interest rates can be exacerbated by prepayment and extension risk, which is the risk that mortgage related assets will be refinanced by the mortgagor in low interest rate environments or will remain outstanding longer then expected at below market yields when interest rates increase.

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A loss or change of business activities with large members could adversely affect the FHLBNY’s results of operations and financial condition. Withdrawal of one or more large members from the FHLBNY’s membership could result in a reduction of the FHLBNY’s total combined assets, capital, and net income. If one or more of the FHLBNY’s large members were to prepay its advances or repay the advances as they came due and no other advances were made to replace them, it could also result in a reduction of the FHLBNY’s total combined assets, capital, and net income. The timing and magnitude of the effect of a reduction in the amount of advances would depend on a number of factors, including:

• the amount and the period over which the advances were prepaid or repaid;

• the amount and timing of any corresponding decreases in activity-based capital;

• the profitability of the advances;

• the size and profitability of the FHLBNY’s short- and long-term investments; and

• the extent to which consolidated obligations matured as the advances were prepaid or repaid.

The FHLBNY’s financial condition and results of operations could be adversely affected by FHLBNY’s exposure to credit risk. The FHLBNY’s has exposure to credit risk in that the market value of an obligation may decline as a result of deterioration in the creditworthiness of the obligor or the credit quality of a security instrument. In addition, the FHLBNY assumes secured and unsecured credit risk exposure associated with the risk that a borrower or counterparty could default and the FHLBNY could suffer a loss if it could not fully recover amounts owed to it on a timely basis. A credit loss, if material, could have an adverse effect on the FHLBNY’s financial condition and results of operations, and the value of FHLBank membership.

The FHLBNY may not be able to meet its obligations as they come due or meet the credit and liquidity needs of its members in a timely and cost-effective manner. The FHLBNY seeks to be in a position to meet its members’ credit and liquidity needs and pay their obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. In addition, the FHLBNY maintains a contingency liquidity plan designed to enable it to meet its obligations and the liquidity needs of members in the event of operational disruptions or short-term disruptions in the capital markets. The FHLBNY’s ability to manage its liquidity position or its contingency liquidity plan may not enable it to meet its obligations and the credit and liquidity needs of its members, which could have an adverse effect on the FHLBNY’s financial condition and results of operations.

The FHLBNY faces competition for advances, loan purchases, and access to funding, which could adversely affect its businesses and the FHLBNY’s efforts to make advance pricing attractive to its members may affect earnings. The FHLBNY’s primary business is making advances to its members, and the Bank competes with other suppliers of wholesale funding, both secured and unsecured, including investment banks, commercial banks and, in certain circumstances, and other FHLBanks. The FHLBNY’s members have access to alternative funding sources, which may offer more favorable terms than the FHLBNY on its advances, including more flexible credit or collateral standards. The FHLBNY may make changes in policies, programs, and agreements affecting members from time to time, including, affecting the availability of and conditions for access to advances and other credit products, the MPF Program, the AHP, and other programs, products, and services, could cause members to obtain financing from alternative sources. In addition, many competitors are not subject to the same regulations, which may enable those competitors to offer products and terms that the FHLBNY is not able to offer.

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The availability to the FHLBNY’s members of alternative funding sources that are more attractive may significantly decrease the demand for the FHLBNY’s advances. Lowering the price of the advances to compete with these alternative funding sources may decrease the profitability of advances. A decrease in the demand for the FHLBNY’s advances or a decrease in the FHLBNY’s profitability on advances could adversely affect the FHLBNY’s financial condition and results of operations.

Certain FHLBanks, including the FHLBNY, also compete, primarily with Fannie Mae and Freddie Mac, for the purchase of mortgage loans from members. Some FHLBanks may also compete with other FHLBanks with which their members have a relationship through affiliates. The FHLBNY offers the MPF Program to its members. Competition among FHLBanks for MPF program business may be affected by the requirement that a member and its affiliates can sell loans into the MPF Program through only one FHLBank relationship at a time. Increased competition can result in a reduction in the amount of mortgage loans the FHLBNY is able to purchase and, therefore, lower income from this part of their businesses.

The FHLBanks, including the FHLBNY, also compete with the U.S. Department of the Treasury, Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities, for funds raised through the issuance of unsecured debt in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs or lower amounts of debt issued at the same cost than otherwise would be the case. Increased competition could adversely affect the FHLBNY’s ability to have access to funding, reduce the amount of funding available to the FHLBNY, or increase the cost of funding available to the FHLBNY. Any of these effects could adversely affect the FHLBNY’s financial condition and results of operations.

The FHLBNY relies heavily on information systems and other technology. The FHLBNY relies heavily on its information systems and other technology to conduct and manage its business. If the FHLBNY experiences a failure or interruption in any of these systems or other technology, the FHLBNY may be unable to conduct and manage its business effectively, including, its advance and hedging activities. Although the FHLBNY has implemented a business continuity plan, it may not be able to prevent, timely and adequately address, or mitigate the negative effects of any failure or interruption. Any failure or interruption could adversely affect its member relations, risk management, and profitability, which could negatively affect the FHLBNY’s financial condition and results of operations.

Economic downturns and changes in federal monetary policy could have an adverse effect on the FHLBNY’s business and its results of operations. The FHLBNY’s businesses and results of operations are sensitive to general business and economic conditions. These conditions include short- and long-term interest rates, inflation, money supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and the local economies in which the FHLBNY conducts its business. If any of these conditions worsen, the FHLBNY’s businesses and results of operations could be adversely affected. For example, a prolonged economic downturn could result in members becoming delinquent or defaulting on their advances. In addition, the FHLBNY’s business and results of operations are significantly affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve Board, which regulates the supply of money and credit in the United States. The Federal Reserve Board’s policies directly and indirectly influence the yield on interest-earning assets and the cost of interest-bearing liabilities.

32

The FHLBNY may become liable for all or a portion of the consolidated obligations of the FHLBanks, which could negatively impact the FHLBNY’s financial condition and results of operations. The FHLBNY is jointly and severally liable along with the other Federal Home Loan Banks for the consolidated obligations issued on behalf of the Federal Home Loan Banks through the Office of Finance. Dividends on, redemption of, or repurchase of shares of the FHLBNY’s capital stock can not occur unless the principal and interest due on all consolidated obligations have been paid in full. If another Federal Home Loan Bank were to default on its obligation to pay principal or interest on any consolidated obligations, the Finance Agency may allocate the outstanding liability among one or more of the remaining Federal Home Loan Banks on a pro rata basis or on any other basis the Finance Agency may determine. As a result, the FHLBNY’s ability to pay dividends on, to redeem, or to repurchase shares of capital stock could be affected by the financial condition of one or more of the other Federal Home Loan Banks. However, no Federal Home Loan Bank has ever defaulted on its debt since the FHLB System was established in 1932.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

The FHLBNY occupies approximately 41,000 square feet of leased office space at 101 Park Avenue, New York, New York. The FHLBNY also maintains 30,000 square feet of leased office space at 30 Montgomery Street, Jersey City, New Jersey, principally as an operations center and off-site back-up facility.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the FHLBNY is involved in disputes or regulatory inquiries that arise in the ordinary course of business. At the present time there are no material pending legal proceedings against the FHLBNY that would significantly impact the Bank’s financial condition, results of operations or cash flows.

However, certain property of the Bank is the subject of a pending legal proceeding. On September 15, 2008, an event of default occurred under outstanding derivative contracts with a notional amount of $16.5 billion between Lehman Brothers Special Financing Inc. (“LBSF”) and the Bank when credit support provider Lehman Brothers Holdings Inc. (“LBHI”) commenced a case under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). LBSF commenced a case under Chapter 11 of the Bankruptcy Code on October 3, 2008. The Bank had pledged $509.6 million to LBSF in cash as collateral. The Bank had certain obligations due to LBSF as of September 30, 2008. The net amount that is due to the Bank after giving effect to obligations that are due LBSF was approximately $64.5 million as of September 30, 2008. The amount that the Bank actually recovers will ultimately be decided in the course of LBSF’s bankruptcy case. As such, the Bank has fully reserved the LBSF receivables as the bankruptcies of LBSF and LBHI make the timing and the amount of the recovery uncertain.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Under the FHLBank Act, the only matter that is submitted to shareholders for a vote is the annual election of FHLBank Directors. Consistent with the foregoing, the only matters involving a vote of FHLBNY shareholders in 2008 were two elections of certain Directors, which occurred in the last quarter of 2008. (Typically, there is only one election of Directors; however, the changes that resulted from the enactment of the Housing Economic and Recovery Act of 2008 [“HERA”] in the middle of 2008 led to the need for two separate sets of elections. It is expected that there will only be one election in 2009.) The FHLBNY conducted these elections in order to fill Member and Independent Director seats whose terms expired on December 31, 2008, and to fill a newly-created (as of January 1, 2009) Independent Director seat. These elections were conducted in accordance with Federal Housing Finance Agency (“Finance Agency”) regulations. Information about these elections is set forth below.

Eligibility to Vote in Director Elections

Voting rights of shareholders with regard to the election of Directors are established through Finance Agency regulations. Specifically, holders of stock that were members of the FHLBNY as of the record date — December 31st of the year immediately preceding an election — are entitled to participate in the election process. Each eligible member is entitled to cast one vote for each share of stock that the member was required to hold as of the record date; however, the number of votes that each member may cast for each Directorship can not exceed the average number of shares of stock that were required to be held as of the record date by all members in the state where the member is located. The Director election process is conducted by mail; no in-person meetings of the members are held.

Member Directors

Eligible members may nominate persons who are officers or directors of FHLBNY members in their states to serve as Member Directors (formerly known as “elected directors” prior to the adoption of HERA) on the FHLBNY’s Board of Directors. After the slate of nominees is finalized, each member is then eligible to vote to fill the open director seats in the state in which its principal place of business is located.

The number of Member Directorships on the Board is allocated by state and such allocation is performed by the Finance Agency each year in accordance with provisions of the Federal Home Loan Bank Act located at 12 U.S.C. 1427. This allocation is based primarily on the number of shares of capital stock required to be held by the members in each state in the Bank’s district as of the end of the calendar year preceding the election. Throughout 2008, and continuing through the date of this Report on Form 10-K, the Bank had ten Member Director positions on its Board. Of these ten Member Director positions, five were allocated to New York, four to New Jersey and one to Puerto Rico and the U.S. Virgin Islands.

34

The table below shows the total number of Member Directorships designated by the Finance Agency for each state in the Bank’s district for 2008 and for 2009, and the number of director positions that were required to be filled in the course of the Bank’s 2008 election of Member Directors:

	Total Member
	Directorships		Member Directorships
State	for 2008 and for 2009		Up For Election in the 2008 Election Process
New Jersey		4		1
New York		5		2
Puerto Rico & U.S. Virgin Islands		1		0
District Total		10		3

2008 Member Director Election Results

On November 3, 2008, the stockholders of the FHLBNY elected Messrs. Jay M. Ford, Thomas M. O’Brien and George Strayton as Member Directors of the FHLBNY to each serve on the Board commencing January 1, 2009. Mr. Ford and Mr. O’Brien were elected to four year terms; Mr. Strayton was elected to a three year term. The following information summarizes the results of the election:

New York

In New York, two Member Directorships were open and needed to be filled. Incumbent Member Director Thomas M. O’Brien received 2,099,402 votes and Incumbent Member Director George Strayton received 2,040,829 votes, respectively, and were both elected. One other nominee received 259,805 votes. 7,557,770 votes were not cast.

New Jersey

In New Jersey, one Member Directorship was open and needed to be filled. Incumbent Member Director Jay M. Ford received 1,529,046 votes and was elected. One other nominee received 377,261 votes. 1,150,411 votes were not cast.

Other Information Regarding the Composition of the Member Directors During 2008 and 2009

Apart from the Member Directors described above, each of the following Member Directors served on the Board throughout 2008, and their terms continued into 2009: Joseph R. Ficalora, James W. Fulmer, José Ramon Gonzalez, Ronald E. Hermance, Katherine J. Liseno, Kevin J. Lynch and John M. Scarchilli. In addition:

* Member Director and then-Board Chair David W. Lindstrom left the Board on May 7, 2008. On June 19, 2008, the Board voted to elect Mr. Jay M. Ford to fill the unexpired term of Mr. Lindstrom for the period from June 19, 2008 through and including December 31, 2008. As mentioned above, Director Ford was elected by the FHLBNY’s members for a new term commencing on January 1, 2009.

* Member Director Carl A. Florio left the Board on January 22, 2008. On April 2, 2008, the Board voted to elect Mr. Thomas M. O’Brien to fill the unexpired term of Mr. Florio from the period April 3, 2008 through and including December 31, 2008. As mentioned above, Director O’Brien was elected by the FHLBNY’s members for a new term commencing on January 1, 2009.

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Independent Directors

In addition to the aforementioned group of Member Directors, the remainder of the FHLBNY’s Directors consist of “Independent Directors”. These are Directors who are not an officer or a director of a member institution of the FHLBNY. To qualify as an independent director, persons must have experience in, or knowledge of, one or more of the following areas: auditing and accounting; derivatives; financial management; organizational management; project development; risk management practices; or the law. In addition, there is a subset of Independent Directorships known as “Public Interest” Directorships. To qualify as a Public Interest Director, persons must have more than four years experience representing consumer or community interests in banking services, credit needs, housing, or consumer financial protections. Unlike Member Directors, Independent Directors do not represent the interests of a particular state and so the entire membership votes for them. Each FHLBank must have at least two Public Interest Directors on its Board.

Until the middle of 2008, the Board of Directors of a FHLBank submitted the names of potential ‘appointed’ directors (the former name of the Directors now known as Independent Directors) to the Federal Housing Finance Board (the predecessor of the Finance Agency) for the regulator’s consideration. The ultimate determination of whether a person was eligible to serve as an appointed director and the selection of the appointed directors remained solely within the discretion of the Federal Housing Finance Agency. However, the enactment of HERA on July 30, 2008 resulted in (i) the renaming of appointed directors as ‘Independent Directors; (ii) the elimination of the ability of the FHLBank’s regulator to appoint any Directors (independent or member) to the Board of a FHLBank; and (iii) the imposition of a requirement that the Boards of each FHLBank, in consultation with their Affordable Housing Advisory Committees, and subject to the approval of the Federal Housing Finance Agency, submit names of potential Independent Director candidates to eligible Bank members for a vote.

2008 Independent Director Election Results

On December 28, 2008, the eligible members of the FHLBNY elected Ms. C. Cathleen Raffaeli, Rev. Edwin C. Reed, and Dr. DeForest Soaries as Independent Directors of the FHLBNY to serve for, respectively, four, four and three-year terms commencing January 1, 2009. The following information summarizes the results of the election:

Two Independent director seats on the Board were open and needed to be filled. In addition, as a result of calculations performed by the Finance Agency in September of 2008 in accordance with new rules contained in HERA, an additional Independent Director seat was created as of January 1, 2009, and so this new seat needed to be filled as well. (As a result, the number of Independent Director seats on the FHLBNY’s Board increased from six to seven on January 1, 2009.)

Incumbent Independent Director Raffaeli received 4,493,466 votes, Incumbent Independent Director Reed received 4,620,281 votes and Dr. Soaries received 4,378,983 votes, respectively, and were all elected. Director Reed was also elected to serve as a Public Interest Director. There were no other candidates. 23,071,891 votes were not cast.

Other Information Regarding the Composition of the Independent Directors During 2008 and 2009

Apart from the Independent Directors described above, each of the following Independent Directors served on the Board throughout 2008, and their terms continued into 2009: Anne Evans Estabrook, Michael M. Horn, Joseph J. Melone, and Richard S. Mroz. (Ms. Estabrook is the other Public Interest Director on the Board.)

In accordance with HERA, the FHLBNY is exempt from the filing of information and proxy statements.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

All of the stock of the FHLBNY is owned by its members. Stock may also be held by former members as a result of having acquired by a non-member institution. The FHLBNY conducts its business in advances and mortgages exclusively with its stockholder members and housing associates. There is no established marketplace for FHLBNY stock. FHLBNY stock is not publicly traded. It may be redeemed at par value upon request, subject to regulatory limits. The par value of all FHLBNY stock is $100 per share. These shares of stock in the FHLBNY are registered under the Securities Exchange Act of 1934, as amended. At December 31, 2008 the FHLBNY had 311 members. Total capital stock held by members was 55,857,000 and 1,431,214 held by former members. Capital stock held by former members is classified as a liability, and deemed mandatorily redeemable under the provisions SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”). At December 31, 2007, the FHLBNY had 291 members and 43,679,710 shares of stock held by members, and 2,385,960 shares held by former members.

Recent FHLBNY quarterly cash dividends are outlined in the table below. No dividends were paid in the form of stock. Dividend payments and earnings retention are subject to modification by the FHLBNY’s Board of Directors, at its discretion, and within the regulatory framework promulgated by the Finance Agency. The FHLBNY’s Retained Earnings and Dividends Policy outlined in the section titled Retained Earnings and Dividends under Part I, Item 1 of this Annual Report on Form 10-K provides additional information. Dividends from a calendar quarter’s earnings are paid in the month following the end of that calendar quarter. (dollars in thousands):

	2008					2007					2006
Month Paid	Amount		Dividend Rate			Amount		Dividend Rate			Amount		Dividend Rate
October	$	45,748		3.50	%	$	78,810		8.05	%	$	62,020		6.25	%
July		78,810		6.50			68,840		7.50			53,913		5.75
April		88,182		7.80			67,280		7.50			47,137		5.25
January		94,404		8.40			67,203		7.00			46,369		5.11
	$	307,144				$	282,133				$	209,439

Dividends paid to non-members are classified as interest expense and are associated with mandatorily redeemable stock held by former members. In the table above, payments to former members are also included as dividends paid. Dividends paid to former members were $9.0 million, $11.7 million, and $3.1 million for the years ended December 31, 2008, 2007 and 2006.

Issuer Purchases of Equity Securities

In accordance with correspondence from the Office of Chief Counsel of the Division of Corporate Finance of the U.S. Securities and Exchange Commission dated August 26, 2005, the FHLBNY is exempt from disclosures of unregistered sales of common equity securities or securities issued through the Office of Finance that otherwise would have been required under item 701 of the SEC’s Regulation S-K. By the same no-action letter, the FHLBNY is also exempted from disclosure of securities repurchases by the issuer that otherwise would have been required under Item 703 of Regulation S-K.

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ITEM 6. SELECTED FINANCIAL DATA

Statements of Condition	December 31,
(dollars in millions)	2008			2007			2006			2005			2004
Investments (1)	$	14,195		$	25,034		$	20,503		$	20,945		$	17,271
Interest bearing balance at FRB		12,169			—			—			—			—
Advances		109,153			82,090			59,012			61,902			68,507
Mortgage loans		1,458			1,492			1,483			1,467			1,178
Total assets		137,540			109,245			81,579			84,761			87,347
Deposits and borrowings		1,452			1,606			2,266			2,650			2,297
Consolidated obligations		128,587			101,117			74,234			77,279			80,157
Mandatorily redeemable capital stock		143			239			110			18			127
AHP liability		122			119			102			91			82
REFCORP liability		5			24			17			14			10
Capital stock		5,586			4,368			3,546			3,590			3,655
Retained earnings		383			418			369			291			223
Equity to asset ratio (2)		4.27	%		4.35	%		4.79	%		4.58	%		4.44	%

Statements of Condition Averages	Years ended December 31,
(dollars in millions)	2008		2007		2006		2005		2004
Investments (1)	$	22,253	$	22,155	$	19,431	$	19,347	$	16,292
Interest bearing balance at FRB		9,079		—		—		—		—
Advances		92,617		65,454		64,658		63,446		65,289
Mortgage loans		1,465		1,502		1,471		1,360		928
Total assets		119,710		89,961		86,319		85,254		84,344
Interest-bearing deposits and other borrowings		2,003		2,202		1,709		2,100		1,971
Consolidated obligations		109,691		82,233		79,314		77,629		76,105
Mandatorily redeemable capital stock		166		146		51		56		238
AHP liability		122		108		95		84		83
REFCORP liability		6		10		9		7		4
Capital stock		4,923		3,771		3,737		3,604		3,554
Retained earnings		381		362		314		251		159

Operating Results and other data
(dollars in millions)	Years ended December 31,
(except earnings and dividends per share)	2008			2007			2006			2005			2004
Net interest income (3)	$	694		$	499		$	470		$	395		$	268
Net income		259			323			285			230			161
Dividends paid in cash (6)		294			273			208			162			66
AHP expense		30			37			32			26			19
REFCORP expense		65			81			71			58			40
Return on average equity (4)		4.95	%		7.85	%		7.04	%		5.97	%		4.34	%
Return on average assets		0.22	%		0.36	%		0.33	%		0.27	%		0.19	%
Operating expenses	$	66		$	67		$	63		$	59		$	51
Operating expenses ratio (5)		0.06	%		0.07	%		0.07	%		0.07	%		0.06	%
Earnings per share	$	5.26		$	8.57		$	7.63		$	6.36		$	4.55
Dividend per share	$	6.55		$	7.51		$	5.59		$	4.50		$	1.83
Headcount (Full/part time)		251			246			232			221			210

(1)	Investments include held-to-maturity securities, available for-sale securities, federal funds, and loans to other FHLBanks.
(2)	Equity to asset ratio is capital stock plus retained earnings and accumulated other comprehensive income (loss) as a percentage of total assets.
(3)	Net interest income is net interest income before the provision for credit losses on mortgage loans.
(4)	Return on average equity is net income as a percentage of average capital stock plus average retained earnings and average  accumulated other comprehensive income (loss).
(5)	Operating expenses as a percentage of total average assets.
(6)	Excludes dividends paid to non members classified as interest expense under SFAS 150.

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Supplementary financial data for each quarter for the years ended December 31, 2008 and 2007 are presented below (in thousands):

	2008 (unaudited)
	4th Quarter			3rd Quarter			2nd Quarter			1st Quarter
Interest income	$	1,035,467		$	936,938		$	910,555		$	1,175,919
Interest expense		809,898			779,265			752,750			1,022,468
Net interest income		225,569			157,673			157,805			153,451
Provision (Recovery) for credit losses		558			(31	)		216			30
Other income (loss)		(144,760	)		(85,430	)		(38,643	)		1,374
Other expenses and assessments		35,187			32,484			44,964			54,571
		180,505			117,883			83,823			53,227
Net income	$	45,064		$	39,790		$	73,982		$	100,224

	2007 (unaudited)
	4th Quarter		3rd Quarter		2nd Quarter		1st Quarter
Interest income	$	1,375,801	$	1,221,924	$	1,102,469	$	1,075,311
Interest expense		1,227,981		1,095,902		989,612		962,623
Net interest income		147,820		126,022		112,857		112,688
Provision (Recovery) for credit losses		40		—		—		—
Other income (loss)		2,040		8,006		1,460		1,994
Other expenses and assessments		53,830		48,813		43,690		43,409
		51,830		40,807		42,230		41,415
Net income	$	95,990	$	85,215	$	70,627	$	71,273

Interim period — Infrequently occurring items recognized.

2008 — In September 2008, Lehman Brothers Holding Inc. (“LBHI”) and Lehman Brothers Special Financing Inc., (“LBSF”) filed for protection under Chapter 11 of the U.S. Bankruptcy Code. LBSF, a, derivative counterparty to the FHLBNY defaulted on the contractual terms of its agreement with regard to $16.5 billion in notional amounts of interest rate swap and derivative contracts. The net amount that is due to the FHLBNY after giving effect to obligations that are due LBSF was approximately $64.5 million, and the FHLBNY has fully reserved the receivables as the bankruptcy of LBHI and LBSF make the timing and the amount of the recovery uncertain. The provision has been recorded as a charge to Other income (loss) in the third quarter of 2008. On an after-assessment basis, the provision reduced third quarter 2008 Net income by $47.4 million, or $0.91 per share of capital.

2007 — There were no infrequently occurring items that were material in any interim periods in 2007.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Statements contained in this report, including statements describing the objectives, projections, estimates, or predictions of the Federal Home Loan Bank of New York (“FHLBNY” or “Bank”), may be “forward-looking statements.” All statements other than statements of historical fact are statements that could potentially be forward-looking statements. These statements may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or other variations on these terms or their negatives. These statements may involve matters pertaining to, but not limited to: projections regarding revenue, income, earnings, capital expenditures, dividends, the capital structure and other financial items; statements of plans or objectives for future operations; expectations of future economic performance; and statements of assumptions underlying certain of the foregoing types of statements.

The Bank cautions that, by their nature, forward-looking statements involve risks or uncertainties, and actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, readers are cautioned not to place undue reliance on such statements, which are current only as of the date thereof. The Bank will not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Bank.

These forward-looking statements may not be realized due to a variety of risks and uncertainties including, but not limited to risks and uncertainties relating to economic, competitive, governmental, technological and marketing factors, as well as other factors identified in the Bank’s filings with the Securities and Exchange Commission.

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Organization of Management’s Discussion and Analysis (“MD&A”).

The FHLBNY’s MD&A is designed to provide information that will assist the readers in better understanding the FHLBNY’s financial statements, the changes in key items in the Bank’s financial statements from year to year, the primary factors driving those changes as well as how accounting principles affect the FHLBNY’s financial statements. The MD&A is organized as follows:

	Page
Executive Overview		42
2008 Highlights		43
2009 Business Outlook		48
Trends in the Financial Markets		50
Significant Accounting Policies and Estimates		53
Recently Issued Accounting Standards and Interpretations		63
Legislative and Regulatory Developments		64
Financial Condition — Assets, Liabilities, Capital and Commitments		67
Advances		69
Investments		77
Mortgage Loans		84
Deposit Liabilities		85
Debt Financing Activity and Consolidated Obligations		86
Short-Term and Long-Term Rating Actions		97
Mandatorily Redeemable Capital Stock		97
Capital Resources		99
Retained Earnings and Dividend		101
Derivative Instruments		103
Liquidity		114
Results of Operations		119
Net Income		119
Interest Income		120
Interest Expense		122
Net Interest Income		125
Earnings impact of derivatives and hedging activities		132
Operating Expenses		136
Asset Quality and Concentration — Advances, Mortgage loans, and investment securities		138
Commitments, Contingencies and Off Balance Sheet Arrangements		167
Quantitative and Qualitative Disclosures about Market Risk		170

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Executive Overview

This overview of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Form 10-K. For a more complete understanding of events, trends and uncertainties, as well as the liquidity, capital, credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of New York (“FHLBNY” or “Bank”), this Form 10-K should be read in its entirety.

Cooperative business model. As a cooperative, the FHLBNY seeks to maintain a balance between its public policy mission and its ability to provide adequate returns on the capital supplied by its members. The FHLBNY achieves this balance by delivering low-cost financing to members to help them meet the credit needs of their communities and by paying a dividend on the members’ capital stock. Reflecting the FHLBNY’s cooperative nature, the FHLBNY’s financial strategies are designed to enable the FHLBNY to expand and contract in response to member credit needs. The FHLBNY invests its capital in high quality, short- and intermediate-term financial instruments. This strategy allows the FHLBNY to maintain sufficient liquidity to satisfy member demand for short- and long-term funds, repay maturing consolidated obligations, and meet other obligations. The dividends paid by FHLBNY are largely the result of the FHLBNY’s earnings on invested member capital, net earnings on advances to members, mortgage loans and investments, offset in part by the FHLBNY’s operating expenses and assessments. FHLBNY’s board of directors and management determine the pricing of member credit and dividend policies based on the needs of its members and the cooperative.

Historical Perspective. The fundamental business of the FHLBNY is to provide member institutions and housing associates with advances and other credit products in a wide range of maturities to meet their needs. Congress created the FHLBanks in 1932 to improve the availability of funds to support home ownership. Although the FHLBanks were initially capitalized with government funds, members have provided all of the FHLBanks’ capital for over 50 years.

To accomplish its public purpose, the FHLBanks, including the FHLBNY, offer a readily available, low-cost source of funds, called advances, to member institutions and certain housing associates. Congress originally granted access to advances only to those institutions with the potential to make and hold long-term, amortizing home mortgage loans. Such institutions were primarily federally and state chartered savings and loan associations, cooperative banks, and state-chartered savings banks (thrift institutions). FHLBanks and its member thrift institutions are an integral part of the home mortgage financing system in the United States.

However, a variety of factors, including a severe recession, record-high interest rates, and deregulation, resulted in significant financial losses for thrift institutions in the 1980s. In response to the significant cost borne by the American taxpayer to resolve the failed thrift institutions, Congress restructured the home mortgage financing system in 1989 with the passage of the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”). Through this legislation, Congress reaffirmed the housing finance mission of the FHLBanks and expanded membership eligibility in the FHLBanks to include commercial banks and credit unions with a commitment to housing finance.

Different FHLBank Business Strategies. Each FHLBank is operated as a separate entity with its own management, employees and board of directors. In addition, all FHLBanks operate under the Finance Board’s supervisory and regulatory framework. However, each FHLBank’s management and board of directors determine the best approach for meeting its business objectives and serving its members. As such, the management and board of directors of each FHLBank have developed different business strategies and initiatives to fulfill that FHLBank’s mission, and they re-evaluate these strategies and initiatives from time to time.

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Business segment. The FHLBNY manages its operations as a single business segment. Advances to members are the primary focus of the FHLBNY’s operations and the principal factor that impacts its operating results. The FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax. It is required to make payments to Resolution Funding Corporation (“REFCORP”), and set aside a percentage of its income towards an Affordable Housing Program (“AHP”). Together they are referred to as assessments.

Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net Interest income and margin. The FHLBNY has presented its results of operations in accordance with U.S. generally accepted accounting principles. The FHLBNY has also presented certain information regarding its Interest Income and Expense, Net Interest income and Net Interest spread that combines interest expense on debt with net interest paid on interest rate swaps associated with debt that were hedged on an economic basis. These are non-GAAP financial measures that the FHLBNY believes are useful to investors and members of the FHLBNY in understanding the Bank’s operational performance and business and performance trends. Although the FHLBNY believes these non-GAAP financial measures enhance investor and members’ understanding of the Bank’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. When discussing non-GAAP measures, the Bank has provided GAAP measures in parallel.

2008 Highlights

The FHLBNY reported 2008 net income of $259.1 million, or $5.26 per share compared with net income of $323.1 million or $8.57 per share, for 2007. The return on average equity, which is Net income divided by average Capital stock, Retained earnings, and Accumulated other comprehensive income, in 2008 was 4.95%, compared with 7.85% in 2007. The decline of Net Income in 2008 is directly attributable to the bankruptcy of Lehman Brothers. In September 2008, Lehman Brothers Holding Inc. (“LBHI”) and Lehman Brothers Special Financing Inc., (“LBSF”), filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and LBSF, a derivative counterparty to the FHLBNY defaulted with the contractual terms of its agreement with FHLBNY on $16.5 billion in notional amounts of interest rate swaps and derivatives outstanding at the time of bankruptcy. The FHLBNY had deposited $509.6 million with LBSF in cash as collateral. The net amount that is due to the Bank after giving effect to obligations that are due LBSF was approximately $64.5 million, and the Bank has fully reserved the LBSF receivables as the bankruptcy of LBHI and LBSF make the timing and the amount of the recovery uncertain, and has been reported as a charge to Other Income (loss) in the Statements of Income. On an after-assessment basis, the reserve against the LBSF receivables reduced 2008 Net income by $47.4 million, or $0.97 per share of capital.

During the third quarter and continuing into the fourth quarter of 2008, global markets exhibited extraordinary levels of volatility and increasing signs of stress. During the period the FHLBanks have experienced constrained and inconsistent demand for their long-term consolidated obligation bonds. The crises caused liquidity pressures in the U.S. debt market for short-term liquidity with increasing demand for short-term funding to an extent that the surge in demand led to the disparity between the 3-month LIBOR rates over the expected Fed Funds rate. The demand for short-term funds in the debt market and the FHLBNY’s ability to issue short-term debt at reasonable sub-LIBOR spreads were the key factors that enabled the FHLBNY to issues short-term consolidated bonds and discount notes at attractive pricing and at sufficient volumes to investors, and to use funds to finance demand from the FHLBNY’s members’ borrowing requirements. The favorable spreads on short-term debt contributed to the increase in Net interest income in the second half of 2008. Also See Note 20 — Commitments and Contingencies to the financial statements for a discussion of the U.S. Treasury’s establishment of the Government Sponsored Enterprise Credit Facility (“GSECF”), which is designed to serve as a contingent source of liquidity for the FHLBanks, including the FHLBNY, via issuance of consolidated obligations to the U.S. Treasury.

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• Net interest income is a key metric for the FHLBNY. Net interest income after provision for credit losses on MPF loans, was $693.7 million for 2008, up by $194.4 million, or 38.9% from the prior year. Net interest income represents the difference between income from interest-earning assets and interest expenses paid on interest-bearing liabilities. Net interest spread earned was 41 basis points in 2008, up from 30.0 basis points in 2007. Net interest spread is the difference between yields earned on interest-earning assets and yields paid on interest-bearing liabilities. Return on average earning-assets increased to 59 basis points in 2008, up from 56 basis points from the prior year. These measurement metrics are based on “Generally Accepted Accounting Principles” or GAAP basis. Under GAAP, interest expense or income of interest rate swaps designated in an economic hedge is reported as hedging losses and gains in Other income (loss) in the Statements of Income. Because of this reporting requirement, $126.5 million of interest expense was reported as a loss from derivatives and hedging activities in Other income (loss) in the Statements of Income. The economic effect of this was to increase reported losses from hedging by $126.5 million, and to reduce reported interest expense from debt by the same amount, which also increased Net interest income on a non-GAAP basis by $126.5 million. Net income remained unchanged. On an economic basis, Net interest income in 2008 was $567.5 million, compared to $693.7 million on a reported GAAP basis. On an economic basis, the comparable Net interest income was $500.2 million and $470.7 million in 2007 and 2006. On a GAAP basis, Net interest spread earned was 41 basis points in 2008, up from 30 basis points in 2007. On an economic basis, the Bank estimates that had the Bank recorded swap interest expenses in Net interest income, it would have reduced Net interest spread by 11 basis points to 30 basis points in 2008. Net interest spread is the difference between annualized yields on interest-earning assets and yields on interest-bearing liabilities. Return on average earning-assets, a measure of the efficiency of the use of interest-earning assets, was 59 basis points in 2008, up from 56 basis points in 2007. On an economic basis, the return on average earnings assets for the current year period would have been 48 basis points.

• Reported Net realized and unrealized gain (loss) from derivatives and hedging activities was a loss of $199.3 million in 2008, compared to a gain of $18.4 million in 2007. The reported loss was primarily due to (1) The accounting of interest expense on swaps designated as economic hedges and reported as hedging losses. (2) Fair value changes of swaps and derivatives in economic hedges of debt and advances that were not offset by fair value changes of the hedged bonds and advances because the hedges were not executed under hedge accounting provisions. An economic hedge represents derivative transactions that are an approved risk management hedge but may not qualify for hedge accounting treatment under the provisions of SFAS 133. When derivatives are designated as economic hedges, the fair value changes due to changes in the interest rate and volatility of rates are recorded through the Statements of Income without the offsetting change in the fair values of the hedged advances and debt as would be afforded under SFAS 133 hedge accounting rules. In addition, and as described in the previous paragraph, net swap interest expense and income associated with swaps in economic hedges of assets and liabilities are also reported as hedging losses and gains in Other income (loss) in the Statements of Income.

Fair value losses and gains are typically unrealized unless the Bank terminates the derivative. When the derivatives and the associated hedged advances and debt are held to their contractual maturity or to predetermined call dates, the cumulative fair value gains and losses sum to zero over the life of the hedge. However, interest income and expense have economic consequences since they result in exchanges of cash payments or receipts.

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Economic hedges

• Interest rate swaps — In 2008, the primary economic hedges were: (1) Interest rate “Basis swaps” that synthetically converted floating-rate funding based on Prime rate, Federal funds rate, and the 1-month LIBOR rate to 3-month LIBOR rate. (2) Interest rate swaps hedging balance sheet risk. (3) Interest rate swaps hedging discount notes. Adverse changes in the fair values of interest rate swaps in economic hedges, often referred to as “one-sided marks” contributed $51.2 million to the unrealized loss from hedging activities; the losses from economic hedges were partly offset by realized gains, primarily from a gain of $24.0 million realized in September 2008 when swaps that had been executed to economically hedge balance sheet portfolio risk were no longer necessary and were terminated. Interest expense associated with the interest rate swaps in economic hedges resulted in net cash outflows of $126.5 million in 2008 and was recorded as hedging expenses in Other income (loss) as Net realized and unrealized gain (loss) from derivatives and hedging activities.

• Interest rate caps — were also designated as economic hedges, and fair value changes of purchased caps resulted in a loss of $40.8 million in 2008, compared to a loss of $2.6 million in the prior year. The Bank had acquired $1.9 billion in notional amounts of interest rate caps in the second quarter of 2008 at a cost of $46.9 million to help mitigate certain balance sheet risk metrics. The caps were recorded as derivative assets in the Statements of Condition. In a declining interest rate environment at December 31, 2008, the fair values of interest rate caps declined, contributing to the loss from hedging activities.

SFAS 133 qualifying hedges

Net fair value changes from SFAS 133 qualifying hedges resulted in recorded net loss of $12.0 million in 2008, compared to a net gain of $5.9 million in 2007. Typically, gains and losses in a SFAS 133 qualifying hedge represent hedge ineffectiveness due to changes in fair values of hedged advances and debt from changes in the benchmark rate (LIBOR for the Bank) that are not entirely offset by changes in the fair values of the swaps.

• Provision for credit losses of $64.5 million was recorded in the third quarter of 2008 to reserve against receivables due from Lehman Brothers Special Financing Inc., which commenced a case under Chapter 11 of the U.S. Bankruptcy Code on October 3, 2008. The provision was recorded as a charge to Other income (loss) in the Statements of Income.

• No other-than-temporary charge was recorded for the FHLBNY’s MBS portfolios in 2008 as the Bank’s analyses determined that unrealized losses were temporary. Determining whether a decline in fair value is other-than-temporary impaired requires significant judgment. The FHLBNY evaluates its individual held-to-maturity investment in private label issued mortgage-and- asset backed securities for other-than-temporary impairment on a quarterly basis. To determine which individual securities are at risk for other-than-temporary impairment, the FHLBNY considers various characteristics of each security. Based on the bond issuers’ continued satisfaction of their obligations under the contractual terms of the securities, the Bank’s evaluation of the fundamentals of the issuers’ financial condition, the estimated performance of the underlying collateral, the estimated support from the monoline insurers under the contractual terms of insurance, and the FHLBNY’s consideration of its intent and ability to hold the securities for a period of time sufficient to allow for the anticipated recovery in the market value of the securities, the FHLBNY believes that these securities were not other-than-temporarily impaired as of December 31, 2008 and 2007. However, without recovery in the near term such that liquidity returns to the mortgage-backed securities market and spreads return to levels that reflect underlying credit characteristics, or if the credit losses of the underlying collateral within the mortgage-backed securities perform worse than expected, or if the presumption of the ability of monoline insurers to support the insured securities identified at December 31, 2008 as dependent on insurance is negatively impacted by their future financial performance, it is likely that other-than-temporary impairment may occur in future periods.

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• Operating Expenses were $66.3 million in 2008, slightly down by $0.3 million, from $66.6 million in 2007.

• REFCORP assessments were $64.8 million in 2008, down by $16.0 million from 2007. AHP assessments were $29.8 million, down by $7.4 million from 2007. Assessments are calculated on Net income before assessments and the decrease was due to lower Net income in 2008 compared to 2007. For more information about REFCORP and AHP assessments see the section titled Assessments in this Form 10-K.

• Cash dividends were paid to stockholders in each of the quarters in 2008. In 2008, they totaled $6.55 per share of capital stock (par value $100), down from $7.51 in 2007.

At December 31, 2008, the FHLBNY’s Total assets were a record $137.5 billion, an increase of $28.3 billion, or 25.9%, from December 31, 2007. The principal driver was the record growth in advances borrowed by members. The Bank also increased its available-for-sale portfolio by acquiring GSE issued variable-rate collateralized mortgage obligations. Held-to-maturity portfolio comprising of mortgage-backed securities and housing finance agency bonds declined slightly at December 31, 2008 compared to December 31, 2007. The Bank also decreased investments in short-term money market instruments with other financial institutions, and opted instead to maintain liquidity at the Federal Reserve Bank of New York in the form of interest earning demand balances.

• Advances grew by over 33.0% to $109.2 billion at December 31, 2008, compared with $82.1 billion at December 31, 2007. Member demand for advance borrowings in 2008 has been concentrated in the short-term fixed-rate advance products. Member demand for variable-rate advances did not keep pace with the overall increase in demand for short-term fixed-rate advances. While increase in borrowing was concentrated among the large members, a broad base of the membership also increased their borrowings from the FHLBNY. Advances borrowed by insurance companies have also contributed to the positive trend.

• Credit dislocation in the marketplace has continued to drive bond investors to acquire shorter-term debt issued by the FHLBanks, including those issued on behalf of the FHLBNY. As a result of the lukewarm investor demand, the volume of long-term debt issued has been understandably low in 2008. Issuances of discount notes, which have maturities from overnight to 365 days, have fluctuated significantly over the last several years in response to market conditions and investor demand for FHLBank issued short-term debt. Outstanding amounts of discount notes grew to $46.3 billion at December 31, 2008, up from $34.8 billion at December 31, 2007. The surge in demand for discount notes is best illustrated by comparing the balances outstanding at December 31, 2008 to the balance of only $12.2 billion at December 31, 2006, just under a four-fold increase from 2006. Issuance patterns also fluctuated during 2008 in response to changing market conditions and investor appetite in 2008 for discount notes. The Bank had reduced the discount notes outstanding at September 30, 2008 to $28.7 billion, compared to $34.8 billion at December 31, 2007. Since then, spreads returned to levels that were attractive and the Bank increased amounts outstanding to $46.3 billion at December 31, 2008. Favorable investor demand for floating-rate consolidated obligation bonds indexed to rates other than 3-month LIBOR drove pricing to relatively attractive levels and the FHLBNY steadily increased the use of floating-rate bonds to fund its assets.

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• Held-to-maturity securities consisting of mortgage-backed securities and state and local housing agency bonds declined slightly to $10.1 billion at December 31, 2008, compared to $10.3 billion at December 31, 2007, as paydowns outpaced new acquisitions. GSE and agency issued mortgage-backed securities were the predominant issuers and constituted $7.6 billion, or 81.3%, of mortgage-backed securities in this category. Acquisitions continued to be selective during 2008 and remained opportunistic. When market conditions met the Bank’s risk-reward preferences, acquisition was considered and pursued. All $2.0 billion in MBS acquired in 2008, were triple-A rated GSE issued collateralized mortgage obligations (“CMOs”), which are supported by agency pass-through securities. The Bank also acquired $328.4 million in New York State and City housing finance agency bonds.

• Available-for-sale securities grew to $2.9 billion at December 31, 2008, up from $13.2 million at December 31, 2007. In 2008, the Bank acquired $3.4 billion of GSE issued variable-rate CMOs, and designated these acquisitions as available-for-sale. All securities purchased were rated triple-A.

• Shareholders’ equity, the sum of Capital stock, Retained earnings, and Accumulated other comprehensive income (loss) was $5.9 billion at December 31, 2008, up by $1.1 billion from December 31, 2007. Capital stock, a component of shareholders’ equity, at December 31, 2008 was $5.6 billion, up by $1.2 billion as compared to December 31, 2007. The increase in Capital stock was consistent with increases in advances borrowed by members since members are required to purchase stock as a prerequisite to membership and to hold FHLBNY stock as a percentage of advances borrowed from the FHLBNY. The Bank’s current practice is to redeem stock in excess of the amount necessary to support advance activity on a daily basis. As a result, the amount of capital stock outstanding varies in line with members’ outstanding advance borrowings. Unrestricted retained earning was $382.9 million, down by $35.4 million from December 31, 2007. Dividend paid out of retained earnings amounted to $294.5 million during 2008.

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2009 Business Outlook

The following forward-looking statements are based upon the current beliefs and expectations of the FHLBNY’s management and are subject to risks and uncertainties which could cause the FHLBNY’s actual results to differ materially from those set forth in such forward-looking statements.

The financial crises in the U.S. markets and economy intensified in the third quarter of 2008; the global economic slowdown is expected to continue into 2009 and 2010. The resulting loss of confidence across global and local markets has created liquidity crises in the financial markets. In response to these circumstances, the U.S. Treasury, the Federal Reserve System and the FDIC have taken a variety of extraordinary measures designed to restore confidence in the financial markets and to strengthen financial institutions, including capital injections, guarantees of bank liabilities and the acquisition of illiquid assets from banks. These U.S. government initiatives through guarantees in the capital markets may have resulted in structural changes in the debt market, which in turn may have far-reaching impact on the ability of the FHLBanks to compete for funds in the financial markets. We are unable at this time to predict the final outcome of these changes.

The outlook for 2009 is also predicated on the expected slowdown in the U.S. economy, particularly the slowdown in the housing market, as well as an expectation of continued uncertainties in the financial markets. Against that backdrop, management of the Bank believes it is also difficult to predict member demand for advances, which are the primary focus of the FHLBNY’s operations and the principal factor that impacts its operating results. Earnings in 2008 were adversely impacted by the provision for credit losses resulting from the bankruptcy filing of Lehman Brothers Holdings Inc. and its subsidiary Lehman Brothers Special Financing Inc. Earnings in 2009 is expected to be adversely impacted by the conditions in the debt market for FHLBank issued debt particularly as they pertain to the pricing of longer-term issuances. These factors may tend to adversely impact Net income.

Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and long-term funding driven by economic factors such as availability to the Bank’s members of alternative funding sources that are more attractive, the interest rate environment, and the outlook for the economy. Members may choose to prepay advances, which may incur prepayment fees, based on their expectations of interest rate changes and demand for liquidity. Demand for advances may also be influenced by the dividend payout rate to members on their capital stock investment in the FHLBNY. Members are required to invest in FHLBNY’s capital stock in the form of membership stock and activity-based stock, which a member is required to purchase to borrow advances. Advance volume is also influenced by merger activity where members are either acquired by non-members or acquired by members of another FHLBank. When FHLBNY members are acquired by members of another FHLBank or a non-member, they no longer qualify for membership in the FHLBNY and the FHLBNY cannot renew outstanding advances or provide new advances to non-members. Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on short-term and overnight advance lending.

The FHLBNY earns income from investing its members’ capital to fund interest-earning assets. The two principal factors that impact earnings from capital are the average amount of capital outstanding in a period and the interest rate environment in the period. These factors determine the potential earnings from deployed capital, and both factors are subject to change. The Bank cannot predict with certainty the level of earnings from capital. In a lower interest rate environment, deployed capital, which consists of capital stock, retained earnings, and net non-interest bearing liabilities, will provide relatively lower income. On the other hand, if member borrowings continue to grow, capital will grow and provide a higher potential for earnings.

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The FHLBNY’s primary source of funds is the sale of consolidated obligations in the capital markets, and its ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, which are beyond the FHLBNY’s control. The FHLBNY may not be able to obtain funding on acceptable terms, if at all given the extraordinary market conditions and structural changes in the debt market. If the FHLBNY cannot access funding when needed on acceptable terms, its ability to support and continue operations could be adversely affected, which could negatively affect its financial condition and results of operations. Following the conservatorship of Fannie Mae and Freddie Mac, market pricing of FHLBank issued debt indicates that market participants believe that obligations of the two GSEs offer lower credit risk than FHLBank debt obligations, which are generally grouped into the same GSE asset class as Fannie Mae and Freddie Mac. As a result investors are more likely to require a premium to acquire FHLBank debt relative to debt issued by Fannie Mae and Freddie Mac. The cost of the FHLBanks’ longer-term debt has also increased sharply relative to LIBOR as investors were only willing to purchase debt with very short-term maturities. To the extent the FHLBanks receive sub-optimal funding, the Bank’s member institutions may, in turn, experience higher costs for advance borrowings. To the extent the FHLBanks may not be able to issue long-term debt at economical spreads relative to the 3-month LIBOR rate; the Bank’s member institutions’ borrowing choices may also be limited.

A significant amount of FHLBank bonds are maturing in 2009 and refunding needs will be significant. If the bond market cannot support the refunding volumes, it will put greater pressure on the FHLBank bonds and investors may demand higher yields. Alternatively, the FHLBanks may resort to the issuance of discount notes, which have maturities of up to a year only, to fill any refunding gap. Discount notes may itself face increases challenges as competition increases from Treasury bills as the Treasury funds the multiple programs implemented for the current crises. The impact of the recession may reduce member demand for liquidity and may reduce pressure on the FHLBanks to refinance maturing bonds in 2009.

No other-than-temporary impairment charge was recorded for the FHLBNY’s MBS portfolios in 2008. However, without recovery in the near term such that liquidity returns to the mortgage-backed securities market, or if the credit losses of the underlying collateral within the mortgage-backed securities perform worse than expected, or if the presumption of the ability of monoline insurers to support the insured securities that are considered to dependent on insurance is negatively impacted by their future financial performance, it would be likely that other-than-temporary impairment may occur in future periods. Recognition of impairment would negatively impact the FHLBNY’s Net income.

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Trends in the Financial Markets

Conditions in Financial Markets. The primary external factors that affect net interest income are market interest rates and the general state of the economy. The following table presents changes in key rates over the course of 2008 and 2007 (rates in percent):

	Year-to-date December 31,
	2008		2007		2008		2007
	Average Rate		Average Rate		Ending Rate		Ending Rate
Federal Funds Rate		2.08		5.05		0.25		4.25
3-month LIBOR		2.93		5.30		1.43		4.70
2-year U.S. Treasury		2.00		4.36		0.77		3.05
5-year U.S. Treasury		2.79		4.42		1.55		3.44
10-year U.S. Treasury		3.64		4.63		2.21		4.03
15-year residential mortgage note rate		5.88		5.94		5.11		5.60
30-year residential mortgage note rate		6.24		6.27		5.28		6.05

Impact of general level of interest rates to the FHLBNY. The level of interest rates during a reporting period impacts the FHLBNY’s profitability, due primarily to the relatively shorter-term structure of earning assets and the impact of interest rates on invested capital. As of December 31, 2008 and 2007, investments, excluding mortgage-backed securities and state and local housing agency obligations, had stated maturities of less than one year. The FHLBNY also used derivatives to effectively change the repricing characteristics of a significant proportion of its advances and consolidated obligation debt, to match shorter-term LIBOR rates that repriced at three-month intervals or less. Consequently, the current level of short-term interest rates, as represented by the overnight Federal funds target rate and the 3-month LIBOR rate, has an impact on the FHLBNY’s profitability.

The level of interest rates also directly affects the FHLBNY’s earnings on invested capital. Compared to other banking institutions, the FHLBNY operates at comparatively low net spreads between the yield it earns on assets and its cost of liabilities. Therefore, the FHLBNY generates a relatively higher proportion of its income from the investment of member-supplied capital at the average asset yield. As a result, changes in asset yields tend to have a greater effect on FHLBNY’s profitability than they do on the profitability of other banking institutions.

In summary, the FHLBNY’s average asset yields and the returns on capital invested in these assets largely reflect the short-term interest rate environment because the maturities of FHLBNY assets are generally short-term in nature, have rate resets that reference short-term rates, or have been hedged with derivatives in which a short-term rate is received.

Changes in rates paid on consolidated obligations and the spread of these rates relative to LIBOR and U.S. Treasury securities may also impact FHLBNY’s profitability. The rate and price at which the FHLBNY is able to issue consolidated obligations, and their relationship to other products such as Treasury securities and LIBOR, change frequently and are affected by a multitude of factors including: overall economic conditions; volatility of market prices, rates, and indices; the level of interest rates and shape of the Treasury curve; the level of asset swap rates and shape of the swap curve; supply from other issuers (including GSEs such as Fannie Mae and Freddie Mac, supra/sovereigns, and other highly-rated borrowers); the rate and price of other products in the market such as mortgage-backed securities, repurchase agreements, and commercial paper; investor preferences; the total volume, timing, and characteristics of issuance by the FHLBanks; the amount and type of advance demand from the FHLBNY’s members; political events, including legislation and regulatory action; press interpretations of market conditions and issuer news; the presence of inflation or deflation; actions by the Federal Reserve; and currency exchange rates.

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Accounting Changes, Significant Accounting Policies and Estimates, and Recently Issued Accounting Standards

Accounting Changes

Adoption of SFAS 157 — Fair Value Measurements. The Bank adopted SFAS 157, “Fair Value Measurements” (SFAS 157) as of January 1, 2008. SFAS 157 defines fair value, expands disclosure requirements around fair values and establishes a framework for measuring fair value. SFAS 157 discusses how entities should measure fair value based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources or those that can be directly corroborated to market sources, while unobservable inputs reflect the FHLBNY’s market assumptions. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market for the asset or liability between market place participants at the measurement date. This definition is based on an exit price rather than transaction (entry) price.

In determining fair value, FHLBNY uses various valuation methods, including both the market and income approaches. SFAS 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, and would be based on market data obtained from sources independent of FHLBNY. Unobservable inputs are inputs that would reflect FHLBNY’s assumptions about the parameters market participants would use in pricing the asset or liability, and would be based on the best information available in the circumstances.

The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-based valuations in which all significant inputs and significant parameters are observable in active markets.

Level 3 — Valuations based upon valuation techniques in which significant inputs and significant parameters are unobservable.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors including, for example, the characteristics peculiar to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by FHLBNY in determining fair value is greatest for instruments categorized as Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Upon adoption of SFAS 157 on January 1, 2008, the FHLBNY implemented the fair value measurement provisions of SFAS 157 for all assets and liabilities recorded at fair value on its Statements of Condition. The adoption of SFAS 157 did not result in any significant changes to valuation techniques used in calculating the fair values of its assets and liabilities under the disclosure provisions of SFAS 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”).

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At December 31, 2008, the FHLBNY measured and recorded fair values under the guidelines established by SFAS 157 in the Statements of Condition for the following assets and liabilities: derivative positions, available-for-sale securities, and certain consolidated obligation bonds that were designated under SFAS 159, “Fair Value Option for Financial Assets and Financial Liabilities” in the third quarter of 2008. A significant percentage of fixed-rate advances and consolidated obligation bonds are hedged to mitigate the risk of fair value changes as a result of changes in the interest rate environment and are typically accounted for under SFAS 133 as qualifying as a fair value hedging relationships. When the FHLBNY deems that a potential hedge relationship under SFAS 133 is either not operationally practical or considers the hedge may not be effective, the FHLBNY may hedge certain advances and consolidated obligation debt in economic hedges.

Derivative positions — The FHLBNY is an end-user of over-the-counter (“OTC”) derivatives to hedge assets and liabilities under the provisions of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, (“SFAS 133”) to mitigate fair value risks. In addition, the Bank records the fair value of an insignificant amount of mortgage-delivery commitments as derivatives, also under the provisions of SFAS 133. For additional information, see Note 19 — Fair Values of Financial Instruments to the financial statements.

Valuations of derivative assets and liabilities reflect the value of the instrument including the value associated with counterparty risk. With the issuance of SFAS 157, these values must take into account the FHLBNY’s own credit standing, thus including the value of the net credit differential between the counterparties to its derivative contracts in the valuation of the derivative instrument. The computed fair values of the FHLBNY’s OTC derivatives takes into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. On a contract-by-contract basis, the collateral and netting arrangements sufficiently mitigated the impact of the credit differential between the FHLBNY and its counterparties to an immaterial level such that no adjustment for nonperformance risk was deemed necessary. Fair values of the derivatives were computed using quantitative models and employed multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors. These multiple market inputs were predominantly actively quoted and verifiable through external sources, including brokers and market transactions. As a result, model selection and inputs did not involve significant judgments.

As a result of pre-existing methodologies, the FHLBNY concluded no refinements were necessary at adoption of SFAS 157 on January 1, 2008, and adoption did not result in a transition adjustment and had no impact to the Bank’s retained earnings at January 1, 2008.

Investments in securities designated as available-for-sale — Changes in the values of available-for-sale securities are recorded in Accumulated other comprehensive income (loss), which is a component of members’ capital, with an offset to the recorded value of the investments in the Statements of Condition.

The FHLBNY’s entire portfolio of mortgage-backed securities designated as available-for-sale at December 31, 2008 was comprised of government-sponsored enterprise (“GSE”) issued collateralized mortgage obligations which were marketable. A small percentage of investments in equity and bond mutual funds were held by two grantor trusts owned by the FHLBNY. The unit prices, or the “Net asset values,” of the underlying mutual funds in the grantor trusts were available through publicly viewable web-sites and the units were marketable at recorded fair values. The FHLBNY believes that the recorded fair values of investments classified as available-for-sale in the Statements of Condition at December 31, 2008 reflected the estimated price at which the positions could be sold.

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All of the FHLBNY’s mortgage-backed securities classified as available-for-sale are marketable and the fair value of investment securities is estimated by management using specialized pricing services that employ pricing models or quoted prices of securities with similar characteristics. Inputs into the pricing models are market based and observable. Examples of such securities, which would generally be classified within Level 2 of the valuation hierarchy and valued using the “market approach” as defined under SFAS 157, include GSE issued collateralized mortgage obligations and money market funds.

See Note 19 — Fair Values of Financial Instruments to the financial statements — for additional disclosure with respect to the Levels associated with assets and liabilities recorded on the Bank’s Statements of Condition at December 31, 2008, and fair value disclosures of financial instruments under the provisions of SFAS 107.

Adoption of SFAS 159 — Fair Value Option for Financial Assets and Financial Liabilities — On February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159” or “FVO”). SFAS 159 creates a fair value option allowing, but not requiring, an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities with changes in fair value recognized in earnings as they occur. It requires entities to separately display on the face of the Statement of condition the fair value of those assets and liabilities for which the entity has chosen to use fair value. In the third quarter of 2008, the FHLBNY elected the FVO designation for certain consolidated obligation bonds which were hedged by interest rate swaps in an economic hedge of the changes in the fair values of the designated bonds.

Adoption of FSP FIN 39-1 — In April 2007, the FASB directed its Staff to issue FSP FIN 39-1, “Amendment of FASB Interpretation No. 39.” (“FSP FIN 39-1”). FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts.” and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. The Bank adopted FSP FIN 39-1 on January 1, 2008 and recognized the effects of applying FSP FIN 39-1 as a change in accounting principle through retrospective application for all financial statement periods presented. Previously, the cash collateral amounts arising from the same master netting arrangement as the derivative instruments were reported as interest-bearing deposits as assets or liabilities, as applicable. These amounts are now components of “Derivative assets” and/or “Derivative liabilities” in the Statements of Condition. The reclassification and adoption had no impact on the Bank’s results of operations, financial condition or cash flows for the periods reported in this Form 10-K.

Certificates of Deposit — During the third quarter of 2008, on a retrospective basis, the FHLBNY reclassified its investments in certificates of deposit, previously reported as interest-bearing deposits, to held-to-maturity securities in its Statements of Condition, income and cash flows based on the definition of a security under SFAS 115. These financial instruments have been classified as held-to-maturity securities based on the FHLBNY’s history of holding them until maturity. This reclassification had no effect on Total assets, Net interest income, Net income, and the Statements of Cash Flows. Because of the short-term nature of these instruments, the Bank reports changes to investments in certificates of deposits on net basis within investing activities in the Statements of Cash Flows.

Significant Accounting Policies and Estimates

The FHLBNY has identified certain accounting policies that it believes are significant because they require management to make subjective judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or by using different assumptions. These policies include estimating the allowance for credit losses on the advance and mortgage loan portfolios, evaluating the impairment of the Bank’s securities portfolios, estimating the liabilities for pension, and estimating fair values of certain assets and liabilities. The Bank has discussed each of these significant accounting policies, the related estimates and its judgment with the Audit Committee of the Board of Directors.

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The FHLBNY adopted SFAS 157 and SFAS 159 as of January 1, 2008, and these are discussed more fully in previous paragraphs of this section under Accounting Changes. At December 31, 2008, the FHLBNY recorded derivative assets and liabilities, available-for-sale assets, and certain consolidated obligation bonds in its Statements of Condition under the measurement standards of SFAS 157. SFAS 157 measurement standards were adopted in the fair value measurement of financial assets and liabilities disclosed under the provisions of SFAS 107 “Disclosures About Fair Value of Financial Instruments” (“SFAS 107”). See Estimated Fair values (SFAS 107) — Summary Tables for more information about fair values (Note 19 — Fair Values of Financial Instruments). Policies, estimates, and assumptions are also described in Note 1 — Accounting Changes, Significant Accounting Policies and Estimates, and recently Issued Accounting Standards. Policies with respect to the valuation of derivatives and associated hedged items are also described in Note 18 — Derivatives and hedging activities to the financial statements.

In the third quarter of 2008, the Bank elected certain fixed-rate, short-term consolidated obligation bonds to be accounted under the FVO as these bonds presented the FHLBNY with an exposure to changes in their fair value resulting from changes in the full fair values of the bonds. In order to hedge this exposure, the FHLBNY entered into a pay floating-rate, receive fixed-rate swap. The Bank elected the fair value option for these bonds as the Bank was unable to assert with certainty the expectations of on-going hedge effectiveness under the SFAS 133 hedging rules.

SFAS 157 measurement standards were adopted with the fair value of financial assets and liabilities disclosed under the provisions of SFAS 107 “Disclosures About Fair Value of Financial Instruments” (“SFAS 107”). See Estimated Fair values (SFAS 107) — Summary Tables for more information about fair values.

Advances and consolidated obligation debt hedged for changes in fair value attributable to interest rate risk under the provisions of SFAS 133 are carried at values that reflect an adjustment of their carrying value attributable to the changes in the benchmark interest rate. The Bank has adopted LIBOR as its benchmark interest rate.

Valuation of Financial Instruments

With the adoption of SFAS 157 as of January 1, 2008, the FHLBNY evaluated its pre-adoption valuation techniques for the measurement of the Bank’s over-the-counter derivative positions and available-for sale securities, both of which are carried at fair value in the Statements of Condition at December 31, 2008 and 2007, and concluded that the measurement methodologies met the requirements of SFAS 157. Fair values and the fair value hierarchy of the Bank’s derivative assets and liabilities, and the fair values of its available-for-sale portfolio are summarized in Note 19 — Fair Values of Financial Instruments to the financial statements.

SFAS 107 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which the Bank did not elect the fair value option. The fair values of the Bank’s financial instruments as disclosed in Note 19 — Fair Values of Financial Instruments (SFAS 107), complied with SFAS 157. Specifically, the Bank’s valuation techniques incorporated standards that required that the techniques utilize market observable or market corroborated inputs when available. Observable inputs reflect market data obtained from independent sources or those that can be directly corroborated to market sources, while unobservable inputs reflect the FHLBNY’s market assumptions.

The valuation techniques also incorporated the SFAS 157 definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between marketplace participants at the measurement date. This definition is based on an exit price rather than transaction (entry) price.

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Valuation Techniques — Three valuation techniques are prescribed under SFAS 157 — Market approach, Income approach and Cost approach. Valuation techniques for which sufficient data is available and that are appropriate under the circumstances should be used.

• Market approach — This technique uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

• Income approach — This technique uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted), based on assumptions used by market participants. The present value technique used to measure fair value depends on the facts and circumstances specific to the asset or liability being measured and the availability of data.

• Cost approach — This approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost).

Upon adoption of SFAS 157 on January 1, 2008, the FHLBNY implemented the fair value measurement provisions of SFAS 157 for all assets and liabilities recorded at fair value on its Statements of Condition. The adoption of SFAS 157 did not result in any material changes to valuation techniques previously utilized in calculating the fair values of its assets and liabilities under the disclosure provisions of SFAS 107, “Disclosures about Fair Value of Financial Instruments”. FHLBNY did not record a transition adjustment upon adoption of SFAS 157.

Derivative positions — The FHLBNY is an end-user of over-the-counter (“OTC”) derivatives to hedge assets and liabilities, or a forecasted transaction under the provisions of SFAS 133 to mitigate fair value risks. In addition, the Bank records the fair values of insignificant amounts of mortgage-delivery commitments as derivatives, also under the provisions of SFAS 133. For additional information, see Note 18 — Derivatives and hedging activities to the financial statements.

Discounted cash flow analysis is the primary methodology employed by the FHLBNY’s valuation models to measure and record the fair values of its derivative positions. The valuation technique is considered as an “Income approach” as defined in SFAS 157. Derivatives are valued using industry-standard option adjusted valuation models that utilize market inputs, which can be corroborated from widely accepted third-party sources. The Bank’s valuation model utilizes a modified Black-Karasinski model which assumes that rates are distributed log normally. The log-normal model precludes interest rates turning negative in the model computations. Significant market based and observable inputs into the valuation model include volatilities and interest rates. Derivative values are classified as Level 2 within the fair value hierarchy.

SFAS 157 clarified that the valuation of derivative assets and liabilities must reflect the value of the instrument including the values associated with counterparty risk and must also take into account the company’s own credit standing. The Bank has collateral agreements with all of its derivative counterparties and vigorously enforces collateral exchanges at least on a weekly basis. The Bank and each of its derivative counterparties have collateral thresholds that take into account both the Bank’s and counterparty’s credit ratings. The Bank has concluded that these practices and agreements and the FHLBNY’s assessment of any change in its own credit spread sufficiently mitigated the impact of the credit differential between the FHLBNY and counterparties to an immaterial level such that no adjustment for nonperformance risk was deemed necessary.

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The FHLBNY employs control processes to validate the fair value of its financial instruments, including those derived from valuation models. These control processes are designed to ensure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to ensure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. These control processes include reviews of the pricing model’s theoretical soundness and appropriateness by specialists with relevant expertise who are independent from the trading desks or personnel who were involved in the design and selection of model inputs. Additionally, groups that are independent from the trading desk and personnel involved in the design and selection of model inputs participate in the review and validation of the fair values generated from the valuation model. The FHLBNY maintains an ongoing review of its valuation models and has a formal model validation policy in addition to procedures for the approval and control of data inputs.

Investment securities classified as held-to-maturity and available-for-sale - The FHLBNY used the valuation technique referred to as the “Market approach” under the provisions of SFAS 157 to estimate the fair values of its investment securities.

The predominant portion of the available-for-sale portfolio at December 31, 2008 was comprised of GSE issued collateralized mortgage obligations. A small percentage consisted of investments in two grantor trusts which held positions in equity and bond mutual funds. The unit prices, or the “Net asset values” of the underlying mutual funds were available through publicly viewable web-sites and the units were marketable at recorded fair values. The recorded fair values of available-for-sale securities in the Statements of Condition at December 31, 2008 and 2007 are an estimate of the price at which the positions could sold.

The fair value of investment securities is estimated by management using information from specialized pricing services that use pricing models or quoted prices of securities with similar characteristics. Inputs into the pricing models employed by pricing services are market based and observable for Level 1 and Level 2 securities. The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models. Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if securities that are traded in sufficient volumes in the secondary market. The valuation of the Bank’s private-label securities that are all designated as held-to-maturity may require pricing services to use significant inputs that are subjective and may be considered to be Level 3 inputs because the inputs may not be market based and observable.

A significant percentage (81.3%) of the Bank’s held-to-maturity mortgage-backed securities was comprised of MBS issued by GSE or U.S. government agencies. At December 31, 2008, investments in “private label” securities made up 18.7% of investments in mortgage-backed securities and these were rated triple-BB or better, with the majority rated triple-A. GSE and U.S. government issued MBS were rated triple-A (For more information see Note 4 — Held-to-Maturity Securities to the financial statements). The portfolio also included investments in bonds issued by state and local finance agencies which constitute a small percentage of the held-to-maturity portfolio. In summary, the fair values of held-to-maturity securities at December 31, 2008 as disclosed in Note 19 — Fair Values of Financial Instruments in the table titled Estimated Fair Values (SFAS 107) are an estimate of the price at which the positions could be sold.

The FHLBNY routinely performs a comparison analysis of pricing to understand pricing trends and to establish a means of validating changes in pricing from period-to-period. In addition, the Bank runs pricing through prepayment models to test the reasonability of pricing relative to changes in the implied prepayment options of the bonds. Separately, the Bank performs comprehensive credit analysis, including the analysis of underlying cash flows and collateral. The FHLBNY believes such methodologies — valuation comparison, review of changes in valuation parameters, and credit analysis — mitigate the effects of the credit crisis which has tended to reduce the availability of certain observable market pricing or has caused the widening of the bid/offer spread of certain securities, primarily for the Bank’s portfolio of private-label MBS.

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Investments in mortgage loans and MPF — The Bank acquires loans under the Mortgage Partnership Finance^® (“MPF^®”) Program. The MPF loans and loans in the inactive CMA program were priced using the valuation technique referred to as the “Market approach” under the provisions of SFAS 157. Loans were aggregated into synthetic pass-through securities based on product type, loan origination year, gross coupon and loan maturity. They were then compared against closing TBA prices that are extracted from a third party market corroborated source. Adjustments, such as liquidity or seasoning which were considered unobservable, did not significantly impact the fair values of the mortgage loans.

Consolidated obligation bonds and discount notes — With regard to the FHLBNY’s liabilities, the consolidated obligations have a secondary market but there are limits to its liquidity and the FHLBNY’s ability to obtain timely quotes, particularly with regard to option-embedded issues that are seldom traded. Therefore, FHLBNY priced its bonds off of the current consolidated obligations market curve, which has a daily active market. The fair values of consolidated obligation debt (bonds and discount notes) were computed using standard option valuation models using market data: (1) consolidated obligation debt curve that is available to the public and published by the Office of Finance (the FHLBanks’ fiscal agent), and (2) LIBOR curve and volatilities. The consolidated obligation debt curve and LIBOR are the most significant inputs to its valuation model and both are market observable and can be directly corroborated. Accordingly, unobservable FHLBNY adjustments to derive an exit price are not considered significant.

Advances — With regard to the FHLBNY’s advances, the Bank does not have a principal market (i.e., a market in which the Bank would sell the advance with the greatest volume and level of activity for the asset) for determining an exit price. There is no secondary market with sufficient volume for the FHLBNY to obtain timely quotes. The sale of advances to other FHLBanks is infrequent and, as such, there does not appear to be a precedent that may be used to determine the price to sell an advance, or sufficient volume to transact in an “exit” market. Also, the sale of advances to other FHLBanks would be considered a related party transaction and an exit price in such an arrangement would not constitute a liquidation value. Accordingly, the Bank believes that its most advantageous market to exit an advance position is a hypothetical transaction executed between the Bank and market participants. The current advance price reflects the fair value the Bank would receive to originate a new advance. The current price is the Bank’s internally generated pricing process which is available to all members. The Bank believes that these prices reflect the assumptions market participants in the hypothetical transaction would use in pricing the advance because they are updated daily and based on the best information available in the current market.

Except for overnight and very short-term advances, whose fair values were based on a “Cost approach,” generally, the fair values of advances were based on the “Income approach” and were computed using standard option valuation models. The most significant inputs to its valuation model to value advances were (1) consolidated obligation debt curve that is available to the public and published by the Office of Finance, and (2) LIBOR swap curve and volatilities. Both inputs to the valuation model are market based and observable.

Provision for Credit Losses for Mortgage loans

The provision for credit losses for advances (none) and mortgage loans, including those acquired under the Mortgage Partnership Finance Program (“MPF”) represents management’s estimate of the probable credit losses inherent in these two portfolios. Determining the amount of the provision for credit losses is considered a critical accounting estimate because management’s evaluation of the adequacy of the provision is subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses based on historical loss experience, and consideration of current economic trends, all of which are susceptible to change. The FHLBNY’s assumptions and judgments on its provision for credit losses are based on information available as of the date of the financial statements. Actual results could differ from these estimates.

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Advances — No provisions for credit losses were required. The analysis for credit losses on advances includes the following underlying assumptions that the FHLBNY uses for evaluating its exposure to credit loss: (i) management’s judgment on the creditworthiness of the members to which the FHLBNY lends funds, (ii) review and valuation of the collateral pledged by members, and (iii) evaluation of historical loss experience. The FHLBNY has policies and procedures in place to manage its credit risk effectively. These include:

• Monitoring the creditworthiness and financial condition of the institutions to which it lends funds.

• Reviewing the quality and value of collateral pledged by members to secure advances.

• Estimating borrowing capacity based on collateral value and type for each member, including assessment of margin requirements based on factors such as cost to liquidate and inherent risk exposure based on collateral type.

• Evaluating historical loss experience.

Significant changes to any of the factors described above could materially affect the FHLBNY’s provision for losses on advances. For example, the FHLBNY’s current assumptions about the financial strength of any member may change due to various circumstances, such as new information becoming available regarding the member’s financial strength or future changes in the national or regional economy. New information may require the FHLBNY to place a member on credit watch and require collateral to be delivered, adjust its current margin requirement, or provide for losses on advances.

The FHLBNY is required by Finance Agency regulations to obtain sufficient collateral on advances to protect against losses, and to accept only certain collateral on its advances, such as U.S. government or government-agency securities, residential mortgage loans, deposits in the FHLBNY, and other real estate related assets. The FHLBNY has never experienced a credit loss on an advance. Based on the collateral held as security for advances, management’s credit analyses, and prior repayment history, no allowance for credit losses on advances was deemed necessary by management at December 31, 2008, 2007, or 2006.

At December 31, 2008, 2007 and 2006, the FHLBNY had rights to collateral, either loans or securities, on a member-by-member basis, with an estimated liquidation value in excess of outstanding advances.

Mortgage Loans — MPF Program. The provision for credit losses on mortgage loans includes the following assumptions used to evaluate the FHLBNY’s exposure to credit loss: (i) management’s judgment on the eligibility of members to participate in the program, (ii) evaluation of credit exposure on purchased loans, and (iii) assessment of loss exposure and historical loss experience.

The FHLBNY has policies and procedures in place to manage its credit risk effectively. These include:

• Evaluation of members to ensure that they meet the eligibility standards for participation in the MPF Program.

• Evaluation of the purchased and originated loans to ensure that they are qualifying conventional, conforming fixed-rate, first lien mortgage loans with fully amortizing loan terms of up to 30 years, secured by owner-occupied, single-family residential properties.

• Estimation of loss exposure and historical loss experience to establish an adequate level of loss reserves.

The FHLBNY places a mortgage loan on non-accrual status when the collection of the contractual principal or interest is 90 days or more past due. When a mortgage loan is placed on non-accrual status, accrued but uncollected interest is reversed against interest income. The FHLBNY records cash payments received on non-accrual loans as a reduction of principal.

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Allowance for credit losses on MPF Program loans, which are classified either under regulatory criteria (Special Mention, Sub-standard, or Loss) or past due, are separated from the aggregate pool. If adversely classified, or on non-accrual status, reserves for MPF loans, except Federal Housing Administration and Veterans Administration insured loans, are analyzed under liquidation scenarios on a loan level basis and identified losses greater than $1,000 are fully reserved. Federal Housing Administration and Veterans Administration insured mortgage loans have minimal inherent credit risk; risk generally arises mainly from the servicer defaulting on their obligations. Federal Housing Administration and Veterans Administration mortgage loans, if adversely classified will have reserves established only in the event of a default of a Participating Financial Institution. Reserves are based on the estimated costs to recover any uninsured portion of the MPF loan.

Mortgage loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreements.

Management of the FHLBNY identifies inherent losses through analysis of the conventional loans (loss analysis excludes Federal Housing Administration and Veterans Administration insured loans) that are not classified.

When a mortgage loan is foreclosed, the FHLBNY will charge to the loan loss reserve account any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.

The FHLBNY also holds participation interest in residential and community development mortgage loans through its Community Mortgage Asset (“CMA”) program. Acquisitions of participations under the Community Mortgage Asset program were suspended indefinitely in November 2001, and the outstanding balance of Community Mortgage Asset loans was $4.0 million at December 31, 2008 compared to $4.1 million at December 31, 2007. If adversely classified, Community Mortgage Asset loans would require additional loan loss reserves based on the shortfall of the liquidation value of collateral to cover the remaining balance of the loan.

Evaluating Other-than-temporary Impairment of Investment Securities

Securities are classified as either available-for-sale (“AFS”) or held-to-maturity (“HTM”) and are discussed in Note 4 — Held-to-maturity securities and Note 5 — Available-for-sale securities (“AFS”) to the financial statements. Also, investments are discussed in Asset Quality and Concentration — Advances, Investment securities, and Mortgage Loans in this MD&A. Securities are classified primarily as AFS when purchased as part of the Bank’s investment strategy. AFS securities are carried at fair value on the Statements of Condition. Unrealized gains and losses after any applicable SFAS 133 hedge accounting adjustments (there were none) are reported as net increases or decreases to Accumulated other comprehensive income (loss). The specific identification method is used to determine realized gains and losses on AFS securities, which are included in Other Income (loss) in the Statements of Income. Realized gains and losses on AFS securities were not material in 2008, 2007 or 2006. Securities that the Bank has the positive intent and ability to hold to maturity are classified as HTM and are carried at amortized cost in the Statements of Condition.

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Impairment of securities is evaluated considering numerous factors, and their relative significance varies case-by-case. Factors considered include the length of time and extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer of a security; and the Bank’s intent and ability to retain the security in order to allow for an anticipated recovery in fair value. Securities with weaker performance measures are evaluated by estimating projected cash flows based on the structure of the security and certain assumptions, such as default rates and loss severity, to determine whether the FHLBNY expects to receive the contractual cash flows when it is entitled. The FHLBNY evaluates recent events specific to the issuer and industry; external credit ratings and recent downgrades. If, based upon an analysis of each of the above factors, it is determined that the impairment is other-than-temporary, the carrying value of the security is written down to fair value, and a loss is recognized through earnings.

Held-to-maturity securities — At December 31, 2008, amortized cost of the Bank’s HTM portfolio of mortgage-backed securities was $9.3 billion, and comprised of $7.6 billion, or 81.3%, of securities issued by government sponsored enterprises (“GSEs”) and government agencies, and $1.7 billion, or 18.7%, of private label mortgage-backed securities (“PLMBS”) issued by entities other than GSEs. At December 31, 2008, the Bank also had $804.1 million amortized cost in investments in housing finance agency bonds (“HFA”) classified as HTM.

Mortgage-backed securities with unrealized losses aged greater than 12 months consisted principally of non-agency private label issued MBS. At December 31, 2008, amortized cost of $0.9 billion of PLMBS was in unrealized loss positions aged greater than 12 months. Amortized cost of MBS issued by GSEs that were in unrealized loss positions aged greater than 12 months were de minimis. HFA bonds, amortized cost $0.1 billion, were also in unrealized loss positions aged greater than 12 months. Due to the issuers’ continued satisfaction of their obligations under the contractual terms of the securities and or the performance of the monoline insurers under the contractual terms of insurance, the FHLBNY’s evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, and the FHLBNY’s consideration of its intent and ability to hold the securities for a period of time sufficient to allow for the anticipated recovery in the market value of the securities, the FHLBNY believes that these securities were not other-than-temporarily impaired as of December 31, 2008 and 2007.

Available-for-sale securities — The Bank’ s entire portfolio of mortgage-backed securities classified as AFS were comprised of GSE issued, variable rate collateralized mortgage obligations which are “pass through” securities. Due to the issuers’ continued satisfaction of their obligations under the contractual terms of the securities, the FHLBNY’s evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, and the FHLBNY’s consideration of its intent and ability to hold the securities for a period of time sufficient to allow for the anticipated recovery in the market value of the securities, the FHLBNY believes that these securities were not other-than-temporarily impaired as of December 31, 2008. The FHLBNY generally views the gross unrealized losses of its MBS portfolio classified as AFS as caused by interest rate changes, credit spread widening and reduced liquidity. Two small grantor trusts with investments in money market and bond funds make up the remainder of the AFS portfolio.

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Accounting for Derivatives

The Bank records and reports hedging activities in accordance with SFAS 133 “Accounting for Derivatives Instruments and Hedging Activities”, as amended. In compliance with this standard, the Bank’s accounting for derivatives includes the following assumptions and estimates: (i) assessing whether the hedging relationship qualifies for hedge accounting under SFAS 133, (ii) assessing whether an embedded derivative should be bifurcated under SFAS 133, (iii) calculating the estimated effectiveness of the hedging relationship, (iv) evaluating exposure associated with counterparty credit risk, and (v) estimating the fair value of the derivatives. The FHLBNY’s assumptions and judgments include subjective estimates based on information available as of the date of the financial statements and could be materially different based on different assumptions, calculations, and estimates.

The FHLBNY specifically identifies the hedged asset or liability and the associated hedging strategy. Prior to execution of each transaction, the FHLBNY documents the following items:

• Hedging strategy

• Identification of the item being hedged

• Determination of the accounting designation under SFAS 133

• Determination of method used to assess the effectiveness of the hedge relationship

• Assessment that the hedge is expected to be effective in the future if designated as a hedge under SFAS 133

All derivatives are recorded on the Statements of Condition at their fair value and designated as either fair value or cash flow hedges for SFAS 133-qualifying hedges or as non-SFAS 133-qualifying hedges (economic hedges, or customer intermediations). In an economic hedge, the Bank retains or executes derivative contracts, which are economically effective in reducing risk, either because a SFAS 133-qualifying hedge is not available or because the cost of a qualifying hedge is not economical.

Any changes in the fair value of a derivative are recorded in current period earnings or other comprehensive income, depending on the type of hedge designation.

In addition, the FHLBNY evaluates its products offered to its members and debt issued to investors to determine whether an embedded derivative exists based on the guidance of SFAS 133. The evaluation includes reviewing the terms of the instrument to identify whether some or all of the cash flows or the value of other exchanges required by the instrument are similar to a derivative and should be bifurcated from the host contract. If it is determined that an embedded derivative should be bifurcated, the FHLBNY measures the fair value of the embedded derivative separately from the host contract and records the changes in fair value in earnings. The FHLBNY did not have to bifurcate any embedded derivative in any period reported.

Assessment of Effectiveness. Highly effective hedging relationships that use interest rate swaps as the hedging instrument to hedge a recognized asset or liability and that meet criteria under paragraph 68 of SFAS 133 qualify for an assumption of no ineffectiveness (also referred to as the “short-cut” method). The short-cut method allows the FHLBNY to assume that the change in fair value of the hedged item attributable to the benchmark interest rates (LIBOR for the Bank) equals the change in fair value of the derivative during the life of the hedge.

For a hedging relationship that does not qualify for the short-cut method, the FHLBNY measures its effectiveness by assessing and recording the change in fair value of the hedged item attributable to the risk being hedged separately from the change in fair value of the derivative. This method for measuring effectiveness is also referred to as the “long-haul” method. The FHLBNY designs effectiveness testing criteria based on its knowledge of the hedged item and hedging instrument that were employed to create the hedging relationship. The FHLBNY uses regression analyses to evaluate effectiveness results, which must fall within established tolerances. Effectiveness testing is performed at hedge inception, and on at least a quarterly basis for both prospective considerations and retrospective evaluations.

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Hedge Discontinuance. When a hedging relationship fails the effectiveness test, the FHLBNY immediately discontinues hedge accounting. In addition, the FHLBNY discontinues hedge accounting for a cash flow hedge when it is no longer probable that a forecasted transaction will occur in the original expected time period, or when the fair value hedge of a firm commitment no longer meets the required criteria of a firm commitment. The FHLBNY treats modifications of hedged items (e.g., reduction in par amounts, change in maturity date, and change in strike rates) that are other than minor as a termination of a hedge relationship. The FHLBNY records the effect of discontinuance of hedges to earnings as a Net realized and unrealized gain (loss) on derivatives and hedging activities, in “Other income (loss)”.

Accounting for Hedge Ineffectiveness. The FHLBNY quantifies and records the ineffectiveness portion of a hedging relationship as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss). Ineffectiveness for fair value hedging relationships is calculated as the difference in the change in fair value of the hedging instrument and the change in fair value of the hedged item that is attributable to the risk being hedged, which has been designated by the Bank as LIBOR. Ineffectiveness for anticipatory hedge relationships is recorded when the change in the fair value of the hedging instrument differs from the related change in the present value of the cash flows from the anticipated hedged item.

Credit Risk from Counterparties. The FHLBNY is subject to credit risk as a result of nonperformance by counterparties to the derivative agreements. The FHLBNY enters into master netting arrangements and bilateral security agreements with all active non-members derivative counterparties, which provide for delivery of collateral at specified levels to limit the FHLBNY’s net unsecured credit exposure to these counterparties. The FHLBNY makes judgments on each counterparty’s creditworthiness and estimates of collateral values in analyzing its credit risk for nonperformance by counterparties. Bilateral agreements consider the credit risks and the agreement specifies thresholds that change with changes in credit ratings. Typically, collaterals are exchanged when fair values of derivative positions exceed the predetermined thresholds. To the extent that the fair values do not equal the collateral posted as a result of the thresholds in place, the FHLBNY or the derivative counterparty is exposed to credit risk in the event of a default. Also, to the extent that the posted collateral do not equal the replacement fair values of open derivative positions in a scenario such as a default, the FHLBNY or the derivative counterparty is exposed to credit risk. All extensions of credit, including those associated with the purchase or sale of derivatives, to members of the FHLBNY are fully secured by eligible collateral.

Recording of Derivatives and Hedged items. The FHLBNY records derivatives on trade date, but records the associated hedged consolidated obligations and advances on settlement date. Hedge accounting commences on trade date, at which time subsequent changes to the derivative’s fair value are recorded along with the offsetting changes in the fair value of the hedged item. On settlement date, the adjustments to the hedge items carrying amount are combined with the proceeds and become part of its total carrying amount.

The FHLBNY has defined its market settlement conventions for hedged items to be five business days or less for advances and thirty calendar days or less, using a next business day convention, for consolidated obligation bonds and discount notes. These market settlement conventions are the shortest period possible for each type of advance and consolidated obligation from the time the instruments are committed to the time they settle.

The FHLBNY considers hedges of committed advances and consolidated obligations bonds eligible for the short-cut accounting, under paragraph 68 of FAS 133, as long as settlement of the committed asset or liability occurs within the shortest period possible for that type of instrument. The FHLBNY also believes the conditions of paragraph 68 (b) of FAS 133 are met if the fair value of the swap is zero on the date the FHLBNY commits itself to issue the consolidated obligation bond.

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Recently Issued Accounting Standards and Interpretations

SFAS 161 — In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (January 1, 2009 for the FHLBNY). Since SFAS 161 only requires additional disclosures concerning derivatives and hedging activities, adoption of SFAS 161 will not have an effect on our financial condition, results of operations or cash flows.

FSP No. FAS 133-1 and FIN 45-4. In September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.” FSP No. FAS 133-1 and FIN 45-4 require enhanced disclosures about credit derivatives and guarantees and amends FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” to exclude credit derivative instruments accounted for at fair value under SFAS No. 133. The FSP is effective for financial statements issued for reporting periods ending after November 15, 2008 (December 31, 2008 for the FHLBNY). Since FSP No. FAS 133-1 and FIN 45-4 only require additional disclosures concerning credit derivatives and guarantees, adoption of FSP No. FAS 133-1 and FIN 45-4 will not have an effect on the Bank’s financial condition, results of operations or cash flows.

FSP No. FAS 157-3 — In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”, which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial instrument when the market for that financial asset is not active. The FSP was effective upon issuance. The application of this FSP did not have an impact on the FHLBNY’s financial position, results of operations or cash flows.

FSP EITF 99-20-1 — In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20 (“FSP EITF 99-20-1”)”. FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirement in SFAS 115 and other related guidance. FSP EITF 99-20-1 is effective and should be applied prospectively for financial statements issued for fiscal years and interim periods ending after December 15, 2008 (December 31, 2008 for the FHLBNY). Adoption of FSP EITF 99-20-1 at December 31, 2008 did not have a material effect on the FHLBNY’s financial condition, results of operations or cash flows.

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Legislative and Regulatory Developments

Changes to Regulation of U.S. government-sponsored enterprises.

In July 2008, the “Housing and Economic Recovery Act of 2008” (the “Housing Act”) was enacted and had no impact on the Bank’s business, results of operations, financial condition or cash flows for the periods reported in this Form 10-K. Among other changes, the Housing Act established an independent federal regulator, the Federal Housing Finance Agency (the “Finance Agency”), which became the new federal regulator of the FHLBanks, Fannie Mae and Freddie Mac effective on July 30, 2008. The Finance Agency is headed by a single Director (the “FHFA Director”), and under the Housing Act, the initial acting FHFA Director is James Lockhart, who had most recently served as the Director of the Office of Federal Housing Enterprise Oversight within the U.S. Department of Housing and Urban Development. The Federal Housing Finance Board (the “Finance Board”), the FHLBanks’ former regulator, will be abolished one year after the date of enactment of the Housing Act. During the one-year transition period, the Finance Board will be responsible for winding up its affairs. Finance Board regulations, orders, determinations and resolutions remain in effect until modified, terminated, set aside or superseded in accordance with the law, by the FHFA Director, a court of competent jurisdiction or by operation of the law. The FHLBNY has determined that changes in regulations will have no material impact on its business or financial position or results of operations and cash flows.

U.S. Treasury Department’s Financial Stability Plan

In February 2009, the U.S. Treasury announced a Financial Stability Plan to address the global capital markets crisis and U.S. economic recession that continues into 2009. The plan consists of comprehensive stress tests of certain financial institutions, the provision of capital injections to certain financial institutions, controls on the use of capital injections, a purchase program for certain illiquid assets, limits on executive compensation, anti-foreclosure and housing support requirements, and small business and community lending initiatives. The plan is largely devoid of details, and in the absence of such details, the FHLBNY is unable to predict what impact the plan is likely to have on the Bank.

Federal Housing Finance Agency Proposal to Expand FHLBank Capital Requirements

Effective January 30, 2009, the Finance Agency promulgated an interim final rule on capital classifications and critical capital levels for the FHLBanks (the “Interim Capital Rule”). The Interim Capital Rule has a comment deadline of April 30, 2009 following which the Finance Agency is expected to promulgate a final rule on capital classifications and critical capital levels for the FHLBanks (the “Final Capital Rule”). The Interim Capital Rule, among other things, established criteria for four capital classifications. Those classifications are: adequately capitalized (highest rating); undercapitalized; significantly undercapitalized; and critically undercapitalized. The Interim Capital Rule also establishes corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. The Interim Capital Rule requires the Finance Agency Director to determine on no less than a quarterly basis the capital classification of each FHLBank. Each FHLBank is required to notify the Finance Agency Director within ten calendar days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level necessary to maintain its assigned capital classification.

The FHLBNY meets the “adequately capitalized” classification, which is the highest rating, under the Interim Capital Rule. However, the Finance Agency has discretion to re-classify an FHLBank and to modify or add to the corrective action requirements for a particular capital classification, therefore management cannot predict the impact, if any, the Interim Capital Rule or the Final Capital Rule will have on the Bank.

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Proposed Federal Legislation Permitting Bankruptcy Cramdowns on First Mortgages of Owner-Occupied Homes

Federal legislation has been proposed that would allow bankruptcy cramdowns on first mortgages of owner-occupied homes as a response to the U.S. economic recession and attendant U.S. housing recession. The proposed legislation would allow a bankruptcy judge to reduce the principal amount of such mortgages to the current market value of the property, such reduction currently being prohibited by the Bankruptcy Reform Act of 1994. If passed, this legislation may impact the value of the FHLBNY’s mortgage asset portfolio, as well as the value of its pledged collateral from members.

Federal Banking Agencies Proposal to Lower Capital Risk Weights for Fannie Mae and Freddie Mac

In October 2008, the Federal Banking Agencies proposed a rule that would lower the capital risk weighting that banks assign to their holdings of Fannie Mae and Freddie Mac debt from 20 to 10 percent. The new risk weighting would apply to senior debt, subordinated debt, and MBS issued or guaranteed by Fannie Mae and Freddie Mac. The FDIC closed the comment window for this proposal on November 26, 2008. As of February 28, 2009 a final ruling has not been issued by the FDIC.

FDIC Creates Temporary Liquidity Guarantee Program for Bank Debt

In October 2008, under special systemic risk powers, the FDIC announced it will provide a 100 percent guarantee for newly issued senior unsecured debt and non-interest bearing transaction deposit accounts at FDIC-insured institutions. The guarantee of funds in non-interest bearing transaction deposit accounts will expire December 31, 2009. A 10 basis point surcharge would be applied to non-interest bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of $250,000.

The program to guarantee debt will apply to all newly issued senior unsecured debt issued on or before October 31, 2009, including promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. The amount of debt covered by the guarantee may not exceed 125 percent of debt that was outstanding as of September 30, 2008 that was scheduled to mature before October 31, 2009. For eligible debt issued on or before October 31, 2009, coverage would only be provided through June 30, 2012, even if the liability has not matured. For all newly issued senior unsecured debt, an annualized fee equal to 75 basis points would be multiplied by the amount of debt issued.

In February 2009, the FDIC issued an interim rule to modify the TLGP to include certain issuances of mandatory convertible debt. The intent of the mandatory convertible debt amendment to the TLGP is to give eligible entities additional flexibility to obtain funding from investors with longer-term investment horizons. Further, mandatory convertible debt issuances could reduce the concentration of FDIC-guaranteed debt maturing in mid 2012, which might otherwise have to be rolled into new debt. The comment period for this interim rule closed on March 19, 2009.

FDIC Increases Deposit Insurance Premiums and Changes Risk-Based Premiums

In December 2008, the FDIC approved an increase in deposit insurance premiums effective the first quarter of 2009. On February 27, 2009 the FDIC approved a final regulation that would increase the deposit insurance premium assessment for those FDIC-insured institutions that have outstanding FHLBank advances and other secured liabilities to the extent that the institution’s ratio of secured liabilities to domestic deposits exceeds 25 percent. The FHLBNY is currently evaluating the effect this final ruling will have on its members.

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Emergency Economic Stabilization Act

In October 2008, the U.S. President signed into law the EESA. The EESA establishes a $700 billion program that gives the Secretary of the Treasury (the “Secretary”) broad powers to apply these funds as deemed appropriate. The Secretary is to purchase troubled assets and stabilize credit markets. The authority terminates on December 31, 2009 although the Secretary may extend the program for an additional ten months by submitting a written certification to Congress.

Federal Reserve Board of Governors Announces Securities Purchase Plan

As an additional measure to further support the functioning of financial markets, in September 2008, the Federal Reserve Board of Governors announced that the Federal Reserve Banks will begin purchasing short-term debt obligations issued by Fannie Mae, Freddie Mac, and the FHLBanks in the secondary market. Similar to secondary market purchases of Treasury securities, purchases of Fannie Mae, Freddie Mac, and FHLBank debt will be conducted with the Federal Reserve Banks’ primary dealers through a series of competitive auctions.

Establishment of an Independent Director Election Process

The Housing Act provides that an FHLBank’s board of directors shall be comprised of a majority of “member directors,” who are directors or officers of members, and a minority of non-member “independent” directors, who shall comprise not less than two-fifths of the members of the board of directors. Prior to July 30, 2008, the Finance Board was responsible for selecting appointive directors to serve on the Bank’s Board of Directors. As a result of the passage of the Housing Act and subsequent Finance Agency rulemaking, all members within the Bank’s five-state district will now elect the Bank’s independent directors — formerly known as “appointive directors” — after first being nominated by the Bank’s Board of Directors in consultation with the Affordable Housing Advisory Council.

For information on the FHLBNY’s director election process, refer to Item 4 — Submission of Matters to a Vote of Security Holders.

Finance Agency’s Temporary Increase on Purchase of MBS

In March 2008, the Finance Agency (known as the Finance Board at the time of passage) passed a resolution authorizing the FHLBanks to increase their purchases of agency MBS. Pursuant to the resolution, the limit on the FHLBank’s MBS investment authority would increase from 300 percent of regulatory capital to 600 percent of regulatory capital for two years. The resolution required an FHLBank to notify the Finance Agency prior to its first acquisition under the expanded authority and include in its notification a description of the risk management principles underlying its purchase. The expanded authority is limited to Fannie Mae and Freddie Mac securities. The securities purchased under the increased authority must be backed by mortgages that were originated after January 1, 2008 and comply with Federal bank regulatory guidance on non-traditional and subprime mortgage lending. The FHLBNY has not increased its investments in additional agency MBS allowed under the Finance Agency resolution.

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Financial Condition: Assets, Liabilities, Capital, Commitments and Contingencies (dollars in thousands):

	December 31,
					Net change in			Net change in
	2008		2007		dollar amount			percentage
Assets
Cash and due from banks	$	18,899	$	7,909	$	10,990			138.96	%
Interest-bearing deposits		12,169,096		—		12,169,096		NM
Federal funds sold		—		4,381,000		(4,381,000	)		(100.00	)
Available-for-sale securities		2,861,869		13,187		2,848,682		NM
Held-to-maturity securities
Long-term securities		10,130,543		10,284,754		(154,211	)		(1.50	)
Certificates of deposit		1,203,000		10,300,200		(9,097,200	)		(88.32	)
Advances		109,152,876		82,089,667		27,063,209			32.97
Mortgage loans held-for-portfolio		1,457,885		1,491,628		(33,743	)		(2.26	)
Loans to other FHLBanks		—		55,000		(55,000	)		(100.00	)
Accrued interest receivable		492,856		562,323		(69,467	)		(12.35	)
Premises, software, and equipment		13,793		13,154		639			4.86
Derivative assets		20,236		28,978		(8,742	)		(30.17	)
All other assets		18,838		17,091		1,747			10.22
Total assets	$	137,539,891	$	109,244,891	$	28,295,000			25.90	%
Liabilities
Deposits
Interest-bearing demand	$	1,333,750	$	1,586,039	$	(252,289	)		(15.91	)%
Non-interest bearing demand		828		2,596		(1,768	)		(68.10	)
Term		117,400		16,900		100,500		NM
Total deposits		1,451,978		1,605,535		(153,557	)		(9.56	)
Consolidated obligations
Bonds		82,256,705		66,325,817		15,930,888			24.02
Discount notes		46,329,906		34,791,570		11,538,336			33.16
Total consolidated obligations		128,586,611		101,117,387		27,469,224			27.17
Mandatorily redeemable capital stock		143,121		238,596		(95,475	)		(40.02	)
Accrued interest payable		426,144		655,870		(229,726	)		(35.03	)
Affordable Housing Program		122,449		119,052		3,397			2.85
Payable to REFCORP		4,780		23,998		(19,218	)		(80.08	)
Derivative liabilities		861,660		673,342		188,318			27.97
Other liabilities		75,753		60,520		15,233			25.17
Total liabilities		131,672,496		104,494,300		27,178,196			26.01
Capital		5,867,395		4,750,591		1,116,804			23.51
Total liabilities and capital	$	137,539,891	$	109,244,891	$	28,295,000			25.90	%

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Balance sheet overview

At December 31, 2008, the FHLBNY’s Total assets were a record $137.5 billion, an increase of $28.3 billion, or 25.9%, from December 31, 2007. Continued growth in member demand for advances was the principal factor. Reported book value of advances was $109.2 billion at December 31, 2008, up dramatically from $82.1 billion at December 31, 2007. The Bank’s balance sheet management strategy has been to keep balance sheet growth in line with the growth in member demand for advances. The Bank increased available liquidity for its members at December 31, 2008 by placing interest-earning funds with the Federal Reserve Bank of New York (“FRB”), with a corresponding reduction in investments in certificates of deposits and other short-term money market investments with other financial institutions. In 2008, the FHLBNY acquired $3.4 billion of GSE issued variable-rate, triple-A rated CMOs and designated the securities as available-for-sale; the FHLBNY limited its acquisitions of held-to-maturity mortgage-backed securities to $2.0 billion of GSE issued, triple-A rated, fixed-rate prime securities, keeping acquisitions a little below paydowns.

Investments in certificates of deposits were down to $1.2 billion at December 31, 2008 from $10.3 billion at December 31, 2007 as yields were too low to justify the risk/reward characteristics of such investments with other financial institutions. The Bank also opted to not replace maturing Federal funds sold to other financial institutions at December 31, 2008 and instead chose to maintain $12.2 billion in interest-earning demand balances at the FRB, which were reported as Interest-bearing deposits in the Statements of Condition. The liquid investment at the FRB is consistent with the Bank’s goals of maintaining liquidity for its members, as historically, the Bank has maintained a significant inventory of highly liquid Federal funds and short-term certificates deposits at highly-rated financial institutions to ensure liquidity for its members’ borrowing needs, especially in the existing volatile credit markets.

At December 31, 2008, balance sheet leverage of 23.4 times shareholders’ capital was slightly up from 23.0 times capital at December 31, 2007. Increases or decreases in investments have a direct impact on leverage, but generally growth in advances does not significantly impact balance sheet leverage under existing capital stock management practices. This is because changes in shareholders’ capital are in line with changes in advances, and the ratio of assets to capital generally remains unchanged. Under existing capital management practices, members are required to purchase capital stock to support their borrowings from the Bank, and when capital stock is in excess of the amount that is required to support advance borrowings, the Bank redeems the excess capital stock immediately. Therefore, stockholders’ capital increases and decreases with members’ advance borrowings, and the capital to asset ratios remains unchanged. As capital increases or declines in line with higher or lower volumes of advances, the Bank may also adjust its assets by increasing or decreasing holdings of short-term investments in certificates of deposit, and, to some extent, its positions in Federal funds sold, which it inventories to accommodate unexpected member needs for liquidity, or its cash position at the FRB.

Long-term investments classified as held-to-maturity, principally mortgage-backed securities, were $10.1 billion at December 31, 2008, compared to $10.3 billion at December 31, 2007. Acquisitions of mortgage-backed securities have remained very selective. Certificates of deposits, all with maturities of less than a year, are also classified as held-to-maturity, and totaled $1.2 billion at December 31, 2008, down from $10.3 billion at December 31, 2007. Available-for-sale securities grew to $2.9 billion at December 31, 2008, up from $13.2 million at December 31, 2007. In 2008, the Bank acquired $3.4 billion of GSE issued variable-rate CMOs, and designated these acquisitions as available-for-sale. All securities purchased were rated triple-A. For more information about the credit quality of the Bank’s investment securities, see Investment Quality in the section of this MD&A captioned Asset Quality.

At December 31, 2008, the Bank’s total liabilities were $131.7 billion, an increase $27.2 billion, or 26.0% from December 31, 2007. Liabilities were higher to fund significant member demand for advances.

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In 2008 as in 2007, the primary source of funds for the FHLBNY continued to be through issuance of consolidated obligation bonds and discount notes. Discount notes are consolidated obligations with maturities up to one year, and consolidated bonds have maturities of one year or longer. The mix between the use of discount notes and bonds has fluctuated during the year, partly because of the market pricing of discount notes relative to the pricing of fixed-rate bonds with similar maturities and partly because of the price attractiveness of floating-rate bonds that could be swapped back to 3 month LIBOR rates. Utilization of discount notes fluctuated in 2008. At March 31, 2008, outstanding discount notes were down to $26. 3 billion, funding 24.3% of assets, compared to 31.8% at December 31, 2007. At June 30, 2008 and September 30, outstanding amounts further declined and the comparable ratios were 21.7% and 22.0%. At December 31, 2008, the ratio rose to 33.7%, reflecting greater use of discount notes. In 2008, the Bank also issued floating-rate consolidated obligation bonds indexed to the Prime rate, Federal funds effective rate, and the 1-month LIBOR rates and swapping the cash flows to 3-month LIBOR rates. Amounts outstanding at December 31, 2008 of such bonds aggregated $25.0 billion.

Member deposits were $1.5 billion at December 31, 2008, compared to $1.6 billion at December 31, 2007. Changes in deposit balances reflect member preference for liquidity and availability of alternative investment vehicles. The FHLBNY does not rely on member deposits to meet its funding needs.

Shareholders’ equity was $5.9 billion at December 31, 2008, an increase of $1.1 billion from the balance at December 31, 2007. Capital stock increased to $5.6 billion at December 31, 2008, up by $1.2 billion from the balance of $4.4 billion at December 31, 2007 as a result of stockholder purchases of additional capital stock of the FHLBNY to support advance borrowings. Unrestricted retained earnings totaled $382.9 million, a decline of $35.4 million compared to $418.3 million at December 31, 2007. Dividend payout, the ratio of dividend paid to Net income was 113.7% in 2008, up from 84.6% in 2007 — cash dividends of $294.5 million were paid in 2008 from unrestricted retained earnings. The comparable payout was $273.5 million in 2007. The balance of Accumulated other comprehensive income (loss), a component of Shareholders’ equity, was a net unrealized loss of $101.2 million, compared to an unrealized loss of $35.7 million at December 31, 2007; the change was principally caused by the decline in the fair values of the available-for-sale securities at December 31, 2008.

Advances

The FHLBNY’s primary business is making collateralized loans, known as “advances”, to members.

Reported book value of advances was $109.2 billion at December 31, 2008, up dramatically from $82.1 billion at December 31, 2007. Par amount of advances outstanding was $103.4 billion at December 31, 2008, compared to $80.6 billion at December 31, 2007. Reported book values include fair value basis adjustments recorded under the hedge accounting provisions of SFAS 133.

Strong demand for advances has continued through 2008. Reported total advances was $61.2 billion at June 30, 2007 at the beginning of the liquidity problems in the capital markets. Amounts outstanding grew to $82.1 billion at December 31, 2007, an increase of 34.2%, and to $109.2 at December 31, 2008, a year-over-year increase of 33.0%.

The very significant increase in the advance portfolio reflects in part to the FHLBNY’s willingness to be a reliable provider of well-priced funds to our members, and in part to the FHLBNY’s ability to raise funding in the marketplace through the issuance of consolidated obligation bonds and discount notes to local and global investors. In meeting member demand for liquidity, the Bank did not adjust pricing to either discourage members advance growth nor did the Bank take advantage of the dislocation in the marketplace in an environment of uncertainty.

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Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and term funding driven by economic factors, such as availability to the Bank’s members of alternative funding sources that are more attractive, or by the interest rate environment and the outlook for the economy. Members may choose to prepay advances, which may incur prepayment penalty fees, based on their expectations of interest rate changes and demand for liquidity. Demand may also be influenced by the dividend payout to members on their capital stock investment in the FHLBNY. Members are required to invest in FHLBNY’s capital stock in the form of membership and activity stock. Advance volume is also influenced by merger activity where members are either acquired by non-members or acquired by members of another FHLBank. When FHLBNY members are acquired by members of another FHLBank or a non-member, they no longer qualify for membership and the FHLBNY may not offer renewals or additional advances to non-members. Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on short-term and overnight lending.

Advances — Product Types

The following table summarizes par values of advances by product type (dollars in thousands):

	December 31, 2008						December 31, 2007
				Percentage						Percentage
	Amounts			of total			Amounts			of total
Adjustable Rate Credit — ARCs	$	20,205,850			19.55	%	$	19,812,544			24.58	%
Fixed Rate Advances		71,860,685			69.51			53,411,674			66.27
Short-Term Advances		7,793,500			7.54			4,590,805			5.70
Mortgage Matched Advances		693,559			0.67			690,058			0.86
Overnight Line of Credit (OLOC) Advances		2,039,423			1.97			1,767,080			2.19
All other categories		786,710			0.76			319,893			0.40
Total par value		103,379,727			100.00	%		80,592,054			100.00	%
Discount on AHP Advances		(330	)					(417	)
SFAS 133 hedging adjustments		5,773,479						1,498,030
Total	$	109,152,876					$	82,089,667

Comparing member borrowings at December 31, 2008 to last year-end, Advance growth was across all the principal advance products offered to members, with the greatest increases in Fixed-rate Advances. This product category has grown steadily over the four quarters in 2008. Demand for Short-term fixed-rate advances has fluctuated during 2008, growing to $11.2 billion at September 30, 2008 and settling at $7.8 billion at December 31, 2008 well above $4.5 billion outstanding at December 31, 2007. Member demand for variable-rate advances, Adjustable Rate Credit advances (“ARCs”) and OLOC Advances, has not kept pace with the overall increase in demand for advances.

Member demand for advance products

Adjustable Rate Advances (ARC Advances) — Demand for ARC advances has fluctuated during 2008. Outstanding amounts had declined to $18.0 billion in the first quarter, increased to $20.9 billion in the second quarter, declined to $19.6 billion at September 30, 2008, and was $20.2 billion at December 31, 2008. Generally, the FHLBNY’s larger members have been the more significant borrowers of ARCs.

ARC advances are medium- and long-term loans that can be linked to a variety of indices, such as 1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime. Members use ARC advances to manage interest rate and basis risks by efficiently matching the interest rate index and repricing characteristics of floating-rate assets. The interest rate is set and reset (depending upon the maturity of the advance and the type of index) at a spread to that designated index. Principal is due at maturity and interest payments are due at every reset date, including the final payment date.

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Fixed-rate Advances — Demand for Fixed-rate advances has been consistently strong during 2008. In the first quarter of 2008, outstanding amounts grew by $6.3 billion from the previous year-end; demand continued in the second quarter at a steadier pace and outstanding balance grew by $1.9 billion from the first quarter. In the third quarter, strong demand for short-term fixed-rate advances collateralized by securities increased outstanding borrowed amounts to $67.7 billion at September 30, 2008. Continued member demand in the fourth quarter of 2008 increased total borrowings to $71.9 billion at December 31, 2008. A significant component of Fixed-rate advances is putable advances, also referred to as “Convertible Advances”. Outstanding amounts of putable advances grew to $43.4 billion at December 31, 2008 from $38.8 billion at December 31, 2007. Historically, Fixed-rate, putable advances have been competitively priced relative to fixed-rate “bullet” advances because of the “put” feature that the Bank purchases from the member, driving down the coupon on the advance. In the present interest rate environment the price advantage is not significant because of constraints in offering longer-term-advances that has also narrowed the price advantage of putable advances.

Fixed-rate advances are flexible funding tools that can be used by members to meet short- to long-term liquidity needs. Terms vary from 2 days to 30 years. Fixed-rate advances, comprising putable and non-putable advances were the largest category of advances at September 30, 2008 and December 31, 2007.

Short-term Advances — Lackluster demand for Short-term fixed-rate advances in the first half of 2008, resulted in outstanding balances declining below the amounts outstanding at December 31, 2007. In the third quarter, demand was strong and borrowed amounts grew to $11.2 billion, but retreated to $7.8 billion at December 31, 2008. The primary factor was unfavorable pricing relative to longer-term advances. Advance pricing is largely based on the Bank’s funding costs, net of the impact of interest rate swaps.

Overnight Line of Credit (“OLOC Advances”) — Demand has fluctuated during 2008. Outstanding balances had fallen to $589.8 million at March 31, 2008 from $1.8 billion at December 31, 2007, and grew in the second quarter to $1.8 billion as members preferred to stay short with their borrowings in the face of uncertainties with the Federal Reserve rate actions. Member borrowings increased somewhat in the fourth quarter and outstanding amounts grew to $2.0 billion.

The OLOC program gives members a short-term, flexible, readily accessible revolving line of credit for immediate liquidity needs. OLOC Advances mature on the next business day, at which time the advance is repaid.

Member demand for the OLOC Advances may also reflect the seasonal needs of certain member banks for their short-term liquidity requirements. Some large members also use OLOC advances to adjust their balance sheet in line with their own leverage targets.

Merger Activity

Merger activity is an important factor and, if significant, would contribute to an uneven pattern in advance balances. Four Members were acquired by non-members in 2008 compared to six in 2007.

In the first quarter of 2008, three members were acquired by non-members. Two were considered to have significant borrowing potential had the merger not occurred. In the second quarter, one member was acquired by a non-member but the member’s outstanding borrowed amounts or borrowing potential were not significant. There was no loss of members in the third quarter or fourth quarters of 2008.

Merger activity may result in the loss of new business if the member is acquired by a non-member. The FHLBank Act does not permit new advances or advances to replace maturing advances to former members. Advances held by members who are acquired by non-members may remain outstanding until their contractual maturities. Merger activity may also result in a decline in the advance book if the acquired member decides to prepay existing advances partially or in full depending on the post-merger liquidity needs.

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Early Prepayment of Advances

Early prepayment initiated by members and former members is another important factor that impacts advances to members. The FHLBNY charges a member a prepayment fee when the member prepays certain advances before the original maturity.

Member initiated prepayments totaled $4.1 billion in par amount of advances, compared to $1.4 billion in 2007. The Bank recorded net prepayment fees of $21.7 million as income in 2008 compared to $4.6 million in 2007, and $19.2 million in 2006. For advances that are prepaid and hedged under the provisions of SFAS 133, the FHLBNY terminates the hedging relationship upon prepayment and adjusts the prepayments fees received for the associated fair value basis of the hedged prepaid advance.

Advances — Maturities and coupons

The FHLBNY’s advances outstanding are summarized below by year of maturity (dollars in thousands):

	December 31,
	2008									2007
				Weighted 2									Weighted 2
				Average			Percentage						Average			Percentage
	Amount			Yield			of Total			Amount			Yield			of Total
Overdrawn demand deposit accounts	$	—			—	%		—	%	$	—			—	%		—	%
Due in one year or less		32,420,095			2.52			31.36			24,140,285			4.72			29.95
Due after one year through two years		16,150,121			3.71			15.62			7,714,912			4.87			9.57
Due after two years through three years		7,634,680			3.76			7.39			8,730,643			5.13			10.83
Due after three years through four years		6,852,514			3.74			6.63			3,153,113			4.89			3.91
Due after four years through five years		3,210,575			3.88			3.11			5,988,142			4.76			7.43
Due after five years through six years		836,689			3.74			0.81			556,095			3.44			0.69
Thereafter		36,275,053			3.96			35.08			30,308,864			4.29			37.62
Total par value		103,379,727			3.44	%		100.00	%		80,592,054			4.62	%		100.00	%
Discount on AHP advances 1		(330	)								(417	)
SFAS 133 hedging basis adjustments 1		5,773,479									1,498,030
Total	$	109,152,876								$	82,089,667

1

Discounts on AHP advances were amortized to interest income using the level-yield method and were not significant for all periods reported. Amortization of fair value basis adjustments for terminated hedges was a charge to interest income and amounted to ($2.0) million, ($0.4) million, and ($0.4) million for the years ended December 31, 2008, 2007 and 2006. All other amortization charged to interest income aggregated ($0.0) million, ($0.5) million, and ($0.6) million for the years ended December 31, 2008, 2007 and 2006. Interest rates on AHP advances ranged from 1.25% to 6.04% in 2008 and 2007.

2

The weighed average yield is the weighted average coupon rates for advances, unadjusted for swaps.

In a lower interest rate environment at December 31, 2008 compared to 2007, coupons were lower but the greatest declines were in the shorter-term advances because of the very low short-term rates at December 31, 2008. Contractual maturities of advances outstanding have changed somewhat at December 31, 2008 compared to 2007. The change in the maturity category of 1-year to 2-years was the more noteworthy change year-over-year.

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Impact of hedging

The Bank hedges certain advances under the provisions of SFAS 133 by the use of both callable and non-callable interest rate swaps as fair value hedges. Recorded fair value basis adjustments to advances in the Statements of Condition were a result of hedging activities under the provisions of SFAS 133. The Bank hedges the risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR and is also the discounting basis for computing changes in fair values of hedged advances. Net interest accruals from SFAS 133 qualifying hedges are recorded with interest income from advances. Fair value changes of SFAS 133 qualifying hedged advances are recorded as a Net realized and unrealized gain (loss) on derivative and hedging activities, a component of Other income (loss); an offset is recorded as fair value basis adjustment to the carrying amount of the advances in the Statements of Condition.

The Bank primarily hedges putable or convertible advances and certain “bullet” fixed-rate advances. A significant percentage of advances were hedged by the use of interest rate swaps in economic hedges as well as hedges qualifying under the hedging provisions of SFAS 133. At December 31, 2008, $62.3 billion in interest rate swaps hedged advances, compared to $47.0 billion at December 31, 2007.

Derivative transactions are employed to hedge fixed-rate advances in the following manner and to achieve the following principal objectives:

The FHLBNY:

• makes extensive use of the derivatives to restructure interest rates on fixed-rate advances, both putable or convertible and non-putable (“bullet”), to better match the FHLBNY’s cash flows, to enhance yields, and to manage risk from a changing market environment.

• converts, at the time of issuance, certain simple fixed-rate bullet and putable fixed-rate advances into synthetic floating-rate advances by the simultaneous execution of interest rate swaps that convert the cash flows of the fixed-rate advances to conventional adjustable rate instruments tied to an index, typically 3-month LIBOR.

• uses derivatives to manage the risks arising from changing market prices and volatility of a fixed coupon advances by matching the cash flows of the advance to the cash flows of the derivative, and making the FHLBNY indifferent to changes in market conditions. Putable advances are typically hedged by an offsetting derivative with a mirror-image call option with identical terms.

• adjusts the reported carrying value of hedged fixed-rate advances for changes in their fair value (“fair value basis” or “fair value”) that are attributable to the risk being hedged in accordance with hedge accounting rules under SFAS 133. Amounts reported for advances in the Statements of Condition include fair value hedge basis adjustments.

The most significant element that impacts balance sheet reporting of advances is the recording of fair value basis adjustments to the carrying value of advances. Also, when putable advances are hedged by callable swaps, the possibility of exercise of the call shortens the expected maturity of the advance. The impact of derivatives to the Bank’s income is discussed in this MD&A under “Results of Operations”. Fair value basis adjustments as measured under the hedging rules are impacted by both hedge volume and the interest rate environment and the volatility of the rate environment.

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Hedge volume — At December 31, 2008, almost all putable fixed-rate advances were hedged by interest rate swaps in SFAS 133 qualifying hedge relationships, which effectively converted the fixed-rate exposure of the advances to a variable-rate exposure, generally indexed to 3-month LIBOR. The Bank’s putable advance contains a put option purchased by the Bank from the member. Under the terms of the put option, the Bank has the right to terminate the advance at agreed upon dates. The period until the option is exercisable is known as the lockout period. If the advance is put by the FHLBNY at the end of the lockout period, the member can borrow an advance product of the member’s choice at the then prevailing market rates and at the then existing terms and conditions. When the FHLBNY puts the fixed-rate advance and if the member borrows to replace the fixed-rate advance, the FHLBNY effectively converts the advance from fixed-rate to floating-rate. The Bank also hedges certain long-term, single maturity (bullet) advances to hedge fair value risk from changes in the benchmark rate. Hedge volume as measured by the amount of notional amounts of interest rate swaps outstanding that hedged advances, both economically and under SFAS 133 hedging provisions, increased to $62.3 billion at December 31, 2008, compared to $47.0 billion at December 31, 2007. The notional included $0.6 billion at December 31, 2008 that were in an economic hedge of advances.

The largest component of interest rate swaps hedging advances at December 31, 2008 was comprised of $43.4 billion in putable advances, up from $38.8 billion at December 31, 2007. The Bank’s putable advance, also referred to as a convertible advance, contains a put option purchased by the Bank from the member. Under the terms of the put option, the Bank has the right to terminate the advance at agreed upon dates. The period until the option is exercisable is known as the lockout period. If the advance is put by the FHLBNY at the end of the lockout period, the member can borrow an advance product of the member’s choice at the then prevailing market rates and at the then existing terms and conditions. When the FHLBNY puts the fixed-rate advance, and if the member borrows to replace the fixed-rate advance, the FHLBNY effectively converts the advance from fixed-rate to floating-rate. Growth in putable advances has not kept pace with the overall surge in demand for advance year-over-year principally because pricing of putable advances was not at advantageous levels through most of 2008 relative to prior years. Typically, pricing advantage to the borrower of a putable advance over single-maturity advances, also referred to as “bullet” advance, increases with longer-term advances.

In addition, certain LIBOR-indexed advances have “capped” coupons that are in effect sold to borrowers. The fair value changes of the sold caps are offset by fair value changes of purchased options (caps) with mirror-image terms. Fair value changes of caps due to changes in the benchmark rate and option volatilities are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. Notional amounts of purchased interest rate “caps” at December 31, 2008 and 2007 were $0.5 billion and $1.2 billion, and were designated as economic hedges of “caps” embedded in the variable-rate advances borrowed by members.

Fair value basis adjustments — The Bank uses interest rate derivatives to hedge the risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the discounting basis for computing changes in fair values of hedged advances. Recorded fair value basis adjustments in the Statements of Condition were associated with hedging activities under the provisions of SFAS 133.

Reported book value at December 31, 2008 included net unrealized gains of $5.8 billion compared to $1.5 billion at December 31, 2007 and represented fair value basis adjustments under SFAS 133 hedge accounting rules. The notional amounts of swaps that were associated in hedging relationships under SFAS 133 aggregated $61.7 billion at December 31, 2008, up from $47.0 billion at December 31, 2007. Fair value basis of previously recorded realized gains and losses from discontinued hedges, net of amortization, was not material.

Unrealized basis gains were consistent with the forward yield curves at December 31, 2008 and December 31, 2007 that were projecting forward rates below the fixed-rate coupons of advances that had been issued in prior periods at the then prevailing higher interest-rate environment. Since hedged advances are typically fixed-rate, in a declining interest rate environment, fixed-rate advances exhibited unrealized fair value basis gains. Unrealized gains from fair value basis adjustments to advances were almost entirely offset by net fair value unrealized losses of the derivatives associated with the fair value hedges of advances, thereby achieving the Bank’s hedging objectives of mitigating fair value basis risk. Hedge volume as represented by the notional amounts of advances hedged in a SFAS 133 qualifying hedge increased at December 31, 2008 in line with the very significant growth of hedged fixed-rate advances.

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Hedge ratio — Hedged advances as a percentage of advances not hedged was 60.3% at December 31, 2008, slightly up from 58.3%, indicative of a stable hedging strategy. The percentage not hedged is typically comprised of adjustable rate advances (ARC Advances), Overnight line of credit advances, and Short-Term advances.

Advances — Call Date

The table below offers a view of the advance portfolio with the possibility of the exercise of the put option that is controlled by the FHLBNY, and put dates are summarized into similar maturity tenors as the previous table that summarizes advances by contractual maturities (dollars in thousands).

	December 31,
				Percentage of						Percentage of
	2008			total			2007			total
Overdrawn demand deposit accounts	$	—			—	%	$	—			—	%
Due or putable in one year or less		63,251,007			61.18			48,005,147			59.57
Due or putable after one year through two years		18,975,821			18.36			16,112,362			19.99
Due or putable after two years through three years		10,867,530			10.51			7,546,243			9.36
Due or putable after three years through four years		5,293,364			5.12			2,607,563			3.24
Due or putable after four years through five years		2,728,075			2.64			4,180,492			5.19
Due or putable after five years through six years		230,189			0.22			121,095			0.15
Thereafter		2,033,741			1.97			2,019,152			2.50
Total par value		103,379,727			100.00	%		80,592,054			100.00	%
Discount on AHP advances		(330	)					(417	)
SFAS 133 hedging basis adjustments		5,773,479						1,498,030
Total	$	109,152,876					$	82,089,667

Contrasting advances by contractual maturity dates with potential put dates, illustrates the impact of hedging on the effective durations of the Bank’s advances. The Bank’s advances borrowed by members include a significant amount of putable advances in which the Bank has purchased from members the option to terminate advances at agreed upon dates. At December 31, 2008, the amount of advances that were still putable (one or more exercise dates) was $43.4 billion compared to $38.8 billion at December 31, 2007. Typically, almost all putable advances are hedged by callable interest rate swaps in which the derivative counterparty has the right to exercise and terminate the swap at par at agreed upon dates. When the swap counterparty exercises its right to call the swap, the Bank would typically also exercise its right to terminate the advance at par. Under current hedging practice, on a put option basis, the potential exercised maturity is significantly accelerated and is an important factor in the Bank’s current hedge strategy.

On a contractual maturity basis (see advance maturities table), 47.0% or $48.6 billion of the par amounts of advances at December 31, 2008 were in the maturity band of two years or less. On a put option basis, the potential exercised maturity was significantly accelerated, and 79.5% or $82.2 billion were potentially exercisable within the maturity band of two years or less. At December 31, 2007, some 39.5%, or $31.9 billion of the par value of advances were in the maturity band of two years or less based on contractual maturity. On a put option basis, the potential exercised maturity was significantly accelerated 79.6% or $64.1 billion were potentially putable by the Bank. The most significant impact of put options was in the maturity band of greater than five years. At December 31, 2008, the percentage of par advances maturing on a contractual basis was $36.3 billion, or 4.0% of total par advances. On an option exercise basis, the percentage greater than five years declined to only $2.0 billion, or 1.97%. At December 31, 2007, the percentage of par advances maturing on a contractual basis beyond five years was $30.3 billion or 4.29% compared to 2.5% on a putable basis.

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Advances — Interest Rate Terms

The following table summarizes interest-rate payment terms for advances (dollars in thousands):

	December 31,
	2008						2007
				Percentage						Percentage
	Amount			of total			Amount			of total
Fixed-rate	$	83,173,877			80.45	%	$	60,779,510			75.42	%
Variable-rate		19,740,850			19.10			18,654,850			23.15
Variable-rate capped		465,000			0.45			1,157,694			1.43
Total par value		103,379,727			100.00	%		80,592,054			100.00	%
Discount on AHP Advances		(330	)					(417	)
SFAS 133 hedging basis adjustments		5,773,479						1,498,030
Total	$	109,152,876					$	82,089,667

Fixed-rate borrowings remained popular with members, and increased as a percentage of total advances outstanding at December 31, 2008. Variable-rate advances outstanding also increased but declined in percentage terms of total amounts; member demand for adjustable-rate LIBOR-based funding has not kept pace with the general increase in demand for fixed-rate advances. Variable-rate capped advances declined in a declining interest rate environment. Typically, capped ARCs are in demand by members in a rising rate environment who would purchase cap options from the FHLBNY to limit borrowers’ interest exposure. With a capped variable-rate advance, the FHLBNY had offsetting purchased cap options that mirrored the terms of the caps sold to members, eliminating the FHLBNY’s exposure.

The following summarizes variable-rate advances by reference-index type (in thousands):

	December 31,
	2008		2007
LIBOR indexed	$	18,980,500	$	19,487,194
Federal funds		1,225,000		325,000
Prime		350		350
Total	$	20,205,850	$	19,812,544

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Investments

The FHLBNY maintains investments for liquidity purposes, to manage capital stock repurchases and redemptions, to provide additional earnings, and to ensure the availability of funds to meet the credit needs of its members. The FHLBNY also maintains longer-term investment portfolios, which are principally mortgage-backed securities issued by government-sponsored mortgage agencies, and a smaller portfolio of MBS issued by private enterprises, and securities issued by state or local housing finance agencies.

Mortgage- and asset-backed securities acquired must carry the highest ratings from Moody’s Investors Service (“Moody’s”) or Standard & Poor’s Rating Services (“S&P”) at the time of purchase. Finance Agency regulations prohibit the FHLBanks, including the FHLBNY, from investing in certain types of securities and limit the investment in mortgage- and asset-backed securities. These restrictions and limits are set out in more detail in the section captioned “Investments” under Item 1. Business in this MD&A.

Limits on the size of the MBS portfolio are defined by Finance Agency regulations, which limits holding of MBS to 300% of capital. At December 31, 2008 and 2007, the Bank was within these limits.

On March 24, 2008, the Board of Directors of the Federal Housing Finance Board, predecessor to the Finance Agency adopted Resolution 2008-08, which temporarily expanded the authority of a FHLBank to purchase mortgage-backed securities (“MBS”) under certain conditions. The resolution allowed an FHLBank to increase its investments in MBS issued by Fannie Mae and Freddie Mac by an amount equal to three times its capital, which is to be calculated in addition to the existing limit. The expanded authority permitted MBS to be as much as 600% of the FHLBNY’s capital. Currently, the FHLBNY has not exercised the expanded authority provided under the temporary regulations to purchase MBS issued by Fannie Mae and Freddie Mac.

The following table summarizes changes in investments by categories (including held-to-maturity securities, available-for-sale securities, and money market investments) between December 31, 2008 and 2007 (dollars in thousands):

	December 31,		December 31,		Dollar			Percentage
	2008		2007		Variance			Variance
State and local housing agency obligations 1	$	804,100	$	576,971	$	227,129			39.37	%
Mortgage-backed securities
Available-for-sale securities, at fair value		2,851,682		—		2,851,682		NA
Held-to-maturity securities, at amortized cost		9,326,443		9,707,783		(381,340	)		(3.93	)
Total long-term securities		12,982,225		10,284,754		2,697,471			26.23
Grantor trusts 2		10,187		13,187		(3,000	)		(22.75	)
Certificates of deposit 1		1,203,000		10,300,200		(9,097,200	)		(88.32	)
Federal funds sold		—		4,381,000		(4,381,000	)		(100.00	)
Total investments	$	14,195,412	$	24,979,141	$	(10,783,729	)		(43.17	)%

1	Classified as held-to-maturity securities, at amortized cost
2	Classified as available-for-sale securities, at fair value represent investments in registered mutual funds and other fixed-income securities maintained under the grantor trusts
Note:	Excludes $12.2 billion in interest-earning balance at Federal Reserve Bank of New York at December 31, 2008 ($0 at December 31, 2007)

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Long-term investments

At December 31, 2008 and 2007, investments with original contractual maturities that were long-term comprised of mortgage- and asset-backed securities, and investment in securities issued by state and local housing agencies. These investments were classified as either held-to-maturity or available-for-sale securities under the meaning of SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities”. Two grantor trusts were established in the third quarter of 2007 to fund current and potential future payments to retirees for supplemental pension plan obligations. The trust funds are invested in fixed-income and equity funds, which were classified as available-for-sale under the provisions of SFAS 115.

Mortgage-backed securities — By issuer

Composition of FHLBNY’s mortgage-backed securities was as follows (dollars in thousands):

	December 31,		Percentage			December 31,		Percentage
	2008		of total			2007		of total
U.S. government sponsored enterprise residential mortgage-backed securities	$	7,577,036		81.24	%	$	6,829,668		70.35	%
U.S. agency residential mortgage-backed securities		6,325		0.07			7,482		0.08
Private-label issued securities backed by home equity loans		636,466		6.83			752,808		7.76
Private-label issued residential mortgage-backed securities		609,908		6.54			769,140		7.92
Private-label issued commercial mortgage-backed securities		266,994		2.86			1,087,713		11.20
Private-label issued securities backed by manufactured housing loans		229,714		2.46			260,972		2.69
Total Held-to-maturity securities — MBS	$	9,326,443		100.00	%	$	9,707,783		100.00	%

Held-to-maturity mortgage- and asset-backed securities (“MBS”) — were comprised of government sponsored enterprise (“GSE”) (81.3%) and privately issued mortgage-backed securities (18.7%), and included commercial mortgage- and asset-backed securities, and mortgage-pass-throughs and Real Estate Mortgage Investment Conduit bonds. Investment in mortgage-backed securities provides a reliable income stream.

In 2008, the Bank acquired $2.0 billion of fixed-rate triple-A rated, collateralized mortgage obligations (“CMOs”) issued by Fannie Mae and Freddie Mac and designated the purchases as held-to-maturity. CMOs are supported by agency pass-through securities. New acquisitions were slightly below paydowns in 2008 and as a result, outstanding balances at December 31, 2008 were also slightly below the amounts outstanding at December 31, 2007. The Bank’s conservative purchasing practice over the years is evidenced by its concentration in mortgage-backed securities issued by a Government Sponsored Enterprises (“GSE”). The amortized cost basis of GSE and agency issued securities was $7.6 billion at December 31, 2008 and $6.8 billion at December 31, 2007. They represented 81.3% and 70.4% of all MBS at December 31, 2008 and 2007.

Local and housing finance agency bonds — The FHLBNY had investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) also classified as held-to-maturity. Investments in state and local housing finance bonds help to fund mortgages that finance low- and moderate-income housing. In 2008, the Bank acquired $328.4 million double -A rated New York State and City housing agency bonds.

For more information and analysis, see Investment Quality in the section captioned Asset Quality and Concentration —Advances, Mortgage Loans, and Investment Securities in this MD&A.

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Held-to-maturity securities

Market value of held-to-maturity securities was as follows (in thousands):

	December 31, 2008
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
State and local housing agency obligations	$	804,100	$	6,573	$	(47,512	)	$	763,161
Mortgage-backed securities		9,326,443		187,531		(342,662	)		9,171,312
Certificates of deposit		1,203,000		328		—			1,203,328
Total	$	11,333,543	$	194,432	$	(390,174	)	$	11,137,801

	December 31, 2007
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
State and local housing agency obligations	$	576,971	$	9,780	$	(200	)	$	586,551
Mortgage-backed securities		9,707,783		82,670		(97,191	)		9,693,262
Certificates of deposit		10,300,200		7,178		—			10,307,378
Total	$	20,584,954	$	99,628	$	(97,391	)	$	20,587,191

Rating information of the held-to-maturity portfolio was as follows (in thousands):

	December 31, 2008
	AAA-rated		AA-rated		A-rated		BBB-rated		Total
Long-term securities
Mortgage-backed securities	$	8,705,952	$	229,714	$	192,678	$	198,099	$	9,326,443
State and local housing agency obligations		74,881		672,999		—		56,220		804,100
Total Long-term securities		8,780,833		902,713		192,678		254,319		10,130,543
Short-term securities
Certificates of deposit		—		628,000		575,000		—		1,203,000
Total	$	8,780,833	$	1,530,713	$	767,678	$	254,319	$	11,333,543

	December 31, 2007
	AAA-rated		AA-rated		A-rated		Total
Long-term securities
Mortgage-backed securities	$	9,707,783	$	—	$	—	$	9,707,783
State and local housing agency obligations		271,253		305,718		—		576,971
Total Long-term securities		9,979,036		305,718		—		10,284,754
Short-term securities
Certificates of deposit		—		6,988,100		3,312,100		10,300,200
Total	$	9,979,036	$	7,293,818	$	3,312,100	$	20,584,954

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Available-for-sale securities

The Bank acquired $3.4 billion of variable-rate triple-A rated, GSE issued CMOs during the first three quarters of 2008. Two grantor trusts were established in 2007 to fund current and potential future payments to retirees for supplemental pension plan obligations. The trust funds are invested in money market funds, and fixed-income and equity funds, which are also designated as available-for-sale.

Rating information of the available-for-sale portfolio was as follows (in thousands):

	December 31, 2008
	AAA-rated		AA-rated		A-rated		BBB-rated		Unrated		Total
Available-for-sale securities 1
Mortgage-backed securities	$	2,851,682	$	—	$	—	$	—	$	—	$	2,851,682
Other — Grantor trusts		—		—				—		10,187		10,187
Total	$	2,851,682	$	—	$	—	$	—	$	10,187	$	2,861,869

1	Available-for-sale securities are at fair value.
Note:	The Bank did not have any mortgage-backed securities designated as available-for-sale at December 31, 2007. The amounts outstanding in the two Grantor Trusts totaled $13.2 million at December 31, 2007.

Fair values of investment securities

The fair value of investment securities is estimated by management using information from specialized pricing services that use pricing models or quoted prices of securities with similar characteristics. Inputs into the pricing models employed by pricing services are market based and observable for Level 1 and Level 2 securities. The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models. Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if securities that are traded in sufficient volumes in the secondary market. The valuation of the Bank’s private-label securities that are all designated as held-to-maturity may require pricing services to use significant inputs that are subjective and may be considered to be Level 3 inputs because the inputs may not be market based and observable.

See Note 1 — Accounting Changes, Significant Accounting Policies and Estimates, and Recently Issued Accounting Standards to the financial statements, for corroboration and other analytical procedures performed by the FHLBNY. Examples of securities priced under such a valuation technique, and which are classified within Level 2 of the valuation hierarchy and valued using the “market approach” as defined under SFAS 157, include GSE issued collateralized mortgage obligations and money market funds.

Held-to-maturity MBS securities — At December 31, 2008, the fair value of held-to-maturity mortgage-backed securities was below amortized cost by $155.1 million, representing net market value losses. Gross market value losses were $342.7 million, partly offset by market value gains of $187.5 million. At December 31, 2007, the net market value loss was $14.5 million.

Gross unrealized losses of held-to-maturity MBS securities that were in an unrealized loss position of 12 months or more aggregated $227.3 million, or 66.3% of the total gross unrealized losses of $342.7 million at December 31, 2008. At December 31, 2007, gross unrealized losses of held-to-maturity MBS securities that were in an unrealized position of 12 months or more aggregated $41.5 million.

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Available-for-sale MBS securities — All securities were obligations of Fannie Mae and Freddie Mac. At December 31, 2008, the amortized cost was $2.9 billion and net unrealized losses were $61.0 million. All securities carried an external rating of triple-A at December 31, 2008.

Housing finance agency bonds — HFA bonds were in a net unrealized loss position of $40.9 million, compared to $9.6 million at December 31, 2007. Gross unrealized losses of HFA bonds that were in an unrealized loss position of 12 months or more aggregated $31.4 million and $0.2 million at December 31, 2008 and 2007.

The FHLBNY conducts a review and evaluation of the securities portfolio to determine, based on the creditworthiness of the securities and including any underlying collateral and/or insurance provisions of the security, if the decline, if any, in the fair value of a security below its carrying value is other-than-temporary. Based on detailed credit analysis on a security level, the Bank has concluded that gross unrealized losses were primarily caused by interest rate changes, credit spread widening and reduced liquidity and the securities were temporarily impaired as defined under FSP 115-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments” (“FSP 115-1”). The FHLBNY has both the intent and financial ability to hold the temporarily impaired securities until recovery of their value. For information about the Bank’s Impairment Analysis and conclusions, investment ratings, and investment quality see Asset Quality and Concentration — Advances, Investment securities and Mortgage loans in this MD&A. Also, see Note 4 — Held-to-maturity securities and Note 5 — Available-for-sale securities to the financial statements.

Contractual maturities — Mortgage-backed securities

The amortized cost and estimated fair values of held-to-maturity securities by contractual maturity are shown below (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	December 31, 2008				December 31, 2007
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
State and local housing agency obligations
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years		17,665		18,209		32,009		32,474
Due after five years through ten years		60,400		55,060		20,400		20,938
Due after ten years		726,035		689,892		524,562		533,139
State and local housing agency obligations		804,100		763,161		576,971		586,551
Mortgage-backed securities
Due in one year or less		257,999		258,120		243,309		242,471
Due after one year through five years		—		—		546,303		555,003
Due after five years through ten years		1,142,000		1,149,541		103,792		104,563
Due after ten years		7,926,444		7,763,651		8,814,379		8,791,225
Mortgage-backed securities		9,326,443		9,171,312		9,707,783		9,693,262
Certificates of deposit
Due in one year or less		1,203,000		1,203,328		10,300,200		10,307,378
Due after one year through five years		—		—		—		—
Due after five years through ten years		—		—		—		—
Due after ten years		—		—		—		—
Certificates of deposit		1,203,000		1,203,328		10,300,200		10,307,378
Total held-to-maturity securities	$	11,333,543	$	11,137,801	$	20,584,954	$	20,587,191

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Weighted average rates — Mortgage-backed securities

The following table summarizes weighted average rates by contractual maturities. A significant portion of the MBS portfolio consists of floating-rate securities and the weighted average rates will change with changes in the indexed LIBOR rate (dollars in thousands):

	December 31, 2008					December 31, 2007
	Amortized		Weighted			Amortized		Weighted
	Cost		Average rate			Cost		Average rate
Mortgage-backed securities
Due in one year or less	$	257,999		7.39	%	$	243,309		6.22	%
Due after one year through five years		—		—			546,303		7.15
Due after five years through ten years		1,142,000		4.76			103,792		5.43
Due after ten years		10,839,086		4.24			8,814,379		5.31
Total mortgage-backed securities	$	12,239,085		4.36	%	$	9,707,783		5.44	%

Short-term investments

The FHLBNY typically maintains substantial investments in high-quality, short- and intermediate-term financial instruments, such as interest-earning balances at the Federal Reserve Banks, certificates of deposits and overnight and term Federal funds sold to highly-rated financial institutions. These investments provide the liquidity necessary to meet members’ credit needs. Short-term investments also provide a flexible means of implementing the asset liability management decisions to increase liquidity. The Bank invests in certificates of deposits with maturities not exceeding one year and issued by major financial institutions; certificates of deposits are recorded at amortized cost and reported as held-to maturity in the Statements of Condition. Cash pledged to derivative counterparties to meet collateral requirements are interest-bearing and are reported as a netting adjustment to Derivative assets or Derivative liabilities in the Statements of Condition.

Interest-bearing balances at the Federal Reserve Bank of New York — In a new program that commenced in October 2008, the Federal Reserve Banks (“FRB”) pays interest on excess demand balances maintained at the FRB. Outstanding balances at the FRB was $12.2 billion at December 31, 2008 and earned interest based on the federal funds effective rates.

Federal funds sold — Historically, the FHLBNY has been a provider of Federal funds to its members, allowing the FHLBNY to warehouse and provide balance sheet liquidity to meet unexpected member borrowing demands. At December 31, 2008, the Bank’s liquid funds were maintained at the FRB. No Federal funds sold were outstanding at December 31, 2008. Inventory of Federal funds sold at December 31, 2007 was $4.4 billion.

Certificates of deposits — At December 31, 2008, certificates of deposits at highly-rated financial institutions, all maturing within 12 months or less, were $1.2 billion, down from $10.3 billion at December 31, 2007. Low yields and credit risk factors did not justify investments in certificates of deposits at December 31, 2008. Average investment in certificates of deposit in 2008 was $6.6 billion, compared to $7.6 billion in 2007. In the fourth quarter of 2007, the Bank took advantage of favorable execution funding levels of discounts notes and issued short-term discount notes and immediately invested in certificates of deposits for the same amount and maturity and locked in a favorable spread. That advantage did not extend into 2008.

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Cash collateral pledged — Cash collateral pledged is reported as a component of Derivative liabilities in the Statements of Condition. The FHLBNY generally executes derivatives with major banks and broker-dealers and typically enters into bilateral collateral agreements. When counterparties are exposed, the Bank’s derivatives are in a net unrealized loss position, and the Bank would be called upon to pledge cash collateral to mitigate the counterparties’ credit exposure. Collateral agreements include certain thresholds and pledge requirements that are generally triggered if exposures exceed the agreed upon thresholds. At December 31, 2008, the Bank had pledged $3.8 billion in interest-earning cash collateral to derivative counterparties. The comparable amount was $396.4 million at December 31, 2007. Typically, such pledges earn interest at the overnight Federal funds rate.

Investments — Policies and practices

Finance Board regulations limit investment in housing-related obligations of state and local governments and their housing finance agencies to obligations that carry ratings of double-A or higher. Finance Agency regulations further limit the mortgage-backed and asset-backed investments of each FHLBank to 300% of that FHLBank’s capital. The FHLBNY was within the 300% limit for all periods reported. The FHLBNY’s held-to-maturity securities consisted of mortgage-backed and residential asset-backed securities, and housing finance agency bonds.

The FHLBNY does not preclude or specifically seek out investments any differently than it would in the normal course of acquiring securities for investments, unless it is prohibited by existing regulations. The FHLBNY’s practice is to not lend to members unsecured funds, including overnight Federal funds sold and certificates of deposits. Unsecured lending to members is not prohibited by Finance Agency regulations or Board of Directors’ policy. The FHLBNY is prohibited from purchasing a consolidated obligation issued directly by another FHLBank, but may acquire consolidated obligations for investment in the secondary market after the bond settles. There were no investments in consolidated obligations at December 31, 2008 or 2007.

The FHLBNY’s investment in mortgage-backed securities during all periods reported complied with FHLBNY’s Board-approved policy of acquiring mortgage-backed securities issued or guaranteed by the government-sponsored housing enterprises, or prime residential mortgages rated triple-A by both Moody’s and Standard & Poor’s rating services at acquisition.

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Mortgage Loans held-for-portfolio

At December 31, 2008, the portfolio of mortgage loans was comprised of investments in Mortgage Partnership Finance loans (“MPF” or “MPF Program”) and Community Mortgage Asset loans (“CMA”). More details about the MPF program can be found in Mortgage Partnership Finance Program under the caption Acquired Member Assets Program in this MD&A. In the CMA program, the FHLBNY holds participation interests in residential and community development mortgage loans. Acquisition of participations under the CMA program was suspended indefinitely in November 2001 and the loans are being paid down under their contractual terms.

MPF Program — The amortized cost basis of loans in the MPF program was $1.5 billion at December 31, 2008 and 2007. Paydowns slightly outpaced acquisitions in 2008. In 2008, the FHLBNY acquired $138.3 million in new loans and paydowns were $170.3 million. In 2007, the Bank added $175.1 million in new MPF loans. The FHLBNY does not expect the MPF loans to increase substantially, and the Bank provides this product to its members as another alternative for its members to sell their mortgage production. Included in the portfolio of MPF loans held-for-portfolio were $36.8 million and $40.5 million in loans at December 31, 2008 and 2007 that had been “table-funded” and therefore considered as originated by the Bank. In a table-funded loan the PFI uses the FHLBNY’s funds to make the mortgage loan to the borrower, and as credit protection, the PFI closes the loan “as agent” for the FHLBNY. The FHLBNY restricted originations (table funding) to only 3 PFIs in 2008 and 2007.

CMA Program — The amortized cost basis of loans in the CMA program, which has not been active since 2001 and has been declining steadily over time, was $4.0 million at December 31, 2008, down by $0.1 million from December 31, 2007.

Mortgage loans by loan type

The following table presents information on mortgage loans held-for-portfolio (dollars in thousands):

	December 31,
	2008			Percentage			2007			Percentage
Real Estate:
Fixed medium-term single-family mortgages	$	467,845			32.15	%	$	529,839			35.61	%
Fixed long-term single-family mortgages		983,493			67.58			953,946			64.11
Multi-family mortgages		4,009			0.27			4,102			0.28
Total par value		1,455,347			100.00	%		1,487,887			100.00	%
Unamortized premiums		10,662						11,779
Unamortized discounts		(6,310	)					(6,805	)
Basis adjustment 1		(408	)					(600	)
Total mortgage loans held-for-portfolio		1,459,291						1,492,261
Allowance for credit losses		(1,406	)					(633	)
Total mortgage loans held-for-portfolio after allowance for credit losses	$	1,457,885					$	1,491,628

¹ Represents fair value basis of open and closed delivery commitments.

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Mortgage loans — Conventional and insured loans

The following classifies mortgage loans between conventional loans and loans insured by FHA/VA (in thousands):

	December 31,
	2008		2007
Federal Housing Administration and Veteran Administration insured loans	$	6,983	$	8,360
Conventional loans		1,444,356		1,475,425
Others		4,008		4,102
Total par value	$	1,455,347	$	1,487,887

Mortgage loans — credit losses

Roll-forward of the allowance for credit losses was as follows (in thousands):

	Years ended December 31,
	2008			2007		2006
Beginning balance	$	633		$	593	$	582
Charge-offs		21			—		(18	)
Recoveries		(21	)		—		18
Net charge-offs		—			—		—
Provision (Recovery) for credit losses on mortgage loans		773			40		11
Ending balance	$	1,406		$	633	$	593

Deposit Liabilities

Deposit liabilities comprised of member deposits and, from time-to-time, may also include unsecured overnight borrowings from other FHLBanks.

Member deposits — The FHLBNY operates deposit programs for the benefit of its members. Deposits are primarily short-term in nature with the majority maintained in demand accounts that reprice daily based upon rates prevailing in the overnight Federal funds market. Members’ liquidity preferences are the primary determinant of the level of deposits. Total deposits at December 31, 2008, including demand and term, aggregated $1.5 billion down slightly from $1.6 billion at December 31, 2007. Fluctuations in member deposits have little impact on the Bank and are not a significant source of liquidity for the Bank.

Borrowings from other FHLBanks — The Bank borrows from other FHLBanks, generally for a period of one day. There were no borrowings outstanding at December 31, 2008 and 2007. In 2008, the FHLBNY advanced $661.0 million to other FHLBanks, compared to $55.0 million in 2007. All transactions were at market terms.

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Debt Financing Activity and Consolidated Obligations

Consolidated obligations, which are the joint and several obligations of the FHLBanks, are the principal funding source for the FHLBNY’s operations and consist of consolidated bonds and consolidated discount notes. Discount notes are consolidated obligations with maturities up to 365 days, and consolidated bonds have maturities of one year or longer. Member deposits, capital and, to a lesser extent borrowings from other FHLBanks, are also funding sources.

Consolidated Obligation Liabilities

The issuance and servicing of consolidated obligations debt are performed by the Office of Finance, a joint office of the FHLBanks established by the Finance Agency. Each FHLBank independently determines its participation in each issuance of consolidated obligations based on, among other factors, its own funding and operating requirements, maturities, interest rates, and other terms available for consolidated obligations in the market place. Although the FHLBNY is primarily liable for its portion of consolidated obligations (i.e., those issued on its behalf), the FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. The FHLBanks, including the FHLBNY, have emphasized diversification of funding sources and channels as the need for funding from the capital markets has grown.

The two major debt programs offered by the Office of Finance are the Global Debt Program and the TAP. The FHLBNY participates in both programs.

The Global Debt Program provides the FHLBanks with the ability to distribute debt into multiple primary markets across the globe. The FHLBank global debt issuance facility has been in place since July 1994. FHLBank global bonds are known for their variety and flexibility; all can be customized to meet changing market demand with different structures, terms and currencies. Global Debt Program bonds are available in maturities ranging from one year to 30 years with the majority of global issues between one and five years. The most common Global Debt Program structures are bullets, floaters and fixed-rate callable bonds with maturities of one through ten years. Issue sizes are typically from $500 million to $5 billion and individual bonds can be reopened to meet additional demand. Bullets are the most common global bonds, particularly in sizes of $3 billion or larger.

In mid-1999, the Office of Finance implemented the TAP issue program on behalf of the FHLBanks. This program consolidates domestic bullet bond issuance through daily auctions of common maturities by reopening previously issued bonds. Effectively, the program has reduced the number of separate FHLBanks bullet issues and individual issues have grown as large as $1 billion. The increased issue sizes have a number of market benefits for investors, dealers and the 12 FHLBanks. TAP issues have improved market awareness, expanded secondary market trading opportunities, improved liquidity and stimulated greater demand from investors and dealers seeking high-quality Government Sponsored Enterprises securities with U.S. Treasury-like characteristics. The TAP issues follow the same 3-month quarterly cycles used for the issuance of “on-the-run” Treasury securities and also have semi-annual coupon payment dates (March, June, September and December). The coupons for new issues are determined by the timing of the first auction during a given quarter.

The FHLBanks also issue global consolidated obligations-bonds. Effective in January 2009, a debt issuance process was implemented by the FHLBanks and the Office of Finance to provide a scheduled monthly issuance of global bullet consolidated obligations-bonds. As part of this process, management from each of the FHLBanks will determine and communicate a firm commitment to the Office of Finance for an amount of scheduled global debt to be issued on its behalf. If the FHLBanks’ orders do not meet the minimum debt issue size, the proceeds are allocated to all FHLBanks based on the larger of the FHLBank’s commitment or allocated proceeds based on the individual FHLBank’s capital to total system capital. If the FHLBanks’ commitments exceed the minimum debt issue size the proceeds are allocated based on relative capital of the FHLBanks’ with the allocation limited to the lesser of the allocation amount or actual commitment amount. The Finance Agency and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance. The FHLBanks can, however, pass on any scheduled calendar slot and not issue any global bullet consolidated obligations- bonds upon agreement of 8 of the 12 FHLBanks.

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In the third quarter of 2008, each FHLBank (including the FHLBNY) entered into a Lending Agreement with the U.S. Treasury in connection with the U.S. Treasury’s establishment of the Government Sponsored Enterprise Credit Facility (GSECF), as authorized by the Housing Act. The GSECF is designed to serve as a contingent source of liquidity for the housing government-sponsored enterprises, including each of the 12 FHLBanks. Any borrowings by one or more of the FHLBanks under the GSECF are considered consolidated obligations with the same joint and several liability as all other consolidated obligations. The terms of any borrowings are agreed to at the time of issuance. Loans under the Lending Agreement are to be secured by collateral acceptable to the U.S. Treasury, which consists of FHLBank advances to members that have been collateralized in accordance with regulatory standards and mortgage-backed securities issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. Each FHLBank is required to submit to the Federal Reserve Bank of New York, acting as fiscal agent of the U.S. Treasury, a list of eligible collateral, updated on a weekly basis. As of December 31, 2008, the FHLBNY had provided the U.S. Treasury with listings of advance collateral amounting to $16.3 billion. The amount of collateral can be increased or decreased (subject to the approval of the U.S. Treasury) at any time through the delivery of an updated listing of collateral. As of December 31, 2008 and at the date of this Form 10-K report, no FHLBank has drawn on this available source of liquidity.

The FHLBanks, including the FHLBNY, continue to issue debt that is both competitive and attractive in the marketplace. In addition, the FHLBanks continuously monitor and evaluate their debt issuance practices to ensure that consolidated obligations are efficiently and competitively priced.

Consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that use a variety of indices for interest rate resets. These indices include the London Interbank Offered Rate (LIBOR), Constant Maturity Treasury (“CMT”), 11th District Cost of Funds Index (“COFI”), Prime rate, the Federal funds rate, and others. In addition, to meet the expected specific needs of certain investors in consolidated obligations, both fixed- and variable-rate bonds may also contain certain features that will result in complex coupon payment terms and call options. When the FHLBNY cannot use such complex coupons to hedge its assets, FHLBNY enters into derivative transactions containing offsetting features that effectively convert the terms of the bond to those of a simple variable-rate bond.

The consolidated obligations, beyond having fixed- or variable-rate coupon payment terms, may also be Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in whole or in part at its discretion on predetermined call dates according to the terms of the bond offerings.

Highlights — Debt issuance and funding management

In 2008 as in 2007, the primary source of funds for the FHLBNY continued to be through issuance of consolidated obligation bonds and discount notes.

Reported amounts of consolidated obligations outstanding, comprising of bonds and discount notes, at December 31, 2008 and 2007 were $128.6 billion and $101.1 billion, and funded 93.5% and 92.2% of Total assets at those dates. These financing ratios have remained substantially unchanged over the years at around 90%, indicative of the stable funding strategy pursued by the FHLBNY to rely on FHLBank debt for financing its activities.

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Incremental increase in funding requirements to finance the continued growth in member demand for advances in 2008 was principally through the issuance of discount notes, variable-rate bonds and short-term fixed-rate bonds.

Investor demand for FHLBank debt — The cost of term debt issuance has been under pressure since the start of the liquidity crises in the fourth quarter of 2007. Investor demand for term-debt has remained soft in 2008 with investors seeking premiums for longer-term issuances. FHLBank longer-term, fixed-rate bond execution has been affected by the credit uncertainty in the markets, and despite the triple-A quality ascribed to the consolidated obligation bonds, investors continued to express a strong desire to stay short in the current volatile environment. Following the conservatorship of Fannie Mae and Freddie Mac, market pricing of FHLBank issued debt indicates that market participants believe that obligations of the two GSEs offer lower credit risk than FHLBank debt obligations, which are generally grouped into the same GSE asset class as Fannie Mae and Freddie Mac. As a result investors are more likely to require a premium to acquire FHLBank debt relative to debt issued by Fannie Mae and Freddie Mac. GSE debt pricing itself has been under competitive pressure with the FDIC announcing guarantees to debt offered by commercial banks and other financial institutions. Issuance of Treasury bills has increased, offering an alternative source of investments, adding to the yield pressure on FHLBank debt.

These factors and the general dislocation in the capital markets intensified the widening of spreads between 3-month LIBOR and yields on FHLBank long-term debt, making it expensive for the FHLBNY to issue term debt and offer advances to members even if there were sufficient investor demand. In mid-December 2008, the Federal Reserve System announced its intention to acquire up to $100.0 billion of GSE debt and the market did react positively to the pricing of FHLBank issued debt. In several auctions in December 2008, the Federal Reserve has purchased FHLBank issued debt creating investor confidence. So far, the initiative has benefited “Global” issuances and the more utilized “Tap” program has not fared as well.

Unless investors recommit to the term funding market in sufficient volume, the FHLBanks will continue to meet funding needs in the very short end of the funding market. Investor demand has been for ultra-short-term bullet and callable bonds, short-term floating-rate bonds, discount notes. To illustrate, some 89% of bonds issued by the FHLBanks in October 2008 mature within 397 days, much higher than the 44% average for the first three quarters of 2008, which in itself was considered an unusually large percentage of issuances in the short end of the term debt market.

The FHLBNY has also stepped up its efforts at utilizing short-term floating rate bonds, often indexed to rates other than 3-month LIBOR and swapping the coupons back to 3-month LIBOR. The efforts at creating a more diverse funding mix have been part of the FHLBNY’s tactical strategy to address any over reliance on discount notes.

Funding tactical changes — Starting in the third quarter of 2007 and continuing through 2008, member demand for liquidity has been unprecedented. Outstanding amounts of advances have grown from $75.1 billion at September 30, 2007 to $82.1 billion at December 31, 2007 and to $109.2 billion at December 31, 2008. To accommodate members’ funding needs at reasonable spreads, the FHLBNY heightened its responsiveness to investor maturity preferences, and tactical adjustments to the FHLBNY funding strategies have factored in strong investor demand for shorter-term FHLBank bonds and discount notes. As market conditions changed, the Bank has also reacted promptly. The principal tactical funding strategy changes employed in executing issuances of debt were:

• In response to market demand for shorter-term debt, the Bank increased its issuance of discount notes which have maturities from overnight to 365 days. In 2008, the Bank issued $686.1 billion of discount notes, up 55.5% from $441.2 billion issued in 2007. Issuance pattern of discount notes was uneven during the quarters in 2008, a reflection of the Bank’s responsiveness to changing conditions in the capital markets during 2008 for FHLBank issued discount notes. In the first quarter, spreads to 3-month LIBOR were favorable and the Bank increased the utilization of discount notes; in the second quarter, reacting to unfavorable trends, the use of discount notes was reduced. Since the second quarter, the Bank has increased the utilization of discount notes and outstanding balances have reached a high of $46.3 billion at December 31, 2008, up from $34.8 billion at December 31, 2007.

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• The FHLBNY has stepped up efforts at creating a more diverse funding mix to address any over reliance on discount notes. It increased the issuance of one year bullet and callable bonds and swapping the fixed-rate debt to LIBOR indexed cash flows. In 2008, the FHLBNY issued short-term floating-rate bonds, indexed to rates other than 3-month LIBOR and swapping the coupons back to 3-month LIBOR. The amount of non-3-month LIBOR indexed floating-rate bonds outstanding at December 31, 2008 stood at $25.0 billion, up from $0 at December 31, 2007.

• Reacting to investor preference for shorter and medium-term debt, the FHLBNY increased the issuance of medium-term non-callable bonds. Investors have been receptive to FHLBanks’ non-callable bonds compared to alternative debt available in the capital markets and execution pricing has been relatively more favorable for the FHLBank bonds. FHLBank callable-bonds, which have been traditionally considered by investors to be competitively priced have been under price pressure in 2008 and the Bank’s use of funding with callable debt has declined because of the erosion of their price advantage. Maturing callable bonds were replaced with non-callable shorter-term bonds and floating-rate bonds. As a result, Bonds that were callable declined to $4.8 billion, or 5.9% of total bonds outstanding at December 31, 2008, down from $11.4 billion or 17.3% at December 31, 2007. The percentages have been even higher in past years. When callable-bonds were issued, they were issued with relatively shorter effective durations.

Debt extinguishment — In 2008, the Bank did not extinguish consolidated obligation bonds. In 2007, $626.2 billion of par amounts of consolidated obligation bonds were repurchased at a loss of $8.6 million. Bonds repurchased were primarily associated with the financing of advances and MBS that had been prepaid.

Consolidated obligation bonds

The following summarizes types of bonds issued and outstanding (dollars in thousands):

	December 31,
				Percentage of						Percentage of
	2008			total			2007			total
Fixed-rate, non-callable	$	36,367,875			44.92	%	$	39,642,670			60.01	%
Fixed-rate, callable		4,828,300			5.96			11,420,300			17.29
Step Up, callable		73,000			0.09			843,000			1.28
Step Down, callable		15,000			0.02			15,000			0.02
Single-index floating rate		39,670,000			49.01			14,135,000			21.40
Total par value		80,954,175			100.00	%		66,055,970			100.00	%
Bond premiums		63,737						38,586
Bond discounts		(39,529	)					(28,529	)
SFAS 133 fair value basis adjustments		1,254,523						259,405
Fair value basis adjustments on terminated hedges		7,857						385
SFAS 159 valuation adjustments and accrued interest		15,942						—
Total bonds	$	82,256,705					$	66,325,817

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Funding Mix

The FHLBNY has consistently demonstrated the ability to seek out the most attractively priced funding the capital market has to offer by being flexible in the debt structure the Bank is willing to offer to meet the borrowing needs of its members and to achieve management’s asset/liability goals. As investor demand shifts from bullets to callable to floaters, the FHLBNY has also been opportunistic in pursuing the debt structure most in demand at a reasonable price consistent with the Bank’s asset/liability match.

In 2008, the FHLBNY issued fixed-rate and floating-rate bonds, and discount notes in a mix of issuances to achieve its asset/liability management goals and be responsive to the changing market dynamics. The funding fix has resulted in a greater diversity of debt structures and funding alternatives, indicative of the flexibility of the Bank’s funding tactics in a volatile environment. The issuance of bonds has been the primary financing vehicle for the Bank, although the use of term and overnight discount notes remain a vital source of funding requirements because of the ease of issuance of discount notes as a flexible funding tool for day-to-day operations.

In prior years, the use of term discount notes generally declined because of the relative pricing advantage of issuing floating-rate, LIBOR-indexed debt or by issuing short-term callable debt and swapping out the fixed-rate cash flows for LIBOR-indexed cash flows by the simultaneous execution of callable interest rate swaps. Hedge ratio, or the percentage of debt hedged versus debt not hedged, and the mix between the use of non-callable and callable interest rate swaps to hedge bonds reflects the Bank’s balance sheet management preferences and the attractiveness of the pricing of callable swaps. The ratio of discount notes to bonds is another balance sheet management tool and that too is predicated on factors such as asset-liability cash-gap management and the attractiveness of the pricing of discount notes.

In 2008 the Bank increased its holdings of term discount notes mainly because of favorable investor demand and pricing relative to term funding. Still, consolidated obligation bonds remained the primary financing basis for the FHLBNY. In 2008, the Bank issued to investors floating-rate short-term debt indexed to the Prime rate, Fed effective rate, and the 1-month LIBOR rate and swapped all issuances to 3-month LIBOR. The Bank also executes interest rate swaps for a significant percentage of its fixed-rate debt and almost all its step- up and step-down debt, effectively converting the fixed-rate debt to 3-month LIBOR-indexed debt.

Fixed-rate non-callable bonds — Fixed-rate non-callable bonds, also referred to as “bullet bonds”, outstanding at December 31, 2008 totaled $36.4 billion, or 44.9% of par amounts of total bonds, significantly down from 60.0% at December 31, 2007. Issuances of non-callable debt are predicated partly on pricing of such debt and investor demand, and partly on the need to achieve asset/liability management goals. As discussed previously, investor appetite for term debt was lukewarm, and pricing of short-term single maturity bullet bonds was relatively unattractive given investor preference for discount notes and short-term floating rate bonds. Despite the triple-A quality ascribed to the consolidated obligation bonds, the market turmoil drove investors into shorter duration investments and floating rate debt which reset periodically based on prevailing market rates, which made them an attractive choice for investors. Responsive to these conditions, the Bank refined its funding tactics and maturing bullet bonds were replaced by floating-rate bonds or discount notes, which funded the significant growth in member demand for advances through most of 2008.

Fixed-rate callable bonds — With a callable bond, the Bank purchases a call option from the investor and the option allows the Bank to terminate the bond at predetermined call dates. When the Bank purchases the call option from investors it typically lowers the cost to the investor, who has traditionally been receptive to callable-bond yields offered by the FHLBNY. The Bank may also issue callable debt on an unswapped basis in a financing strategy to match the estimated prepayment characteristics of mortgage-backed securities and mortgage loans held-for-portfolio. As estimated lives and prepayment speeds of MBS and mortgage loans change with changes in the interest rate environment, those same factors are also likely to impact the call exercise feature of callable debt. These factors tend to shorten or lengthen the effective lives of the debt with changes in the interest rate environment, thereby achieving an offset to the prepayment options of MBS and mortgage loans.

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The use of callable debt has declined over the years as investor demand for term debt has been very soft and the pricing advantage offered to investors for selling the call option tends to narrow as the term of the bond shortens. Spreads to both U.S. Treasury securities and LIBOR have widened and the unfavorable trend continued through 2008. The Bank’s acquisition of fixed-rate mortgage-backed securities has been very selective and acquisitions limited, another factor that limited the issuance of callable bonds. Still another factor was the declining interest rates have fueled callable bond redemptions in association with the calls on the associated interest rate swaps. As a result, outstanding amounts of fixed-rate callable debt were allowed to decline as maturing or called bonds were not replaced by callable bonds. Total fixed-rate callable bonds outstanding, which had stood at $11.4 billion at December 31, 2007, declined to $4.8 billion at December 31, 2007.

Callable debt and the associated interest rate swap that converts fixed-rate debt expense to LIBOR indexed funding, typically three-month LIBOR, provides funding for short-term assets. Call options on swapped bonds are typically exercised when the swap counterparty exercises its call option on the swap. Call options on unswapped bonds are generally exercised when the bond can be replaced at a lower economic cost. Thus, by issuing callable swaps with callable bonds, the Bank significantly alters the contractual maturity characteristics of the original bond and introduces the possibility of an exercise call date that is significantly shorter than the contractual maturity. The impact in 2008 was not significant as the amounts of callable bonds outstanding were not significant.

Floating-rate bonds — Floating-rate bonds have not been extensively used in prior years principally because of unfavorable pricing compared to the pricing of discount notes and callable-fixed-rate bonds with associated fixed-to-floating interest rate swaps. Issuance of floating-rate debt, indexed to 1-month LIBOR, Prime, and Fed effective rates was an innovative shift in funding tactics to take advantage of the historical wide spread between 3-month LIBOR and other indices. By executing interest rate swaps concurrently with the issuances of the floating-rate bonds and swapping the non-3 month LIBOR indices for 3-month LIBOR, the Bank effectively created variable funding that was indexed to 3-month LIBOR. Floating-rate bonds totaled $39.7 billion at December 31, 2008, and comprised of $25.0 billion of floaters indexed to Prime rate, Fed effective rate and 1-month LIBOR, and $14.7 billion of floaters indexed to 3-month LIBOR.

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Consolidated obligation bonds — Maturity and coupons

The following is a summary of consolidated bonds outstanding by year of maturity. Outstanding balances include variable-rate bonds and the weighted average rate is the rate prevailing at December 31, 2008 and 2007 (dollars in thousands):

	December 31,
	2008									2007
				Weighted									Weighted
				Average			Percentage						Average			Percentage
Maturity	Amount			Rate 1			of total			Amount			Rate 1			of total
One year or less	$	49,568,550			1.93	%		61.23	%	$	38,027,475			4.69	%		57.57	%
Over one year through two years		16,192,550			3.20			20.00			11,047,950			4.78			16.73
Over two years through three years		5,299,700			3.73			6.55			6,344,300			4.85			9.60
Over three years through four years		2,469,575			4.75			3.05			2,309,100			4.99			3.50
Over four years through five years		3,352,450			3.99			4.14			2,972,845			5.14			4.50
Over five years through six years		989,300			5.06			1.22			728,250			5.27			1.10
Thereafter		3,082,050			5.35			3.81			4,626,050			5.31			7.00
Total par value		80,954,175			2.64	%		100.00	%		66,055,970			4.80	%		100.00	%
Bond premiums		63,737									38,586
Bond discounts		(39,529	)								(28,529	)
SFAS 133 fair value basis adjustments		1,254,523									259,405
Fair value basis adjustments on terminated hedges		7,857									385
SFAS 159 valuation adjustments and accrued interest		15,942									—
Total bonds	$	82,256,705								$	66,325,817

¹ Weighted average rate represents the weighted average coupons of bonds, unadjusted for swaps. The weighted average coupon of bonds outstanding at December 31, 2008 and 2007, represent contractual coupons payable to investors.

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Bonds outstanding at December 31, 2008 and 2007 were primarily medium-term. At December 31, 2008, 81.2% of par amounts of bonds had stated final maturities within two years, compared to 74.3% at December 31, 2007, indicative of the shortening of bond maturities and lukewarm investor demand for longer-term bonds. Because of the short-term nature of the bonds being issued, and the reset characteristics of the significant amounts of floating-rate bonds outstanding at December 31, 2008, the weighted average rates of bonds maturing within two years have adjusted rapidly to the declining rate environment. Coupons of the longer term bonds, which are typically fixed-rate, have remained almost unchanged.

The Bank hedges certain fixed-rate debt under the provisions of SFAS 133 by the use of both callable and non-callable interest rate swaps as fair value hedges. Under the Bank’s present practices, when a derivative counterparty exercises its right to call a swap at predetermined exercise date, the Bank terminates the bond by exercising its right to call the callable bond. Thus, when callable bonds are hedged by callable swaps, the possibility of exercise of the call shortens the expected maturity of the bond. A separate analysis of the impact of calls is presented in a table in subsequent pages within these discussions.

Impact of hedging fixed-rate consolidated obligation bonds

The Bank hedges certain fixed-rate debt under the provisions of SFAS 133 by the use of both callable and non-callable interest rate swaps in a fair value hedge. The Bank may also hedge the anticipatory issuance of bonds under the provisions of “cash flow” hedging rules of SFAS 133 (None outstanding at December 31, 2008).

Net interest accruals from SFAS 133 qualifying interest rate swaps are recorded together with interest expense of consolidated obligation bonds in interest expense. Fair value changes of debt in a qualifying fair value hedge are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivative and hedging activities; an offset is recorded as a fair value basis adjustment to the carrying amount of the debt in the balance sheet. Net interest accruals associated with derivatives not qualifying under SFAS 133 are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

Derivatives are employed to hedge consolidated bonds in the following manner to achieve the indicated principal objectives:

The FHLBNY:

• Makes extensive use of the derivatives to restructure interest rates on consolidated obligation bonds, both callable and non-callable, to better meet its members’ funding needs, to reduce funding costs, and to manage risk in a changing market environment.

• Converts at the time of issuance, certain simple fixed-rate bullet and callable bonds into synthetic floating-rate bonds by the simultaneous execution of interest rate swaps that convert the cash flows of the fixed-rate bonds to conventional adjustable rate instruments tied to an index, typically 3-month LIBOR.

• Uses derivatives to manage the risk arising from changing market prices and volatility of a fixed coupon bond by matching the cash flows of the bond to the cash flows of the derivative and making the FHLBNY indifferent to changes in market conditions. Except when issued to fund MBS and MPF loans, callable bonds are typically hedged by an offsetting derivative with a mirror-image call option with identical terms.

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• Adjusts the reported carrying value of hedged consolidated bonds for changes in their fair value (“fair value basis adjustments” or “fair value”) that are attributable to the risk being hedged in accordance with hedge accounting rules. Amounts reported for consolidated obligation bonds in the Statements of Condition include fair value hedge basis adjustments.

• Lowers funding cost by the issuance of a callable bond and the execution of an associated interest rate swap with mirrored call options, which results in funding at a lower cost than the FHLBNY would otherwise have achieved. The issuance of callable bonds and the simultaneous swapping with a derivative instrument depends on the price relationships in both the bond and the derivatives markets.

The most significant element that impacts balance sheet reporting of debt is the recording of fair value basis and valuation adjustments. Also, when callable bonds are hedged by callable swaps, the possibility of exercise of the call shortens the expected maturity of the bond. The impact of hedging debt on recorded interest expense is discussed in this MD&A under “Results of Operations”. Its impact as a risk management tool is discussed under Item 3 Quantitative and Qualitative Disclosures about Market Risk.

Fair value basis and valuation adjustments — The Bank uses interest rate derivatives to hedge the risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the discounting basis for computing changes in fair values of hedged advances. Recorded fair value basis adjustments in the Statements of Condition were associated with hedging activities under the provisions of SFAS 133, and were represented by net unrealized basis gains of $1.3 billion compared to $259.8 million at December 31, 2007.

The reported carrying value of consolidated obligation bonds is adjusted for changes in their fair value basis attributable to the risk being hedged in accordance with the provisions of SFAS 133 when hedge accounting rules are applied. Reported carrying values of bonds designated under SFAS 159, the Fair Value Option, were also adjusted for valuation adjustments to recognize changes in the full fair value of the bonds elected under the Fair Value Option and measured under SFAS 157. Amount reported for consolidated obligations in the balance sheet for valuation adjustments under SFAS 159 included $8.3 million of unrealized gains at and $7.6 million of accrued interest at December 31, 2008.

Changes in fair value basis reflect changes in the term structure of interest rates, the shape of the yield curve at the measurement dates, the value and implied volatility of call options of callable bonds, and from the growth or decline in hedge volume.

Hedge volume — As of December 31, 2008, the Bank had hedged $20.0 billion of fixed-rate, non-callable bonds to hedge fair value risk from changes in the benchmark rate. The comparable notional amount at December 31, 2007 was $26.2 billion. Callable bonds at December 31, 2008 were $4.9 billion and the Bank had hedged $2.2 billion with callable interest rate swaps. These hedges were in SFAS 133 qualifying hedge relationships, which effectively converted the fixed-rate exposure of the bonds to a variable-rate exposure, generally indexed to 3-month LIBOR. The Bank’s callable bonds contain a call option purchased by the Bank from the investor. Under the terms of the call option, the Bank has the right to terminate the bond at agreed upon dates.

In 2008, the Bank elected the Fair Value Option for $983.0 million of fixed-rate, callable-bonds which were economically hedged by interest-rate swaps with matching terms. At December 31, 2008, the FHLBNY had economic hedges of $4.5 billion of non-callable fixed-rate bonds that had previously been accounted under the SFAS 133 hedge accounting provisions. Changes due to amortization of basis adjustments of bonds de-designated from the previous hedging relationships were not material.

As of December 31, 2008, the FHLBNY also had economic hedges of $25.0 billion of floating-rate bonds that were indexed to interest rates other than 3-month LIBOR by entering into swap agreements with derivative counterparties that synthetically converted the floating rate debt cash flows to 3-month LIBOR. Hedges designated at inception as economic do not generate basis adjustments.

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The carrying amounts of consolidated obligations bonds included fair value basis gains of $1.3 billion at December 31, 2008, compared to fair value gains of $259.8 million at December 31, 2007. As discussed previously, changes in fair value basis reflect changes in the term structure of interest rates, the shape of the yield curve at the measurement dates, and the value and implied volatility of call options of callable bonds.

Compared to December 31, 2007, change in basis gains at December 31, 2008 was consistent with the forward yield curves at December 31, 2008 that were projecting forward rates below the fixed-rate coupons of hedged bonds and bonds designated under the FVO. Most of the hedged bonds had been issued in prior periods at the then prevailing higher interest-rate environment. Since such bonds are typically fixed-rate, in a declining interest rate environment, fixed-rate bonds exhibit unrealized fair value basis gains recorded under SFAS 133. Unrealized gains from fair value basis adjustments on hedged bonds were almost entirely offset by net fair value unrealized losses from derivatives associated with the hedged bonds, thereby achieving the Bank’s hedging objectives of mitigating fair value basis risk.

Consolidated obligation bonds — maturity or next call date

Swapped, callable bonds contain an exercise date or a series of exercise dates that may result in a shorter redemption period. Thus, issuance of a callable bond with an associated callable swap significantly alters the contractual maturity characteristics of the original bond and introduces the possibility of an exercise call date that is significantly shorter than the contractual maturity.

The following table summarizes consolidated bonds outstanding by years to maturity or next call date (dollars in thousands):

	December 31,
				Percentage of						Percentage of
	2008			total			2007			total
Year of Maturity or next call date
Due or callable in one year or less	$	53,034,550			65.51	%	$	47,346,975			71.68	%
Due or callable after one year through two years		15,472,350			19.11			9,924,450			15.02
Due or callable after two years through three years		4,843,700			5.98			3,551,100			5.38
Due or callable after three years through four years		1,445,575			1.79			980,100			1.48
Due or callable after four years through five years		2,954,450			3.65			910,845			1.38
Due or callable after five years through six years		684,800			0.85			435,250			0.66
Thereafter		2,518,750			3.11			2,907,250			4.40
Total par value		80,954,175			100.00	%		66,055,970			100.00	%
Bond premiums		63,737						38,586
Bond discounts		(39,529	)					(28,529	)
SFAS 133 fair value adjustments		1,254,523						259,405
Fair value basis adjustments on terminated hedges		7,857						385
SFAS 159 valuation adjustments and accrued interest		15,942						—
Total carrying value	$	82,256,705					$	66,325,817

Because of the decline in the balance of callable bonds outstanding at December 31, 2008, the impact of call options was not a significant factor in the potential for shortening the duration of the bond to the first call exercise date. Based on potential call exercise date of the remaining callable bonds on pre-determined call dates, it was probable that some 84.6% of bonds outstanding at December 31, 2008 may get called or mature within two years, compared to 81.2% on a contractual maturity date basis. At December 31, 2007, the potential for call exercise would have resulted in 86.7% of bonds being matured or called within two years, while on a contractual maturity basis, 74.3% would have matured within two years. Call options are owned and exercisable by the Bank and are generally either a one-time option or quarterly. The Bank’s current practice is to exercise its option to call a bond when the swap counterparty exercises its option to call the callable swap hedging the callable bond. Fixed-rate callable bonds constituted only 6.0% of all bonds at December 31, 2008, and were hedged by callable interest rate swaps; the impact of the hedge under current practice was to shorten the expected duration of the bonds outstanding at December 31, 2008 by a smaller differential than in prior years when callable bonds were issued in larger amounts.

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Discount Notes

Consolidated obligation discount notes provide the FHLBNY with short-term and overnight funds. Discount notes have maturities of up to one year and are offered daily through a dealer-selling group; the notes are sold at a discount from their face amount and mature at par.

Through a sixteen-member selling group, the Office of Finance, acting on behalf of the twelve Federal Home Loan Banks, offers discount notes. In addition, the Office of Finance offers discount notes in four standard maturities in two auctions each week. The FHLBNY used discount notes to fund short-term advances, longer-term advances with short repricing intervals, convertible advances and money market investments.

The following summarizes discount notes issued and outstanding (dollars in thousands):

	December 31,
	2008			2007
Par value	$	46,431,347		$	34,984,105
Amortized cost	$	46,329,545		$	34,791,570
Fair value basis adjustments		361			—
Total	$	46,329,906		$	34,791,570
Weighted average interest rate		1.00	%		4.28	%

In 2008, responsive to market demand for shorter-term debt, the Bank increased its issuance of discount notes. In 2008, the Bank issued $686.1 billion of discount notes, up 55.5% from $441.2 billion issued in 2007. Issuance pattern of discount notes was uneven during the quarters in 2008, a reflection of the flexible funding tactics employed in a changing market conditions and market demand for FHLBank issued discount notes.

In the first half of the first quarter of 2008, spreads to 3-month LIBOR were very attractive, and certain instances, yields were dramatically below the Fed funds rate, making notes an attractive funding vehicle for the FHLBNY. In the middle of the first second quarter, reacting to unfavorable trends, the use of discount notes was reduced, and outstanding balances at March 31, 2008 declined to $26.3 billion from $34.8 billion at December 31, 2008. The FHLBNY issued $179.2 billion of discount notes in the first quarter of 2008.

Early in the second quarter, discount note spreads became attractive yet again, relative to alternative funding vehicles, such as the issuance of short-term bonds. Demand for discount notes was on the rise with money managers seeking out short-term investments, and overnight discount notes became a key resource in the capital markets for managing massive changes in daily changes in assets under management. Spreads for longer term discount notes did contract at the same time due to increased Treasury bill supply and did inhibit issuances. At June 30, 2008, the FHLBNY reduced its inventories of short-term money market investments which were largely funded by discount notes and reduced the amount of discount notes at the same time to $25.7 billion. Issuance volume in the second quarter increased because of the use of overnight discount notes and totaled $224.9 billion in the second quarter of 2008. In the middle of the third quarter of 2008, the market demand for term discount notes stabilized with strong demand for maturities out to one month, moderate demand for two month maturities. FHLBNY’s outstanding balances of discount notes rose to $28.7 billion, and issuing volume of discount notes, which had declined to $132.1 billion in the third quarter of 2008 increased to $149.9 billion in the fourth quarter of 2008 and the FHLBNY made greater use of term discount notes as investors scrambled for high quality short maturity securities and the demand improved discount note pricing. Outstanding amounts of discount notes grew to $46.3 billion at December 31, 2008.

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Discount notes are mostly utilized in funding short-term advances, some long-term advances as well as held-to-maturity and money market investments. The efficiency of issuing discount notes continues to be a another factor in its use as a popular funding vehicle as discount notes can be issued any time and in a variety of amounts and maturities in contrast to other short-term funding sources, such as the issuance of callable debt with an associated interest rate derivative with matching terms. The importance of the instrument in day-to-day funding operations is illustrated by the very significant volume of the annual cash flows generated by discount note issuance. For the twelve months ended December 31, 2008, the Bank issued $686.1 billion in discount notes. In the same period, cash flows from the issuance of consolidated obligation bonds were only $62.0 billion. Contrasting transaction volumes between bonds and discount notes provides an indication that discount notes continued to be an important source of short-term funding.

As of December 31, 2008, the Bank had hedged $779.0 million of discount notes to hedge fair value risk from changes in the benchmark rate in SFAS 133 qualifying hedge relationships. The hedges effectively converted the fixed-rate exposure of the discount notes to a variable-rate exposure, generally indexed to 3-month LIBOR. At December 31, 2008, the Bank also hedged $7.5 billion of discount notes to hedge fair value risk and these were considered as economic hedges. Hedges designated at inception as economic do not generate basis adjustments.

Rating actions with respect to the FHLBNY are outlined below:

Short-Term Ratings:

	Moody’s Investors Service		S & P
Year	Outlook	Rating	Short-Term Outlook			Rating
2008	October 29, 2008 — Affirmed April 17, 2008 — Affirmed	P-1 P-1
2006			September 21, 2006	Short Term rating affirmed		A-1+
Long-Term Ratings:
	Moody’s Investors Service		S & P
Year	Outlook	Rating	Long-Term Outlook			Rating
2008	October 29, 2008 — Affirmed April 17, 2008 — Affirmed	Aaa/Stable Aaa/Stable
2006			September 21, 2006	Long Term rating upgraded	outlook stable	AAA/Stable

Mandatorily Redeemable Capital Stock

The FHLBNY’s capital stock is redeemable at the option of both the member and the FHLBNY subject to certain conditions. Dividends related to capital stock classified as mandatorily redeemable are accrued at an estimated dividend rate and reported as interest expense in the Statements of Income. Redeemable capital stock is generally accounted for under the provisions of SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”). Mandatorily redeemable capital stock at December 31, 2007 and 2006 represented stock held primarily by former members who were no longer members by virtue of being acquired by members of other FHLBanks. Under existing practice, such stock will be repaid when the stock is no longer required to support outstanding transactions with the FHLBNY.

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The FHLBNY reclassifies the stock subject to redemption from equity to liability once a member: irrevocably exercises a written redemption right; gives notice of intent to withdraw from membership; or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership.

Voluntary withdrawal from membership — No member had notified the FHLBNY at December 31, 2008 or at December 31, 2007 of their intention to voluntarily withdraw from membership. No member’s or non-member’s redemption request remained pending at December 31, 2008 or 2007.

Members acquired by non-members — The Bank reclassifies stock of members to a liability on the day the member’s charter is dissolved.

At December 31, 2008, the amount of mandatorily redeemable stock classified as a liability was $143.1 million, compared to $238.6 million at December 31, 2007. In the first quarter of 2008, three members were acquired by non-members. Two were considered to have significant borrowing potential had the merger not occurred. In the second quarter, one member was acquired by a non-member but the member’s outstanding borrowed amounts or borrowing potential were not significant. There was no loss of members in the third quarter or fourth quarters.

In the first six months of 2007, one member was acquired by a non-member and $6.9 million of capital was reclassified from capital to liability. In the second six months of 2007, four members were acquired by non-members and a fifth member relocated its headquarters to outside the Bank’s membership district, and $180.1 million of capital was reclassified from capital to liability. In compliance with Finance Agency regulations, the Bank classified these six members as non-members.

Capital stock held by non-members will be repaid at maturity of the advances borrowed by non-members. In accordance with Finance Agency regulations, non-members cannot renew their advance borrowings at maturity. Under the provisions of SFAS 150, such capital is considered mandatorily redeemable.

Under the provisions of the Bank’s Capital Plan, a notice of intent to withdraw from membership must be provided to the FHLBNY five years prior to the withdrawal date. At the end of such a five-year period, the FHLBNY will redeem the capital stock unless it is needed to meet any applicable minimum stock investment requirements. Under current practice, the FHLBNY redeems all stock in excess of that required to support outstanding advances. The practice of redeeming excess capital stock also applies to the redemption of mandatorily redeemable stock held by former members in excess of amounts required to support advances outstanding to the former members. Typically, mandatorily redeemable capital stock would remain outstanding as a liability until the stock is no longer required to support outstanding advances to the former member, which is generally at maturity of the advance.

The Bank repurchased $160.2 million of mandatorily redeemable stock in 2008, compared to repurchases of $58.3 million in 2007. As non-member advances matured in their normal course, and were not replaced under Finance Agency rules, the Bank also repurchased the excess stock of the former members.

Expected redemption — Total outstanding capital stock considered as mandatorily redeemable at December 31, 2008 and 2007 were $143.1 million and $238.6 million. If present practice of redeeming excess stock continues, the Bank expects $38.3 million to be redeemed in 2009, $83.2 million in 2010, and the remaining $21.6 million between 2011 and later, in step with the expected maturities of advances outstanding to non-members. Prepayment of the advances may accelerate the redemption. Should the Bank modify its present practice of redeeming excess stock and exercise its rights under the Capital Plan, the redemption of non-member stock may take up to five years from the date the member became a non-member. For additional discussions about redemption rights of members and non-members see Notes 1, 13 and 14 to the financial statements.

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Interest expense associated with mandatorily redeemable capital stock was accrued at an estimated dividend rates payable to all capital stock holders in 2008. Total interest expense accrued and paid to non-member stockholders and recorded as interest expense was $8.9 million in 2008, compared to $11.7 million and $3.1 million in 2007 and 2006. Accrued but unpaid interest associated with mandatorily redeemable capital stock at December 31, 2008 and 2007 were reported as a liability.

Capital Resources

The FHLBanks, including FHLBNY, have a unique cooperative structure. To access FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in FHLBNY. The member’s stock requirement is based on the amount of mortgage-related assets on the member’s balance sheet and its use of FHLBNY advances, as prescribed by the FHLBank Act, which reflects the value of having ready access to FHLBNY as a reliable source of low-cost funds. FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share. The shares are not publicly traded.

At December 31, 2008, total capital stock $100 par value, putable and issued and held by members was 55,857,000 shares, up significantly from 43,680,000 shares at December 31, 2007. Members are required to purchase FHLBNY stock in proportion to the volume of advances borrowed. Increase in capital stock is in line with the very significant increase in advances borrowed by members.

Capital Structure

The Finance Agency established risk-based and leverage capital requirements for the 12 FHLBanks, including the FHLBNY. The rules also described the different classes of stock that the FHLBNY may issue, along with the rights and preferences that are associated with each class of stock. The Gramm-Leach-Bliley Act of 1999 (“GLB Act”) allows for the FHLBNY to have two classes of stock, each class may have sub-classes. Under the GLB Act, membership is voluntary for all members. Members that withdraw from the FHLBNY may not reapply for membership of any FHLBank for five years from the date of withdrawal. Membership without interruption between two FHLBanks is not considered to be a termination of membership for this purpose.

The FHLBNY offers two classes of Class B capital stock. The FHLBNY’s capital stock consists of membership stock and activity-based stock. From time to time, the FHLBNY may issue or repurchase capital stock with new members, current members, or under certain circumstances with former members or their successors as necessary to allow the FHLBNY to satisfy the minimum capital requirements established by the GLB Act. Class B1 stock is issued to meet membership stock purchase requirements. Class B2 stock is issued to meet activity-based requirements. The FHLBNY requires member institutions to maintain Class B1 stock based on a percentage of the member’s mortgage-related assets and Class B2 stock-based on a percentage of advances and acquired member assets outstanding with the FHLBNY and certain commitments outstanding with the FHLBank. Class B1 and Class B2 stockholders have the same voting rights and dividend rates.

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Class B2 stock — Each member is required to maintain a certain minimum investment in capital stock of the FHLBNY. The minimum investment will be determined by a membership requirement and an activity-based requirement. Each member is required to maintain a certain minimum investment in membership stock for as long as the institution remains a member of the FHLBNY. Typically, membership stock is based upon the amount of the member’s residential mortgage loans and its other mortgage-related assets. Under current policy, membership stock is 0.20% of the member’s mortgage-related assets as of the previous calendar year-end. FHLBNY could determine that all of the membership stock formerly held by the member becomes excess stock, which would give the FHLBNY the discretion, but not the obligation, to repurchase that stock prior to the expiration of the five-year notice period.

Class B1 stock — In addition, each member is required to purchase activity-based stock in proportion to the volume of certain transactions between the member and the FHLBNY. Activity-based stock is equal to the sum of a specified percentage between 4.0% and 5.0% multiplied by the outstanding principal balance of advances and the outstanding principal balance of MPF loans. Under the current regulations, effective December 1, 2005, the specified percentages is 4.5% for both advances and MPF loans, with the proviso that the specific requirements for MPF loans are effective for transactions entered into after December 1, 2005, the date when the existing Capital Plan went into effect.

Upon five years’ written notice, a member can elect to have the FHLBank redeem its capital stock, subject to certain conditions and limitations. The FHLBNY can repurchase excess stock of both sub-classes at their discretion at any time prior to the end of the redemption period, provided that FHLBNY will continue to meet its regulatory capital requirements after the repurchase.

The FHLBNY may adjust the stock ownership requirements from time to time within the limits established in the Capital Plan. The FHLBNY may also modify capital stock ownership requirements outside these limits by modifying the Capital Plan with the approval of the Bank’s regulators, the Finance Agency. The shares of capital stock offered to members will be issued at par value and will not trade in any market. Redemptions and repurchases of such stock by the FHLBNY, and any transfers of such stock, must also be made at par value.

The Finance Agency has confirmed that the SFAS 150 accounting treatment for mandatorily redeemable shares of its capital stock will not affect the definition of total capital for purposes of determining the FHLBank’s compliance with Finance Agency regulatory capital requirements, calculating its mortgage securities investment authority (300 percent of total capital), calculating its unsecured credit exposure to other Government Sponsored Enterprise (100 percent of total capital), or calculating its unsecured credit limits to other counterparties (various percentages of total capital depending on the rating of the counterparty).

Capital Standards

The GLB Act specifies that the FHLBanks must meet certain minimum capital standards, including the maintenance of a minimum level of permanent capital sufficient to cover the credit, market, and operations risks to which the FHLBanks are subject. The FHLBNY must maintain: (1) a total capital ratio of at least 4.0%; (2) a leverage capital ratio of at least 5.0%; and (3) permanent capital in an amount equal to or greater than the “risk-based capital requirement” specified in the Finance Agency’s regulations. The capital requirements are described in greater detail below.

The total capital ratio is the ratio of the FHLBNY’s total capital to its total assets. Total capital is the sum of: (1) capital stock; (2) retained earnings; (3) the general allowance for losses (if any); and (4) such other amounts (if any) that the Finance Agency may decide are appropriate to include. Finance Agency regulations require that the FHLBNY maintain a minimum total capital ratio of 4%.

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The leverage ratio is the weighted ratio of total capital to total assets. For purposes of determining this weighted average ratio, total capital is computed by multiplying the FHLBNY’s permanent capital by 1.5 and adding to this product all other components of total capital. Finance Agency regulations require that the FHLBNY maintain a minimum leverage ratio of 5.0%.

Effective January 30, 2009, the Finance Agency promulgated an interim final rule on capital classifications and critical capital levels for the FHLBanks (the “Interim Capital Rule”). The Interim Capital Rule has a comment deadline of April 30, 2009 following which the Finance Agency is expected to promulgate a final rule on capital classifications and critical capital levels for the FHLBanks (the “Final Capital Rule”). The Interim Capital Rule, among other things, established criteria for four capital classifications. Those classifications are: adequately capitalized (highest rating); undercapitalized; significantly undercapitalized; and critically undercapitalized. The Interim Capital Rule also establishes corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. The Interim Capital Rule requires the Finance Agency Director to determine on no less than a quarterly basis the capital classification of each FHLBank. Each FHLBank is required to notify the Finance Agency Director within ten calendar days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level necessary to maintain its assigned capital classification.

The FHLBNY meets the “adequately capitalized” classification, which is the highest rating, under the Interim Capital Rule. However, the Finance Agency has discretion to re-classify an FHLBank and to modify or add to the corrective action requirements for a particular capital classification, therefore management cannot predict the impact, if any, the Interim Capital Rule or the Final Capital Rule will have on the Bank.

Retained Earnings and Dividend

Stockholders’ Capital — Stockholders’ Capital comprised of capital stock, retained earnings and Accumulated other comprehensive income, and increased by $1.1 billion to $5.9 billion at December 31, 2008, up from $4.8 billion at December 31, 2007.

Capital stock — Capital stock, par value $100, was $5.6 billion at December 31, 2008, up from $4.4 billion at December 31, 2007. The 27.9% increase in capital stock was consistent with increases in advances borrowed by members which increased by $22.8 billion, or 28.3%, to $103.4 billion par amounts at December 31, 2008, from $80.6 billon at December 31, 2007. Since members are required to purchase stock as a percentage of advances borrowed from the FHLBNY, growth in advances will typically result in growth in capital stock. Also, under our present practice, stock in excess of the amount necessary to support advance activity is redeemed daily by the FHLBNY. Therefore, the amount of capital stock outstanding varies directly with members’ outstanding borrowings under the provisions requiring members to purchase stock to support borrowings and its practice of redeeming excess capital stock.

Retained earnings — Unrestricted retained earnings was $382.9 million at December 31, 2008 compared to $418.3 million at December 31, 2007. Net income for 2008 was $259.1 million and dividend payments of $294.5 were paid to members. Net income in 2007 was $323.1 million and dividend paid in 2007 was $273.5 million. For more information about the Bank’s retained earning’s policy, refer to the section Retained Earnings and Dividend in this MD&A.

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Accumulated other comprehensive income — Accumulated other comprehensive income (loss) was a net loss of $101.2 million at December 31, 2008 compared to a loss of $35.7 million at December 31, 2007. These amounts comprised of: (1) Net unrealized losses of $64.4 million ($0.4 million at December 31, 2007) from changes in the fair values of available-for-sale securities. (2) Net unrealized losses of $30.2 million ($30.2 million at December 31, 2007) from changes in cash flow hedging activities, principally from hedges of anticipated issuances of debt. These unrealized losses will be recorded as an expense over the terms of the bonds that were hedged and issued at fixed coupons. (3) Liabilities of $6.6 million representing actuarially determined minimum additional liabilities due on the Bank’s supplemental pension plans. The comparable amount at December 31, 2007 was a liability of $5.1 million, primarily from the initial adoption of SFAS 158 “Employers’ Accounting for Defined Benefit Pension and other Postretirement Plans.”

Dividend — As a cooperative, the FHLBNY seeks to maintain a balance between its public policy mission of providing low-cost funds to its members and to providing its members with adequate returns on their capital invested in FHLBNY stock. The FHLBNY also has to balance its mission with a goal to strengthen its financial position through an increase in the level of retained earnings. The FHLBNY’s dividend policy takes these factors into consideration — the need to enhance retained earnings while reasonably compensating members for the use of their capital and to provide low-cost advances. By Finance Agency regulation, dividends may be paid out of current earnings or previously retained earnings. The FHLBNY may be restricted from paying dividends if it is not in compliance with any of its minimum capital requirements or if payment would cause the FHLBNY to fail to meet any of its minimum capital requirements. In addition, the FHLBNY may not pay dividends if any principal or interest due on any consolidated obligations has not been paid in full, or, under certain circumstances, if the FHLBNY fails to satisfy certain liquidity requirements under applicable Finance Agency regulations. None of these restrictions applied to the FHLBNY for any period presented in this Form 10-K.

Dividends are computed based on the weighted average stock outstanding during the quarter and are declared and paid in the month following the end of the quarter. In 2008 four dividends were paid for a total of $6.55 per share, or 124.5% of net earnings per share, compared to $7.51 per share, or 87.6% of net earnings per share in 2007, and $5.59 per share, or 73.3% of net earnings per share in 2006.

Dividends paid in the first quarter of 2009 for the fourth quarter of 2008 totaled 3.0%.

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Derivative Instruments and Hedging activities

Interest rate swaps, swaptions, and cap and floor agreements (collectively, derivatives) enable the FHLBNY to manage its exposure to changes in interest rates by adjusting the effective maturity, repricing frequency, or option characteristics of financial instruments. The FHLBNY, to a limited extent, also uses interest rate swaps to hedge changes in interest rates prior to debt issuance and essentially lock in the FHLBNY’s funding cost.

Finance Agency regulations prohibit the speculative use of derivatives. The FHLBNY does not take speculative positions with derivatives or any other financial instruments, or trade derivatives for short-term profits. The FHLBNY does not have any special purpose entities or any other types of off-balance sheet conduits.

The notional amounts of derivatives are not recorded as assets or liabilities in the Statements of Condition, rather the fair values of all derivatives are recorded as either derivative asset or derivative liability. Although notional principal is a commonly used measure of volume in the derivatives market, it is not a meaningful measure of market or credit risk since the notional amount does not change hands (other than in the case of currency swaps, of which the FHLBNY has none).

All derivatives are recorded on the Statements of Condition at their estimated fair value and designated as either fair value or cash flow hedges for SFAS 133 qualifying hedges, or as non-SFAS 133-qualifying hedges (economic hedges or customer intermediations). In an economic hedge, the Bank retains or executes derivative contracts, which are economically effective in reducing risk. Such derivatives are designated as economic hedges either because a SFAS 133 qualifying hedge is not available, the hedge is not able to demonstrate that it would be effective on an ongoing basis as a qualifying hedge, or the cost of a SFAS 133 qualifying hedge is not economical. Changes in the fair value of a derivative are recorded in current period earnings for a fair value hedge, or in Accumulated other comprehensive income (loss) for the effective portion of fair value changes of a cash flow hedge.

Interest income and interest expense from interest rate swaps used for hedging are reported together with interest on the instrument being hedged if the swap qualifies for hedge accounting under the provisions of SFAS 133. If the swap is designated as an economic hedge, interest accruals are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

The FHLBNY uses derivatives in three ways: (1) as a fair value or cash flow hedge of an underlying financial instrument or as a cash flow hedge of a forecasted transaction; (2) as intermediation hedges to offset derivative positions (e.g., caps) sold to members; and (3) as an economic hedge, defined as a non-qualifying hedge of an asset or liability and used as an asset/liability management tool. The FHLBNY uses derivatives to adjust the interest rate sensitivity of consolidated obligations and advances to more closely approximate the sensitivity of assets or to adjust the interest rate sensitivity of advances to more closely approximate the sensitivity of liabilities. In addition, the FHLBNY uses derivatives to: offset embedded options in assets and liabilities to hedge the market value of existing assets, liabilities, and anticipated transactions; or to reduce funding costs. For additional information see Note 18 — Derivatives and hedging activities.

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The following table summarizes the principal derivatives hedging strategies as of December 31, 2008:

			Notional Amount
Derivatives/Terms	Hedging Strategy	Accounting Designation	(in millions)
Pay fixed, receive floating interest rate swap	To convert fixed rate on a fixed rate advance to a LIBOR floating rate	Economic Hedge of fair value risk	$	618
		Fair Value Hedge	$	61,673
Purchased interest rate cap	To offset the cap embedded in the variable rate advance	Economic Hedge of fair value risk	$	465
Receive fixed, pay floating interest rate swap (non-callable)	To convert the fixed rate consolidated obligation bond debt to a LIBOR floating rate	Economic Hedge of fair value risk Fair Value Hedge	$	4,500
			$	19,982
Receive fixed, pay floating interest rate swap with an option to call held by the counterparty	To convert the fixed rate consolidated obligation bond debt to a LIBOR floating rate; swap is callable on the same day as the consolidated obligation bond debt.	Economic Hedge of fair value risk Fair Value Hedge	$	15
			$	2,148
Receive fixed, pay floating interest rate swap (non-callable)	To convert the fixed rate consolidated obligation discount note debt to a LIBOR floating rate;	Economic Hedge of fair value risk Fair Value Hedge	$	7,509
			$	779
Pay fixed, receive LIBOR interest rate swap	To offset the variability of cash flows
	associated with interest payments on
	forecasted issuance of fixed rate
	consolidated obligation debt.	Cash flow hedge	$	—
Basis swap	To convert non-LIBOR index to LIBOR to reduce interest rate sensitivity and repricing gaps.	Economic Hedge of cash flows	$	14,360
Basis swap	To convert 1M LIBOR index to 3M LIBOR to reduce interest rate sensitivity and repricing gaps.	Economic Hedge of cash flows	$	10,590
Receive fixed, pay floating interest rate swap with an option to call at the swap counterparty’s option	Fixed rate callable bond converted to a LIBOR floating rate; matched to callable bond accounted for under the fair value option of SFAS 159.	SFAS 159	$	983
Pay fixed, receive floating interest rate swap	Economic hedge on the Balance Sheet	Economic Hedge	$	1,050
Receive fixed, pay floating interest rate swap	Economic hedge on the Balance Sheet	Economic Hedge	$	1,050
Purchased interest rate cap	Economic hedge on the Balance Sheet	Economic Hedge	$	1,892
Intermediary positions Interest rate swaps Interest rate caps	To offset interest rate swaps and caps executed with members by executing offsetting derivatives with counterparties.	Economic Hedge of fair value risk	$	300

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The following table summarizes the principal derivatives hedging strategies as of December 31, 2007:

			Notional Amount
Derivatives/Terms	Hedging Strategy	Accounting Designation	(in millions)
Pay fixed, receive floating interest rate swap	To convert fixed rate on a fixed rate advance to a LIBOR floating rate	Fair Value Hedge	$	46,953
Purchased interest rate cap	To offset the cap embedded in the variable rate advance	Economic Hedge of fair value risk	$	1,158
Receive fixed, pay floating interest rate swap (non-callable)	To convert the fixed rate consolidated obligation debt to a LIBOR floating rate	Economic Hedge of fair value risk	$	1,118
		Fair Value Hedge	$	26,233
Pay fixed, receive LIBOR interest rate swap	To offset the variability of cash flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation debt.	Cash flow hedge	$	128
Receive fixed, pay floating interest rate swap with an option to call	To convert the fixed rate consolidated obligation debt to a LIBOR floating rate; swap is callable on the same day as	Economic Hedge of fair value risk	$	420
	the consolidated obligation debt.	Fair Value Hedge	$	8,580
Intermediary positions Interest rate swaps Interest rate caps	To offset interest rate swaps and caps executed with members by executing offsetting derivatives with counterparties.	Economic Hedge	$	70

The accounting designation “economic” hedges represented derivative transactions under hedge strategies that do not qualify for hedge accounting under the provisions of SFAS 133 but are an approved risk management hedge.

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Derivatives by products and hedge types

The following tables provide summarized derivatives data by SFAS 133 classifications at December 31, 2008 and 2007 (in thousands):

December 31, 2008

	Economic					Short-Cut 1					Long-Haul 1					Total
Derivative Hedging by Product Type:	Notional		Fair Value			Notional		Fair Value			Notional		Fair Value			Notional		Fair Value
Advances	$	1,667,700	$	(128,607	)	$	44,299,470	$	(3,624,901	)	$	17,374,137	$	(2,133,752	)	$	63,341,307	$	(5,887,260	)
Consolidated bonds-SFAS 133 qualifying		—		—			14,569,500		521,369			8,339,689		706,280			22,909,189		1,227,649
Consolidated bonds-SFAS 159 designated		983,000		7,699			—		—			—		—			983,000		7,699
Consolidated bonds- Economic hedges		38,023,442		52,195			—		—			—		—			38,023,442		52,195
Mortgage commitments		10,395		(108	)		—		—			—		—			10,395		(108	)
Caps and floors		2,357,000		8,174			—		—			—		—			2,357,000		8,174
Others — intermediation		300,000		484			—		—			—		—			300,000		484
Total	$	43,341,537	$	(60,163	)	$	58,868,970	$	(3,103,532	)	$	25,713,826	$	(1,427,472	)	$	127,924,333	$	(4,591,167	)
SFAS 133 Hedge Classification:
Fair value hedges	$	12,641,142	$	(12,700	)	$	58,868,970	$	(3,103,532	)	$	25,713,826	$	(1,427,472	)	$	97,223,938	$	(4,543,704	)
Cash flow hedges		—		—			—		—			—		—			—		—
Economic:
FVO- Interest Rate Swaps		983,000		7,699			—		—			—		—			983,000		7,699
Intermediation		300,000		484			—		—			—		—			300,000		484
Economic hedges -assets/liabilities		25,425,395		(57,812	)		—		—			—		—			25,425,395		(57,812	)
Balance sheet hedges		2,100,000		(5,998	)		—		—			—		—			2,100,000		(5,998	)
Caps and floors		1,892,000		8,164			—		—			—		—			1,892,000		8,164
Total	$	43,341,537	$	(60,163	)	$	58,868,970	$	(3,103,532	)	$	25,713,826	$	(1,427,472	)	$	127,924,333	$	(4,591,167	)
December 31, 2007
	Economic					Short-Cut 1					Long-Haul 1					Total
Derivative Hedging by Product Type:	Notional		Fair Value			Notional		Fair Value			Notional		Fair Value			Notional		Fair Value
Advances	$	—	$	—		$	41,363,748	$	(1,313,860	)	$	5,589,550	$	(181,195	)	$	46,953,298	$	(1,495,055	)
Consolidated bonds-SFAS 133 qualifying		—		—			15,212,265		52,139			19,728,250		199,312			34,940,515		251,451
Consolidated bonds- Economic hedges		1,538,100		5,454			—		—			—		—			1,538,100		5,454
Mortgage commitments		1,351		5			—		—			—		—			1,351		5
Caps and floors		1,157,694		2			—		—			—		—			1,157,694		2
Others — intermediation		70,000		22			—		—			—		—			70,000		22
Total	$	2,767,145	$	5,483		$	56,576,013	$	(1,261,721	)	$	25,317,800	$	18,117		$	84,660,958	$	(1,238,121	)
SFAS 133 Hedge Classification:
Fair value hedges	$	—	$	—		$	56,576,013	$	(1,261,721	)	$	25,190,300	$	18,294		$	81,766,313	$	(1,243,427	)
Cash flow hedges		—		—			—		—			127,500		(177	)		127,500		(177	)
Economic:
Intermediation		70,000		22			—		—			—		—			70,000		22
Economic hedges -assets/liabilities		1,539,451		5,459			—		—			—		—			1,539,451		5,459
Caps and floors		1,157,694		2			—		—			—		—			1,157,694		2
Total	$	2,767,145	$	5,483		$	56,576,013	$	(1,261,721	)	$	25,317,800	$	18,117		$	84,660,958	$	(1,238,121	)

Note ¹:

Short-cut — Highly effective hedging relationships that use interest rate swaps as the hedging instrument to hedge a recognized asset or liability and that meet criteria under paragraph 68 of SFAS 133 to qualify for an assumption of no ineffectiveness. The short-cut method allows the FHLBNY to assume that the change in fair value of the hedged item attributable to interest rates equals the change in fair value of the derivative during the life of the hedge.

Long-haul — For a hedging relationship that does not qualify for the short-cut method, the FHLBNY measures hedge effectiveness by assessing and recording the change in fair value of the hedged item attributable to the risk being hedged separately from the change in fair value of the derivative.

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Derivative Financial Instruments by Product

The following table summarizes the notional amounts and estimated fair values of derivative financial instruments (excluding accrued interest) by product and type of accounting treatment. The categories of “Fair value,” “Commitment,” and “Cash flow” hedges represented derivative transactions accounted for as hedges. The category of “Economic” hedges represented derivative transactions under hedge strategies that did not qualify for hedge accounting treatment under SFAS 133 but were an approved risk management strategy.

The table also provides a reconciliation of fair value basis gains and (losses) of derivatives to the Statements of Condition (in thousands):

	December 31,
	2008					2007
			Total estimated					Total estimated
			fair value					fair value
			(excluding					(excluding
	Total notional		accrued			Total notional		accrued
	amount		interest)			amount		interest)
Fair value hedges under SFAS 133
Advances-fair value hedges	$	61,673,607	$	(5,758,653	)	$	46,953,298	$	(1,495,055	)
Consolidated obligations-fair value hedges		22,909,189		1,227,649			34,813,015		251,628
Cash Flow-anticipated transactions		—		—			127,500		(177	)
Economic hedges
Advances-economic hedges		1,082,700		(24,520	)		1,157,694		2
Consolidated obligations-economic hedges		36,973,442		(45,884	)		1,538,100		5,454
MPF loan-commitments		10,395		(108	)		1,351		5
Balance sheet (Caps)-economic hedges		1,892,000		8,164			—		—
Intermediary positions-economic hedges		300,000		484			70,000		22
Macro hedges		2,100,000		(5,998	)		—		—
FVO-Designated derivatives (Economic hedges)
Interest rate swaps-CO Bonds		983,000		7,699			—		—
Total notional and fair value	$	127,924,333	$	(4,591,167	)	$	84,660,958	$	(1,238,121	)
Total derivatives, excluding accrued interest			$	(4,591,167	)			$	(1,238,121	)
Cash collateral pledged to counterparties				3,836,370					396,400
Cash collateral received from counterparties				(61,209	)				(41,300	)
Accrued interest				(25,418	)				238,657
Net derivative balance			$	(841,424	)			$	(644,364	)

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Earnings Impact of Hedging Activities

The following table summarizes the impact of hedging activities on earnings for each of the three years ended December 31, 2008, 2007, and 2006 (in thousands):

	2008
							Consolidated			Consolidated
				MPF			Obligation			Obligation						Intermediary
Earnings Impact	Advances			Loans			Bonds			Discount Notes			Balance Sheet			Positions		Total
Amortization/accretion of hedging activities reported in net interest income	$	(2,472	)	$	81		$	(459	)	$	—		$	—		$	—	$	(2,850	)
Net realized and unrealized gains (losses) on derivatives and hedging activities		31,838			—			(43,539	)		(333	)		—			—		(12,034	)
Net gains (losses) derivatives-FVO		—			—			7,193			—			—			—		7,193
Gains (losses)- Economic hedges		(22,656	)		(3	)		(159,686	)		8,142			(20,695	)		480		(194,418	)
Reported in Other Income		9,182			(3	)		(196,032	)		7,809			(20,695	)		480		(199,259	)
Total	$	6,710		$	78		$	(196,491	)	$	7,809		$	(20,695	)	$	480	$	(202,109	)

	2007
							Consolidated			Consolidated
				MPF			Obligation			Obligation		Intermediary
Earnings Impact	Advances			Loans			Bonds			Discount Notes		Positions		Total
Amortization/accretion of hedging activities reported in net interest income	$	(1,322	)	$	(159	)	$	854		$	—	$	—	$	(627	)
Net realized and unrealized gains (losses) on derivatives and hedging activities		7,968			—			(2,049	)		—		—		5,919
Gains (losses)- Economic hedges		1,021			(171	)		11,517			43		27		12,437
Reported in Other Income		8,989			(171	)		9,468			43		27		18,356
Total	$	7,667		$	(330	)	$	10,322		$	43	$	27	$	17,729

	2006
						Consolidated			Consolidated
				MPF		Obligation			Obligation		Intermediary
Earnings Impact	Advances			Loans		Bonds			Discount Notes		Positions		Total
Amortization/accretion of hedging activities reported in net interest income	$	(2,489	)	$	142	$	8,380		$	—	$	—	$	6,033
Net realized and unrealized gains (losses) on derivatives and hedging activities		3,505			—		(355	)		—		—		3,150
Gains (losses)- Economic hedges		5,761			22		740			—		3		6,526
Reported in Other Income		9,266			22		385			—		3		9,676
Total	$	6,777		$	164	$	8,765		$	—	$	3	$	15,709

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Derivative Gains and Losses Reclassified from Accumulated other comprehensive income (loss) to Earnings

The following table summarizes changes in derivative gains and losses and reclassifications to earnings for the periods reported and as recorded in Accumulated other comprehensive income (loss) (in thousands):

	Years ended December 31,
	2008			2007			2006
Beginning of period	$	(30,215	)	$	(4,763	)	$	5,352
Net hedging transactions		(6,100	)		(26,114	)		(7,897	)
Reclassified into earnings		6,124			662			(2,218	)
End of period	$	(30,191	)	$	(30,215	)	$	(4,763	)

Derivative Credit Risk Exposure

In addition to market risk, the FHLBNY is subject to credit risk in derivative transactions because of the potential for non-performance by the counterparties, which could result in the FHLBNY having to acquire a replacement derivative from a different counterparty at a cost. The FHLBNY also is subject to operational risks in the execution and servicing of derivative transactions.

The degree of counterparty credit risk may depend, among other factors, on the extent to which netting procedures and/or the provision of collateral are used to mitigate the risk. Seventeen counterparties (14 non-members and three members) represented 100% of the total notional amount of the FHLBNY’s outstanding derivative transactions at December 31, 2008.

Risk measurement — Although notional amount is a commonly used measure of volume in the derivatives market, it is not a meaningful measure of market or credit risk since derivative counterparties do not exchange the notional amount (except in the case of foreign currency swaps of which the FHLBNY has none). Counterparties use the notional amounts of derivative instruments to calculate contractual cash flows to be exchanged. The fair value of a derivative in a gain position is a more meaningful measure of the FHLBNY’s current market exposure on derivatives. The FHLBNY estimates exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to settle at current market prices all outstanding derivative contracts in a gain position, net of collateral pledged by the counterparty to mitigate the FHLBNY’s exposure. All derivative contracts with non-members are also subject to master netting agreements or other right of offset arrangements.

Exposure — At December 31, 2008, the FHLBNY’s credit risk was $20.2 million after recognition of cash collateral held by the FHLBNY. The comparable exposure was $29.0 million at December 31, 2007. In determining credit risk, the FHLBNY considers accrued interest receivable and payable, and the legal right to offset assets and liabilities by counterparty. The FHLBNY attempts to mitigate its exposure by requiring derivative counterparties to pledge cash collateral, if the amount of exposure is above the collateral threshold agreements. Derivative counterparties had pledged $61.2 million in cash to the FHLBNY at December 31, 2008; the comparable cash pledged by counterparties and held as collateral by the FHLBNY was $41.3 million at December 31, 2007.

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At December 31, 2008, the FHLBNY had deposited $3.8 billion in cash as collateral to derivative counterparties to mitigate derivatives in a net fair value liability position of $4.7 billion. The FHLBNY is exposed to the extent that a counterparty may not re-pay the posted cash collateral to the FHLBNY and the Bank would then exercise its rights under the “International Swaps and Derivatives Association agreement” (“ISDA”) with the counterparties to replace the derivatives in a liability position with another available counterparty in exchange for cash. The amount of cash received by the FHLBNY for transferring derivatives in a liability position to counterparties (the counterparties would acquire derivatives in a gain position) would depend on the fair values of the derivatives in the OTC market for derivatives.

Derivative counterparty ratings — The Bank’s credit exposure at December 31, 2008, in a gain position, after recognition of cash collateral were to two derivative counterparties with a single-A credit rating as assigned by a Nationally Recognized Statistical Rating Organization (“NRSRO”). The Bank was also exposed to two member institutions on whose behalf the FHLBNY had acted as an intermediary, and the exposure was also collateralized under standard agreements with the FHLBNY’s members. Acting as an intermediary, the Bank had also purchased equivalent notional amounts of derivatives from unrelated derivative counterparties.

Risk mitigation — The FHLBNY attempts to mitigate derivative counterparty credit risk by contracting only with experienced counterparties with investment-grade credit ratings. Annually, the FHLBNY’s management and Board of Directors review and approve all non-member derivative counterparties. Management monitors counterparties on an ongoing basis for significant business events, including ratings actions taken by NRSROs. All approved derivatives counterparties must enter into a master ISDA with the FHLBNY and, in addition, execute the Credit Support Annex to the ISDA that provides for collateral support at predetermined thresholds. These annexes contain enforceable provisions for requiring collateral on certain derivative contracts that are in gain positions. The annexes also define the maximum net unsecured credit exposure amounts that may exist before collateral delivery is required. Typically, the maximum amount is based upon an analysis of individual counterparty’s rating and exposure. The FHLBNY also attempts to manage counterparty credit risk through credit analysis, collateral management and other credit enhancements, such as guarantees, and by following the requirements set forth in the Finance Agency’s regulations.

Despite these risk mitigating policies and processes, in September 2008, Lehman Brothers Special Financing, Inc. (“LBSF”) defaulted under its terms of agreement with respect to $16.5 billion of notional amounts of derivatives. The FHLBNY has replaced most of the derivatives that had been executed with LBSF through new agreements with other derivative counterparties. The FHLBNY has recorded a provision of $64.5 million as a result of the default and subsequent bankruptcy of LBSF.

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Derivatives Counterparty Credit Ratings

The following table summarizes the FHLBNY’s credit exposure by counterparty credit rating (in thousands, except number of counterparties).

	December 31, 2008
					Total Net
	Number of		Notional		Exposure at		Net Exposure
Credit Rating	Counterparties		Balance		Fair Value		after Collateral
AAA		1	$	9,167,456	$	—	$	—
AA		6		39,939,946		—		—
A		7		78,656,536		64,890		3,681
Members		3		150,000		8,465		—
Delivery Commitments		—		10,395		—		—
Total		17	$	127,924,333	$	73,355	$	3,681

	December 31, 2007
					Total Net
	Number of		Notional		Exposure at		Net Exposure
Credit Rating	Counterparties		Balance		Fair Value		after Collateral
AAA		1	$	2,301,444	$	—	$	—
AA		14		63,076,269		69,520		28,220
A		3		19,246,894		—		—
Members		3		35,000		753		—
Delivery Commitments		—		1,351		5		—
Total		21	$	84,660,958	$	70,278	$	28,220

Accounting for Derivatives — Hedge Effectiveness

Under SFAS 133, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective portion of the hedge. Those methods must be consistent with the entity’s approach to managing risk. At inception and during the life of the hedging relationship, the hedge is expected to be highly effective in offsetting changes in the hedged item’s fair value or the variability in cash flows attributable to the hedged risk.

Effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item relating to the risk being hedged. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an ongoing basis. Any ineffective portions are to be recognized in earnings immediately, regardless of the type of hedge. An assessment of effectiveness is required whenever financial statements or earnings are reported, and at least once every three months. FHLBNY assesses hedge effectiveness in the following manner:

• Inception prospective assessment. Upon designation of the hedging relationship and on an ongoing basis, FHLBNY is required to demonstrate that it expects the hedging relationships to be highly effective. This is a forward-looking relationship consideration. The prospective assessment at designation uses sensitivity analysis employing an option adjusted valuation model to generate changes in market value of the hedged item and the swap. These projected market values are then analyzed over multiple instantaneous, parallel rate shocks. The hedge is expected to be highly effective if the change in fair value of the swap divided by the change in the fair value of the hedged item is within the 80% -125% dollar value offset boundaries. See additional description of regression analysis in following paragraphs.

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• Ongoing prospective assessment. For purposes of assessing effectiveness on an ongoing basis, the Bank will utilize the regression results from its retrospective assessment as a means for demonstrating that it expects all “long-haul” hedge relationships to be highly effective in future periods (i.e., it will use the regression for both its ongoing prospective and retrospective assessment).

• Retrospective assessment. At least quarterly, FHLBNY will be required to determine whether the hedging relationship was highly effective in offsetting changes in fair value or cash flows through the date of the periodic assessment. This is an evaluation of the past experience.

FHLBNY uses a statistical method commonly referred to as regression analysis to analyze how a single dependent variable is affected by the changes in one (or more) independent variables. If the two variables are highly correlated, then movements of one variable can be reasonably expected to trigger similar movements in the other variable. Thus, regression analysis serves to measure the strength of empirical relationships and assessing the probability of hedge effectiveness. The FHLBNY tests the effectiveness of the hedges by regressing the changes in the net present value of future cash flows (“NPV”) of the derivative against changes in the net present value of the hedged transaction, typically an advance or a consolidated obligation.

The regression model being used is:

DV_h = a + b DV_H

where ^DV_h is the change in the net present value of the hedging item, ^DV_H is the change in the net present value of the hedged transaction, ^a is the ‘intercept’ of the regression and ^b is the ‘slope’ of the regression. The coefficient ^b should have a value very close to -1 if the hedging transaction is effective. At the same time, ^a should be very close to zero.

To determine whether a hedging transaction is effective requires checking whether, overall, the postulated linear model ‘fits’ the data well and whether the estimates of the parameters ^a and ^b come close enough to their hypothesized values that we can feel confident that it would be wrong to reject those hypothesized values.

The standard measure of overall fit is the so-called ‘coefficient of determination’ (also nicknamed ‘R-squared’ because it is equal to the square of the coefficient of linear correlation). R-squared can be as low as 0 and as high as 1.0. An R-squared equal to 0 means that the changes in the dependent variable are totally unrelated to the changes in the independent variable. An R-squared of 1.0 implies perfect correlation. In this case, the assumed model explains the data perfectly. The changes in the independent variable ‘map’ onto the changes in the dependent variable exactly as ‘predicted’ by the model. This is a situation rarely observed in real-life situations. In practical situations, an R-squared equal to or in excess of .80 indicates a very good fit of the model. Accordingly, FHLBNY has determined that to consider the hedge relationship to be highly effective, the R-squared of the regression would have to be at least equal to .80.

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An assumed model can be accepted only if the main hypotheses on which it rests cannot be rejected. In the context of regression analysis, hypothesis testing is a procedure that seeks to determine whether the estimated values of the parameters of the model ( ^a and ^b ) are close enough to their hypothesized values (zero for ^a and -1 for ^b ) that it would be unreasonable to reject those hypotheses. The Bank employs the most commonly used test statistic called the F-test statistic, the Fisher probability distribution function. This standard F-Test incorporates all the variance of errors of the regression line. The FHLBNY has determined that to consider the hedge relationship to be highly effective, the F-Test statistic associated with regression errors must fall within a specified the interval.

An equivalent approach to hypothesis testing consists of defining an ‘acceptance region’ around the hypothesized value of the parameter(s) being estimated. If the estimated value of the parameter falls within the acceptance region, the hypothesis is not rejected. If it falls outside of the acceptance region, the hypothesis is rejected. FHLBNY has determined that to consider the hedge relationship to be highly effective, the estimate of the slope of the regression ( ^b ) must fall within an acceptance region ranging from -1.25 to -.80.

Discontinuation of hedge accounting

If a derivative no longer qualifies as a fair value or a cash flow hedge, the FHLBNY discontinues hedge accounting prospectively and reports the derivative in the Statement of Condition at its fair value and records fair value gains and losses in earnings until the derivative matures. If the FHLBNY was to discontinue a cash flow hedge, previously deferred gains and losses in Accumulated other comprehensive income (loss) would be recognized in current earnings at the time the hedged transaction affects earnings. For discontinued fair value hedges, the FHLBNY no longer adjusts the carrying value (basis) of the hedged item, typically an advance or a bond, for changes in their fair values. The FHLBNY then amortizes previous fair value adjustments to the basis of the hedged item over the life of the hedged item (for callable as well as non-callable previously hedged advances and bonds).

Embedded derivatives

Before a trade is executed, the FHLBNY’s procedures require the identification and evaluation of embedded derivatives, if any, as described under paragraph 12 of SFAS 133. This evaluation will consider if the economic characteristics and the risks of the embedded derivative instrument are not clearly and closely related to the economic characteristic and risks of the host contract. At December 31, 2008, 2007 and 2006, the FHLBNY had no embedded derivatives that were required to be separated from the “host” contract because their economic or risk characteristics were not clearly and closely related to the economic characteristics and risks of the host contract.

Aggregation of similar items

The FHLBNY has de minimis amounts of similar advances that are hedged in aggregate as a portfolio. For such hedges, the FHLBNY performs a similar asset test to ensure the hedged advances share the risk exposure for which they are designated as being hedged. Besides the limited number of portfolio hedges, the FHLBNY’s other hedged items and derivatives are hedged as separately identifiable instruments.

Measurement of hedge ineffectiveness

The FHLBNY calculates the fair values of its derivatives and associated hedged items using discounted cash flows and other adjustments to incorporate volatilities of future interest rates and options, if embedded, in the derivative or the hedged item. For each financial statement reporting period, the FHLBNY measures the changes in the fair values of all derivatives, and changes in fair value of the hedged items attributable to the risk being hedged unless the FHLBNY has assumed no ineffectiveness (referred to as the “short-cut method”) and reports changes through current earnings. For hedged items eligible for the “short-cut” method, the FHLBNY treats the change in fair value of the derivative as equal to the change in the fair value of the hedged item attributable to the change in the benchmark interest rate. To the extent the change in the fair value of the derivative is not equal to the change in the fair value of the hedged item, the resulting difference represents hedge ineffectiveness, and is reported through current earnings.

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Liquidity

The FHLBNY’s primary source of liquidity is the issuance of consolidated obligation bonds and discount notes. To refinance maturing consolidated obligations, the Bank relies on the willingness of the investors to purchase new issuances. The FHLBNY has access to the discount note market and the efficiency of issuing discount notes is an important factor as a source of liquidity since discount notes can be issued any time and in a variety of amounts and maturities. Member deposits and capital stock purchased by members are another source of funds. Short-term unsecured borrowings from other FHLBanks and in the Federal funds market provide additional sources of liquidity. With the passage of the Housing Act on July 30, 2008, the U.S. Treasury is authorized to purchase obligations issued by the FHLBanks, in any amount deemed appropriate by the U.S. Treasury. This temporary authorization expires December 31, 2009 and supplements the existing limit of $4 billion. See Note 20 — Commitments and Contingencies to the financial statements for discussion of the U.S. Treasury’s establishment of the Government Sponsored Enterprise Credit Facility (GSECF), which is designed to serve as a contingent source of liquidity for the FHLBanks via issuance of consolidated obligations to the U.S. Treasury.

The FHLBNY’s liquidity position remains in compliance with all regulatory requirements and it does not foresee any changes to that position.

Finance Agency Regulations — Liquidity

Beginning December 1, 2005, with the implementation of the Capital Plan, the Financial Management Policy rules of the Finance Agency with respect to liquidity were superseded by regulatory requirements that are specified in Parts 917 and 965 of Finance Agency regulations and are summarized below.

Each FHLBank shall at all times have at least an amount of liquidity equal to the current deposits received from its members that may be invested in:

• Obligations of the United States;

• Deposits in banks or trust companies; or

• Advances with a maturity not to exceed five years.

In addition, each FHLBank shall provide for contingency liquidity which is defined as the sources of cash an FHLBank may use to meet its operational requirements when its access to the capital markets is impeded. The FHLBNY met its contingency liquidity requirements and liquidity in excess of requirements is summarized in the table titled Contingency Liquidity.

Violations of the liquidity requirements would invoke non-compliance penalties under discretionary powers given to the Finance Agency under applicable regulations, which would include corrective actions.

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Liquidity Management

The FHLBNY actively manages its liquidity position to maintain stable, reliable, and cost-effective sources of funds, while taking into account market conditions, member demand, and the maturity profile of the FHLBNY’s assets and liabilities. The FHLBNY recognizes that managing liquidity is critical to achieving its statutory mission of providing low-cost funding to its members. In managing liquidity risk, the FHLBNY is required to maintain certain liquidity measures in accordance with the FHLBank Act and policies developed by the FHLBNY management and approved by the FHLBNY’s Board of Directors. The specific liquidity requirements applicable to the FHLBNY are described in the next four sections:

Deposit Liquidity. The FHLBNY is required to invest an aggregate amount at least equal to the amount of current deposits received from the FHLBNY’s members in: (1) obligations of the U.S. government; (2) deposits in banks or trust companies; or (3) advances to members with maturities not exceeding five years. In addition to accepting deposits from its members, the FHLBNY may accept deposits from any other FHLBank or from any other governmental instrumentality.

Deposit liquidity is calculated daily. Quarterly average reserve requirements and actual reserves are summarized below during each quarter in 2008 and 2007 (in millions). The FHLBNY met its requirements at all times.

	Average Deposit		Average Actual
For the quarters ended	Reserve Required		Deposit Liquidity		Excess
December 31, 2008	$	2,022	$	66,246	$	64,224
September 30, 2008		1,657		55,038		53,381
June 30, 2008		2,239		51,053		48,814
March 31, 2008		2,091		47,764		45,673
December 31, 2007		1,776		48,254		46,478
September 30, 2007		2,686		38,277		35,591
June 30, 2007		2,726		35,853		33,127
March 31, 2007		1,796		37,559		35,763

Operational Liquidity. The FHLBNY must be able to fund its activities as its balance sheet changes from day to day. The FHLBNY maintains the capacity to fund balance sheet growth through its regular money market and capital market funding activities. Management monitors the Bank’s operational liquidity needs by regularly comparing the Bank’s demonstrated funding capacity with its potential balance sheet growth. Management then takes such actions as may be necessary to maintain adequate sources of funding for such growth.

Operational liquidity is measured daily. The FHLBNY met its requirements at all times. The following table summarizes excess operational liquidity by each quarter in 2008 and 2007 (in millions):

	Average Balance Sheet		Average Actual
For the quarters ended	Liquidity Requirement		Operational Liquidity		Excess
December 31, 2008	$	8,226	$	14,827	$	6,601
September 30, 2008		7,548		21,337		13,789
June 30, 2008		7,440		20,018		12,578
March 31, 2008		5,229		18,232		13,003
December 31, 2007		4,830		19,522		14,692
September 30, 2007		2,290		16,716		14,426
June 30, 2007		2,186		15,653		13,467
March 31, 2007		3,482		16,033		12,551

Contingency Liquidity. The FHLBNY is required by Finance Agency regulations to hold “contingency liquidity” in an amount sufficient to meet its liquidity needs if it is unable, by virtue of a disaster, to access the consolidated obligation debt markets for at least five business days. Contingency liquidity includes (1) marketable assets with a maturity of one year or less; (2) self-liquidating assets with a maturity of one year or less; (3) assets that are generally acceptable as collateral in the repurchase market; and (4) irrevocable lines of credit from financial institutions receiving not less than the second-highest credit rating from a nationally recognized statistical rating organization. The FHLBNY consistently exceeded the regulatory minimum requirements for contingency liquidity.

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Contingency liquidity is reported daily. The FHLBNY met its requirements at all times. The following table summarizes excess contingency liquidity by each quarter in 2008 and 2007 (in millions):

	Average Five Day		Average Actual
For the quarters ended	Requirement		Contingency Liquidity		Excess
December 31, 2008	$	4,727	$	12,930	$	8,203
September 30, 2008		4,210		18,795		14,585
June 30, 2008		3,948		17,186		13,238
March 31, 2008		4,887		16,382		11,495
December 31, 2007		2,966		17,914		14,948
September 30, 2007		1,530		15,643		14,113
June 30, 2007		1,115		14,460		13,345
March 31, 2007		1,476		14,509		13,033

The FHLBNY sets standards in its risk management policy that address its day-to-day operational liquidity and contingency liquidity needs. These standards enumerate the specific types of investments to be held by the FHLBNY to satisfy such liquidity needs and are outlined above. These standards also establish the methodology to be used by the FHLBNY in determining the FHLBNY’s operational and contingency needs. Management continually monitors and projects the FHLBNY’s cash needs, daily debt issuance capacity, and the amount and value of investments available for use in the market for repurchase agreements. Management uses this information to determine the FHLBNY’s liquidity needs and to develop appropriate liquidity plans.

Other Liquidity Contingencies. As discussed more fully under the section Debt Financing - Consolidated Obligations, the FHLBNY is primarily liable consolidated obligations issued on its behalf. The FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. If the principal or interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when due, the following rules apply: the FHLBNY may not pay dividends to, or redeem or repurchase shares of stock of any member or non-member stockholder until the Finance Agency approves the FHLBNY’s consolidated obligation payment plan or other remedy and until the FHLBNY pays all the interest or principal currently due on all its consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations.

The par amount of the outstanding consolidated obligations of all 12 FHLBanks was $1,251.5 billion and $1,189.7 billion at December 31, 2008 and 2007. The FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future.

Finance Agency regulations also state that the FHLBanks must maintain, free from any lien or pledge, the following types of assets in an amount at least equal to the amount of consolidated obligations outstanding:

• Cash;

• Obligations of, or fully guaranteed by, the United States;

• Secured advances;

• Mortgages that have any guaranty, insurance, or commitment from the United States or any agency of the United States;

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• Investments described in section 16(a) of the FHLBank Act, including securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located; and

• Other securities that are rated Aaa by Moody’s or AAA by Standard & Poor’s.

Leverage Limits and Unpledged Asset Requirements

The FHLBNY met the Finance Agency’s requirement that unpledged assets, as defined under regulations, exceed the total of consolidated obligations as follows (in thousands):

	December 31,
	2008			2007
Consolidated Obligations:
Bonds	$	82,256,705		$	66,325,817
Discount Notes		46,329,906			34,791,570
Total consolidated obligations		128,586,611			101,117,387
Unpledged assets
Cash		18,899			7,909
Less: Member pass-through reserves at the FRB		(31,003	)		(19,584	)
Secured Advances		109,152,876			82,089,667
Investments 1		26,364,661			24,979,228
Mortgage loans		1,457,885			1,491,628
Other loans 2		—			—
Accrued interest receivable on advances and investments		492,856			562,323
Less: Pledged Assets		(2,669	)		—
		137,453,505			109,111,171
Excess unpledged assets	$	8,866,894		$	7,993,784

1	The Bank pledged $2.7 million to the FDIC see Note 5- Held-to-maturity securities. The Bank also provided to the U.S. Treasury a listing of $16.3 billion in advances with respect to a lending agreement. See Note 20 — Commitments and Contingencies.
2	Excludes $55 million overnight loan to another FHLBank as of December 31, 2007.

Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations, participations, mortgages, or other securities of or issued by the United States or an agency of the United States; and such securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is located.

Purchases of MBS. Finance Agency investment regulations limit the purchase of mortgage-backed securities to 300% of capital. The FHLBNY was in compliance with the regulation at all times.

	December 31, 2008						December 31, 2007
	Actual			Limits			Actual			Limits
Mortgage securities investment authority 1		207	%		300	%		198	%		300	%

¹ The measurement date is on a one-month “look-back” basis.

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On March 24, 2008, the Board of Directors of the Federal Housing Finance Board (Finance Board), predecessor to the Finance Agency, adopted Resolution 2008-08, which temporarily expands the authority of a FHLBank to purchase mortgage-backed securities (“MBS”) under certain conditions. The resolution allows an FHLBank to increase its investments in MBS issued by Fannie Mae and Freddie Mac by an amount equal to three times its capital, which is to be calculated in addition to the existing regulatory limit. The expanded authority would permit MBS to be as much as 600% of the FHLBNY’s capital.

All mortgage loans underlying any securities purchased under this expanded authority must be originated after January 1, 2008. The Finance Board believed that such loans are generally of higher credit quality than loans originated at an earlier time, particularly in 2005 and 2006. The loans underlying any Fannie Mae and Freddie Mac issued MBS acquired pursuant to the new authority must be underwritten to conform to standards imposed by the federal banking agencies in the "Interagency Guidance on Nontraditional Mortgage Product Risks” dated October 4, 2006 and the "Statement on Subprime Mortgage Lending” dated July 10, 2007.

The FHLBank must notify the Finance Agency of its intention to exercise the new authority (Resolution 2008-08) at least 10 business days in advance of its first commitment to purchase additional Agency MBS. Currently, the Bank has not notified or exercised Resolution 2008-08, therefore no separate calculation was required.

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Results of Operations

The following section provides a comparative discussion of the Federal Home Loan Bank’s results of operations for the three-year period ended December 31, 2008. For a discussion of the Critical accounting estimates used by the FHLBNY that affect the results of operations, see section in the MD&A captioned Accounting Changes, Significant Accounting Policies and Estimates, and Recently Issued Accounting Standards.

Net Income

The FHLBNY manages its operations as a single business segment. Advances to members are the primary focus of the FHLBNY’s operations, and is the principal factor that impacts its operating results. Interest income from advances is the principal source of revenue. The primary expenses are interest paid on consolidated obligations debt, operating expenses, principally administrative and overhead expenses, and “assessments” on net income. The FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax. It is required to make payments to REFCORP and set aside funds from its income towards an Affordable Housing Program (“AHP”), together referred to as assessments. Other significant factors affecting the Bank’s Net income include the volume and timing of investments in mortgage-backed securities, debt repurchase and associated losses, and earnings from shareholders’ capital.

Net income — 2008 compared with 2007

The FHLBNY reported 2008 Net income of $259.1 million, or $5.26 per share, compared with net income of $323.1 million, or $8.57 per share, for 2007. Net income was after the deduction of AHP and REFCORP assessments, which are a fixed percentage of the FHLBNY’s pre-assessment income. The decrease in Net income was mainly attributed to a credit provision of $64.5 million against receivables due from Lehman Brothers Special Financing Inc. (“LBSF”). In September 2008, Lehman Brothers Holding Inc. (“LBHI”) and Lehman Brothers Special Financing Inc., (“LBSF”), filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and LBSF, a derivative counterparty to the FHLBNY defaulted with the contractual terms of its agreement with FHLBNY on $16.5 billion in notional amounts of interest rate swaps and derivatives outstanding at the time of bankruptcy. The FHLBNY had deposited $509.6 million with LBSF in cash as collateral. The net amount that is due to the Bank after giving effect to obligations that are due LBSF was approximately $64.5 million, and the Bank has fully reserved the LBSF receivables as the bankruptcy of LBHI and LBSF make the timing and the amount of the recovery uncertain, and the provision has been reported as a charge to Other Income (loss) in the Statements of Income. On an after-assessment basis, the reserve against the LBSF receivables reduced 2008 Net income by $47.4 million, or $0.97 per share of capital.

Net interest income after the provision for credit losses, a key metric for the FHLBNY, was $693.7 million for 2008, up by $194.4 million, or 38.9% from the prior year. Reported Net realized and unrealized loss from hedging activities was a loss of $199.3 million in 2008, compared to a gain of $18.4 million in 2007. The reported loss was primarily due to the accounting designation of swaps as economic hedges. In order to manage the FHLBNY’s interest rate risk profile, management of the FHLBNY routinely uses derivatives to manage the interest rate risk inherent in the Bank’s assets and liabilities. Operating Expenses were $66.3 million in 2008, slightly down by $0.3 million, from $66.6 million in 2007. REFCORP assessments were $64.8 million in 2008, down by $16.0 million, from 2007. AHP assessments were $29.8 million, down by $7.4 million, from 2007. Assessments are calculated on Net income before assessments and the decrease was due to lower Net income in 2008 compared to 2007.

The return on average equity, which is Net income divided by average Capital stock, Retained earnings, and Accumulated other comprehensive income, in 2008 was 4.95%, compared with 7.85% in 2007.

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In 2008, cash dividends were paid in each of the quarters in 2008 for a total of $6.55 per share (par value $100), or 124.5% of Net earnings per share, compared to $7.51 per share, or 87.6% of Net earnings per share in 2007.

Net income — 2007 compared with 2006

The FHLBNY reported record 2007 Net income of $323.1 million, or $8.57 per share, compared with net income of $285.2 million, or $7.63 per share, for 2006. Net income was after the deduction of AHP and REFCORP assessments, which are a fixed percentage of the FHLBNY’s pre-assessment income. The increase in Net income was attributed to increase in Net interest income.

The return on average equity, which is Net income plus average retained earnings and Accumulated other comprehensive income (loss) divided by average capital stock was 7.85% in 2007, compared with 7.04% in 2006. The Bank’s record performance in 2007 was positively impacted by the extraordinary increase in advances borrowed by its membership and favorable execution spreads for the issuances of FHLBank shorter-term bonds and discount notes.

In 2007, four dividends were paid for a total of $7.51 per share (par value $100), or 87.6% of net earnings per share, compared to $5.59 per share, or 73.3% of net earnings per share in 2006.

Interest Income

Interest income from advances is the principal source of income for the FHLBNY. Changes in both rate and intermediation volume (average interest-yielding assets) explain the change in the current year from the prior year.

The principal categories of Interest Income are summarized below (dollars in thousands):

	December 31,						Percentage			Percentage
	2008		2007		2006		Variance 2008			Variance 2007
Interest Income
Advances	$	3,030,799	$	3,495,312	$	3,302,174		(13.29	)%		5.85	%
Interest-bearing deposits		28,012		3,333		2,744		740.44			21.47
Federal funds sold		77,976		192,845		145,420		(59.57	)		32.61
Available-for-sale securities		80,746		—		—	NA				—
Held-to-maturity securities
Long-term securities		531,151		596,761		580,002		(10.99	)		2.89
Certificates of deposit		232,300		408,308		297,742		(43.11	)		37.13
Mortgage loans held-for-portfolio		77,862		78,937		76,111		(1.36	)		3.71
Loans to other FHLBanks and other		33		9		54		266.67			(83.33	)
Total interest income	$	4,058,879	$	4,775,505	$	4,404,247		(15.01	)%		8.43	%

Interest income — 2008 compared with 2007 — Total interest income declined to $4.1 billion in 2008, a decrease of $716.6 million, or 15.0%, from 2007. Increase in intermediation volume contributed $1.6 billion in increased interest income which was offset by rate related decline of $2.3 billion in interest income as a result of a lower interest rate environment in 2008.

Interest income from advances declined by $464.5 million despite the very large increase in advance volume because of decline in yields from advances in the lower interest rate environment in 2008. Interest income from advances is principally the coupon payments received from borrowing members and are recorded as interest income in the Statements of Income together with the net cash flows associated with interest rate swaps when hedges qualify under the accounting provisions of SFAS 133. Cash flows from interest rate swaps are an important component of reported interest income from advances if the swap qualifies under the hedge accounting provisions of SFAS 133. If the swap does not qualify under the hedge accounting provisions of SFAS 133, the FHLBNY may execute the hedge as an economic hedge. However, interest associated with the swap would then be reported as part of Other income (loss) as a Net realized and Unrealized gain (loss) on derivatives and hedging activities.

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In a typical interest rate swap of a fixed-rate advance, the Bank pays fixed-rate to derivative counterparty which mirrors the fixed-rate coupon received from members. In exchange, the Bank receives variable-rate LIBOR-indexed cash flows from derivative counterparty. Generally, the Bank hedges its long-term, fixed-rate advances and almost all fixed-rate putable advances. In 2008, derivative transactions reduced interest income by $453.2 million compared to a positive contribution of $356.0 million in 2007. Derivative strategies are used to mange the interest rate risk inherent in fixed-rate advances and are designed to protect future interest income.

The table below summarizes interest income earned from advances and the impact of interest rate derivatives (in thousands):

	Years ended December 31,
	2008			2007		2006
Advance Interest Income
Advance interest income before adjustment for interest rate swaps	$	3,483,979		$	3,139,311	$	3,065,361
Net interest adjustment from interest rate swaps		(453,180	)		356,001		236,813
Total Advance interest income reported	$	3,030,799		$	3,495,312	$	3,302,174

Other sources of interest income were interest income from long-term investments, principally mortgage-backed securities, mortgage loans, and short-term investments in money market instruments.

Interest income — 2007 compared with 2006

Total interest income in 2007 was $4.8 billion, an increase of $371.3 million from the previous year.

Reported interest income from advances was $3.5 billion in 2007, up from $3.3 billion in 2006. Other than the positive contribution of $356.0 million from accruals of cash flows associated with interest rate swaps, three principal factors contributed to the increase. Maturing advances were replaced at higher coupons in a higher interest rate environment in the first six months of 2007. Credit market dislocation and the ensuing liquidity crises in the third quarter of 2007 resulted in an unprecedented member demand for advances in the fourth quarter of 2007. Finally, member demand increased for adjustable-rate products which were priced at relatively higher coupons in an inverted yield curve environment through much of 2007.

121

Interest Expense

The FHLBNY’s primary source of funding is through the issuance of consolidated obligation bonds and discount notes in the global debt markets. Consolidated obligation bonds are medium- and long-term, while discount notes are short-term instruments. To fund its assets, the FHLBNY considers its interest rate risk and liquidity requirements in conjunction with consolidated obligation buyers’ preferences and capital market conditions when determining the characteristics of debt to be issued. Typically the Bank has used fixed-rate callable and non-callable bonds to fund mortgage-related assets and advances. Discount notes are issued to fund advances and investments with shorter-interest rate reset characteristics.

The principal categories of Interest Expense are summarized below (dollars in thousands):

	December 31,						Percentage			Percentage
	2008		2007		2006		Variance 2008			Variance 2007
Interest Expense
Consolidated obligations-bonds	$	2,620,431	$	3,215,560	$	2,944,241		(18.51	)%		9.22	%
Consolidated obligations-discount notes		697,729		937,534		901,978		(25.58	)		3.94
Deposits		36,193		106,777		81,442		(66.10	)		31.11
Mandatorily redeemable capital stock		8,984		11,731		3,086		(23.42	)		280.14
Cash collateral held and other borrowings		1,044		4,516		3,382		(76.88	)		33.53
Total interest expense	$	3,364,381	$	4,276,118	$	3,934,129		(21.32	)%		8.69	%

Changes in both rate and intermediation volume (average interest-costing liabilities), and the impact of hedging strategies explain the change in interest expense.

Interest expense are principally the coupon payments to investors holding the Bank’s consolidated obligation debt. Recorded interest expense in the Statements of Income are adjusted for the cash flows associated with interest rate swaps in which the Bank pays variable-rate LIBOR-indexed cash flows to derivative counterparties and, in exchange, the Bank receives from derivative counterparties fixed-rate cash flows which typically mirror the fixed-rate coupon payments to investors holding the debt. The Bank hedges its long-term fixed-rate bonds and almost all fixed-rate callable bonds. The impact of hedging activities on interest expense is discussed separately under the section “Impact of hedging debt.”

Interest expense associated with the issuance of FHLBNY consolidated obligation bonds and discount notes was the primary source of interest expense in 2008, 2007 and 2006. The principal components of FHLBNY bond and discount note expenses are summarized below (dollars in thousands):

	Years ended December 31,
				Percentage of					Percentage of					Percentage of
	2008			total			2007		total			2006		total
Fixed-rate Bonds	$	2,052,066			56.13	%	$	2,710,748		68.13	%	$	2,538,401		71.69	%
Floating-rate Bonds		906,452			24.79			330,709		8.31			100,445		2.84
Discount Notes		697,729			19.08			937,535		23.56			901,978		25.47
		3,656,247			100.00	%		3,978,992		100.00	%		3,540,824		100.00	%
Net Impact of interest rate swaps		(338,087	)					174,102					305,395
Reported Interest Expense	$	3,318,160					$	4,153,094				$	3,846,219

122

Interest expense — 2008 compared with 2007 — Total interest expense in 2008 was $3.4 billion, a decrease of $911.7 million from the previous year. Consolidated obligation bond and discount note expense, net of the impact of interest rate swaps, was $3.3 billion in 2008, a decrease of $834.9 million, or 20.1% from 2007. Declining coupons and yields in a lower interest rate environment reduced interest expense by $2.2 billion and offset the impact of $1.4 billion increase in expense due to increase in volume from funding a significantly increased balance sheet assets.

Cash flows from interest rate swaps are an important component of reported interest expense on debt if the swap qualifies under the hedge accounting provisions of SFAS 133. If the swap does not qualify under the hedge accounting provisions of SFAS 133, the FHLBNY may execute the hedge as an economic hedge. However, interest expense associated with the swap would then be reported as part of Other income (loss) as a Net realized and Unrealized gain (loss) on derivatives and hedging activities.

The FHLBNY issues both fixed-rate callable and non-callable debt. Typically, the Bank issues callable debt with the simultaneous execution of callable interest rate swaps to modify the effective interest rate terms and the effective durations of its fixed-rate callable debt. A substantial percentage of non-callable fixed-rate debt is also swapped to “plain vanilla” LIBOR-indexed cash flows.

This hedging strategy benefits the Bank in two principal ways: (1) fixed-rate callable bond in conjunction with interest rate swap containing a call feature that mirrors the option embedded in the callable bond enables the FHLBNY meet its funding needs at yields not otherwise directly attainable through the issuance of callable debt; and, (2) the issuance of fixed-rate debt and the simultaneous execution of an interest rate swap convert the debt to an adjustable-rate instrument tied to an index, typically LIBOR.

In a hedge of debt, the Bank is obligated to pay LIBOR-indexed cash flows to swap counterparties and, in a rising interest rate environment, LIBOR resets almost immediately to the risings rates, while the Bank may receive lower fixed-rate coupons of bonds issued in prior years. In 2008, derivatives reduced interest expense by $338.1 million compared to an increase in expense of $174.1 million in 2007. In 2008 the prevailing interest rate environment was such that the typical 3-month LIBOR indexed payments by the Bank to swap counterparties was below the fixed coupons received by the Bank in the interest rate hedging relationship. In a hedge of debt, the Bank is obligated to pay LIBOR-indexed cash flows to swap counterparties and, in a declining interest rate environment, LIBOR resets almost immediately and adjusts to the lower prevailing rates. On the receive leg of the swap, the Bank may continue to receive higher fixed-rate coupons that were contractually fixed in prior years. In contrast, in 2007, on average, the Bank’s obligation to pay 3-month LIBOR indexed payments to derivative counterparties were above the fixed-rate payments received by the Bank in the interest rate exchanges. Derivative strategies are used to manage the interest rate risk inherent in fixed-rate advances and are designed to protect future interest income.

123

The table below summarizes interest expense paid on consolidated obligation bonds and discount notes and the impact of interest rate swaps (in thousands):

	Years ended December 31,
	2008			2007		2006
Consolidated bonds and discount notes-Interest expense
Bonds — Interest expense before adjustment for swaps	$	2,958,518		$	3,041,458	$	2,638,846
Discount notes — Interest expense before adjustment for swaps		697,729			937,534		901,978
Net interest adjustment for interest rate swaps		(338,087	)		174,102		305,395
Total Consolidated bonds-interest expense reported	$	3,318,159		$	4,153,094	$	3,846,219

On an after swap basis, consolidated obligation bonds averaged a cost of 322 basis points, compared to 508 basis points in the prior year. Yields are determined by investors’ demand for FHLBank bonds and the prevailing interest rate environment. Cost of issuing discount notes in 2008 on average was 246 basis points, compared to 495 basis points in 2007.

In 2008, the Bank issued $10.6 billion in floating-rate bonds indexed with a spread to 1-month LIBOR and $14.4 billion indexed with spreads to the Prime and the Federal funds effective rates. Simultaneous with the issuance of the debt, the Bank executed interest-rate basis swaps in economic hedges of the floating-rate bonds that required the swap counterparties to pay to the FHLBNY interest cash flows that matched the Bank’s interest payment obligations to investors on the debt. In exchange the Bank was required to pay the swap counterparty cash flows indexed to 3-month LIBOR. This exchange of cash flows made the Bank indifferent to changes in the relationship between the 3-month LIBOR and the non-LIBOR indices from an economic perspective. Swap interest expense of $121.3 million paid to derivative counterparties were recorded in Other income (loss) as a Net realized and unrealized gain (loss) from hedging activities. Economically, the swap expense was associated with the interest expense on the bond, and on an economic basis, reported bond expense would have been higher by $121.3 million. Because the swap was in an economic hedge of the bonds, the swap expense was recorded as a derivative and hedging loss in Other income (loss) under GAAP reporting rules.

Interest expense — 2007 compared with 2006 — Total interest expense in 2007 was $4.3 billion, an increase of $342.0 million from the previous year.

Interest expense associated with the issuance of FHBNY bonds and discount notes was the primary source of interest expense in 2007 and 2006 and accounted for 97.1% and 97.8% of total interest expense in those years. Consolidated obligation bond expense, net of the impact of interest rate swaps, was $3.2 billion in 2007, up by $271.3 million from the prior year. Increase in volume contributed $113.3 million in higher interest expenses. Average volume of bonds outstanding, as measured by daily average of outstanding balances, was $63.3 billion in 2007 and funded 70.9% of the average interest-yielding assets in 2007. Higher coupon cost, net of the impact of interest rate swaps, in 2007 contributed $158.0 million in higher interest expenses. On an after swap basis, consolidated obligation bonds averaged a cost of 508 basis points, compared to 483 basis points in the prior year.

Increase in both rate and volume of issuances of discount notes caused interest expense from discount notes to increase in 2007. Average cost of discount notes was 495 basis points in 2007, slightly up from 491 basis points in 2006.

In 2007 and 2006, the Bank’s obligation to pay swap counterparties variable cash flows, indexed to LIBOR, exceeded the swap counterparties’ obligations to pay the Bank fixed coupons and resulted in net out-flow of cash to derivative counterparties. The interest rate exchanges were primarily associated with SFAS 133 qualifying debt hedges and added $174.1 million to debt expense in 2007, compared to a larger out-flow of $305.4 million in 2006. In 2007 and 2006, the prevailing interest rate environment was such that the typical 3-month LIBOR indexed payments by the Bank to swap counterparties exceeded the fixed coupons received by the Bank in the interest rate hedging relationship. Relative to 2007, the yields in 2006 on the short-end of the term structure of interest rates were higher, and the 3-month LIBOR-indexed payments by the Bank were accordingly larger in 2006 than in 2007 and explain the significant cash outflows in 2006 from derivatives hedging debt.

124

Net interest income

Net interest income is the principal source of revenue for the Bank, and represents the difference between income from interest-earning assets and interest expense paid on interest-bearing liabilities. Net interest income is impacted by a variety of factors — member demand for advances and investment activity, the yields from advances and investments, and the cost of consolidated obligation debt that is issued by the Bank to fund advances and investments. The execution of interest rate swaps in the derivative market at a constant spread to LIBOR, in effect converting fixed-rate advances and fixed-rate debt to conventional adjustable-rate instruments indexed to LIBOR, results in an important intermediation for the Bank between the capital markets and the swap market. The intermediation has typically permitted the Bank to raise funds at lower costs than would otherwise be available through the issuance of simple fixed- or floating-rate debt in the capital markets. The FHLBNY’s deploys the hedging strategies to protect future net interest income, but may reduce income in the short-run, although the FHLBNY expects them to benefit future periods. Income earned from assets funded by member capital and retained earnings, referred to as “deployed capital”, which are non-interest bearing, is another important consideration for the FHLBNY. All of these factors may fluctuate based on changes in interest rates, demand by members for advances, investor demand for debt issued by the FHLBNY and the change in the spread between the yields on advances and investments, and the cost of financing these assets by the issuance of debt to investors.

The following table summarizes key changes in the components of Net interest income for the three years ended December 31, 2008, 2007 and 2006 (dollars in thousands):

	December 31,						Percentage			Percentage
	2008		2007		2006		Variance 2008			Variance 2007
Interest Income
Advances	$	3,030,799	$	3,495,312	$	3,302,174		(13.29	)%		5.85	%
Interest-bearing deposits		28,012		3,333		2,744		740.44			21.47
Federal funds sold		77,976		192,845		145,420		(59.57	)		32.61
Available-for-sale securities		80,746		—		—	NA				—
Held-to-maturity securities
Long-term securities		531,151		596,761		580,002		(10.99	)		2.89
Certificates of deposit		232,300		408,308		297,742		(43.11	)		37.13
Mortgage loans held-for-portfolio		77,862		78,937		76,111		(1.36	)		3.71
Loans to other FHLBanks and other		33		9		54		266.67			(83.33	)
Total interest income		4,058,879		4,775,505		4,404,247		(15.01	)		8.43
Interest Expense
Consolidated obligations-bonds		2,620,431		3,215,560		2,944,241		(18.51	)		9.22
Consolidated obligations-discount notes		697,729		937,534		901,978		(25.58	)		3.94
Deposits		36,193		106,777		81,442		(66.10	)		31.11
Mandatorily redeemable capital stock		8,984		11,731		3,086		(23.42	)		280.14
Cash collateral held and other borrowings		1,044		4,516		3,382		(76.88	)		33.53
Total interest expense		3,364,381		4,276,118		3,934,129		(21.32	)		8.69
Net interest income before provision for credit losses	$	694,498	$	499,387	$	470,118		39.07	%		6.23	%

125

Net interest income — 2008 compared with 2007

Net interest income before provision for credit losses on mortgage loans was $694.5 million for 2008, up by $195.1 million, or 39.07% from the prior year. Volume, as measured by average earning assets minus costing liabilities, increased very significantly and contributed $202.9 million to the increase. Rate related changes in yields from earning assets minus yields paid on interest costing liabilities had a minor adverse impact, reducing Net interest income by only $7.8 million.

The Bank deploys hedging strategies to protect future net interest income that may reduce income in the short-term. On a GAAP basis, the impact of derivatives was to reduce Net interest income by $114.9 million in 2008, compared to an increase of $181.9 million in 2007. A significant amount of hedging strategies were designated as economic and under existing accounting rules, the interest income or expense generated from the derivatives are not reported under GAAP in Net interest income although they have an economic impact on Net interest income. Under GAAP, interest income or expense from such derivatives are recorded as derivative gains and losses in Other income (loss). In 2008, on an economic basis, the economic impact of derivatives would have been to reduce Net interest income by $126.4 million. In 2007, the impact was not material. In summary, in 2008, on an economic basis, Net interest income before provision for credit losses on mortgage loans was $568.1 million, compared to $694.5 million on a reported GAAP basis. In 2007, GAAP Net interest income of $499.4 million was not significantly different from economic Net interest income because of the insignificant amounts of economic hedges in 2007.

Earning assets — Increased volume of transactions, as measured by average outstanding interest-earning asset balances was the principal contributor to the increase in Net interest income in 2008. Average earning assets grew to $118.7 billion in 2008, up by $29.5 billion, or 33.0% from 2007, principally from the increase in member demand for advances. Average balances of investments grew to $12.4 billion in 2008, an increase of $1.6 billion, or 15.2% from 2007, from the acquisition in 2008 of GSE issued floating-rate mortgage-backed securities classified as available-for-sale.

Interest costing liabilities — Debt issuance mix changed in 2008 to the wider use of discount notes, which are short-term and typically lower costing liabilities. Average discount notes grew to $28.3 billion in 2008, an increase of $9.4 billion, or 49.6%, from 2007. Weighted average yields paid on discount notes in 2008 was 246 basis points compared to 495 in 2007. The positive spread between the yield on discount notes and the weighted average yield on total interest-earning assets was 96 basis points in 2008 compared to 40 basis points in 2007, illustrating the advantage in 2008 of employing discount notes as a significant funding instrument.

Earnings from member capital — The FHLBNY earns income from investing its members’ capital to fund interest-earning assets. Member capital increased in 2008 associated with the surge in advances borrowed by members. As a result, deployed capital, which is capital stock, retained earnings and net non-interest bearing liabilities grew and provided the FHLBNY with a significant source of income even in a lower interest rate environment in the current quarter. An average $6.7 billion in deployed capital in 2008 earned a yield of 3.42%, the annualized yield on aggregate interest-earning assets in 2008. In contrast, in 2007, the Bank’s average deployed capital was $4.5 billion, significantly lower than the average in the current year, but earned a higher yield of 5.35%. Based on an assumption that deployed capital was invested to earn 3.42%, the annualized yield on aggregate earning assets in 2008 and 5.35% in the prior year, the Bank earned $230.7 million from deployed capital in 2008, down from $241.9 million in 2007. Typically, the Bank earns relatively greater income in a higher interest rate environment on a given amount of average deployed capital.

126

Net interest spread — Net interest spread earned was 41 basis points in 2008, up from 30 basis points in 2007. Net interest spread is the difference between annualized yields on interest-earning assets and yields on interest-bearing liabilities. Return on average earning-assets increased to 59 basis points in 2008, up from 56 basis points from the prior year, and improved returns, as measured on a GAAP basis. On a GAAP basis, Net interest spread earned was 41 basis points in 2008, up from 30 basis points in 2007. On an economic basis, the Bank estimates that had the Bank recorded swap interest expenses in Net interest income, it would have reduced Net interest spread by 11 basis points to 30 basis points in 2008, unchanged from 2007. Return on average earning-assets, a measure of the efficiency of the use of interest-earning assets, was 59 basis points in 2008, up from 56 basis points in 2007. On an economic basis, the return on average earnings assets for the current year period would have been 48 basis points.

Net interest income — 2007 compared with 2006

Net interest income after the provision for credit losses, was $499.4 million for 2007, up by $29.3 million, or 6.2% from the prior year. Increase was principally rate related in a higher rate environment, as maturing advances were replaced at higher coupons.

Earning assets — Average earning assets grew to $89.2 billion in 2007, up by $3.6 billion, or 4.28% from 2006, principally from the increase in member demand for advances.

Earning liabilities — Increase in earning assets was funded by increased issuance of consolidated obligation bonds; discount notes averaged a little higher in 2007 compared to 2006.

Net interest spread — Net interest spread earned, was 30 basis points in 2007, unchanged from 30 basis points in 2006. Net interest margin, annualized net interest income as a percentage of average earning assets, was 56 basis points in 2007, up from 55 basis points from the prior year.

Earnings from member capital — In the higher interest rate environment prevalent through most of 2007 relative to 2006, deployed capital, which is capital stock, retained earnings, and net non-interest bearing liabilities, provided the FHLBNY with significant income. Deployed capital made a stronger contribution to Net interest income as a result of the higher rate environment in 2007 compared to 2006. An average $4.5 billion in deployed capital in 2007 earned a yield of 5.35%, the annualized yield on aggregate interest-earning assets in 2007. In contrast, the Bank’s average deployed capital in the prior year was also $4.5 billion, but earned a lower yield of 5.14%. As a result, the contribution from deployed capital in 2007 enhanced interest income by 21 basis points, even though average deployed capital was almost unchanged.

127

Spread and Yield Analysis

Average balance sheet information is presented below as it is more representative of activity throughout the periods presented. For most components of the average balances, a daily weighted average was calculated for the period. When daily weighted average balance information was not available, a simple monthly average balance was calculated. Average yields were derived by dividing income by the average balances of the related assets and average costs are derived by dividing expenses by the average balances of the related liabilities.

	Years ended December 31,
	2008							2007							2006
			Interest							Interest							Interest
	Average		Income/					Average		Income/					Average		Income/
(dollars in thousands)	Balance		Expense		Rate 1			Balance		Expense		Rate 1			Balance		Expense		Rate 1
Earning Assets:
Advances	$	92,616,501	$	3,030,799		3.27	%	$	65,454,319	$	3,495,312		5.34	%	$	64,657,774	$	3,302,174		5.11	%
Certificates of deposit and others		7,802,425		251,600		3.22			7,689,475		411,641		5.35			6,005,662		300,486		5.00
Federal funds sold and other overnight funds		4,333,408		86,688		2.00			3,741,385		192,845		5.15			2,851,611		145,420		5.10
Investments		12,441,712		611,897		4.92			10,798,926		596,761		5.53			10,632,295		580,002		5.46
Mortgage and other loans		1,467,561		77,895		5.31			1,502,320		78,946		5.25			1,471,434		76,165		5.18
Total interest-earning assets	$	118,661,607	$	4,058,879		3.42	%	$	89,186,425	$	4,775,505		5.35	%	$	85,618,776	$	4,404,247		5.14	%
Funded By:
Consolidated obligations-bonds	$	81,341,452	$	2,620,431		3.22		$	63,276,726	$	3,215,560		5.08		$	60,932,425	$	2,944,241		4.83
Consolidated obligations-discount notes		28,349,373		697,729		2.46			18,956,390		937,534		4.95			18,381,469		901,978		4.91
Interest-bearing deposits and other borrowings		2,058,389		37,237		1.81			2,285,523		111,293		4.87			1,773,104		84,824		4.78
Mandatorily redeemable capital stock		166,372		8,984		5.40			146,286		11,731		8.02			50,948		3,086		6.06
Total interest-bearing liabilities		111,915,586		3,364,381		3.01	%		84,664,925		4,276,118		5.05	%		81,137,946		3,934,129		4.85	%
Capital and other non-interest- bearing funds		6,746,021		—					4,521,500		—					4,480,830		—
Total Funding	$	118,661,607	$	3,364,381				$	89,186,425	$	4,276,118				$	85,618,776	$	3,934,129
Net Interest Income/Spread			$	694,498		0.41	%			$	499,387		0.30	%			$	470,118		0.29	%
Net Interest Margin (Net interest income/Earning Assets)						0.59	%						0.56	%						0.55	%

¹ Reported yields with respect to advances and debt may not necessarily equal the coupons on the instruments as derivatives are extensively used to change the yield and optionality characteristics of the underlying hedged items. When fixed-rate debt is issued by the Bank and hedged with an interest rate derivative, it effectively converts the debt into a simple floating-rate bond. Similarly, the Bank makes fixed-rate advances to members and hedges the advance with a pay-fixed, receive-variable interest rate derivative that effectively converts the fixed-rate asset to one that floats with prevailing LIBOR rates. Average balance sheet information is presented as it is more representative of activity throughout the periods presented. For most components of the average balances, a daily weighted average balance is calculated for the period. When daily weighted average balance information is not available, a simple monthly average balance is calculated. Average yields are derived by dividing income by the average balances of the related assets and average costs are derived by dividing expenses by the average balances of the related liabilities.

128

Rate and Volume Analysis

The Rate and Volume Analysis presents changes in interest income, interest expense, and net interest income that are due to changes in volumes and rates. The following tables present the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected the FHLBNY’s interest income and interest expense (in thousands).

2008 compared to 2007

	For the years ended
	December 31, 2008 vs. December 31, 2007
	Increase (decrease)
	Volume			Rate			Total
Interest Income
Advances	$	1,450,481		$	(1,914,994	)	$	(464,513	)
Certificates of deposit and others		6,047			(166,088	)		(160,041	)
Federal funds sold and other overnight funds		30,516			(136,673	)		(106,157	)
Investments		90,782			(75,646	)		15,136
Mortgage loans and other loans		(1,827	)		776			(1,051	)
Total interest income		1,575,999			(2,292,625	)		(716,626	)
Interest Expense
Consolidated obligations-bonds		918,002			(1,513,131	)		(595,129	)
Consolidated obligations-discount notes		464,553			(704,358	)		(239,805	)
Deposits and borrowings		(11,060	)		(62,996	)		(74,056	)
Mandatorily redeemable capital stock		1,611			(4,358	)		(2,747	)
Total interest expense		1,373,106			(2,284,843	)		(911,737	)
Changes in Net Interest Income	$	202,893		$	(7,782	)	$	195,111

Net Interest income before provisions for credit losses increased by $195.1 million in 2008 compared to an increase of $29.3 million in 2007. In 2008, rate related changes in yields from earning assets minus yields paid on interest costing liabilities reduced Net interest income by $7.8 million. Increase in volume and mix made a strong contribution of $202.9 million. .

2007 compared to 2006

	For the years ended
	December 31, 2007 vs. December 31, 2006
	Increase (decrease)
	Volume		Rate		Total
Interest Income
Advances	$	40,681	$	152,457	$	193,138
Certificates of deposit and others		84,247		26,908		111,155
Federal funds sold and other overnight funds		45,375		2,050		47,425
Investments		9,090		7,669		16,759
Mortgage loans and other loans		1,599		1,182		2,781
Total interest income		180,992		190,266		371,258
Interest Expense
Consolidated obligations-bonds		113,276		158,043		271,319
Consolidated obligations-discount notes		28,212		7,344		35,556
Deposits and borrowings		24,514		1,955		26,469
Mandatorily redeemable capital stock		5,774		2,871		8,645
Total interest expense		171,776		170,213		341,989
Changes in Net Interest Income	$	9,216	$	20,053	$	29,269

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Allowance for Credit Losses on Mortgage loans

Allowance for credit losses was $1.4 million and $0.6 million at December 31, 2008 and 2007 and recorded as a reserve in the Statements of Condition. The FHLBNY believes the allowance for loan losses is adequate to reflect the losses inherent in the FHLBNY’s mortgage loan portfolio at December 31, 2008 and 2007. The Bank did not deem it necessary to provide a loan loss allowance against its advances to members.

Mortgage loans — The Bank recorded a provision of $773.0 thousand, $40.0 thousand and $11.0 thousand in 2008, 2007, and 2006 in the Statements of Income, against its mortgage loans held-for-portfolio based on identification of inherent losses under a policy described more fully in the section Significant Accounting Policies and Estimates. Charge offs were insignificant in all periods, and were substantially recovered through the credit enhancement provisions of MPF loans.

Advances — The FHLBNY’s credit risk from advances in at December 31, 2008 and 2007 were concentrated in commercial banks, savings institutions and insurance companies. All advances were fully collateralized during their entire term. In addition, borrowing members pledged their stock of the FHLBNY as additional collateral for advances. The FHLBNY has not experienced any losses on credit extended to any member since its inception. Based on the collateral held as security and prior repayment history, no allowance for losses is currently deemed necessary.

Non-Interest Income (Loss)

The principal components of Non-Interest income are described below:

Service fees — Service fees are derived primarily from providing correspondent banking services to members and fees earned on standby letters of credit. Service fees have declined over the years due to declining demand for such services. The Bank does not consider income from such services as a significant element of its operations.

Net realized and unrealized gain (loss) on derivatives and hedging activities — The Bank may designate a derivative as either a hedge of the fair value of a recognized fixed-rate asset or liability or an unrecognized firm commitment (fair value hedge), a forecasted transaction, or the variability of future cash flows of a floating-rate asset or liability (cash flow hedge). The Bank may also designate a derivative in an economic hedge, which does not qualify for hedge accounting under SFAS 133.

Changes in the fair value of a derivative that qualifies as a fair value hedge under the provisions of SFAS 133 and the offsetting gain or loss on the hedged asset or liability that is attributable to the hedged risk are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. To the extent changes in the fair value of the derivative is not entirely offset by changes in the fair value of the hedged asset or liability, the net impact from hedging activities is recorded as hedge ineffectiveness.

Net interest accruals of derivatives designated in a SFAS 133 qualifying fair value or cash flow hedges are recorded as adjustments to the interest income or interest expense of the hedged assets or liabilities. Net interest accruals of derivatives that do not qualify for hedge accounting under SFAS 133 are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

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The effective portion of changes in the fair value of a derivative that is designated and qualifies as a “cash flow” hedge under the provisions of SFAS 133 are recorded in Accumulated other comprehensive income (loss).

For all SFAS 133 qualifying hedge relationships, hedge ineffectiveness resulting from differences between changes in fair values or cash flows of the hedged item and changes in fair value of the derivatives are recognized in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

Net realized and unrealized gains and losses from SFAS 133 qualifying hedging activities are typically determined by changes in the benchmark interest rate (designated as LIBOR by the FHLBNY) and the degree of ineffectiveness of hedging relationships between the change in the fair value of derivatives and the change in the fair value of the hedged assets and liabilities attributable to changes in benchmark interest rate. Typically, such gains and losses represent hedge ineffectiveness between changes in the fair value of the hedged item and changes in the fair value of the derivative. The net contractual interest accruals on interest rate swaps considered as not qualifying for hedge accounting under the provisions of SFAS 133 and interest received from in-the-money options are also recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

Redemption of financial instruments - The Bank retires debt principally to reduce future debt costs when the associated asset is either prepaid or terminated early. Typically, debt retirement is associated with the prepayment of advances and commercial mortgage-backed securities for which the Bank may receive prepayment fees. When assets are prepaid ahead of their expected or contractual maturities, the Bank also attempts to extinguish debt in order to re-align asset and liability cash flow patterns. No debt was retired or transferred in 2008. In 2007 the Bank retired $487.0 million of consolidated obligation debt at a loss of $4.6 million.

In 2008 the Bank was asked to redeem two housing finance agency bonds classified as held-to-maturity at a premium that resulted in a gain of $1.1 million. The sales were considered “in-substance maturities” in accordance with the provisions of SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities.”

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The following table sets forth the main components of Other income (loss) (in thousands):

	Years ended December 31,
	2008			2007			2006
Other income (loss):
Service fees	$	3,357		$	3,324		$	3,368
Instruments held at fair value		(8,325	)		—			—
Net realized and unrealized gain (loss) on derivatives and hedging activities		(199,259	)		18,356			9,676
Net realized gain from sale of available-for-sale and held-to-maturity securities		1,058			—			—
Provision for derivative counterparty credit losses		(64,523	)		—			—
Extinguishment of debt and other		233			(8,180	)		(26,283	)
Total other income (loss)	$	(267,459	)	$	13,500		$	(13,239	)

Other income (loss) — 2008 compared with 2007

Other income (loss) in 2008 was a loss of $267.5 million in 2008 in contrast to a gain of $13.5 million in 2007.

Service fees - Service fees remained unchanged. Service fees were $3.4 million in 2008, almost unchanged from 2007 and 2006.

Earnings impact of derivatives and hedging activities — 2008, 2007, and 2006.

Net realized and unrealized gain (loss) from derivatives and hedging activities — The FHLBNY reported the following net gains (losses) from derivatives and hedging activities (in thousands):

	Years ended December 31,
	2008			20072			20062
Earnings impact of derivatives and hedging activities gain (loss):
SFAS 133 Hedging
Cash flow hedge-ineffectiveness	$	(9	)	$	9		$	—
Fair value hedges-ineffectiveness		(12,025	)		5,910			3,150
Economic Hedging
Economic hedges-fair value changes-options		(40,773	)		(2,611	)		(6,604	)
Interest income-options		101			3,630			7,862
Economic hedges-fair value changes-MPF delivery commitments		(3	)		(171	)		22
Fair value changes-economic hedges 1		(45,239	)		9,695			4,666
Interest expense-economic hedges 1		(126,533	)		1,894			580
Macro hedge-swaps		18,029			—			—
Fair value matched to hedge liabilities designated under SFAS 159
Fair value changes-interest rate swaps		7,193			—			—
Net impact on derivatives and hedging activities	$	(199,259	)	$	18,356		$	9,676

1	Includes de minimis amount of net gains on member intermediated swaps.
2	Presentations for prior periods have been conformed to match current period presentation and had no impact on the Net gains (losses) on derivatives and hedging activities

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SFAS 133 qualifying hedges - At December 31, 2008, the notional amounts of interest-rate swaps in SFAS 133 qualifying hedging relationships totaled $84.6 billion and were designated as hedges of fixed-rate advances and consolidated obligation bonds, compared to $81.8 billion at December 31, 2007 and $76.1 billion at December 31, 2006.

Hedge ineffectiveness recorded in Other income (loss) as Net realized and unrealized loss from hedging activities was a net charge of $12.0 million in 2008, compared to gains of $5.9 million in 2007 and $3.2 million in 2006. Losses and gains were primarily unrealized and represented hedge ineffectiveness between changes in the fair value of the hedged item due to changes in the benchmark rate (adopted as the 3-month LIBOR rate) and changes in the full fair value of the derivative.

The primary components of reported gains and losses from SFAS 133 qualifying hedging activities were:

• Debt hedging - Changes in the benchmark interest rate (LIBOR for the Bank) and implied volatilities of interest rates (i.e., market’s expectation of potential changes in future interest rates) of fair value hedges using receive-fixed, pay-variable swaps hedges of the Bank’s hedged debt resulted in a net loss of $43.9 million in 2008, compared to a loss of $2.1 million and $0.4 million in 2007 and 2006. Significant amounts of consolidated obligation debt hedged in 2008 did not qualify for “short-cut” accounting under the provisions of SFAS 133 and were accounted as “long-haul” hedges. Long-haul hedges do not automatically assume “no-ineffectiveness”. In prior years, the assumption of “no-ineffectiveness” under the “short-cut” method for a greater percentage of hedges resulted in relative little ineffectiveness.

• Advance Hedging - Changes in the benchmark interest rate (LIBOR for the Bank) and the implied volatilities of interest rates of fair value hedges using pay-fixed, receive-variable swaps associated with the Bank’s hedged advances resulted in net gain of $31.8 million in 2008, compared to $8.0 million and $3.5 million in 2007 and 2006. In the current year third quarter, the Bank replaced a significant number of swaps that had been executed with Lehman Brothers Special Financing Inc. The swaps had been accounted for under the provisions of SFAS 133 in short-cut hedging relationship. At hedge termination, the short-cut hedges were de-designated and upon replacement, the hedges were re-designated in long-haul hedges and resulted in the recognition of fair value basis adjustment gains in the balance sheet in the third quarter of 2008; the basis gains from the de-designation are also unrealized and will be amortized as a charge to earnings over future periods.

Economic hedges - At December 31, 2008, the notional amounts of derivatives in hedges that were not designated as SFAS 133 qualifying hedges, but were an acceptable economic hedge, totaled $43.3 billion, compared to $2.8 billion and $1.5 billion at December 31, 2008, 2007 and 2006. In 2008, net interest expense and fair value changes of derivatives that were in an economic hedge resulted in a recorded loss of $187.2 million in Other income as a Net realized and unrealized loss from hedging activities, compared to gains of $12.4 million and $6.5 million in 2007 and 2006.

When derivatives are designated as economic hedges, the fair value changes due to changes in the interest rate and volatility of rates are recorded through the income statement without the offsetting change in the hedged asset or liability as would be afforded under hedge accounting rules under SFAS 133. In addition, net swap interest expenses associated with swaps in economic hedges assets and liabilities are also reported as hedging gains or losses.

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The primary components of the loss from derivatives in economic hedges were:

• Changes in the fair values of interest rate swaps and options in an economic hedge in 2008 were a charge to income of $92.0 million, compared to $6.9 million and $1.9 million in 2007 and 2006. The charges primarily represented unrealized losses. The unrealized loss was partly offset by realized gains of $24.0 million in the third quarter of 2008 when swaps that had been executed to economically hedge balance sheet portfolio risk were no longer necessary and were terminated.

• Interest payments and accruals associated with derivatives designated as economic was a net expense and a charge of $126.4 million was recorded in Other income as a Net realized and unrealized loss from hedging activities, compared to a charge of $5.5 million in 2007 and an income of $8.4 million in 2006.

• Changes in fair values of swaps in an economic hedge of consolidated obligation bonds accounted under SFAS 159, “Fair Value Option”, was an unrealized gain of $7.2 million in 2008. The accounting under SFAS 159 was introduced for the first time in the third quarter of 2008.

The principal elements of derivatives designated as economic hedges were:

• In 2008, the Bank issued $10.6 billion in floating-rate bonds indexed with a spread to 1-month LIBOR and $14.4 billion indexed with spreads to the Prime and the Federal funds effective rates. Simultaneous with the issuance of the debt, the Bank executed interest-rate basis swaps that required the swap counterparties to pay to the FHLBNY, on the receive-leg of the swap, interest cash flows that matched the Bank’s interest payment obligations to investors on the debt — spreads to Prime, Federal funds effective rate and 1-month LIBOR. In exchange the Bank was required to pay the swap counterparty a spread to the 3-month LIBOR index on the pay-leg of the swap. This exchange of cash flows made the Bank indifferent to changes in the relationship between the 3-month LIBOR and the non-LIBOR indices from an economic perspective. Because, the Bank designated the basis swaps as economic hedges, the fair value changes of the swaps in relationship to 3-month LIBOR were “marked-to-market” without the benefit of offsetting changes in the fair values of the floating debt. In the current interest-rate environment, the historical relationships between 3-month LIBOR and the 1-month LIBOR rate, the Prime rate and the Federal funds effective rates have been extraordinarily volatile. The historical spreads have narrowed causing the forward basis spreads to narrow as well resulting in unrealized fair value losses. Fair values in an unrealized loss will be recaptured as the swaps are typically held to maturity.

• In the second quarter of 2008, the Bank had purchased $1.9 billion of interest-rate caps with final maturities in 2018 and strikes ranging from 6.20% to 6.75% indexed mainly to 1-month LIBOR. The caps were purchased at a cost $46.9 million. In addition, the Bank also has interest rate caps that had been acquired in prior years to offset the future interest rate risk from caps on variable-rate advances sold to members. The aggregate fair values of all caps declined in a lower interest rate environment resulting in a charge of $40.8 million in 2008, compared to charges of $2.6 million and $6.7 million in 2007 and 2006.

• Notional amounts of $2.1 billion of interest rate swaps in economic portfolio hedges of the balance sheet remained outstanding at December 31, 2008 and changes in the fair values of the swaps resulted in the recording of $6.0 million in unrealized losses at December 31, 2008.

• In the second half of 2008, the Bank executed $1.0 billion in notional amounts of interest rate swaps to offset the fair value volatility of consolidated obligation bonds elected under SFAS 159, “Fair Value Option for Financial Assets and Financial Liabilities", and the swaps were considered to be economic hedges, and “marked to market” through earnings, resulting in a charge of $7.2 million.

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Under GAAP, interest accruals associated with economic hedges are also recorded in Other income (loss) as a Net Realized and unrealized gains and losses from hedging activities. Because of this reporting requirement for interest associated with swaps in an acceptable economic hedge, $126.6 million of interest expense of all derivatives in economic hedges, including the very significant amounts of basis swaps discussed above, was reported as a loss from hedging activities in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

Redemption of financial instruments - The Bank has in prior years retired debt principally to reduce future debt costs when the associated asset is either prepaid or terminated early. Typically, debt retirement is associated with the prepayment of advances and commercial mortgage-backed securities for which the Bank may receive prepayment fees. When assets are prepaid ahead of their expected or contractual maturities, the Bank also attempts to extinguish debt in order to re-align asset and liability cash flow patterns. There was no debt retired in 2008. In 2007, the FHLBNY transferred $487.0 million of par amounts of consolidated obligation bonds to other FHLBanks in exchange for cash at negotiated fair market values of the bond that resulted in a loss of $4.6 million. In 2006, $755.0 million was transferred or redeemed at a cost of $25.0 million.

In 2008, the Bank was asked to redeem two housing finance agency bonds classified as held-to-maturity at a premium that resulted in a gain of $1.1 million. The sales were considered “in-substance maturities” in accordance with the provisions of SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities.”

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Non-Interest Expense

Operating expenses included the administrative and overhead costs of operating the Bank and the operating costs of providing advances and managing collateral associated with the advances, managing the investment portfolios, and providing correspondent banking services to members.

The FHLBanks, including the FHLBNY, fund the cost of the Office of Finance, a joint office of the FHLBanks that facilitates issuing and servicing the consolidated obligations of the FHLBanks, preparation of the combined quarterly and annual financial reports, and certain other functions. The FHLBanks are also assessed the operating expenses of the Finance Agency, the regulator of the FHLBanks.

The following table sets forth the main components of Other expenses (in thousands):

	Years ended December 31,
	2008		2007		2006
Other expenses:
Operating	$	66,263	$	66,569	$	63,203
Finance Agency and Office of Finance		6,395		5,193		5,140
Total other expenses	$	72,658	$	71,762	$	68,343

Operating expenses were slightly lower in 2008 compared to 2007. In 2007, Operating expenses rose 5.3% compared to 2006, and were mainly caused by increases in headcount and general inflationary increases in salary expenses. Increased expenses in 2007 primarily represented the cost of adding staff and incurring consulting expenses with respect to the implementation of controls and self-testing procedures under Section 404 of the Sarbanes-Oxley Act. The legal, accounting and consulting costs with respect to the Bank’s SEC registration process were also significant. The cost of compliance remains a very significant overhead for the Bank but the cost increases have generally stabilized.

Operating Expenses

The following table sets forth the major categories of operating expenses (dollars in thousands):

	Years ended December 31,
			Percentage					Percentage					Percentage
	2008		of total			2007		of total			2006		of total
Salaries and employee benefits	$	44,370		66.96	%	$	44,740		67.21	%	$	41,292		65.33	%
Temporary workers		282		0.43			125		0.19			257		0.41
Occupancy		4,079		6.16			3,957		5.94			3,732		5.91
Depreciation and leasehold amortization		4,971		7.50			4,498		6.76			3,903		6.17
Computer service agreements and contractual services		5,053		7.62			5,202		7.81			4,519		7.15
Professional and legal fees		2,469		3.73			2,538		3.81			3,786		5.99
Other		5,039		7.60			5,509		8.28			5,714		9.04
Total operating expenses	$	66,263		100.00	%	$	66,569		100.00	%	$	63,203		100.00	%

As of December 31, 2008 the FHLBNY had 247 full-time and 4 part-time employees. At December 31, 2007, there were 238 full-time and 8 part-time employees; at December 31, 2006, there were 225 full-time employees and 7 part-time employees. Salaries and employees benefits are the principal Operating expenses. These expenses have stabilized in 2008 after staff additions to accommodate compliance and risk management initiatives in 2007 and 2006. Consulting fees associated with compliance and risk management projects and initiatives have also stabilized in 2008.

136

Assessments

Each FHLBank is required to set aside a portion of earnings to fund its Affordable Housing Program (“AHP”) and to satisfy its Resolution Funding Corporation assessment (“REFCORP”). For more information, see “Affordable Housing Program and Other Mission Related Programs” and “Assessments” under Item 1. Business in this MD&A.

REFCORP obligation expense in 2008 was $64.8 million down from $80.8 million in 2007 and $71.3 million in 2006. The Bank’s accrual to fund its Affordable Housing program was $29.8 million in 2008, down from $37.2 million in 2007 and $32.0 million in 2006. Assessments are calculated on Net income and assessment expenses reflect the increases or decreases in pre-assessment income.

Affordable Housing Program obligations - The Bank fulfils its AHP obligations primarily through direct grants to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBNY sets aside 10% from its pre-assessment regulatory net income for the Affordable Housing Program. Regulatory net income is defined as reported net income before interest expense related to mandatorily redeemable capital stock under SFAS 150 and the assessment for AHP, but after the assessment for REFCORP. The amounts set aside are considered as the Bank’s liability towards its Affordable Housing Program obligations. AHP grants and subsidies are provided to members out of this liability.

The following table provides roll-forward information with respect to changes in Affordable Housing Program liabilities (in thousands):

	Years ended December 31,
	2008			2007			2006
Beginning balance	$	119,052		$	101,898		$	91,004
Additions from current period’s assessments		29,783			37,204			32,031
Net disbursements for grants and programs		(26,386	)		(20,050	)		(21,137	)
Ending balance	$	122,449		$	119,052		$	101,898

REFCORP - The following table provides roll-forward information with respect to changes in REFCORP liabilities (in thousands):

	Years ended December 31,
	2008			2007			2006
Beginning balance	$	23,998		$	17,475		$	14,062
Additions from current period’s assessments		64,765			80,776			71,299
Net disbursements to REFCORP		(83,983	)		(74,253	)		(67,886	)
Ending balance	$	4,780		$	23,998		$	17,475

137

Asset Quality and Concentration- Advances, Mortgage Loans, and Investment Securities

The FHLBNY incurs credit risk — the risk of loss due to default — in its lending, investing, and hedging activities. It has instituted processes to help manage and mitigate this risk. Despite such processes, some amount of credit risk will always exist. External events, such as severe economic downturns, declining real estate values (both residential and non-residential), changes in monetary policy, adverse events in the capital markets, and other developments, could lead to member or counterparty default or impact the creditworthiness of investments. Such events would have a negative impact upon the FHLBNY’s income and financial performance.

The Bank faced an event of default in 2008 with the bankruptcy of one of its derivative counterparties. On September 15, 2008, Lehman Brothers Holdings, Inc. (LBHI), the parent company of Lehman Brothers Special Financing Inc. (LBSF) and a guarantor of LBSF’s obligations filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. LBSF was a counterparty to FHLBNY on multiple derivative transactions with a total notional amount of $16.5 billion at the time of termination of the FHLBanks’ derivative transactions with LBSF. The FHLBNY had deposited $509.6 million with LBSF in cash as collateral. The LBSF default was unforeseen and despite the Bank’s risk management practices and policies — selection of counterparties with strong reputation, collateral requirements and credit monitoring, and other processes, the default caused the Bank to reserve $64.5 million as a charge to income in the third quarter of 2008 as the bankruptcy of LBHI and LBSF made the timing and the amount of the recovery uncertain.

The following table sets forth five year history of the FHLBNY’s advances and mortgage loan portfolios as of December 31, (in thousands):

	2008		2007		2006		2005		2004
Advances	$	109,152,876	$	82,089,667	$	59,012,394	$	61,901,534	$	68,507,487
Mortgage loans before allowance for credit losses	$	1,459,291	$	1,492,261	$	1,484,012	$	1,467,525	$	1,178,590

Advances

The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY also closely monitors the quality and value of the assets that are pledged as collateral by its members. The FHLBNY periodically assesses the mortgage underwriting and documentation standards of its borrowing members. In addition, the FHLBNY has collateral policies and restricted lending procedures in place to manage its exposure to those members experiencing difficulty in meeting their capital requirements or other standards of creditworthiness.

The FHLBNY has not experienced any losses on credit extended to any member since its inception. The FHLBank Act affords any security interest granted to the FHLBNY by a member, or any affiliate of such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party) having the rights of a lien creditor. However, the FHLBNY’s security interest is not entitled to priority over claims and rights that (1) would be entitled to priority under applicable law, or (2) are held by a bona fide purchaser for value or by parties that are secured by actual perfected security interests.

138

The FHLBNY’s members are required to pledge collateral to secure advances. Eligible collateral includes (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest.

Within the collateral portfolio at December 31, 2008 and 2007, 71.0% and 79.0% was concentrated in mortgage loans (At December 31, 2008, 50.0% was in one-to-four- family mortgages, 10.0% in multi-family mortgages and 11.0% in commercial mortgages; at December 31, 2007, 60.0% was in one-to-four family mortgages, 10.0% in multi-family mortgages and 9.0% in commercial mortgages), and 29.0% and 21.0% was concentrated in Government, Agency and other mortgage-backed securities. The FHLBNY has the right to take such steps, as it deems necessary, to protect its secured position on outstanding advances, including requiring additional collateral (whether or not such additional collateral would otherwise be eligible to secure a loan). The FHLBNY also has a statutory lien under the FHLBank Act on the capital stock of its members, which serves as further collateral for members’ indebtedness to the FHLBNY. As of December 31, 2008, the FHLBNY had a collateralization rate (total FHLBNY obligations of all members as a percent of total estimated liquidation value of collateral pledged) of 178.0% on its total portfolio of outstanding member obligations. The comparable collateralization rate at December 31, 2007 was 177.0%. The collateralization rate varies by individual member. In all cases, sufficient collateral had been pledged to cover each member’s outstanding obligations with the FHLBNY.

The FHLBNY has established asset classification and reserve policies. All adversely classified assets of the FHLBNY will have a reserve established for probable losses. Based upon the collateral held as security and prior repayment histories, no allowance for losses on advances is currently deemed necessary by management.

The FHLBNY uses methodologies to identify and measure credit risk arising from: creditworthiness risk arising from members, counterparties, and other entities; collateral risk arising from type, quality, and lien status; and concentration risk arising from borrower, portfolio, geographic area, industry, or product type.

Creditworthiness Risk — Advances

The FHLBNY’s potential exposure to creditworthiness risk arises from the deterioration of the financial health of FHLBNY members. The FHLBNY manages its exposure to the creditworthiness of members by monitoring their collateral and advance levels daily and by analyzing their financial health each quarter.

Collateral Risk — Advances

The FHLBNY is exposed to collateral risk if it is unable to perfect its interest in pledged collateral, or when the liquidation value of pledged collateral does not fully cover the FHLBNY’s exposure. The FHLBNY manages this risk by pricing collateral on a weekly basis, performing on-site reviews of pledged mortgage collateral from time to time, and reviewing pledged portfolio concentrations on a quarterly basis. The FHLBNY requires that members pledge a specific amount of excess collateral above the par amount of their outstanding obligations. Members provide the FHLBNY with reports of pledged collateral and the FHLBNY evaluates the eligibility and value of the pledged collateral.

The FHLBNY’s loan and collateral agreements give the FHLBNY a security interest in assets held by borrowers that is sufficient to cover their obligations to the FHLBNY. The FHLBNY may supplement this security interest by imposing additional reporting, segregation or delivery requirements on the borrower. The FHLBNY assigns specific collateral requirements to a borrower, based on a number of factors. These include, but are not limited to: (1) the borrower’s overall financial condition; (2) the degree of complexity involved in the pledging, verifying, and reporting of collateral between the borrower and the FHLBNY, especially when third-party pledges, custodians, outside service providers and pledges to other entities are involved; and (3) the type of collateral pledged.

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The FHLBNY has also established collateral maintenance levels for borrower collateral that are intended to help ensure that the FHLBNY has sufficient collateral to cover credit extensions and reasonable expenses arising from potential collateral liquidation and other unknown factors. Collateral maintenance levels are designated by collateral type and are periodically adjusted to reflect current market and business conditions. Maintenance levels for individual borrowers may also be adjusted, based on the overall financial condition of the borrower or another, third-party entity involved in the collateral relationship with the FHLBNY. Borrowers are required to maintain an amount of eligible collateral with a liquidation value at least equal to the borrower’s current collateral maintenance level. All borrowers that pledge mortgage loans as collateral are also required to provide, on a monthly or quarterly basis, a detailed listing of mortgage loans pledged. The FHLBNY uses this detailed reporting to monitor and track payment performance of the collateral and to assess the risk profile of the pledged collateral based on mortgage characteristics, geographic concentrations and other pertinent risk factors.

Drawing on current industry standards, the FHLBNY establishes collateral valuation methodologies for each collateral type and calculates the estimated liquidation value of the pledged collateral to determine whether a borrower has satisfied its collateral maintenance requirement. The FHLBNY evaluates liquidation values on a weekly basis.

The FHLBNY makes on-site review of borrowers in connection with the evaluation of the borrower’s pledged mortgage collateral. This review involves a qualitative assessment of risk factors that includes an examination of legal documentation, credit underwriting, and loan-servicing practices on mortgage collateral. The FHLBNY has developed the on-site review process to more accurately value each borrower’s pledged mortgage portfolio based on current secondary-market standards. The results of the review may lead to adjustments in the estimated liquidation value of pledged collateral. The FHLBNY may also make additional market value adjustments to a borrower’s pledged mortgage collateral based on the quality and accuracy of the automated data provided to the FHLBNY.

Collateral Coverage of Advances

All member obligations with the FHLBNY must be fully collateralized throughout their entire term. The liquidation values of collateral pledged were $184.0 billion and $142.5 billion at December 31, 2008 and 2007 to cover the $103.4 billion and $80.6 billion par amounts of outstanding advances as of December 31, 2008 and 2007. At December 31, 2008 and 2007, collateral comprised of $129.9 billion and $112.0 billion in estimated liquidation values of eligible mortgages and $54.1 billion and $30.5 billion in market values of eligible securities, including cash collateral. At December 31, 2008 and 2007, of the $186.0 billion and $143.8 billion in pledged collateral securing all outstanding member obligations, $60.5 billion and $31.8 billion were in the FHLBNY’s physical possession or that of its safekeeping agent(s); $125.5 billion and $112.0 billion were specifically listed.

The level of over-collateralization is on an aggregate basis and may not necessarily be indicative of similar level of over-collateralization on an individual transaction basis. At a minimum, each member pledged sufficient collateral to adequately secure the member’s outstanding obligation with the FHLBNY. In addition, most members maintain an excess amount of pledged collateral with the FHLBNY to secure future liquidity needs.

As of December 31, 2008 and 2007, other outstanding member obligations totaling $932.1 million and $454.1 million were collateralized by an additional $2.0 billion and $1.25 billion of pledged collateral. The pledged collateral comprised of $1.8 billion and $1.2 billion in mortgage loans and $151.5 million and $49.0 million in securities and cash collateral. The outstanding member obligations consisted principally of standby letters of credit, and a small amount of collateralized value of outstanding derivatives, and members’ credit enhancement guarantee amount (“MPFCE”) on loans sold to the FHLBNY through the Mortgage Partnership Finance program. The FHLBNY’s underwriting and collateral requirements for securing Letters of Credit are the same as its requirements for securing advances.

The total of collateral pledged to the FHLBNY includes excess collateral pledged above the FHLBNY’s minimum collateral requirements. These minimum requirements range from 103% to 125% of outstanding advances, based on the collateral type. It is not uncommon for members to maintain excess collateral positions with the FHLBNY for future liquidity needs. Based on several factors (e.g.; advance type, collateral type or member financial condition) members are required to comply with specified collateral requirements, including but not limited to, a detailed listing of pledged mortgage collateral and/or delivery of pledged collateral to FHLBNY or its designated collateral custodian(s). For example, all pledged securities collateral must be delivered to the FHLBNY’s nominee name at Citibank, N.A., the FHLBNY’s securities safekeeping custodian. Mortgage collateral that is required to be in the FHLBNY’s possession is typically delivered to the FHLBNY’s Jersey City, NJ facility. However, in certain instances, delivery to an FHLBNY approved custodian may be allowed.

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Credit Risk and Concentration Risk — Advances

While the FHLBNY has never experienced a credit loss on an advance, the expanded eligible collateral for Community Financial Institutions and non-member housing associates permitted, but not required, by the Finance Agency provides the potential for additional credit risk for the FHLBNY. It is the FHLBNY’s current policy to not accept “expanded” eligible collateral from Community Financial Institutions. The management of the FHLBNY has the policies and procedures in place to appropriately manage credit risk associated with the advance business. In extending credit to a member, the FHLBNY adheres to specific credit policy limits approved by its Board of Directors. The FHLBNY has not established limits for the concentrations of specific types of advances, but management reports the activity in advances to the Board each month. Each quarter, management reports the concentrations of convertible advances made to individual members. There were no past due advances and all advances were current at December 31, 2008 and 2007. Management does not anticipate any credit losses, and accordingly, the FHLBNY has not provided an allowance for credit losses on advances. The FHLBNY’s potential credit risk from advances is concentrated in commercial banks, savings institutions and insurance companies. At December 31, 2008 and 2007, the Bank had advances of $52.2 billion and $38.9 billion outstanding to five member institutions, representing 50.5% and 48.3% of total advances outstanding, and sufficient collateral was held to cover the advances to these institutions.

Top Five Advance Holders

The following table summarizes the top five advance holders (dollars in thousands):

	December 31, 2008
					Percentage of
			Par		Total Par Value			Interest
	City	State	Advances		of Advances			Income
Hudson City Savings Bank 1	Paramus	NJ	$	17,525,000		17.0	%	$	671,146
Metropolitan Life Insurance Company	New York	NY		15,105,000		14.6			260,420
Manufacturers and Traders Trust Company	Buffalo	NY		7,999,689		7.7			257,649
New York Community Bank 1	Westbury	NY		7,796,517		7.5			337,019
Astoria Federal Savings and Loan Assn	Long Island City	NY		3,738,000		3.6			151,066
Total			$	52,164,206		50.4	%	$	1,677,300

¹ Officer of member bank also serves on the Board of Directors of the FHLBNY.

	December 31, 2007
					Percentage of
			Par		Total Par Value			Interest
	City	State	Advances		of Advances			Income
Hudson City Savings Bank	Paramus	NJ	$	14,191,000		17.6	%	$	461,568
New York Community Bank	Westbury	NY		8,138,625		10.1			326,012
Manufacturers and Traders Trust Company	Buffalo	NY		6,505,625		8.1			247,104
HSBC Bank USA, National Association	New York	NY		5,508,585		6.8			240,347
Metropolitan Life Insurance Company	New York	NY		4,555,000		5.7			81,724
Total			$	38,898,835		48.3	%	$	1,356,755

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Top five advance holders at December 31, 2006

	December 31, 2006
					Percentage of
			Par		Total Par Value			Interest
	City	State	Advances		of Advances			Income
Hudson City Savings Bank	Paramus	NJ	$	8,873,000		15.0	%	$	289,348
New York Community Bank	Westbury	NY		7,878,877		13.4			315,626
HSBC Bank USA, National Association	New York	NY		5,009,503		8.5			260,749
Manufacturers and Traders Trust Company	Buffalo	NY		3,423,231		5.8			188,514
Astoria Federal Savings and Loan Assn	Long Island City	NY		2,480,000		4.2			114,426
Total			$	27,664,611		46.9	%	$	1,168,663

Advances outstanding to former members are summarized as below:

	Ultimate	Member of	Advances
Former Member	Acquiree Bank	FHLB	as of December 31, 2008
Citizens Bank, National Association	RBS Citizens, National Association	Boston	$	1,500,000
Independence Community Bank	Sovereign Bank	Pittsburgh		575,000
The Yardville National Bank	PNC Bank, N.A.	Pittsburgh		223,000
Summit Bank	Bank of America, N.A.	Atlanta		215,516
Susquehanna Patriot Bank	Susquehanna Bank	Pittsburgh		100,000
Others	Various	Various		89,154
Total			$	2,702,670

	Ultimate	Member of	Advances
Former Member	Acquiree Bank	FHLB	as of December 31, 2007
Citizens Bank, National Association	RBS Citizens, National Association	Boston	$	1,750,000
Independence Community Bank	Sovereign Bank	Pittsburgh		978,000
Summit Bank	Bank of America, NA	Boston		231,090
Susquehanna Patriot Bank	Susquehanna Bank DV	Pittsburgh		125,000
Dime Savings Bank	Washington Mutual Bank	San Francisco		103,298
Others	Various	Various		90,256
Total			$	3,277,644

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Investment quality

Long-term investments were principally comprised of $10.4 billion of mortgage-backed securities issued by government sponsored enterprises and classified as held-to-maturity and available-for-sale, and $1.7 billion of privately issued mortgage-backed, commercial mortgage- and asset-backed securities classified as held-to-maturity. In addition, the FHLBNY had investments of $804.1 million in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) classified as held-to-maturity.

The FHLBNY’s short-term investments consisted of interest-bearing balances at the Federal Reserve Bank and certificates of deposits at December 31, 2008. There were no outstanding amounts of overnight and term Federal funds sold at December 31, 2008. The Bank invests in certificates of deposit with maturities not exceeding one year issued by major financial institutions, recorded at amortized cost and classified as held-to-maturity.

The FHLBNY’s investments are summarized below (dollars in thousands):

	December 31,		December 31,		Dollar			Percentage
	2008		2007		Variance			Variance
State and local housing agency obligations 1	$	804,100	$	576,971	$	227,129			39.37	%
Mortgage-backed securities
Available-for-sale securities, at fair value		2,851,682		—		2,851,682		NA
Held-to-maturity securities, at amortized cost		9,326,443		9,707,783		(381,340	)		(3.93	)
Total long-term securities		12,982,225		10,284,754		2,697,471			26.23
Grantor trusts 2		10,187		13,187		(3,000	)		(22.75	)
Certificates of deposit 1		1,203,000		10,300,200		(9,097,200	)		(88.32	)
Federal funds sold		—		4,381,000		(4,381,000	)		(100.00	)
Total investments	$	14,195,412	$	24,979,141	$	(10,783,729	)		(43.17	)%

1	Classified as held-to-maturity securities, at amortized cost
2	Classified as available-for-sale securities, at fair value represent investments in registered mutual funds and other fixed-income securities maintained under the grantor trusts

Investment rating

External ratings and the changes in a security’s external rating are factors in the FHLBNY’s assessment of impairment; a rating or a rating change alone is not necessarily indicative of impairment or absence of impairment.

Mortgage-backed securities – At December 31, 2008, all MBS classified as available-for-sale were rated triple-A by a Nationally Recognized Statistical Rating Organization (“NRSRO”). All available-for-sale securities were securities issued by Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corp (“Freddie Mac”). Fannie Mae and Freddie Mac and government agency issued securities made up 81.3% of MBS classified as held-to-maturity. Triple-A rated MBS classified as HTM aggregated $8.7 billion, or 93.4% of MBS classified as held-to-maturity. Double-A rated securities were $229.7 million, or 2.5%; the remaining securities were rated at least a triple-BBB. At December 31, 2007, all MBS were rated triple-A.

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State and local housing finance agency bonds – At December 31, 2008 the percentage of state and housing finance agency bonds that were rated triple-A was 9.3%. Double-A rated securities were $673.0 million, or 83.7%. The remaining securities were rated triple-B. At December 31, 2007, 47.0% were rated Triple-A and the remaining securities were rated double-A.

Short-term instruments – At December 31, 2008, substantially all short-term investments were to financial institutions that were rated single — A, or better.

The following tables contain information about credit ratings of the Bank’s investments in held-to-maturity and available-for-sale securities (“AFS”) at December 31, 2008 and 2007 (in thousands):

External ratings — Held-to-maturity securities — December 31, 2008:

			NRSRO Ratings- December 31, 2008
Issued, guaranteed or insured by:	Amount		AAA		AA		A		BBB
Pools of Mortgages
Fannie Mae	$	1,400,058	$	1,400,058	$	—	$	—	$	—
Freddie Mac		422,088		422,088		—		—		—
Total pools of mortgages		1,822,146		1,822,146		—		—		—
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
Fannie Mae		2,032,050		2,032,050		—		—		—
Freddie Mac		3,722,840		3,722,840		—		—		—
Ginnie Mae		6,325		6,325		—		—		—
Total CMOs/REMICs		5,761,215		5,761,215		—		—		—
Non-GSE MBS
CMOs/REMICs		609,908		509,056		—		62,401		38,451
Commercial mortgage-backed securities		266,994		266,994		—		—		—
Total non-federal-agency MBS		876,902		776,050		—		62,401		38,451
Asset-Backed Securities
Manufactured housing (insured)*		229,714		—		229,714		—		—
Home equity loans (insured)*		376,587		86,662		—		130,277		159,648
Home equity loans (uninsured)		259,879		259,879		—		—		—
Total asset-backed securities		866,180		346,541		229,714		130,277		159,648
Total mortgage-backed securities	$	9,326,443	$	8,705,952	$	229,714	$	192,678	$	198,099
Other
State and local housing finance agency obligations	$	804,100	$	74,881	$	672,999	$	—	$	56,220
Certificates of deposit		1,203,000		—		628,000		575,000		—
Total other	$	2,007,100	$	74,881	$	1,300,999	$	575,000	$	56,220

* Securities are insured as part of the deal structure. In addition, 5 securities with amortized cost of $314.8 million at December 31, 2008 were re-insured with a wrap over the performance of the security by monoline insurers.

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External ratings — Held-to-maturity securities — December 31, 2007:

			NRSRO Ratings- December 31, 2007
Issued, guaranteed or insured by:	Amount		AAA		AA		A
Pools of Mortgages
Fannie Mae	$	1,588,563	$	1,588,563	$	—	$	—
Freddie Mac		488,237		488,237		—		—
Total pools of mortgages		2,076,800		2,076,800		—		—
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
Fannie Mae		1,548,318		1,548,318		—		—
Freddie Mac		3,204,550		3,204,550		—		—
Ginnie Mae		7,482		7,482		—		—
Total CMOs/REMICs		4,760,350		4,760,350		—		—
Non-GSE MBS
CMOs/REMICs		729,331		729,331		—		—
Commercial mortgage-backed securities		1,087,713		1,087,713		—		—
Total non-federal-agency MBS		1,817,044		1,817,044		—		—
Asset-Backed Securities
Manufactured housing (insured)		260,972		260,972		—		—
Home equity loans (insured)		457,294		457,294		—		—
Home equity loans (uninsured)		335,323		335,323		—		—
Total asset-backed securities		1,053,589		1,053,589		—		—
Total mortgage-backed securities	$	9,707,783	$	9,707,783	$	—	$	—
Other
State and local housing finance agency obligations	$	576,971	$	271,253	$	305,718	$	—
Certificates of deposit		10,300,200		—		6,988,100		3,312,100
Federal funds sold		4,381,000		—		3,726,000		655,000
Total other	$	15,258,171	$	271,253	$	11,019,818	$	3,967,100

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External ratings — Available-for-sale securities — December 31, 2008:

			NRSRO Ratings- December 31, 2008
Issued, guaranteed or insured by:	Amount		AAA		AA		A
Pools of Mortgages
Fannie Mae	$	1,854,988	$	1,854,988	$	—	$	—
Freddie Mac		996,694		996,694		—
Total pools of mortgages		2,851,682		2,851,682		—		—
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
Fannie Mae		—		—		—		—
Freddie Mac		—		—		—		—
Ginnie Mae		—		—		—		—
Total CMOs/REMICs		—		—		—		—
Non-GSE MBS
CMOs/REMICs		—		—		—		—
Commercial mortgage-backed securities		—		—		—		—
Total non-federal-agency MBS		—		—		—		—
Asset-Backed Securities
Manufactured housing (insured)		—		—		—		—
Home equity loans (insured)		—		—		—		—
Home equity loans (uninsured)		—		—		—		—
Total asset-backed securities		—		—		—		—
Total mortgage-backed securities	$	2,851,682	$	2,851,682	$	—	$	—

The Bank had no MBS designated as available-for-sale at December 31, 2007.

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Fannie Mae and Freddie Mac Securities

The FHLBNY’s mortgage-backed securities were predominantly issued by Fannie Mae and Freddie Mac.

The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. Additionally, in September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship, with the Finance Agency named as conservator, who will manage Fannie Mae and Freddie Mac in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market.

Available-for-sale securities - All $2.9 billion of MBS outstanding at December 31, 2008 and designated as AFS were issued by Fannie Mae and Freddie Mac.

Held-to-maturity securities comprised of 81.3% of MBS also issued by Fannie Mae, Freddie Mac and a government agency. The following table summarizes the amortized cost of mortgage-backed securities classified as held-to-maturity securities by issuer (dollars in thousands):

	December 31,		Percentage			December 31,		Percentage
	2008		of total			2007		of total
U.S. government sponsored enterprise residential mortgage-backed securities	$	7,577,036		81.24	%	$	6,829,668		70.35	%
U.S. agency residential mortgage-backed securities		6,325		0.07			7,482		0.08
Private-label issued securities backed by home equity loans		636,466		6.83			752,808		7.76
Private-label issued residential mortgage-backed securities		609,908		6.54			769,140		7.92
Private-label issued commercial mortgage-backed securities		266,994		2.86			1,087,713		11.20
Private-label issued securities backed by manufactured housing loans		229,714		2.46			260,972		2.69
Total Held-to-maturity securities — MBS	$	9,326,443		100.00	%	$	9,707,783		100.00	%

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Non-agency Private label mortgage- and- asset-backed securities

The Bank also held $1.7 billion of MBS that were privately issued. The securities included commercial mortgage-and asset-backed securities, and mortgage pass-throughs and Real Estate Mortgage Investment conduit bonds, and securities collateralized by manufactured housing loans. All private label MBS are classified as held-to-maturity.

The following table summarizes private-label mortgage- and asset-backed securities by fixed- or variable-rate coupon types (in thousands — Unpaid principal balances — UPB):

	December 31,
	2008						2007
			Variable						Variable
	Fixed Rate		Rate		Total		Fixed Rate		Rate		Total
Private-label MBS
Private-label RMBS
Prime	$	596,430	$	4,811	$	601,241	$	711,423	$	6,312	$	717,735
Alt-A		9,129		4,177		13,306		11,100		5,006		16,106
Subprime		—		—		—		—		—		—
Total PL RMBS		605,559		8,988		614,547		722,523		11,318		733,841
Private-label CMBS
Prime		266,860		—		266,860		1,083,978		—		1,083,978
Total PL CMBS		266,860		—		266,860		1,083,978		—		1,083,978
Home Equity Loans
Prime		—		—		—		—		—		—
Alt-A		—		—		—		—		—		—
Subprime		504,565		132,135		636,700		609,426		184,716		794,142
Total Home Equity Loans		504,565		132,135		636,700		609,426		184,716		794,142
Manufactured Housing Loans
Prime		—		—		—		—		—		—
Alt-A		—		—		—		—		—		—
Subprime		229,738		—		229,738		261,001		—		261,001
Total Manufactured Housing Loans		229,738		—		229,738		261,001		—		261,001
Total UPB of private-label MBS	$	1,606,722	$	141,123	$	1,747,845	$	2,676,928	$	196,034	$	2,872,962

Unpaid principal balance (UPB) is also known as the current amortized par amount of a mortgage-backed security.

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The Bank’s private label MBS included certain residential mortgage-backed securities (“RMBS”) that were supported by loans with low FICO scores (FICO score of 660 or less) or high loan-to-value ratios (80% or greater at origination)(“High LTVs”).

The tables below present book and market values of private label RMBS supported by loans with low FICO scores and high LTVs, and impacted by the rating agency actions (in thousands):

	At December 31, 2008
					Low FICO				High LTVs
	Totals				RMBS				RMBS
	Book Value		Market Value		Book Value		Market Value		Book Value		Market Value
Securities downgraded in 2008
Securities under downgrade watch	$	—	$	—	$	—	$	—	$	—	$	—
Securities not under downgrade watch 1		289,925		171,529		227,210		139,755		62,715		31,774
		289,925		171,529		227,210		139,755		62,715		31,774
Securities Stable
Securities under downgrade watch		1,556		1,127		1,556		1,127		—		—
Securities not under downgrade watch 1		344,985		239,741		344,985		239,741		—		—
		346,541		240,868		346,541		240,868		—		—
Total	$	636,466	$	412,397	$	573,751	$	380,623	$	62,715	$	31,774

	At December 31, 2007
					Low FICO				High LTVs
	Totals				RMBS				RMBS
	Book Value		Market Value		Book Value		Market Value		Book Value		Market Value
Securities downgraded in 2007
Securities under downgrade watch	$	86,790	$	81,913	$	50,787	$	48,092	$	36,003	$	33,821
Securities not under downgrade watch		267,210		260,000		222,421		217,202		44,789		42,798
		354,000		341,913		273,208		265,294		80,792		76,619
Securities Stable
Securities under downgrade watch		—		—		—		—		—		—
Securities not downgrade watch		438,616		415,361		438,616		415,361		—		—
		438,616		415,361		438,616		415,361		—		—
Total	$	792,616	$	757,274	$	711,824	$	680,655	$	80,792	$	76,619

	At January 31, 2009
					Low FICO				High LTVs
	Totals				RMBS				RMBS
	Book Value		Market Value		Book Value		Market Value		Book Value		Market Value
Securities downgraded in 2009
Securities under downgrade watch	$	—	$	—	$	—	$	—	$	—	$	—
Securities not under downgrade watch		—		—		—		—		—		—
		—		—		—		—		—		—
Securities Stable
Securities under downgrade watch		—		—		—		—		—		—
Securities not under downgrade watch		629,861		383,769		567,901		353,277		61,960		30,492
		629,861		383,769		567,901		353,277		61,960		30,492
Total	$	629,861	$	383,769	$	567,901	$	353,277	$	61,960	$	30,492

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The table below external ratings of private label RMBS supported by loans with low FICO scores and high LTVs (in thousands):

	December 31, 2008				December 31, 2007
	Book		Estimated Fair		Book		Estimated Fair
	Value		Value		Value		Value
AAA-rated	$	344,985	$	239,741	$	705,827	$	675,360
AAA-rated-negative watch		1,556		1,127		86,789		81,914
A-rated		130,277		79,300		—		—
BBB-rated		159,648		92,229		—		—
Total	$	636,466	$	412,397	$	792,616	$	757,274

Impairment Analysis

Determining whether a decline in fair value is other -than-temporarily impaired requires significant judgment. The FHLBNY evaluates its individual held-to-maturity investments in private label issued mortgage-and- asset backed securities for other-than-temporary impairment on a quarterly basis. As part of this process, the FHLBNY considers its ability and intent to hold each security for a sufficient time to allow for any anticipated recovery of unrealized losses. To determine which individual securities are at risk for other-than-temporary impairment, the FHLBNY considers various characteristics of each security including, but not limited to, the following: the credit rating and related outlook or status; the creditworthiness of the issuers of the debt securities; the underlying type of collateral; the year of securitization or vintage, the duration and level of the unrealized loss; any credit enhancements or insurance; and certain other collateral-related characteristics such as FICO credit scores, and delinquency rates. The relative importance of this information varies based on the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment, and, if insured, the financial strength of the “monoline insurers” where the security relies on the insurer for support either currently or potentially in future periods. In determining insurer support, the FHLBNY considers the contractual terms of the insurance guarantee, and if the security is determined to rely on insurance protection for cash flow deficiency either currently or in the future, the financial strength of monoline insurers. The FHLBNY’s analysis also considers that credit protection under the terms of the agreement travels with the security.

Industry analysis of delinquency performance of mortgage-backed securities indicates that loans supporting securities issued in 2005, 2006 and 2007 are exhibiting significantly higher delinquency rates than those supporting securities issued in earlier years. The FHLBNY believes the year of issuance or origination (vintage) of the collateral supporting MBS is an important factor in projecting cash flow performance and assessing their credit performance. The Bank’s private label issued MBS (“PLMBS”) are relatively seasoned securities. At December 31, 2008, the unpaid principal balances of securities issued in 2005 and 2006 aggregated $212.2 million, representing 12.1% of private label MBS. These securities were residential mortgage-backed securities collateralized by loans to prime borrowers and performing. All other PLMBS were issued prior in 2004 or earlier. All securities deemed to be “at risk” of other-than-temporary impairment were issued prior to 2004.

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The following table summarizes PLMBS stratified by year of securitization, and the unpaid principal balance as a percentage of fair value (dollars in thousands):

	December 31, 2008							December 31, 2007
					% of							% of
	Fair Value		UPB		UPB			Fair Value		UPB		UPB
By Year of Securitization
RMBS
Prime
2006	$	80,308	$	101,843		78.85	%	$	128,813	$	129,573		99.41	%
2005		102,839		110,334		93.21			127,906		130,457		98.04
2004		159,810		168,166		95.03			193,405		198,577		97.40
2003 and earlier		212,596		220,898		96.24			251,244		259,128		96.96
Total of RMBS Prime		555,553		601,241		92.40			701,368		717,735		97.72
Alt-A
2003 and earlier		11,648		13,306		87.54			16,095		16,106		99.94
Total of RMBS		567,201		614,547		92.30			717,463		733,841		97.77
CMBS
Prime
2003 and earlier		267,016		266,860		100.06			1,093,383		1,083,978		100.87
HEL
Subprime
2003 and earlier		412,397		636,700		64.77			758,516		794,142		95.51
Manufactured Housing Loans
Subprime
2003 and earlier		154,296		229,738		67.16			260,522		261,001		99.82
Total of all Private-label MBS	$	1,400,910	$	1,747,845		80.15	%	$	2,829,884	$	2,872,962		98.50	%

151

The following table presents additional information of the fair values and gross unrealized losses of PLMBS by year of securitization and external rating at December 31, 2008 (in thousands):

	Unpaid Principal Balance
													Gross
	Ratings										Amortized		Unrealized
Private-label MBS		Subtotal		Triple-A		Double-A		Single-A		Triple-B		Cost		(Losses)			Fair Value 1
RMBS
Prime
2006	$	101,843	$	—	$	—	$	62,968	$	38,874	$	100,851	$	(20,544	)	$	80,308
2005		110,334		110,334		—		—		—		108,254		(5,415	)		102,839
2004		168,166		168,166		—		—		—		168,173		(8,363	)		159,810
2003 and earlier		220,898		220,898		—		—		—		219,318		(6,722	)		212,596
Total RMBS Prime		601,241		499,398		—		62,968		38,874		596,596		(41,044	)		555,553
Alt-A
2003 and earlier		13,306		13,306		—		—		—		13,310		(1,662	)		11,648
Total RMBS		614,547		512,704		—		62,968		38,874		609,906		(42,706	)		567,201
CMBS
Prime
2003 and earlier		266,860		266,860		—		—		—		266,994		(127	)		267,016
HEL
Subprime
2003 and earlier		636,700		346,631		—		130,404		159,665		636,466		(224,069	)		412,397
Manufactured Housing Loans
Subprime
2003 and earlier		229,738		—		229,738		—		—		229,714		(75,418	)		154,296
Total Private-label MBS	$	1,747,845	$	1,126,195	$	229,738	$	193,372	$	198,539	$	1,743,080	$	(342,320	)	$	1,400,910

¹ Fair value includes both gains and losses.

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Weighted-average market price offers an analysis of unrealized loss percentage; a comparison of the weighted-average credit support to weighted-average collateral delinquency percentage is another indicator of the credit support available to absorb potential cash flow shortfalls.

	December 31, 2008
			Original
			Weighted-			Weighted-			Minimum
	Weighted-		Average			Average			Current			Weighted- Average
	Average Market		Credit			Credit			Credit			Collateral
Private-label MBS		Price 1		Support %			Support %			Support %			Delinquency %
RMBS
Prime
2006		78.85		3.71	%		4.56	%		2.48	%		0.86	%
2005		93.21		2.68			3.26			1.23			1.00
2004		95.03		2.05			2.86			1.79			0.40
2003 and earlier		96.24		1.21			2.17			1.77			0.27
Total RMBS Prime		92.40		2.14			2.97			1.77			0.54
Alt-A
2003 and earlier		87.54		10.22			31.60			8.50			10.56
Total RMBS		92.30		2.31			3.59			1.77			0.76
CMBS
Prime
2003 and earlier		100.06		26.69			38.73			33.93			0.00
HEL
Subprime
2003 and earlier		64.77		58.31			65.66			24.47			12.53
Manufactured Housing Loans
Subprime
2003 and earlier		67.16		58.26			55.99			15.12			1.88
Total Private-label MBS		80.15		33.79	%		38.45	%		1.77	%		5.08	%

¹ Represents weighted-average market price based on par equaling $100.00. Combined weighted-average collateral delinquency rates is calculated based on UPB amount.

Definitions:

Original Weighted-Average Credit Support % represents the arithmetic mean of a cohort of securities by vintage; credit support is defined as the credit protection level at the time the mortgage-backed securities closed. Support is expressed as a percentage of the sum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the original collateral balance.

Weighted-Average Credit Support % represents the arithmetic mean of a cohort of securities by vintage; credit support is defined as the credit protection level as of the mortgage-backed securities most current payment date. Support is expressed as a percentage of the sum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the most current unpaid collateral balance.

Minimum Current Credit Support % represents the current credit enhancement of the security with the lowest credit support in the vintage cohort.

Weighted-average collateral delinquency % represents the arithmetic mean of a cohort of securities by vintage: collateral delinquency is defined as the sum of the unpaid principal balance of loans underlying the mortgage-backed security where the borrower is 60 or more days past due, or in bankruptcy proceedings, or the loan is in foreclosure, or has become real estate owned divided by the aggregate unpaid collateral balance.

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External ratings are just one factor that is considered in analyzing if a security is other-than-temporarily impaired. The table below compares delinquency percentage across security types, ratings and unrealized losses of PLMBS. (dollars in thousands):

	December 31, 2008
						Weighted-Average
			Gross Unrealized			Collateral
	Amortized Cost		(Losses)			Delinquency %1
Private-label MBS
RMBS
Prime
Rated Triple A	$	495,744	$	(20,500	)		0.48	%
Rated Single A		62,401		(12,027	)		0.76
Rated Triple B		38,451		(8,517	)		1.01
Total of RMBS Prime		596,596		(41,044	)		0.54
Alt-A
Rated Triple A		13,310		(1,662	)		10.56
Total of RMBS		609,906		(42,706	)		0.76
CMBS
Prime
Rated Triple A		266,994		(127	)		—
HEL
Subprime
Rated Triple A		346,541		(105,673	)		13.54
Rated Single A		130,277		(50,977	)		5.68
Rated Triple B		159,648		(67,419	)		15.96
Total of HEL Subprime		636,466		(224,069	)		12.53
Manufactured Housing Loans
Subprime
Rated Double A		229,714		(75,418	)		1.88
Grand Total	$	1,743,080	$	(342,320	)		5.08	%

¹ Weighted-average collateral delinquency rate is determined based on the underlying loans that are 60 days or more past due. The reported delinquency percentage represents weighted-average based on the dollar amounts of the individual securities in the category and their respective delinquencies. Combined weighted-average collateral delinquency rates is calculated based on UPB amount.

154

Monoline Insurers — Non-agency issued PLMBS.

PLMBS with an amortized cost basis of $615.4 million, or 35% of all private-label MBS, were either insured at the time of issuance or subsequently insured as “wraps” from a “monoline insurer”. The table below presents insurance coverage by monoline insurer and unrealized losses at December 31, 2008. (in thousands):

	Total					AMBAC Assurance Corp					Financial Security Assurance, Inc					MBIA Insurance Corp
	Total		Total
	Monoline		Gross			Monoline		Gross			Monoline		Gross			Monoline		Gross
	Insurance		Unrealized			Insurance		Unrealized			Insurance		Unrealized			Insurance		Unrealized
	Coverage		Losses			Coverage		Losses			Coverage		Losses			Coverage		Losses
By Year of Securitization
HEL
Subprime
2003 and earlier	$	376,587	$	(144,957	)	$	248,880	$	(102,319	)	$	86,662	$	(26,561	)	$	41,045	$	(16,077	)
CMBS
Prime
2003 and earlier		9,078		(100	)		—		—			—		—			9,078		(100	)
Subtotal		385,665		(145,057	)		248,880		(102,319	)		86,662		(26,561	)		50,123		(16,177	)
Manufactured Housing Loans		229,714		(75,418	)		—		—			229,714		(75,418	)		—		—
Total	$	615,379	$	(220,475	)	$	248,880	$	(102,319	)	$	316,376	$	(101,979	)	$	50,123	$	(16,177	)

Additional insurance information is presented in the tables below summarizing the numbers of securities insured, the break out between those insured at issuance and insurance purchased by the Bank subsequent to issuance. (dollars in thousands):

	Mortgage-backed securities insurance coverage
	December 31, 2008
	Number of		Security	Amortized		Market
	securities		class	cost		value
Bank purchased insurance (WRAP)
MBIA		1	CMBS	$	9,078	$	8,978
FSA		2	RMBS		75,994		51,805
FSA		2	Manufactured Housing Bonds		229,713		154,296
		5			314,785		215,079
Insured at issuance
MBIA		3	RMBS		41,045		24,969
AMBAC		13	RMBS		248,880		146,561
FSA		1	RMBS		10,668		8,295
		17			300,593		179,825
Total		22		$	615,378	$	394,904

155

	Mortgage-backed securities insurance coverage
	December 31, 2007
	Number of		Security	Amortized		Market
	securities		class	cost		value
Bank purchased insurance (WRAP)
MBIA		3	CMBS	$	177,450	$	176,780
FSA		2	RMBS		83,413		78,315
FSA		2	Manufactured Housing Bonds		260,972		260,522
		7			521,835		515,617
Insured at issuance
MBIA		3	RMBS		47,453		45,045
AMBAC		13	RMBS		306,547		296,868
FSA		2	RMBS		19,881		19,795
		18			373,881		361,708
Total		25		$	895,716	$	877,325

Certain housing finance agency bonds were covered by insurance policies underwritten by FSA, Ambac, MBIA and others (dollars in thousands).

	Housing Finance Agency bond insurance coverage
	December 31, 2008
	Number of		Amortized		Market
	securities		cost		value
Insured at issuance
AMBAC		1	$	40,000	$	33,008
FSA		6		82,115		77,345
MBIA		3		89,756		68,321
All Others		26		592,229		584,486
Total		36	$	804,100	$	763,160

	Housing Finance Agency bond insurance coverage
	December 31, 2007
	Number of		Amortized		Market
	securities		cost		value
Insured at issuance
AMBAC		1	$	40,000	$	40,000
FSA		6		83,420		87,115
MBIA		3		121,588		121,633
All Others		23		331,963		337,803
Total		33	$	576,971	$	586,551

156

Monoline external ratings — Rating information of monoline insurers at December 31, 2008 are presented below. MBIA was downgraded on February 17, 2009 to single-B.

	Moody’s		S&P			Fitch
	Credit Rating	Outlook	Credit Rating		Outlook	Credit Rating	Outlook
AMBAC Assurance Corporation	Baa1	Developing		A	Negative	Not Rated	Not Rated
Financial Security Assurance, Inc.	Aa3	Stable	AAA		Negative	AAA	Negative
MBIA Insurance Corporation	Baa1	Developing	AA		Negative	Not Rated	Not Rated
Fannie Mae/Freddie Mac	Aaa	Stable	AAA		Negative	AAA	Stable

MBIA was reorganized and its insurance arm which provides bond insurance was downgraded on February 17, 2008 to single-B. Ratings downgrade of MBIA and other insurers imply an increased risk that the insurers will fail to fulfill their obligations to reimburse the FHLBNY for claims under the terms of the insurance policies.

Impairment analysis and conclusions

Determining whether a decline in fair value is other-than-temporarily impaired requires significant judgment. The FHLBNY evaluates its individual held-to-maturity investment in private label issued mortgage-and- asset backed securities for other-than-temporary impairment on a quarterly basis. As part of this process, the FHLBNY considers its ability and intent to hold each security for a sufficient time to allow for any anticipated recovery of unrealized losses. To determine which individual securities are at risk for other-than-temporary impairment, the FHLBNY considers various characteristics of each security including, but not limited to, the following: the credit rating and related outlook or status; the creditworthiness of the issuers of the debt securities; the underlying type of collateral; the year of securitization or vintage, the duration and level of the unrealized loss; any credit enhancements or insurance for securities that were “wrapped” at inception; and certain other collateral-related characteristics such as FICO credit scores, and delinquency rates. The relative importance of this information varies based on the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment, and, if insured, the financial strength of the “monoline insurers” where the security relies on the insurer for support either currently or potentially in future periods. In determining monoline insurer support, the Bank considers the contractual terms of the insurance guarantee, and whether the credit protection under the terms of the agreement travels with the security; and if the security is estimated to rely on insurance protection for cash flow deficiency either currently or in the future. The Bank’s analysis also considers that credit protection under the terms of the agreement travels with the security.

GSE issued securities — The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac or a government agency by considering the creditworthiness and performance of the debt securities and the strength of the GSE’s guarantees of the securities. Based on the Bank’s analysis, GSE and agency issued securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE and agency issued securities given the current levels of collateral and credit enhancements and guarantees that exist to protect the investments.

157

Non-agency PLMBS — The FHLBNY evaluated all 55 non-agency private label residential mortgage- backed securities in the portfolio by performing a security-level review. Commercial mortgage-backed securities were also reviewed at a security level. As a result of this security level review, the FHLBNY identified 21 residential mortgage-backed securities with weaker performance measures considered to be “at risk”. These securities were evaluated further by analyzing and estimating projected cash flows based on the structure of the security under certain assumptions, such as estimated default rates, loss severity and prepayment speeds, to determine whether the FHLBNY expects to receive the contractual cash flows when it is entitled. The Bank’s cash flow projections employed multiple scenarios for each of its significant assumptions — loss severity, default rates and prepayment assumption: (1) loan-level vectors (where available) generated by mortgage models that used projected home price assumptions under different interest-rate environment. (2) market-based statistical information from specific issuer and shelf-specific performance research sourced from private-label MBS dealers and investors; and (3) current trustee/servicer reports for each security.

Monoline support — Fourteen of the 21 securities considered to be “at risk” at December 31, 2008 are insured by Ambac and MBIA and the insurance is part of the credit protection considered in the Bank’s analysis of impairment. A description of the fourteen securities follows:

• MBIA — Two securities, rated triple-B, with amortized cost of $37.6 million and fair value of $22.4 million are rated triple-B and insured by MBIA. MBIA’s insurance arm which provides bond insurance, was downgraded on February 17, 20089 to single-B. The Bank’s analysis at December 31, 2008 projected under various cash flow scenarios indicates that these securities would need support from MBIA to meet scheduled payments in the future.

• Ambac — Three securities, rated single-A, with amortized cost of $91.1 million and fair value of $48.6 million, and nine securities, rated triple-B, with amortized cost of $122.2 million and fair value of $70.3 million are insured by Ambac, which is rated triple-B. Currently, Ambac is paying claims on three securities with amortized cost of $28.3 million and fair value of $17.9 million in order to meet current cash flow deficiency within the structure of the securities. The Bank’s analysis at December 31, 2008 projected under various cash flow scenarios indicates that these securities would need support from Ambac to meet scheduled payments in the future.

The monoline insurers have been subject to adverse ratings and financial performance in 2008. Ratings downgrade imply an increased risk that the insurer will fail to fulfill its obligations to reimburse the investor for claims under the insurance policies. The Bank has analyzed the going-concern basis of the monoline insurers and their financial strength to perform with respect to their contractual obligations for the securities owned by the FHLBNY, and has concluded that Ambac and MBIA can be relied upon based on the timing and amount of the potential claim payments on securities owned by the FHLBNY. The Bank will continue to closely monitor the viability of the monoline insurers on an on-going basis.

Conclusion — Due to the issuers’ continued satisfaction of their obligations under the contractual terms of the securities, the estimated performance of the underlying collateral, the evaluation of the fundamentals of the issuers’ financial condition, the estimated support from the monoline insurers under the contractual terms of insurance, and the FHLBNY’s consideration of its intent and ability to hold the securities for a period of time sufficient to allow for the anticipated recovery in the market value of the securities, the FHLBNY believes that these securities were not other-than-temporarily impaired as of December 31, 2008 and 2007. However, without recovery in the near term such that liquidity returns to the mortgage-backed securities market and spreads return to levels that reflect underlying credit characteristics, or if the credit losses of the underlying collateral within the mortgage-backed securities perform worse than expected, or if the presumption of the ability of monoline insurers to support the insured securities identified at December 31, 2008 as dependent on insurance is negatively impacted by the insurers’ future financial performance, it would be likely that other-than-temporary impairment may occur in future periods.

158

Mortgage Loans

The following table summarizes Mortgage Partnership Finance Loans (“MPF” or “Mortgage Partnership Finance program”) by loss layer structure product types (in thousands):

	December 31,
	2008		2007		2006
Original MPF	$	197,516	$	153,939	$	141,027
MPF 100		36,838		40,532		45,731
MPF 125		467,479		433,864		444,122
MPF 125 Plus		742,523		847,091		830,744
Other		10,991		8,359		10,643
Total MPF Loans *	$	1,455,347	$	1,483,785	$	1,472,267

* Par amount of total mortgage loan held-for-portfolio includes CMA, par amount at December 31, 2008 was $4.0 million.

Original MPF — The first layer of losses are applied to the First Loss Account provided by the Bank. The member then provides a credit enhancement up to “AA” rating equivalent. Credit losses beyond the first two layers, though a remote possibility, would be absorbed by the FHLBNY.

MPF 100 — The first layer of losses is applied to the First Loss Account provided by the Bank. Losses incurred in the First Loss Account are deducted from credit enhancement fees payable to the member after the third year. The member then provides a credit enhancement up to “AA” rating equivalent less the amount placed in the FLA. Credit losses beyond the first two layers, though a remote possibility, would be absorbed by the FHLBNY.

MPF 125 — The first layer of losses is applied to the First Loss Account provided by the Bank. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. The member then provides a credit enhancement up to “AA” rating equivalent less the amount placed in the FLA. Credit losses beyond the first two layers, though a remote possibility would be absorbed by the FHLBNY.

MPF Plus — The first layer of losses is applied to the First Loss Account (“FLA”) in an amount equal to a specified percentage of loans in the pool as of the sale date. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. The member acquires an additional Credit Enhancement (“CE”) coverage through a supplemental mortgage insurance policy (“SMI”) to cover second-layer losses that exceed the deductible (“FLA”) of the Supplemental Mortgage Insurance policy. Losses not covered by the First Loss Account or Supplemental Mortgage Insurance coverage will be paid by the member’s Credit Enhancement obligation up to “AA” rating equivalent. Losses that exceeded the Credit Enhancement obligation, though a remote possibility, would be absorbed by the Bank.

Federal Housing Administration/Veteran Administration Insured Loans — The Participating Financial Institution provides and maintains (“FHA/VA”) insurance for FHA/VA mortgage loans; the Participating Financial Institution is responsible for compliance with all FHA/VA requirements and for obtaining the benefit of the FHA/VA insurance or the insurance with respect to defaulted mortgage loans.

159

Collateral types and general description of the primary mortgage loans are as follows:

• MPF single-family fully amortizing residential loans are comprised of “Fixed 15” years or less, greater than 15 years but less than or equal to 20 years and greater than 20 years but less than or equal to 30 years maturity. Property types consist of 1-4 family attached, detached, and planned unit developments, condominiums, and non-mobile manufactured housing properties.

• Multi-family portfolio consists of “Ten-year balloon” notes collateralized by multi-family units from 5 to 1000 units in the metropolitan area of New York City. These participations were purchased under Community Mortgage Asset program, which has been suspended indefinitely and the portfolio is running off. Loans were underwritten to debt service coverage not to be less than 125% and a loan-to-value ratio not to exceed 75%.

Limitations on the MPF portfolio are the loan lending limits established by Office of Federal Housing Enterprise Oversight.

Participating Financial Institutions (“PFI”) may use whichever underwriting system they choose. While MPF loans generally conform to criteria for sale such as used by Freddie Mac and Fannie Mae, in addition, each loan is created or sold only if the lender is willing to share in the management of that loan’s credit risk. Participating Financial Institutions contact the Federal Home Loan Bank of Chicago, the MPF Provider, to credit enhance and sell loans into the MPF program. The credit enhancement software used by the Mortgage Partnership Finance provider for MPF analyzes the risk characteristics of each loan and determines the amount of credit enhancement required, but the decision whether to deliver the loan into the Mortgage Partnership Finance Program is made solely by the Participating Financial Institution.

Most PFIs service loans on an actual/actual form of remittance which requires the PFI to remit whatever amounts it collects. Participating Financial Institutions participating in the Mortgage Partnership Finance Plus and Mortgage Partnership Finance for FHA/VA products must service loans on a scheduled/scheduled form of remittance which requires the Participating Financial Institution to remit each month whatever scheduled interest and scheduled principal payments are due, whether the amounts are collected. The PFI must remit scheduled interest and scheduled principal whether or not mortgage payments are received.

Mortgage loans — Past due

In the FHLBNY’s outstanding mortgage loans held-for-portfolio, non-performing loans and loans 90 days or more past due and accruing interest were as follows (in thousands):

	December 31,
	2008		2007
Mortgage loans, net of provisions for credit losses	$	1,457,885	$	1,491,628
Non-performing mortgage loans held-for-portfolio	$	4,792	$	4,179
Mortgage loans past due 90 days or more and still accruing interest	$	507	$	384

160

Mortgage loans — Non-performing

The FHLBNY’s interest contractually due and actually received for non-performing loans were as follows (in thousands):

	Years ended December 31,
	2008		2007
Interest contractually due	$	168	$	137
Interest actually received		146		112
Shortfall	$	22	$	25
Interest reported as income 1	$	—	$	—

¹ The Bank does not recognize interest received as income from uninsured loans past due 90-days or greater.

Non-performing mortgage loans were conventional mortgage loans that were placed on non-accrual/non-performing status when the collection of the contractual principal or interest from the borrower was 90 days or more past due. FHLBNY considers conventional loans (excluding Federal Housing Administration (“FHA”) and Veteran Administration (“VA”) insured loans) that are 90 days or more past due as non-accrual loans. Conventional loans in non-accrual status aggregated $4.8 million or 0.3% of the total MPF portfolio at December 31, 2008. At December 31, 2007 and 2006, conventional loans in non-accrual status were $4.2 million and $2.1 million, representing 0.3% of the MPF portfolio at those dates. FHA and VA insured loans aggregating $0.5 million, $0.4 million, and $0.9 million were past due 90 days or more at December 31, 2008, 2007 and 2006, respectively with interest still being accrued because of VA and FHA insurance. No loans were impaired at December 31, 2008, 2007 and 2006 other than the non-accrual loans.

Mortgage Loans — Allowance for Credit Losses

Roll-forward information with respect to allowances for credit losses was as follows (in thousands):

	Year ended December 31,
	2008			2007		2006
Beginning balance	$	633		$	593	$	582
Charge-offs		21			—		(18	)
Recoveries		(21	)		—		18
Net charge-offs		—			—		—
Provision (Recovery) for credit losses on mortgage loans		773			40		11
Ending balance	$	1,406		$	633	$	593

The First Loss Account memorializes the first tier of credit exposure of the FHLBNY. It is not an indication of inherent losses in the loan portfolio and is not a loan loss reserve. The FHLBNY is responsible for losses up to this “first loss level”. Losses beyond this layer are absorbed through credit enhancement provided by the member participating in the Mortgage Partnership Finance Program. All residual credit exposure is FHLBNY’s responsibility. In 2008 and 2007, no charge off was incurred and there were no foreclosures. In 2006, one conventional loan was foreclosed and the PFI took possession to and sold the property at a loss. The Bank incurred a loss of $18 thousand which represented the amount of residual loss for which the Bank was responsible under the “first loss layer.” Under the terms of the MPF Plus product type, the FHLBNY exercised its right to offset the loss from subsequent credit enhancement fees paid to the PFI.

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In limited circumstances, the FHLBNY may require the PFI to repurchase loans. When a PFI fails to comply with the requirements of the PFI Agreement, MPF Guides, applicable law or terms of mortgage documents, the PFI may be required to repurchase the MPF Loans which are impacted by such failure. Reasons for which a PFI could be required to repurchase an MPF Loan may include but are not limited to MPF Loan in-eligibility, failure to perfect collateral with an approved custodian, a servicing breach, fraud, or other misrepresentation.

For conventional MPF Loans in the years ended December 31, 2008, 2007 and 2006, the PFIs were required to repurchase 5, 10 and 3 loans for a total of $1.2 million, $1.9 million and $0.3 million in each of those years. The FHLBNY has not experienced any losses related to conventional MPF Loan repurchases by the PFI.

Mortgage Loans — Credit Risk

Through the MPF program, the FHLBNY invests in home mortgage loans originated by or through members or approved state and local housing finance agencies (“housing associates”). The FHLBNY purchases these mortgages loans under the Finance Agency’s Acquired Member Assets (“AMA”) regulation. These assets may include: whole loans eligible to secure advances (excluding mortgages above the conforming-loan limit); whole loans secured by manufactured housing; or bonds issued by housing associates.

In the MPF program, the FHLBNY purchases conventional mortgage loans from its participating members, referred to as Participating Financial Institutions (“PFI”). Federal Housing Administration (“FHA”) and Veterans Administration (“VA”) insured loans outstanding at December 31, 2008 and 2007 were $7.0 million and $8.4 million, representing 0.48% and 0.56%, of the remaining outstanding mortgage loans held-for-portfolio at December 31, 2008 and December 31, 2007.

The Bank performs periodic reviews of its portfolio to identify the potential for losses inherent in the portfolio and determine the likelihood of collection of the principal and interest. Mortgage loans that are past due and either classified under regulatory criteria (Sub-standard, doubtful or Loss), are separated from the aggregate pool, and evaluated separately for impairment. The FHLBNY bases its provision for credit losses on its estimate of probable credit losses inherent in the MPF portfolio by considering the private mortgage insurance and other credit enhancement features that accompany the MPF loans (but not the “First Loss Account”) to provide credit assurance to the FHLBNY. If adversely classified, or in non-accrual status, reserves for conventional mortgage loans, except FHA and VA insured loans, are analyzed under liquidation scenarios on a loan level basis, and identified losses are fully reserved.

When a loan is foreclosed and the Bank takes possession of real estate, the Bank will charge to the loan loss reserve account any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.

FHA and VA insured mortgage loans have minimal inherent credit risk; risk of such loans generally arises from servicers defaulting on their obligations. FHA and VA insured mortgage loans, if adversely classified, will have reserves established only in the event of a default of a PFI. Reserves are based on the estimated costs to recover any uninsured portion of the MPF loan.

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Participating Financial Institutions Risk

The members or housing associates that are approved as Participating Financial Institutions continue to bear a significant portion of the credit risk through credit enhancements that they provide to the FHLBNY. The Acquired Member Assets regulation requires that these credit enhancements be sufficient to protect the FHLBNY from excess credit risk exposure. Specifically, the FHLBNY exposure must be no greater than it would be with an asset rated in the fourth-highest credit rating category by a Nationally Recognized Statistical Rating Organization, or such higher rating category as the FHLBNY may require. The Mortgage Partnership Finance program is constructed to provide the Bank with assets that are credit-enhanced to the second-highest credit rating category (double-A).

The top five Participating Financial Institutions (PFI) and the outstanding MPF loan balances are listed below (dollars in thousands):

	December 31, 2008
	Mortgage		Percent of Total
	Loans		Mortgage Loans
Manufacturers and Traders Trust Company	$	743,853		51.25	%
Astoria Federal Savings and Loan Association		264,516		18.23
Elmira Savings and Loan F.A.		80,241		5.53
Ocean First Bank		61,890		4.26
The Lyons National Bank		27,269		1.88
All Others		273,569		18.85
Total 1	$	1,451,338		100.00	%

	December 31, 2007
	Mortgage		Percent of Total
	Loans		Mortgage Loans
Manufacturers and Traders Trust Company	$	848,759		57.20	%
Astoria Federal Savings and Loan Association		257,609		17.36
Community Bank NA		109,059		7.35
Ocean First Bank		60,488		4.08
The Lyons National Bank		31,392		2.12
All Others		176,478		11.89
Total 1	$	1,483,785		100.00	%

¹ Totals do not include CMA loans.

Mortgage Loans — Potential Credit Losses

Par amount of conventional MPF loans outstanding were $1.4 billion, $1.5 billion, and $1.4 billion at December 31, 2008, 2007 and 2006. The par value of Federal Housing Administration and Veteran Administration insured loans outstanding were $7.0 million, $8.4 million, and $10.6 million at December 31, 2008, 2007 and 2006.

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The FHLBNY and the Participating Financial Institution share the credit risks of the uninsured Mortgage Partnership Finance loans by structuring potential credit losses into layers. Collectability of the loans is first supported by liens on the real estate securing the loan. For conventional mortgage loans, additional loss protection is provided by private mortgage insurance required for Mortgage Partnership Finance loans with a loan-to-value ratio of more than 80% at origination, which is paid for by the borrower. Credit losses are first absorbed by FHLBNY up to the level of the First Loss Account for which the maximum exposure were estimated to be $13.8 million, $12.9 million and $12.2 million at December 31, 2008, 2007 and 2006. For all MPF products, other than the MPF Original product, the FHLBNY is entitled to recover any “first losses” incurred from the member up to the amount of credit enhancement fees to be paid by the FHLBNY to the member. The member is responsible for the second loss layer. The member may also arrange for supplemental mortgage insurance (“SMI”) through a third party insurance provider as a credit support to cover the member’s second loss. The amounts that members were directly responsible in the second loss layer are estimated to be $14.3 million, $10.9 million, and $8.5 million at December 31, 2008, 2007 and 2006. The amounts of second loss covered through SMI support were an additional $19.0 million at December 31, 2008 and 2007, and $16.0 million at December 31, 2006. The FHLBNY is again responsible for any residual losses.

The following table provides roll-forward information with respect to the First Loss Account (in thousands):

	Years ended December 31,
	2008			2007		2006
Beginning balance	$	12,947		$	12,162	$	11,319
Additions		839			785		843
Charge-offs		(21	)		—		—
Recoveries		—			—		—
Ending balance	$	13,765		$	12,947	$	12,162

The aggregate amount of the First Loss Account is memorialized and tracked but is neither recorded nor reported as a credit loss reserve in the FHLBNY’s financial statements. If “second losses” beyond this layer are incurred, they are absorbed through a credit enhancement provided by the Participating Financial Institutions. The credit enhancement held by PFIs ensures that the lender retains a credit stake in the loans it originates. For managing this risk, Participating Financial Institutions receive monthly “credit enhancement fees” from the FHLBNY.

Mortgage Loans — Credit Enhancement

The amount of the credit enhancement is computed with the use of a Standard & Poor’s model to determine the amount of credit enhancement necessary to bring a pool of uninsured loans to “AA” credit risk. The credit enhancement becomes an obligation of the Participating Financial Institution. For taking on the credit enhancement obligation, the Participating Financial Institution receives a credit enhancement fee that is paid by the FHLBNY. For certain Mortgage Partnership Finance products, the credit enhancement fee is accrued and paid each month. For other Mortgage Partnership Finance products, the credit enhancement fee is accrued monthly and is paid monthly after the FHLBNY has accrued 12 months of credit enhancement fees. Credit enhancement fees charged against interest income from mortgage loans was $1.7 million in 2008, 2007 and 2006. The FHLBNY has not incurred any losses in any periods reported that were not fully recovered. Accordingly, no recoveries from credit enhancement fees paid were necessary other than inconsequential amounts in 2006.

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The portion of the credit enhancement that is an obligation of the Participating Financial Institution (“PFI”) must be fully secured with pledged collateral. A portion of the credit enhancement may also be covered by insurance, subject to limitations specified in the Acquired Member Assets regulation. Each member or housing associate that participates in the Mortgage Partnership Finance program must meet financial performance criteria established by the FHLBNY. In addition, each approved PFI must have a financial review performed by the FHLBNY on an annual basis.

The second layer is that amount of credit obligation that the Participating Financial Institution has taken on which will equate the loan to a double-A rating. The FHLBNY pays a Credit Enhancement fee to the Participating Financial Institution for taking on this obligation. The FHLBNY assumes all residual risk.

As of December 31, 2008 and 2007, the FHLBNY held Mortgage Partnership Finance loans collateralized by real estate in 51 states and territories. At December 31, 2008, there was a concentration of loans (73.3% by number of loans and 69.8% by amounts outstanding) in New York State, which is to be expected since the largest two PFIs are located in New York. At December 31, 2007, there was a concentration of loans (71.8% by numbers of loans, and 68.4% by amounts outstanding) in New York State. At December 31, 2006, there was a concentration of loans (69.7% by numbers of loans, and 72.1% by amounts outstanding) in New York State.

The FHLBNY also holds participation interests in residential and community development mortgage loans through its pilot Community Mortgage Asset program. Acquisitions of participations under the Community Mortgage Asset program were suspended indefinitely in November 2001. Participation interests in Community Mortgage Asset loans are reviewed at least annually.

Mortgage Loans — Allowance for Credit Losses

Management performs periodic reviews of its portfolio to identify the losses inherent within the portfolio and to determine the likelihood of collection of the portfolio. Mortgage loans that are classified either under regulatory criteria (Special Mention, Sub-standard, or Loss) or past due are separated from the aggregate pool, and evaluated separately for impairment.

If adversely classified, or on non-accrual status, reserves for mortgage loans, except Federal Housing Administration and Veterans Administration insured loans, are analyzed under liquidation scenarios on a loan level basis, and identified losses greater than $1,000 are fully reserved. Federal Housing Administration and Veterans Administration insured mortgage loans have minimal inherent credit risk; risk generally arises mainly from the servicer defaulting on their obligations. Federal Housing Administration and Veterans Administration mortgage loans, if adversely classified will have reserves established only in the event of a default of a Participating Financial Institution. Reserves are based on the estimated costs to recover any uninsured portion of the Mortgage Partnership Finance loan.

Management of the FHLBNY identifies inherent losses through analysis of the conventional loans (not Federal Housing Administration and Veterans Administration insured loans) that are not classified or past due.

The FHLBNY also holds participation interest in residential and community development mortgage loans through its Community Mortgage Asset program. Acquisition of participations under the Community Mortgage Asset program was suspended indefinitely in November 2001, and the outstanding balance was down to $4.0 million at December 31, 2008 from $4.1 million at December 31, 2007. If adversely classified, Community Mortgage Asset loans will have additional reserves established based on the shortfall of the underlying estimated liquidation value of collateral to cover the remaining balance of the Community Mortgage Asset loan. Reserve values are calculated by subtracting the estimated liquidation value of the collateral (after sale value) from the current remaining balance of the Community Mortgage Asset Loan.

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Credit Risk Exposure on MPF Loans — Mortgage insurer default risk

Credit risk on MPF loans is the potential for financial loss due to borrower default or depreciation in the value of the real estate collateral securing the MPF Loan, offset by the PFI’s credit enhancement protection, which may take the form of a contingent performance based credit enhancement fees as well as the credit enhancement amount. The credit enhancement amount is a direct liability of the PFI to pay credit losses; the PFI may also arrange with an insurer for a SMI policy insuring a portion of the credit losses. To the extent credit losses are not recoverable from PMI, the FHLBNY has potential credit exposure should the loan default and the PFI directly or indirectly is unable to recover credit losses.

The MPF Program uses certain mortgage insurance companies to provide both primary mortgage insurance (“PMI”) and supplemental mortgage insurance (“SMI”) for MPF loans. The FHLBNY is exposed to the performance of mortgage insurers to the extent PFI’s rely on insurer credit protection. Credit exposure is defined as the total of PMI and SMI coverage written by an mortgage insurer on MPF loans held by FHLBNY that are delinquent.

As of December 31, 2008, all mortgage insurance providers have had their external ratings for insurer financial strength downgraded below AA- by one or more NRSROs. If a mortgage insurer fails to fulfill its obligations, the FHLBNY may bear any remaining loss of the borrowers’ default on the related mortgage loans not covered by the PFI.

The FHLBNY has stopped accepting new loans under master commitments with SMI from mortgage insurers that no longer meet MPF insurer requirements. If an SMI provider is downgraded below an “AA-” rating under the MPF Plus product, the PFI has six months to either replace the SMI policy or provide its own undertaking; or it may forfeit its performance based CE Fees. If a PMI provider is downgraded, the FHLBNY may request the servicer to obtain replacement PMI coverage with a different provider. However, it is possible that replacement coverage may be unavailable or result in additional cost to the FHLBNY.

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Derivative counterparty ratings

At December 31, 2008, the Bank had open derivatives positions with 14 external derivatives counterparties, of which six were rated double-A; seven rated single-A, and one rated triple-A. In addition to the practice of selecting highly-rated counterparties for such transactions, the FHLBNY has collateral and netting agreements with its derivatives counterparties. These practices tend to mitigate credit exposure. Despite these risk management practices, the unforeseen collapse of Lehman Brothers, an important derivative counterparty for the FHLBNY, resulted in a loss of $64.5 million primarily from the failure to recover a portion of $509.6 million in cash collateral pledged to Lehman Brothers.

Commitments, Contingencies and Off Balance Sheet Arrangements

The FHLBNY is jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. The FHLBNY is also a party to financial instruments with off-balance sheet risk in the normal course of its business in order to meet the financial needs of members and in connection with the Bank’s overall interest risk management strategy. These instruments involve, to varying degrees, elements of credit, interest rate and liquidity risk. In accordance with GAAP, these instruments are either not recorded in the financial statements or are recorded in amounts that differ from notional amounts. Such instruments primarily include lending commitments and derivative instruments.

Lending commitments include commitments to purchase and originate loans and commitments to fund unused lines of credit. Commitments to extend credits are conditional and have fixed expiration dates. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Such unused lines of credit to members totaled $19.0 billion at December 31, 2008. The FHLBNY evaluates creditworthiness on a case-by-case basis.

In connection with the Mortgage Partnership Finance program loan activities, the FHLBNY has commitments to purchase loans and to originate loans with the MPF 100 program. Commitments to purchase loans are considered derivative instruments and represent obligations on a mandatory delivery basis. Outstanding delivery commitments totaled $10.4 million and $1.4 million at December 31, 2008 and 2007; estimated fair values of the outstanding mandatory delivery commitment at December 31, 2008 and 2007 were de minimus.

In addition to the contractual obligations discussed above, the FHLBNY has contingent liabilities related to standby letters of credit. Standby letters of credit are conditional commitments issued by the FHLBNY to guarantee the performance of a member to a third party. The guarantees were for terms up to 15 years at December 31, 2008 and were fully collateralized. For each guarantee issued, if the member defaults on a payment to the third party, the FHLBNY would have to perform under the guarantee. Outstanding letters of credit totaled $908.6 million and $442.3 million at December 31, 2008 and 2007.

Off-balance sheet arrangements with respect to derivatives are discussed in detail in Note 18 — Derivatives and hedging activities.

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The following table summarizes contractual obligations and other commitments as of December 31, 2008 (in thousands):

	December 31, 2008
	Payments due or expiration terms by period
	Less than		One year		Greater than three		Greater than
	one year		to three years		years to five years		five years		Total
Contractual Obligations
Consolidated obligations-bonds at par 1	$	49,568,550	$	21,492,250	$	5,822,025	$	4,071,350	$	80,954,175
Mandatorily redeemable capital stock 1		38,328		83,159		14,646		6,988		143,121
Premises (lease obligations)2		3,116		6,233		6,280		8,764		24,393
Total contractual obligations		49,609,994		21,581,642		5,842,951		4,087,102		81,121,689
Other commitments
Standby letters of credit		864,981		19,643		16,024		7,915		908,563
Unused lines of credit and other conditional commitments		19,008,345		—		—		—		19,008,345
Consolidated obligation bonds/discount notes traded not settled		706,501		—		—		—		706,501
Firm commitment-advances		40,000		—		—		—		40,000
Open delivery commitments (MPF)		10,395		—		—		—		10,395
Total other commitments		20,630,222		19,643		16,024		7,915		20,673,804
Total obligations and commitments	$	70,240,216	$	21,601,285	$	5,858,975	$	4,095,017	$	101,795,493

1

Mandatorily redeemable capital stock is categorized by the dates at which the corresponding advances outstanding mature. Excess capital stock is redeemed at that time, and hence, these dates better represent the related commitments than the put dates associated with capital stock, under which stock may not be redeemed until the later of five years from the date the member becomes a nonmember or the related advance matures. Certain consolidated bonds are callable and if exercised by the Bank may result in a shorter duration than the contractual maturities.

2

Immaterial amount of commitment for equipment leases not included.

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Consolidated obligations — Joint and several liability

Although the FHLBNY is primarily liable for those consolidated obligations issued on its behalf, it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. If the principal or interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when due, the FHLBNY may not pay dividends to, or redeem or repurchase shares of stock from, any member or non-member stockholder until the Finance Agency approves the FHLBNY’s consolidated obligation payment plan or another remedy, and until the FHLBNY pays all the interest and principal currently due under all its consolidated obligations. The par amounts of the outstanding consolidated obligations of all 12 FHLBanks were $1,251.5 billion, $1,189.7 billion and $951.9 billion at December 31, 2008, 2007 and 2006.

The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations. To the extent that an FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from the non-complying FHLBank. However, if the Finance Agency determines that the non-complying FHLBank is unable to make the payment, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks in proportion to each FHLBank’s participation in all consolidated obligations outstanding or on any other basis determined by the Finance Agency. As discussed more fully in Note 20 to the financial statements, the FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future. Under FASB interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Other” as amended by FSP No. FAS 133-1 and FIN 45-4. (“FIN 45”), FIN 45 would have required FHLBNY to recognize the fair value of the FHLBNY’s joint and several liability for all the consolidated obligations, as discussed above. However, the FHLBNY considers the joint and several liabilities as similar to a related party guarantee and meets the scope exceptions in FIN 45. Accordingly, the FHLBNY has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at December 31, 2008 or December 31, 2007.

Because the FHLBNY is jointly and severally liable for debt issued by other FHLBanks, the FHLBNY has not identified consolidated obligations outstanding by primary obligor. The FHLBNY does not believe that the identification of particular banks as the primary obligors on these consolidated obligations is relevant because all FHLBanks are jointly and severally obligated to pay all consolidated obligations. The identity of the primary obligor does not affect the FHLBNY’s investment decisions. The FHLBNY’s ownership of consolidated obligations in which other FHLBanks are primary obligors does not affect the FHLBNY’s “guarantee” on consolidated obligations as there is no automatic legal right of offset. Even if the FHLBNY were to claim an “offset,” the FHLBNY would still be jointly and severally obligated for any debt service shortfall caused by the FHLBanks’ failure to pay.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management. Market risk or interest rate risk (“IRR”) is the risk of loss to market value or future earnings that may result from changes in the interest rate environment. Embedded in IRR is a tradeoff of risk versus reward wherein the FHLBNY could earn higher income by having higher IRR through greater mismatches between its assets and liabilities at the cost of potential significant falls in market value and future income if the interest rate environment turned against the FHLBNY’s expectations. The FHLBNY has opted to retain a modest level of IRR which allows it to preserve its capital value while generating steady and predictable income. In keeping with that philosophy, the FHLBNY’s balance sheet consists of predominantly short-term and LIBOR-based assets and liabilities. More than 80 percent of the FHLBNY’s financial assets are either short-term or LIBOR-based, and a similar percentage of its liabilities are also either short-term or LIBOR based. These positions protect the FHLBNY’s capital from large changes in value arising from interest rate or volatility changes.

The primary tool used by management to achieve the desired risk profile is the use of interest rate exchange agreements (“Swaps”). All the LIBOR-based advances are long-term advances that are swapped to 3- or 1-month LIBOR or possess adjustable rates which periodically reset to a LIBOR index. Similarly, a majority of the long-term consolidated obligations are swapped to 3- or 1-month LIBOR. These features create a relatively steady income that changes in concert with prevailing interest rate changes to maintain a spread to short-term rates.

Despite its conservative philosophy, IRR does arise from a number of aspects of the FHLBNY’s portfolio. These include the embedded prepayment rights, refunding needs, rate resets between the FHLBNY’s short-term assets and liabilities, and basis risks arising from differences between the yield curves associated with the FHLBNY’s assets and its liabilities. To address these risks, the FHLBNY uses certain key IRR measures including re-pricing gaps, duration of equity (“DOE”), value at risk (“VaR”), net interest income (“NII”) at risk, key rate durations (“KRD”), and forecasted dividend rates.

Risk Measurements. The FHLBNY’s Risk Management Policy sets up a series of risk limits that the FHLBNY calculates on a regular basis. The risk limits are as follows:

• The option-adjusted DOE is limited to a range of +/- four years in the rates unchanged case and to a range of +/- six years in the +/-200bps shock cases. Due to the low interest rate environment beginning in early 2008, the -200bps shocks were restricted during the latest quarter ends to -85bps for March 2008, -115bps for June 2008, -100bps for September 2008, and there was no downshock for December 2008. The DOE downshock limits were adjusted in those cases to +/-4.85 years in March, +/-5.18 years in June, and +/-5.00 years in September.

• The one-year cumulative re-pricing gap is limited to 10 percent of total assets.

• The sensitivity of expected net interest income over a one-year period is limited to a - -15 percent change under both the +/-200bps shocks compared to the rates unchanged case.

• The potential decline in the market value of equity is limited to a 10 percent change under the +/-200bps shocks.

• KRD exposure at any of nine term points (3-month, 1-year, 2-year, 3-year, 5-year, 7-year, 10-year, 15-year, and 30-year) is limited to between +/-12 months.

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The FHLBNY’s portfolio, including its derivatives, is tracked and the overall mismatch between assets and liabilities is summarized by using a DOE measure. The FHLBNY’s last five quarterly DOE results are shown in years in the table below (note that, due to the on-going low interest rate environment there was no downshock measurement performed in the fourth quarter):

	Base Case DOE		-200bps DOE		+200bps DOE
December 31, 2007		-0.59		-4.77		1.48
March 31, 2008		0.58		-2.95		3.48
June 30, 2008		0.87		-2.65		1.99
September 30, 2008		0.39		-2.51		1.66
December 31, 2008		-2.05		N/A		1.44

The DOE has remained within its limits. Duration indicates any cumulative repricing/maturity imbalance in the FHLBNY’s financial assets and liabilities. A positive DOE indicates that, on average, the liabilities will reprice or mature sooner than the assets while a negative DOE indicates that, on average, the assets will reprice or mature earlier than the liabilities. The FHLBNY measures its DOE using software that incorporates any optionality within the FHLBNY’s portfolio using well-known and tested financial pricing theoretical models.

The FHLBNY does not solely rely on the DOE measure as a mismatch measure between its assets and liabilities. It also performs the more traditional gap measure that subtracts re-pricing/maturing liabilities from re-pricing/maturing assets over time. The FHLBNY observes the differences over various horizons, but has set a 10 percent of assets limit on cumulative re-pricings at the one-year point. This quarterly observation of the one-year cumulative re-pricing gap is provided in the table below and all values are well below 10 percent of assets; well within the limit:

	One Year Re-
	pricing Gap
December 31, 2007	$3.671 Billion
March 31, 2008	$3.725 Billion
June 30, 2008	$3.017 Billion
September 30, 2008	$3.359 Billion
December 31, 2008	$9.764 Billion

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The FHLBNY’s review of potential interest rate risk issues also includes the effect of changes in interest rates on expected net income. The FHLBNY projects asset and liability volumes and spreads over a one-year horizon and then simulates expected income and expenses from those volumes and other inputs. The effects of changes in interest rates are measured to test whether the FHLBNY has too much exposure in its net interest income over the coming twelve month period. To measure the effect, the change to the spread in the shocks is calculated and compared against the base case and subjected to a -15 percent limit. The quarterly sensitivity of the FHLBNY’s expected net interest income under both +/-200bps shocks over the next twelve months is provided in the table below (note that, due to the on-going low interest rate environment there was no downshock measurement performed in the fourth quarter):

	Sensitivity in			Sensitivity in
	the -200bps			the +200bps
	Shock			Shock
December 31, 2007		-10.13	%		3.45	%
March 31, 2008		-9.98	%		-9.42	%
June 30, 2008		1.64	%		-9.81	%
September 30, 2008		3.18	%		-5.91	%
December 31, 2008		N/A			24.73	%

Aside from net interest income, the other significant impact on changes in the interest rate environment is the potential impact on the value of the portfolio. These calculated and quoted market values are estimated based upon their financial attributes including optionality and then re-estimated under the assumption that interest rates suddenly rise or fall by 200bps. The worst effect, whether it is the up or the down shock, is compared to the internal limit of 10 percent. The quarterly potential maximum decline in the market value of equity under these 200bps shocks is provided below (note that, due to the on-going low interest rate environment there was no downshock measurement performed in the fourth quarter):

	Downshock			+200bps Change in
	Change in MVE			MVE
December 31, 2007		-6.51	%		-1.77	%
March 31, 2008		-0.97	%		-5.11	%
June 30, 2008		-0.57	%		-3.41	%
September 30, 2008		-0.72	%		-2.50	%
December 31, 2008		N/A			-0.43	%

As noted, the potential declines under these shocks are within the FHLBNY’s limits of a maximum 10 percent.

In the fourth quarter, the Bank instituted a new quarterly risk limit regarding KRD. The KRD measures duration exposure to changes at the various points of the yield curve and estimates how much DOE would change by if the rate at that point on the curve was shocked by +/-100bps. The new limit states that the exposure to any of the term points must be between -12 months and +12 months. This limit is designed to ensure that the Bank’s asset or liability portfolios are not too concentrated at any term point unless matched with corresponding liabilities or assets, respectively. For December 31, 2008, the closest exposure to the limits was -9.4 months at the 7-year term point. Therefore, the Bank is in compliance with the new limit.

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The following table displays the FHLBNY’s maturity/repricing gaps as of December 31, 2008 (in millions):

	Interest Rate Sensitivity
	December 31, 2008
			More than			More than			More than
	Six months		six months to			one year to			three years to			More than
	or less		one year			three years			five years			five years
Interest-earning assets:
Non-MBS Investments	$	18,298	$	405		$	404		$	126		$	259
MBS Investments		6,938		2,940			1,801			350			209
Adjustable-rate loans and advances		20,206		—			—			—			—
Net unswapped		45,442		3,345			2,206			475			468
Fixed-rate loans and advances		21,972		3,725			14,712			7,539			35,226
Swaps hedging advances		56,677		(2,842	)		(11,801	)		(6,864	)		(35,170	)
Net fixed-rate loans and advances		78,649		882			2,911			675			56
Loans to other FHLBanks		—		—			—			—			—
Total interest-earning assets	$	124,091	$	4,227		$	5,117		$	1,151		$	524
Interest-bearing liabilities:
Deposits	$	1,497	$	15		$	—		$	—		$	—
Discount notes		43,981		2,348			—			—			—
Swapped discount notes		2,031		(2,031	)		—			—			—
Net discount notes		46,012		318			—			—			—
Consolidated Obligation Bonds
FHLB bonds		36,367		16,153			19,613			5,405			3,441
Swaps hedging bonds		32,833		(14,640	)		(13,571	)		(3,178	)		(1,445	)
Net FHLB bonds		69,200		1,513			6,043			2,227			1,996
Total interest-bearing liabilities	$	116,709	$	1,846		$	6,043		$	2,227		$	1,996
Post hedge gaps1:
Periodic gap	$	7,382	$	2,382		$	(926	)	$	(1,076	)	$	(1,472	)
Cumulative gaps	$	7,382	$	9,764		$	8,837		$	7,761		$	6,289

Note: Numbers may not add due to rounding.

¹ Repricing gaps are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments. For callable instruments, the repricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.

173

The following tables display the FHLBNY’s maturity/repricing gaps as of December 31, 2007 (in millions):

	Interest Rate Sensitivity
	December 31, 2007
			More than			More than			More than
	Six months		six months to			one year to			three years to			More than
	or less		one year			three years			five years			five years
Interest-earning assets:
Non-MBS Investments	$	15,469	$	130		$	428		$	312		$	808
MBS Investments		1,446		1,332			3,109			1,814			2,007
Adjustable-rate loans and advances		19,813		—			—			—			—
Net unswapped		36,728		1,462			3,537			2,126			2,816
Fixed-rate loans and advances		11,364		3,476			10,188			6,767			28,985
Swaps hedging advances		45,017		(1,624	)		(8,196	)		(6,343	)		(28,855	)
Net fixed-rate loans and advances		56,382		1,852			1,992			424			130
Loans to other FHLBanks		55		—			—			—			—
Total interest-earning assets	$	93,165	$	3,314		$	5,529		$	2,550		$	2,946
Interest-bearing liabilities:
Deposits	$	1,644	$	—		$	—		$	—		$	—
Discount notes		34,234		557			—			—			—
Swapped discount notes		—		—			—			—			—
Net discount notes		34,234		557			—			—			—
Consolidated Obligation Bonds
FHLB bonds		26,215		17,407			13,242			5,022			4,180
Swaps hedging bonds		26,551		(13,801	)		(7,946	)		(2,760	)		(2,045	)
Net FHLB bonds		52,766		3,606			5,297			2,262			2,135
Total interest-bearing liabilities	$	88,645	$	4,163		$	5,297		$	2,262		$	2,135
Post hedge gaps1:
Periodic gap	$	4,520	$	(849	)	$	232		$	287		$	811
Cumulative gaps	$	4,520	$	3,671		$	3,903		$	4,190		$	5,001

Note: Numbers may not add due to rounding.

¹ Repricing gaps are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments. For callable instruments, the repricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.

174

Operational Risk Management. Operational risk is the risk of loss resulting from the failures or inadequacies of internal processes, people, and systems, or resulting from external events. Operational risks include those arising from fraud, human error, computer system failures and a wide range of external events — from adverse weather to terrorist attacks. The management of these risks is the responsibility of the senior managers at the operating level. To assist them in discharging this responsibility and to ensure that operational risk is managed consistently throughout the organization, the FHLBNY has developed an operational risk management framework, which evolves as warranted by circumstances and changing conditions. The FHLBNY’s Operational Risk Management framework defines the core governing principles for operational risk management and provides the framework to identify, control, monitor, measure, and report operational risks in a consistent manner across the FHLBNY.

Risk and Control Self-Assessment. FHLBNY’s Risk and Control Self-Assessment incorporates standards for risk and control self-assessment which standards apply to all businesses and establish Risk and Control Self-Assessment as the process for identifying the risks inherent in a business’ activities and for evaluating and monitoring the effectiveness of the controls over those risks. It is the policy of the FHLBNY to require businesses and staff functions to perform a Risk and Control Self-Assessment on a periodic basis. The Risk and Control Self-Assessment must include documentation of the control environment as well as policies for assessing risks and controls, testing commensurate with risk level and tracking corrective action for control breakdowns or deficiencies. The Risk and Control Self-Assessment also must require periodic reporting to senior management and to the Board’s Audit and Risk Management Committee.

175

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	PAGE
Financial Statements
Management’s Assessment of Internal Control over Financial Reporting		177
Report of Independent Registered Public Accounting Firm		178
Statements of Condition as of December 31, 2008 and 2007		180
Statements of Income for the years ended December 31, 2008, 2007 and 2006		181
Statements of Capital for the years ended December 31, 2008, 2007 and 2006		182
Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006		183
Notes to Financial Statements		185
Supplementary Data
Supplementary financial data for each full quarter within the two years ended December 31, 2008, are included in Item 6. SELECTED FINANCIAL DATA.		38

176

Federal Home Loan Bank of New York

Management’s Assessment of Internal Control over Financial Reporting

The management of the Federal Home Loan Bank of New York (the “Bank”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Bank’s internal control over financial reporting is designed by, or under the supervision of, the Principal Executive Officer and the Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. The Bank’s management assessed the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, management of the Bank determined that as of December 31, 2008, the Bank’s internal control over financial reporting was effective based on those criteria.

PricewaterhouseCoopers LLP, the Bank’s independent registered public accounting firm that audited the accompanying Financial Statements has also issued an audit report on the effectiveness of internal control over financial reporting. Their report, which expresses an unqualified opinion on the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2008, appears on the following page.

177

Federal Home Loan Bank of New York

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of the
Federal Home Loan Bank of New York:

In our opinion, the accompanying statements of condition and related statements of income, capital, and cash flows present fairly, in all material respects, the financial position of the Federal Home Loan Bank of New York (the “Bank”) at December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December, 31 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Bank’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Bank’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

178

Federal Home Loan Bank of New York

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
New York, New York
March 24, 2009

179

Federal Home Loan Bank of New York

Statements of Condition (in thousands, except par value)

As of December 31, 2008 and 2007

	December 31,
	2008			2007
Assets
Cash and due from banks (Notes 1 and 2)	$	18,899		$	7,909
Interest-bearing deposits (Note 3)		12,169,096			—
Federal funds sold		—			4,381,000
Available-for-sale securities, net of unrealized losses of $64,420 and $373 at December 31, 2008 and 2007 (Note 5)		2,861,869			13,187
Held-to-maturity securities (Note 4)
Long-term securities		10,130,543			10,284,754
Certificates of deposit		1,203,000			10,300,200
Advances (Note 6)		109,152,876			82,089,667
Mortgage loans held-for-portfolio, net of allowance for credit losses of $1,406 and $633 at December 31, 2008 and 2007 (Note 8)		1,457,885			1,491,628
Loans to other FHLBanks (Note 9)		—			55,000
Accrued interest receivable		492,856			562,323
Premises, software, and equipment		13,793			13,154
Derivative assets (Note 18)		20,236			28,978
Other assets		18,838			17,091
Total assets	$	137,539,891		$	109,244,891
Liabilities and capital
Liabilities
Deposits (Note 10)
Interest-bearing demand	$	1,333,750		$	1,586,039
Non-interest bearing demand		828			2,596
Term		117,400			16,900
Total deposits		1,451,978			1,605,535
Consolidated obligations, net (Note 12)
Bonds (Includes $998,942 at fair value under the fair value option at December 31, 2008)		82,256,705			66,325,817
Discount notes		46,329,906			34,791,570
Total consolidated obligations		128,586,611			101,117,387
Mandatorily redeemable capital stock (Notes 13 and 14)		143,121			238,596
Accrued interest payable		426,144			655,870
Affordable Housing Program (Notes 1 and 7)		122,449			119,052
Payable to REFCORP (Notes 1 and 7)		4,780			23,998
Derivative liabilities (Note 18)		861,660			673,342
Other liabilities		75,753			60,520
Total liabilities		131,672,496			104,494,300
Commitments and Contingencies (Notes 7, 12, 18 and 20)
Capital (Notes 1, 13 and 14)
Capital stock ($100 par value), putable, issued and outstanding shares: 55,857 and 43,680 at December 31, 2008 and 2007		5,585,700			4,367,971
Unrestricted retained earnings		382,856			418,295
Accumulated other comprehensive income (loss) (Note 15)
Net unrealized loss on available-for-sale securities		(64,420	)		(373	)
Net unrealized loss on hedging activities		(30,191	)		(30,215	)
Employee supplemental retirement plans (Note 17)		(6,550	)		(5,087	)
Total capital		5,867,395			4,750,591
Total liabilities and capital	$	137,539,891		$	109,244,891

The accompanying notes are an integral part of these financial statements.

180

Federal Home Loan Bank of New York

Statements of Income (in thousands, except per share data)

Years Ended December 31, 2008, 2007, and 2006

	2008			2007			2006
Interest income
Advances (Note 6)	$	3,030,799		$	3,495,312		$	3,302,174
Interest-bearing deposits (Note 3)		28,012			3,333			2,744
Federal funds sold		77,976			192,845			145,420
Available-for-sale securities (Note 5)		80,746			—			—
Held-to-maturity securities (Note 4)
Long-term securities		531,151			596,761			580,002
Certificates of deposit		232,300			408,308			297,742
Mortgage loans held-for-portfolio (Note 8)		77,862			78,937			76,111
Loans to other FHLBanks and other (Note 9)		33			9			54
Total interest income		4,058,879			4,775,505			4,404,247
Interest expense
Consolidated obligations-bonds (Note 12)		2,620,431			3,215,560			2,944,241
Consolidated obligations-discount notes (Note 12)		697,729			937,534			901,978
Deposits (Note 10)		36,193			106,777			81,442
Mandatorily redeemable capital stock (Note 13)		8,984			11,731			3,086
Cash collateral held and other borrowings (Notes 9 and 11)		1,044			4,516			3,382
Total interest expense		3,364,381			4,276,118			3,934,129
Net interest income before provision for credit losses		694,498			499,387			470,118
Provision for credit losses on mortgage loans		773			40			11
Net interest income after provision for credit losses		693,725			499,347			470,107
Other income (loss)
Service fees		3,357			3,324			3,368
Instruments held at fair value — Unrealized (losses)		(8,325	)		—			—
Net realized and unrealized gain (loss) on derivatives and hedging activities (Notes 1 and 18)		(199,259	)		18,356			9,676
Net realized gain from sale of available-for-sale and held-to maturity securities (Notes 4 and 5)		1,058			—			—
Provision for derivative counterparty credit losses (Notes 18 and 20)		(64,523	)		—			—
Redemption of financial instruments and other (Notes 9 and 12)		233			(8,180	)		(26,283	)
Total other income (loss)		(267,459	)		13,500			(13,239	)
Other expenses
Operating		66,263			66,569			63,203
Finance Agency and Office of Finance		6,395			5,193			5,140
Total other expenses		72,658			71,762			68,343
Income before assessments		353,608			441,085			388,525
Affordable Housing Program (Notes 1 and 7)		29,783			37,204			32,031
REFCORP (Notes 1 and 7)		64,765			80,776			71,299
Total assessments		94,548			117,980			103,330
Net income	$	259,060		$	323,105		$	285,195
Basic earnings per share (Note 16)	$	5.26		$	8.57		$	7.63
Cash dividends paid per share	$	6.55		$	7.51		$	5.59

The accompanying notes are an integral part of these financial statements.

181

Federal Home Loan Bank of New York

Statements of Capital (in thousands, except per share data)

Years Ended December 31, 2008, 2007, and 2006

										Accumulated
	Capital Stock1									Other						Total
	Class B						Retained			Comprehensive			Total			Comprehensive
	Shares			Par Value			Earnings			Income (Loss)			Capital			Income (Loss)
Balance, December 31, 2005		35,905		$	3,590,454		$	291,413		$	3,513		$	3,885,380
Proceeds from sale of capital stock		34,695			3,469,533			—			—			3,469,533
Redemption of capital stock		(32,829	)		(3,282,884	)		—			—			(3,282,884	)
Shares reclassified to mandatorily redeemable capital stock		(2,308	)		(230,850	)		—			—			(230,850	)
Adjustments to initially apply FASB Statement No. 158		—			—			—			(6,141	)		(6,141	)
Cash dividends ($5.59 per share) on capital stock		—			—			(207,920	)		—			(207,920	)
Net Income		—			—			285,195			—			285,195		$	285,195
Net change in other comprehensive income:
Hedging activities		—			—			—			(10,115	)		(10,115	)		(10,115	)
Additional minimum liability on Benefit Equalization Plan		—			—			—			2,195			2,195			2,195
																$	277,275
Balance, December 31, 2006		35,463		$	3,546,253		$	368,688		$	(10,548	)	$	3,904,393
Proceeds from sale of capital stock		32,535		$	3,253,548		$	—		$	—		$	3,253,548
Redemption of capital stock		(22,448	)		(2,244,849	)		—			—			(2,244,849	)
Shares reclassified to mandatorily redeemable capital stock		(1,870	)		(186,981	)		—			—			(186,981	)
Cash dividends ($7.51 per share) on capital stock		—			—			(273,498	)		—			(273,498	)
Net Income		—			—			323,105			—			323,105		$	323,105
Net change in other comprehensive income:
Net unrealized loss on available-for-sale securities		—			—			—			(373	)		(373	)		(373	)
Hedging activities		—			—			—			(25,452	)		(25,452	)		(25,452	)
Additional minimum liability on pension plans		—			—			—			698			698			698
																$	297,978
Balance, December 31, 2007		43,680		$	4,367,971		$	418,295		$	(35,675	)	$	4,750,591
Proceeds from sale of capital stock		51,315		$	5,131,525		$	—		$	—		$	5,131,525
Redemption of capital stock		(38,490	)		(3,849,038	)		—			—			(3,849,038	)
Shares reclassified to mandatorily redeemable capital stock		(648	)		(64,758	)		—			—			(64,758	)
Cash dividends ($6.55 per share) on capital stock		—			—			(294,499	)		—			(294,499	)
Net Income		—			—			259,060			—			259,060		$	259,060
Net change in other comprehensive income:
Net unrealized loss on available-for-sale securities		—			—			—			(64,047	)		(64,047	)		(64,047	)
Hedging activities		—			—			—			24			24			24
Pension and postretirement benefits		—			—			—			(1,463	)		(1,463	)		(1,463	)
																$	193,574
Balance, December 31, 2008		55,857		$	5,585,700		$	382,856		$	(101,161	)	$	5,867,395

¹ Putable stock

The accompanying notes are an integral part of these financial statements.

182

Federal Home Loan Bank of New York

Statements of Cash Flows – (in thousands)

Years Ended December 31, 2008, 2007, and 2006

	2008			2007			2006
Operating activities
Net Income	$	259,060		$	323,105		$	285,195
Income before cumulative effects of changes in accounting principles		259,060			323,105			285,195
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Depreciation and amortization:
Net premiums and discounts on consolidated obligations, investments, mortgage loans and other adjustments		(78,409	)		106,372			(53,162	)
Concessions on consolidated obligations		8,772			12,810			13,293
Premises, software, and equipment		4,971			4,498			3,903
Provision for derivative counterparty credit losses		64,523			—			—
Provision for credit losses on mortgage loans		773			40			11
Net realized (gains) from sale of available-for-sale and held-to-maturity securities		(1,058	)		—			—
Change in net fair value adjustments on derivatives and hedging activities		(386,416	)		(6,387	)		6,962
Change in fair value adjustments on financial instruments held at fair value		8,325			—			—
Net change in:
Accrued interest receivable		69,467			(156,200	)		(28,870	)
Derivative assets due to accrued interest		185,343			70,134			(311,266	)
Derivative liabilities due to accrued interest		78,731			(7,538	)		131,530
Other assets		(67,367	)		(18	)		(204	)
Affordable Housing Program liability		3,397			17,155			10,894
Accrued interest payable		(222,109	)		(79,345	)		236,897
REFCORP liability		(19,218	)		6,522			3,413
Other liabilities		3,813			(18,483	)		13,681
Total adjustments		(346,462	)		(50,440	)		27,082
Net cash (used) provided by operating activities		(87,402	)		272,665			312,277
Investing activities
Net change in:
Interest-bearing deposits		(15,609,066	)		(396,400	)		244,807
Federal funds sold		4,381,000			(720,000	)		(736,000	)
Deposits with other FHLBanks		(67	)		(10	)		223
Premises, software, and equipment		(5,610	)		(6,545	)		(3,752	)
Held-to-maturity securities:
Long-term securities
Purchased		(2,284,435	)		(1,080,245	)		(4,000,314	)
Repayments		2,334,966			2,044,987			2,310,782
In-substance maturities		102,390			—			—
Net change in certificates of deposit		9,097,200			(4,709,200	)		2,863,000
Available-for-sale securities:
Purchased		(3,244,495	)		(13,704	)		—
Proceeds		335,314			—			—
Proceeds from sales		653			144			—
Advances:
Principal collected		596,335,124			397,682,249			580,751,936
Made		(619,122,796	)		(419,285,033	)		(578,047,900	)
Mortgage loans held-for-portfolio:
Principal collected		170,272			165,262			167,003
Purchased and originated		(138,255	)		(175,148	)		(184,901	)
Principal collected on other loans made		—			113			208
Loans to other FHLBanks
Loans made		(661,000	)		(55,000	)		(250,000	)
Principal collected		716,000			—			250,000
Net cash (used) provided by investing activities		(27,592,805	)		(26,548,530	)		3,365,092

The accompanying notes are an integral part of these financial statements.

183

Federal Home Loan Bank of New York
Statements of Cash Flows – (in thousands)
Years Ended December 31, 2008, 2007, and 2006

	2008			2007			2006
Financing activities
Net change in:
Deposits and other borrowings*	$	328,165		$	(766,373	)	$	(272,339	)
Short-term loans from other FHLBanks:
Proceeds from loans		1,260,000			662,000			435,000
Payments for loans		(1,260,000	)		(662,000	)		(435,000	)
Consolidated obligation bonds:
Proceeds from issuance		62,035,840			42,535,228			32,546,862
Payments for maturing and early retirement		(47,118,882	)		(38,180,904	)		(26,695,917	)
Payments for transfers to other FHLBanks		—			(490,884	)		(779,705	)
Consolidated obligation discount notes:
Proceeds from issuance		686,114,086			441,178,795			592,280,096
Payments for maturing		(674,495,767	)		(418,707,804	)		(600,579,371	)
Capital stock:
Proceeds from issuance		5,131,525			3,253,548			3,469,533
Payments for redemption		(3,849,038	)		(2,244,849	)		(3,282,884	)
Redemption of Mandatorily redeemable capital stock		(160,233	)		(58,335	)		(138,988	)
Cash dividends paid 1		(294,499	)		(273,498	)		(207,920	)
Net cash (used) provided by financing activities		27,691,197			26,244,924			(3,660,633	)
Net increase (decrease) in cash and cash equivalents		10,990			(30,941	)		16,736
Cash and cash equivalents at beginning of the period		7,909			38,850			22,114
Cash and cash equivalents at end of the period	$	18,899		$	7,909		$	38,850
Supplemental disclosures:
Interest paid	$	2,821,378		$	3,419,404		$	2,642,907
Affordable Housing Program payments 2	$	26,386		$	20,050		$	21,137
REFCORP payments	$	83,983		$	74,253		$	67,885
Transfers of mortgage loans to real estate owned	$	755		$	356		$	1

1	Does not include payments to holders of Mandatorily redeemable capital stock.
2	AHP payments = (beginning accrual — ending accrual) + AHP assessment for the year; payments represent funds released to the Affordable Housing Program.
*	Includes $450,393 of cash flows from derivatives.

The accompanying notes are an integral part of these financial statements.

184

Federal Home Loan Bank of New York

Notes to Financial Statements

Background

The Federal Home Loan Bank of New York (“FHLBNY” or “the Bank”) is a federally chartered corporation, exempt from federal, state and local taxes except real property taxes. It is one of twelve district Federal Home Loan Banks (“FHLBanks”). The FHLBanks are U.S. government-sponsored enterprises (“GSEs”), organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (“FHLBank Act”). Each FHLBank is a cooperative owned by member institutions located within a defined geographic district. The members purchase capital stock in the FHLBank and receive dividends on their capital stock investment. The FHLBNY’s defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY provides a readily available, low-cost source of funds for its member institutions. The FHLBNY does not have any wholly or partially owned subsidiaries, nor does it have an equity position in any partnerships, corporations, or off-balance-sheet special purpose entities.

The FHLBNY obtains its funds from several sources. A primary source is the issuance of FHLBank debt instruments, called consolidated obligations, to the public. The issuance and servicing of consolidated obligations are performed by the Office of Finance, a joint office of the FHLBanks. These debt instruments represent the joint and several obligations of all the FHLBanks. Additional sources of FHLBNY funding are member deposits and the issuance of capital stock. Deposits may be accepted from member financial institutions and federal instrumentalities.

Members of the cooperative must purchase FHLBNY stock according to regulatory requirements (See Note 14 — Capital for more information). The business of the cooperative is to provide liquidity for the members (primarily in the form of loans referred to as “advances”) and to provide a return on members’ investment in FHLBNY stock in the form of a dividend. Since the members are both stockholders and customers, the Bank operates such that there is a trade-off between providing value to them via low pricing for advances with a relatively lower dividend versus higher advances pricing with a relatively higher dividend. The FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing.

All federally insured depository institutions, insured credit unions and insurance companies engaged in residential housing finance can apply for membership in the FHLBank in their district. All members are required to purchase capital stock in the FHLBNY as a condition of membership. A member of another FHLBank or a financial institution that is not a member of any FHLBank may also hold FHLBNY stock as a result of having acquired an FHLBNY member. Because the Bank operates as a cooperative, the FHLBNY conducts business with related parties in the normal course of business and considers all members and non-member stockholders as related parties in addition to the other FHLBanks (See Note 9 — Related party transactions for more information about related parties and related party transactions).

The FHLBNY’s primary business is making collateralized advances to members and also the principal factor that impacts the financial condition of the FHLBNY.

As of July 30, 2008, the FHLBNY is supervised and regulated by the Federal Housing Finance Agency (“Finance Agency”), which is an independent agency in the executive branch of the U.S. government. With the passage of the “Housing and Economic Recovery Act of 2008” (“Housing Act”), the Finance Agency was established and became the new independent Federal regulator (the Regulator) of the FHLBanks, effective July 30, 2008. The Finance Board, the FHLBanks’ former regulator, was merged into the Finance Agency as of October 27, 2008. The Finance Board will be abolished one year after the date of enactment of the Housing Act. Finance Board regulations, orders, determinations and resolutions remain in effect until modified, terminated, set aside or superseded in accordance with law by the FHFA Director, a court of competent jurisdiction or by operation of the law.

185

Federal Home Loan Bank of New York
Notes to Financial Statements

The Finance Agency ensures that the FHLBNY carries out its housing and community development mission, remains adequately capitalized and able to raise funds in the capital markets, and operates in a safe and sound manner. However, while the Finance Agency establishes regulations governing the operations of the FHLBanks, the Bank functions as a separate entity with its own management, employees and board of directors.

Tax Status

The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for local real estate tax.

Assessments

Resolution Funding Corporation (“REFCORP”) Assessments. Although the FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax, it is required to make payments to REFCORP.

REFCORP was established by an Act of Congress in 1989 to help facilitate the U.S. government’s bailout of failed financial institutions. The REFCORP assessments are used by the U.S. Treasury to pay a portion of the annual interest expense on long-term obligations issued to finance a portion of the cost of the bailout. Principal of those long-term obligations is paid from a segregated account containing zero-coupon U.S. government obligations, which were purchased using funds that Congress directed the FHLBanks to provide for that purpose.

Each FHLBank is required to pay 20 percent of income calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”) after the assessment for Affordable Housing Program, but before the assessment for the REFCORP. The Affordable Housing Program and REFCORP assessments are calculated simultaneously because of their interdependence on each other. The FHLBNY accrues its REFCORP assessment on a monthly basis.

The Resolution Funding Corporation has been designated as the calculation agent for the Affordable Housing Program and REFCORP assessments. Each FHLBank provides the amount of quarterly income before Affordable Housing Program and REFCORP and other information to the Resolution Funding Corporation, which then performs the calculations for each quarter end.

Affordable Housing Program (“AHP” or “Affordable Housing Program”) Assessments. Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the Affordable Housing Program the greater of $100 million or 10 percent of regulatory net income. Regulatory net income is defined as GAAP net income before interest expense related to mandatorily redeemable capital stock under Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”), and the assessment for Affordable Housing Program, but after the assessment for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. The FHLBNY accrues the AHP expense monthly.

186

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 1. Accounting Changes, Significant Accounting Policies and Estimates, and Recently Issued Accounting Standards

Accounting Changes

Adoption of SFAS 157 — Fair Value Measurements. The Bank adopted SFAS 157, “Fair Value Measurements” (SFAS 157) as of January 1, 2008. SFAS 157 defines fair value, expands disclosure requirements around fair values and establishes a framework for measuring fair value. SFAS 157 discusses how entities should measure fair value based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources or those that can be directly corroborated to market sources, while unobservable inputs reflect the FHLBNY’s market assumptions. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market for the asset or liability between market place participants at the measurement date. This definition is based on an exit price rather than transaction (entry) price.

In determining fair value, FHLBNY uses various valuation methods, including both the market and income approaches. SFAS 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, and would be based on market data obtained from sources independent of FHLBNY. Unobservable inputs are inputs that reflect FHLBNY’s assumptions about the parameters market participants would use in pricing the asset or liability, and would be based on the best information available in the circumstances.

The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-based valuations in which all significant inputs and significant parameters are observable in active markets.

Level 3 — Valuations based upon valuation techniques in which significant inputs and significant parameters are unobservable.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors including, for example, the characteristics peculiar to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by FHLBNY in determining fair value is greatest for instruments categorized as Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

187

Federal Home Loan Bank of New York
Notes to Financial Statements

Upon adoption of SFAS 157 on January 1, 2008, the FHLBNY implemented the fair value measurement provisions of SFAS 157 for all assets and liabilities recorded at fair value on its Statements of Condition. The adoption of SFAS 157 did not result in any significant changes to valuation techniques used in calculating the fair values of its assets and liabilities under the disclosure provisions of SFAS 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”).

At December 31, 2008, the FHLBNY measured and recorded fair values under the guidelines established by SFAS 157 in the Statements of Condition for the following assets and liabilities: derivative positions, available-for-sale securities, and certain consolidated obligation bonds that were designated and recorded at fair value under SFAS 159, “Fair Value Option for Financial Assets and Financial Liabilities” in the third quarter of 2008. A significant percentage of fixed-rate advances and consolidated obligation bonds are hedged to mitigate the risk of fair value changes as a result of changes in the interest rate environment and are typically accounted under SFAS 133 as qualifying as a fair value hedging relationships. When the FHLBNY deems that a hedge relationship under SFAS 133 is either not operationally practical or considers the hedge may not be effective, the FHLBNY may hedge certain advances and consolidated obligation bonds in economic hedges.

Fair Values of Derivative positions — The FHLBNY is an end-user of over-the-counter (“OTC”) derivatives to hedge assets and liabilities under the provisions of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, (“SFAS 133”) to mitigate fair value risks. In addition, the Bank records the fair value of an insignificant amount of mortgage-delivery commitments as derivatives, also under the provisions of SFAS 133. For additional information, see Note 18 – Derivatives and hedging activities.

Valuations of derivative assets and liabilities reflect the value of the instrument including the value associated with counterparty risk. With the issuance of SFAS 157, these values must take into account the FHLBNY’s own credit standing, thus including in the valuation of the derivative instrument the value of the net credit differential between the counterparties to its derivative contracts. The computed fair values of the FHLBNY’s OTC derivatives takes into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. On a contract-by-contract basis, the collateral and netting arrangements sufficiently mitigated the impact of the credit differential between the FHLBNY and its counterparties to an immaterial level such that an adjustment for nonperformance risk was not deemed necessary. Fair values of the derivatives were computed using quantitative models and employed multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors. These multiple market inputs were predominantly actively quoted and verifiable through external sources, including brokers and market transactions. As a result, model selection and inputs did not involve significant judgments.

As a result of pre-existing methodologies, the FHLBNY concluded no refinements were necessary at adoption of SFAS 157 on January 1, 2008, and adoption did not result in a transition adjustment and had no impact to the Bank’s retained earnings at January 1, 2008.

Fair Values of investments in available-for-sale securities — Changes in the values of available-for-sale securities are recorded in Accumulated other comprehensive income (loss), which is a component of members’ capital, with an offset to the recorded value of the investments in the Statements of Condition.

188

Federal Home Loan Bank of New York
Notes to Financial Statements

The predominant portion of the available-for-sale portfolio at December 31, 2008 was comprised of government-sponsored enterprise (“GSE”) issued collateralized mortgage obligations which were marketable. A small percentage consisted of investments in equity and bond mutual funds held by two grantor trusts owned by the FHLBNY. The unit prices, or the “Net asset values,” of the underlying mutual funds were available through publicly viewable web-sites and the units were marketable at recorded fair values. The recorded fair values of available-for-sale securities in the Statements of Condition at December 31, 2008 reflected the estimated price at which the positions could be sold.

All of the FHLBNY’s mortgage-backed securities classified as available-for-sale are marketable and the fair value of investment securities is estimated by management using specialized pricing services that employ pricing models or quoted prices of securities with similar characteristics. Inputs into the pricing models are market based and observable. Examples of such securities, which would generally be classified within Level 2 of the valuation hierarchy and valued using the “market approach” as defined under SFAS 157, include GSE issued collateralized mortgage obligations and money market funds.

See Note 19 — Fair Values of Financial Instruments — for additional disclosure with respect to the Levels associated with assets and liabilities recorded on the Bank’s Statements of Condition at December 31, 2008. Also see Note 19 – Fair Values of Financial Instruments for more information about fair values disclosures of financial instruments under the provisions of SFAS 107.

Adoption of SFAS 159 — Fair Value Option for Financial Assets and Financial Liabilities — On February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159” or “FVO”). SFAS 159 creates a fair value option allowing, but not requiring, an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities with changes in fair value recognized in earnings as they occur. It requires entities to separately display on the face of the Statement of condition the fair value of those assets and liabilities for which the entity has chosen to use fair value. In the third quarter of 2008, the FHLBNY elected the FVO designation for certain consolidated obligation bonds which are hedged by interest rate swaps in an economic hedge of the changes in the fair values of the designated bonds. See Note 19 – Fair Values of Financial Instruments for more information.

Adoption of FSP FIN 39-1 — In April 2007, the FASB directed its Staff to issue FSP FIN 39-1, “Amendment of FASB Interpretation No. 39.” (“FSP FIN 39-1”). FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts.” and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. The Bank adopted FSP FIN 39-1 on January 1, 2008 and recognized the effects of applying FSP FIN 39-1 as a change in accounting principle through retrospective application on the Statements of Condition as of December 31, 2007. Previously, cash collateral of $396.4 million pledged to derivative counterparties were reported as an asset in Interest-bearing deposits; the amount is now a component of Derivative liabilities in the Statements of Condition. Previously, $41.3 million of cash collateral received by the Bank from derivative counterparties was recorded as a liability in Other borrowings; the amount is now a component of Derivative assets in the Statements of Condition. The reclassification and adoption had no impact on the Bank’s results of operations, financial condition or cash flows for the periods reported in this Form 10-K.

189

Federal Home Loan Bank of New York
Notes to Financial Statements

Significant Accounting Policies and Estimates

The FHLBNY has identified certain accounting policies that it believes are significant because they require management to make subjective judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or by using different assumptions. These policies include estimating the allowance for credit losses on the advance and mortgage loan portfolios, evaluating the impairment of the Bank’s securities portfolios, estimating the liabilities for pension liabilities, and estimating fair values of certain assets and liabilities.

The FHLBNY adopted SFAS 157 and SFAS 159 as of January 1, 2008, and these are discussed more fully in previous paragraphs of this section under Accounting Changes. At December 31, 2008, the FHLBNY recorded derivative assets and liabilities, available-for-sale assets, and certain consolidated obligation bonds in its Statements of Condition under the measurement standards of SFAS 157. SFAS 157 measurement standards were adopted in the fair value measurement of financial assets and liabilities disclosed under the provisions of SFAS 107 “Disclosures About Fair Value of Financial Instruments” (“SFAS 107”). See Estimated Fair values (SFAS 107) – Summary Tables for more information about fair values (Note 19 — Fair Values of Financial Instruments).

In the third quarter of 2008, the Bank elected certain fixed-rate, short-term consolidated obligation bonds to be accounted for under the FVO as these bonds presented the FHLBNY with an exposure to changes in their fair value resulting from changes in the full fair values of the bonds. In order to hedge this exposure, the FHLBNY entered into a pay floating-rate, receive fixed-rate swap. The Bank elected the fair value option for these bonds, as the Bank could not establish with certainty that the bonds would meet the expectations of on-going hedge effectiveness under the SFAS 133 hedging rules.

The fair value of financial assets and liabilities disclosed under the provisions of SFAS 107 “Disclosures About Fair Value of Financial Instruments” (“SFAS 107”) incorporate the SFAS 157 measurement standards. See Estimated Fair values (SFAS 107) — Summary Tables in Note 19 — Fair Values of Financial Instruments for more information.

Valuation of Financial Instruments

With the adoption of SFAS 157 as of January 1, 2008, the FHLBNY evaluated its pre-adoption valuation techniques for the measurement of the Bank’s over-the-counter derivative positions and available-for sale securities, both of which are carried at fair value in the Statements of Condition at December 31, 2008 and December 31, 2007, and concluded that the measurement methodologies met the requirements of SFAS 157. Fair values and the fair value hierarchy of the Bank’s derivative assets and liabilities, and the fair values of its available-for-sale portfolio are summarized in Note 19 — Fair Values of Financial Instruments.

SFAS 107 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which the Bank did not elect the fair value option. The fair values of the Bank’s financial instruments as disclosed in Note 19 — Fair Values of Financial Instruments (SFAS 107), complied with SFAS 157. Specifically, the Bank’s valuation techniques incorporated standards that required that the techniques utilize market observable or market corroborated inputs when available. Observable inputs reflect market data obtained from independent sources or those that can be directly corroborated to market sources, while unobservable inputs reflect the FHLBNY’s market assumptions.

190

Federal Home Loan Bank of New York
Notes to Financial Statements

The valuation techniques also incorporated the SFAS 157 definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between marketplace participants at the measurement date. This definition is based on an exit price rather than transaction (entry) price.

Valuation Techniques — Three valuation techniques are prescribed under SFAS 157 — Market approach, Income approach and Cost approach. Valuation techniques for which sufficient data is available and that are appropriate under the circumstances should be used.

• Market approach — This technique uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

• Income approach — This technique uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted), based on assumptions used by market participants. The present value technique used to measure fair value depends on the facts and circumstances specific to the asset or liability being measured and the availability of data.

• Cost approach — This approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost).

Upon adoption of SFAS 157 on January 1, 2008, the FHLBNY implemented the fair value measurement provisions of SFAS 157 for all assets and liabilities recorded at fair value on its Statements of Condition. The adoption of SFAS 157 did not result in any material changes to valuation techniques previously utilized in calculating the fair values of its assets and liabilities under the disclosure provisions of SFAS 107, “Disclosures about Fair Value of Financial Instruments”. FHLBNY did not record a transition adjustment upon adoption of SFAS 157.

Valuation of Derivative positions — The FHLBNY is an end-user of over-the-counter (“OTC”) derivatives to hedge assets and liabilities, or a forecasted transaction under the provisions of SFAS 133 to mitigate fair value risks. In addition, the Bank records the fair values of insignificant amounts of mortgage-delivery commitments as derivatives, also under the provisions of SFAS 133. For additional information, see Note 18 — Derivatives and hedging activities.

Discounted cash flow analysis is the primary methodology employed by the FHLBNY’s valuation models to measure and record the fair values of its derivative positions. The valuation technique is considered as an “Income approach” as defined in SFAS 157. Derivatives are valued using industry-standard option adjusted valuation models that utilize market inputs, which can be corroborated from widely accepted third-party sources. The Bank’s valuation model utilizes a modified Black-Karasinski model that assumes that rates are distributed log normally. The log-normal model precludes interest rates turning negative in the model computations. Significant market based and observable inputs into the valuation model include volatilities and interest rates. Derivative values are classified as Level 2 within the fair value hierarchy.

SFAS 157 clarified that the valuation of derivative assets and liabilities must reflect the value of the instrument including the values associated with counterparty risk and must also take into account the company’s own credit standing. The Bank has collateral agreements with all of its derivative counterparties and vigorously enforces collateral exchanges at least on a weekly basis. The Bank and each of its derivative counterparties have collateral thresholds that take into account both the Bank’s and counterparty’s credit ratings. The Bank has concluded that these practices and agreements sufficiently mitigated the impact of the credit differential between the FHLBNY and counterparties to an immaterial level such that no adjustment for nonperformance risk was deemed necessary.

191

Federal Home Loan Bank of New York
Notes to Financial Statements

The FHLBNY employs control processes to validate the fair value of its financial instruments, including those derived from valuation models. These control processes are designed to ensure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to ensure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. These control processes include reviews of the pricing model’s theoretical soundness and appropriateness by specialists with relevant expertise who are independent from the trading desks or personnel who were involved in the design and selection of model inputs. Additionally, groups that are independent from the trading desk and personnel involved in the design and selection of model inputs participate in the review and validation of the fair values generated from the valuation model. The FHLBNY maintains an ongoing review of its valuation models and has a formal model validation policy in addition to procedures for the approval and control of data inputs.

Valuation of investments classified as Held-to-maturity and Available-for-sale — The FHLBNY used the valuation technique referred to as the “Market approach” under the provisions of SFAS 157 to estimate the fair values of its investment securities.

The predominant portion of the available-for-sale portfolio at December 31, 2008 was comprised of GSE issued collateralized mortgage obligations. A small percentage consisted of investments in two grantor trusts which held positions in equity and bond mutual funds. The unit prices, or the “Net asset values” of the underlying mutual funds were available through publicly viewable web-sites and the units were marketable at recorded fair values. The recorded fair values of available-for-sale securities in the Statement of condition at December 31, 2008 are an estimate of the price at which the positions could be sold.

The fair value of investment securities is estimated by management using information from specialized pricing services that use pricing models or quoted prices of securities with similar characteristics. The FHLBNY performs analyses to understand trends and changes in pricing. Inputs into the pricing models employed by pricing services for most of the Bank’s investments are considered market based and observable as Level 2 securities. The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models. Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if securities that are traded in sufficient volumes in the secondary market. Available-for-sale securities are classified within Level 2 of the valuation hierarchy. The valuation of the Bank’s private-label securities that are all designated as held-to-maturity may require pricing services to use significant inputs that are subjective and may be considered to be Level 3 inputs because the inputs may not be market based or observable.

A significant percentage of the Bank’s held-to-maturity securities was comprised of mortgage-backed securities issued by GSE or U.S. government agencies. At December 31, 2008, investments in “private label” securities made up a relatively small percentage of investments in mortgage-backed securities and these were rated triple-B or better, with the majority rated single-A or better. GSE and U.S. government issued MBS were rated triple-A (See Note 4 — Held-to-Maturity Securities for more information). The portfolio also included investments in bonds issued by state and local finance agencies which constitute a small percentage of the held-to-maturity portfolio. In summary, the fair values of held-to-maturity securities at December 31, 2008 as disclosed in Note 19 — Fair Values of Financial Instruments in the table titled Estimated Fair Values (SFAS 107) are an estimate of the price at which the positions could be sold.

192

Federal Home Loan Bank of New York
Notes to Financial Statements

The FHLBNY routinely performs a comparison analysis of pricing to understand pricing trends and to establish a means of validating changes in pricing from period-to-period. In addition, the Bank runs pricing through prepayment models to test the reasonability of pricing relative to changes in the implied prepayment options of the bonds. Separately, the Bank performs comprehensive credit analysis, including the analysis of underlying cash flows and collateral. The FHLBNY believes such methodologies — valuation comparison, review of changes in valuation parameters, and credit analysis — mitigate the effects of the credit crisis, which has tended to reduce the availability of certain observable market pricing or has caused the widening of the bid/offer spread of certain securities.

Federal Funds Sold

Federal funds sold represents short-term, unsecured lending to major banks and financial institutions. The amount of unsecured credit risk that may be extended to individual counterparties is commensurate with the counterparty’s credit quality, which is determined by management based on the credit ratings of counterparty’s debt securities or deposits as reported by Nationally Recognized Statistical Rating Organizations. Federal funds sold are recorded at cost on settlement date and interest is accrued using contractual rates.

Investments

The FHLBNY carries investments for which it has both the ability and intent to hold to maturity at cost, adjusted for the amortization of premiums and accretion of discounts using the level-yield method.

Under SFAS 115, changes in circumstances may cause the FHLBNY to change its intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security due to changes in circumstances, such as evidence of significant deterioration in the issuer’s creditworthiness or changes in regulatory requirements, is not considered inconsistent with its original classification. Other events that are isolated, nonrecurring, and unusual for the FHLBNY that could not have been reasonably anticipated may cause the FHLBNY to sell or transfer a held-to-maturity security without necessarily calling into question its intent to hold other debt securities to maturity. The Bank did not transfer or sell any held-to-maturity securities due to changes in circumstances in 2008, 2007 or 2006.

In accordance with SFAS 115, sales of debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities: (1) the sale occurs near enough to its maturity date (or call date if exercise of the call is probable) such that interest rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not have a significant effect on the security’s fair value, or (2) the sale of a security occurs after the FHLBNY has already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayments on the debt security or to scheduled payments on a debt security payable in equal installments (both principal and interest) over its term.

The FHLBNY classifies investments that it may sell before maturity as available-for-sale and carries them at fair value. The change in fair value of the available-for-sale securities is recorded in other comprehensive income as a net unrealized gain or loss on available-for-sale securities. If available-for-sale securities had been hedged (none at December 31, 2008 or 2007) under a SFAS 133 qualifying fair value hedge, the FHLBNY would record the portion of the change in value related to the risk being hedged in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities together with the related change in the fair value of the derivative, and would record the remainder of the change in other comprehensive income as a Net unrealized gain (loss) on available-for-sale securities. If available-for-sale securities had been hedged under a SFAS 133 qualifying cash flow hedge, the FHLBNY would record the effective portion of the change in value of the derivative related to the risk being hedged in other comprehensive income as a Net unrealized gain (loss) on hedging activities. The ineffective portion would be recorded in Other income (loss) and presented as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

193

Federal Home Loan Bank of New York
Notes to Financial Statements

The FHLBNY computes the amortization and accretion of premiums and discounts on mortgage-backed securities using the level-yield method over the estimated lives of the securities. The estimated life method requires a retrospective adjustment of the effective yield each time the FHLBNY changes the estimated life as if the new estimate had been known since the original acquisition date of the asset.

The FHLBNY computes the amortization and accretion of premiums and discounts on investments other than mortgage-backed securities using the level-yield method to the contractual maturities of the investments. The FHLBNY computes gains and losses on sales of investment securities using the specific identification method and includes these gains and losses in Other income (loss). The FHLBNY treats securities purchased under agreements to resell as collateralized financings because the counterparty retains control of the securities.

The FHLBNY regularly evaluates its investments for impairment and determines if unrealized losses are temporary based in part on the creditworthiness of the issuers and the underlying collateral as well as a determination of the FHLBNY’s intent to hold such securities through to recovery of the unrealized losses. If there is an other-than-temporary impairment in value of an investment, the decline in value is recognized as a loss and presented in the Statements of Income as a loss on securities in Other income (loss). The FHLBNY did not experience any other-than-temporary impairment in value of investments during 2008, 2007 or 2006.

Advances

The FHLBNY reports advances, net of unearned commitment fees and discounts on advances for the Affordable Housing Program (“AHP”), at amortized cost. The FHLBNY records interest on advances to income as earned using the level-yield method. Following the requirements of the Federal Home Loan Bank Act of 1932 (“FHLBank Act”), as amended, the FHLBNY obtains sufficient collateral on advances to protect it from losses. The FHLBank Act limits eligible collateral to certain investment securities, residential mortgage loans, cash or deposits with the FHLBNY, and other eligible real estate related assets. Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances. As Note 6- Advances more fully describes, community financial institutions (FDIC-insured institutions with assets of $625 million or less during 2008) are subject to more expanded statutory collateral rules for small business and agricultural loans. The FHLBNY has not incurred any credit losses on advances since its inception. Based upon the collateral held as security on the advances and repayment history, management of the FHLBNY believes that an allowance for credit losses on advances is unnecessary.

Prepayment Fees on advances

The FHLBNY charges a member a prepayment fee when the member prepays certain advances before the original maturity. The FHLBNY records prepayment fees net of SFAS 133 basis adjustments included in the book basis of the advance as interest income from advances. From time to time, the FHLBNY will enter into an agreement with a member to modify the terms of an existing advance. The FHLBNY evaluates whether the modified advance meets the accounting criteria to qualify as a modification of an existing advance or as a new advance in accordance with EITF Issue No. 01-7, “Creditor’s Accounting for a Modification or Exchange of Debt Instruments”, and SFAS No. 91 “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases” (“SFAS 91”).

194

Federal Home Loan Bank of New York
Notes to Financial Statements

If the new advance qualifies as a modification of the existing hedged advance, the hedging fair value adjustments and the net prepayment fee on the prepaid advance are recorded in the carrying value of the modified advance and amortized over the life of the modified advance as interest income from advances.

For advances that are hedged and meet the hedge accounting requirements of SFAS 133, the FHLBNY terminates the hedging relationship upon prepayment and records the associated fair value gains and losses, adjusted for the prepayment fees, in interest income. If the FHLBNY funds a new advance to a member concurrent with the prepayment of a previous advance to that member, the FHLBNY evaluates whether the new advance qualifies as a modification of the original advance. The evaluation includes analysis of (i) whether the effective yield on the new advance is at least equal to the effective yield for a comparable advance to a similar member that is not refinancing or restructuring and (ii) whether the modification of the original advance is more than minor. If the new advance qualifies as a modification of the original hedged advance, the fair value gains or losses of the advance and the prepayment fees are included in the carrying amount of the modified advance, and gains or losses and prepayment fees are amortized to interest income over the life of the modified advance using the level-yield method. If the modified advance is also hedged and the hedge meets the hedging criteria in accordance with SFAS 133, basis adjustments continue to be made after the modification, and subsequent value changes attributable to hedged risks are recorded in Other income (loss) as Net realized and unrealized gain (loss) on derivatives and hedging activities. If the FHLBNY determines that the transaction does not qualify as a modification of an existing advance, it is treated as an advance termination with subsequent funding of a new advance and the net prepayment fees are recorded as interest income from advances.

Mortgage Loans Held-for-portfolio

The FHLBNY participates in the Mortgage Partnership Finance program ^® (“MPF”) by purchasing and originating conventional mortgage loans from its participating members, herein after referred to as Participating Financial Institutions (“PFI”). Federal Housing Administration (“FHA”) and Veterans Administration (“VA”) insured loans purchased were not a significant total of the outstanding mortgage loans held-for-portfolio at December 31, 2008. The FHLBNY manages the liquidity, interest rate and prepayment option risk of the MPF loans, while the PFIs retain servicing activities. The FHLBNY and the PFI share the credit risks of the uninsured MPF loans by structuring potential credit losses into layers. Collectability of the loans is first supported by liens on the real estate securing the loan. For conventional mortgage loans, additional loss protection is provided by private mortgage insurance required for MPF loans with a loan-to-value ratio of more than 80% at origination, which is paid for by the borrower. Credit losses are absorbed by the FHLBNY to the extent of the First Loss Account (“FLA”), for which the maximum exposure is estimated to be $13.8 million and $12.9 million at December 31, 2008 and 2007. The aggregate amount of FLA is memorialized and tracked but is neither recorded nor reported as a loan loss reserve in the FHLBNY’s financial statements. If “second losses” beyond this layer are incurred, they are absorbed through a credit enhancement provided by the PFI. The credit enhancement held by PFIs ensures that the lender retains a credit stake in the loans it sells to the FHLBNY or originates as an agent for the FHLBNY (only relates to MPF 100 product). For assuming this risk, PFIs receive monthly “credit enhancement fees” from the FHLBNY.

The amount of the credit enhancement is computed with the use of a Standard & Poor’s model to determine the amount of credit enhancement necessary to bring a pool of uninsured loans to “AA” credit risk. The credit enhancement becomes an obligation of the PFI. For certain MPF products, the credit enhancement fee is accrued and paid each month. For other MPF products, the credit enhancement fee is accrued monthly and is paid monthly after the FHLBNY has accrued 12 months of credit enhancement fees.

195

Federal Home Loan Bank of New York
Notes to Financial Statements

Delivery commitment fees are charged to a PFI for extending the scheduled delivery period of the loans. Pair-off fees may be assessed and charged to PFI when the settlement of the delivery commitment (1) fails to occur, or (2) the principal amount of the loans purchased by the FHLBNY under a delivery commitment is not equal to the contract amount beyond established limits. Extension fees are received when a member requests to extend the period of the delivery commitment beyond the original stated maturity. Amounts were not significant for all periods reported.

The FHLBNY records credit enhancement fees as a reduction to mortgage loan interest income. The FHLBNY records other non-origination fees, such as delivery commitment extension fees and pair-off-fees, as derivative income over the life of the commitment. All such fees were inconsequential for all periods reported. Mortgage loans are recorded at fair value on settlement date.

The FHLBNY defers and amortizes premiums, costs, and discounts as interest income using the level yield method to their contractual maturities. The FHLBNY classifies mortgage loans as held-for-portfolio and, accordingly, reports them at their principal amount outstanding, net of premiums, costs and discounts.

The FHLBNY places a mortgage loan on non-accrual status when the collection of the contractual principal or interest is 90 days or more past due. When a mortgage loan is placed on non-accrual status, accrued but uncollected interest is reversed against interest income. The FHLBNY records cash payments received on non-accrual loans as a reduction of principal.

Allowance for credit losses on mortgage loans. The Bank performs periodic reviews of its portfolio to identify the losses inherent within the portfolio and to determine the likelihood of collection of the principal and interest. Mortgage loans, that are either classified under regulatory criteria (Special Mention, Sub-standard, or Loss) or past due, are separated from the aggregate pool, and evaluated separately for impairment.

The allowance for credit losses on mortgage loans was $1.4 million and $633.0 thousand as of December 31, 2008 and 2007.

The Bank identifies inherent losses through analysis of the conventional loans (FHA and VA are insured loans, and excluded from the analysis) that are not adversely classified or past due. Reserves are based on the estimated costs to recover any portions of the MPF loans that are not FHA and VA insured. When a loan is foreclosed, the Bank will charge to the loan loss reserve account any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.

If adversely classified, or on non-accrual status, reserves for conventional mortgage loans, except FHA and VA insured loans, are analyzed under liquidation scenarios on a loan level basis, and identified losses are fully reserved. FHA and VA insured mortgage loans have minimal inherent credit risk; risk generally arises mainly from the servicers defaulting on their obligations. FHA and VA insured mortgage loans, if adversely classified, will have reserves established only in the event of a default of a PFI. Reserves are based on the estimated costs to recover any uninsured portion of the MPF loan.

The FHLBNY also holds participation interests in residential and community development mortgage loans through its Community Mortgage Asset (“CMA”) program. Acquisition of participations under the CMA program was suspended indefinitely in November 2001, and outstanding balances were down to $4.0 million at December 31, 2008 compared to $4.1 million at December 31, 2007. If adversely classified, CMA loans will have additional reserves established based on the shortfall of the underlying estimated liquidation value of collateral to cover the remaining balance of the CMA loan. Reserve values are calculated by subtracting the estimated liquidation value of the collateral (after sale value) from the current remaining balance of the CMA loan.

196

Federal Home Loan Bank of New York
Notes to Financial Statements

Affordable Housing Program

The FHLBank Act requires each FHLBank to establish and fund an AHP (see Note 7 — Affordable Housing Program and REFCORP). The FHLBNY charges the required funding for AHP to earnings and establishes a liability. The AHP funds provide subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. The FHLBNY also issues AHP advances at interest rates below the customary interest rates for non-subsidized advances. When the FHLBNY makes an AHP advance, the present value of the variation in the cash flow caused by the difference between the AHP advance interest rate and the Bank’s related cost of funds for comparable maturity funding is charged against the AHP liability. It is then recorded as a discount on the AHP advance. The amount of such discounts recognized was inconsequential for all years reported. As an alternative, the FHLBNY has the authority to make the AHP subsidy available to members as a grant.

AHP assessment is based on a fixed percentage of income before assessments and before adjustment for dividends associated with mandatorily redeemable capital stock. Dividend payments are reported as interest expense under the accounting provisions of SFAS 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. If the FHLBNY incurs a loss for the entire year, no AHP assessment or assessment credit is due or accrued, as explained more fully in Note 7 – Affordable Housing program and REFCORP.

Commitment Fees

The FHLBNY records the present value of fees receivable from standby letters of credit as an asset and an offsetting liability for the obligation. Fees, which are generally received for one year in advance, are recorded as unrecognized standby commitment fees (deferred credit) and amortized monthly over the commitment period. The FHLBNY amortizes fees received to income using the level-yield method. The amount of fees was not significant for each of the periods reported.

Derivatives

The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments. The notional amount of derivatives does not measure the credit risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing favorable interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans outstanding at December 31, 2008, and purchased caps and floors if the counterparty defaults and the related collateral, if any, is of insufficient value to the FHLBNY.

Accounting for derivatives is addressed in Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities—Deferral of Effective Date of FASB Statement No. 133,” SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (collectively “SFAS 133”). All derivatives are recognized on the balance sheet at their estimated fair values, including accrued unpaid interest. Due to the application of FASB Staff Position (FSP) No. FIN 39-1, “Amendment of FASB Interpretation No. 39” (“FSP FIN 39-1”), Derivative assets and Derivative liabilities reported on the Statements of Condition are net of cash collateral received from and pledged to derivative counterparties.

197

Federal Home Loan Bank of New York
Notes to Financial Statements

Each derivative is designated as one of the following:

(1) a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (a “fair value” hedge);

(2) a hedge of a forecasted transaction or the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “cash flow” hedge);

(3) a non-qualifying hedge of an asset or liability (“economic hedge”) for asset-liability management purposes; or

(4) a non-qualifying hedge of another derivative (an “intermediation” hedge) that is offered as a product to members or used to offset other derivatives with non-member counterparties.

The FHLBNY had no foreign currency assets, liabilities or hedges in 2008, 2007 or 2006.

Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in current period’s earnings in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are reported in other comprehensive income, a component of capital, until earnings are affected by the variability of the cash flows of the hedged transaction (i.e., until the recognition of interest on a variable rate asset or liability is recorded in earnings). The FHLBNY records derivatives on trade date, but records the associated hedged consolidated obligations and advances on settlement date. Hedge accounting commences on trade date, at which time subsequent changes to the derivative’s fair value are recorded along with the offsetting changes in the fair value of the hedged item attributable to the risk being hedged. On settlement date, the basis adjustments to the hedged item’s carrying amount are combined with the principal amounts and the basis becomes part of the total carrying amount of the hedged item.

The FHLBNY has defined its market settlement conventions for hedged items to be five business days or less for advances and thirty calendar days or less, using a next business day convention, for consolidated obligations bonds and discount notes. These market settlement conventions are the shortest period possible for each type of advance and consolidated obligation from the time the instruments are committed to the time they settle.

The FHLBNY considers hedges of committed advances and consolidated obligation bonds eligible for the “short cut” provisions, under paragraph 68 of SFAS 133, as long as settlement of the committed asset or liability occurs within the market settlement conventions for that type of instrument. The FHLBNY also believes the conditions of paragraph 68(b) of SFAS 133 are met if the fair value of the swap is zero on the date the FHLBNY commits itself to issue the consolidated obligation bond. A short-cut hedge is a highly effective hedging relationship that uses an interest rate swap as the hedging instrument to hedge a recognized asset or liability and that meets the criteria under paragraph 68 of SFAS 133 to qualify for an assumption of no ineffectiveness.

198

Federal Home Loan Bank of New York
Notes to Financial Statements

For both fair value and cash flow hedges, any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative differs from the change in the fair value of the hedged item or the variability in the cash flows of the forecasted transaction) are recorded in current period’s earnings in Other income (loss) as “Net realized and unrealized gain (loss) on derivatives and hedging activities.”

Changes in the fair value of a derivative not qualifying as a hedge are recorded in current period earnings with no fair value adjustment to an asset or liability. Both the net interest on the derivative and the fair value adjustments are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

The differentials between accruals of interest receivables and payables on derivatives designated as fair value or cash flow hedges are recognized as adjustments to the interest income or expense of the hedged advances and consolidated obligations.

Changes in the fair value of derivatives in an economic (also referred to as a standalone derivative) or intermediary hedge are recorded in current period earnings with no fair value adjustment to an asset or liability. The differentials between accruals of interest receivables and payables on intermediated derivatives for members and other economic hedges are recognized as Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. Therefore, both the net interest on the standalone derivative and the fair value changes are recorded in Other income (loss) as a Net gain (loss) on derivatives and hedging activities. In the Statements of Cash Flows, cash flows associated with stand-alone derivatives are reflected as cash flows from operating activities.

The FHLBNY routinely issues debt and makes advances in which a derivative instrument is “embedded.” Upon execution of these transactions, the FHLBNY assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance or debt (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. If the FHLBNY determines that (1) the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative would be separated from the host contract and carried at fair value. However, if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, with changes in fair value reported in current earnings (such as an investment security classified as “trading” under SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”) as well as hybrid financial instruments accounted for under SFAS 155, “Accounting for Certain Hybrid Financial Instruments”), or if the FHLBNY cannot reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the balance sheet at fair value and no portion of the contract would be designated as a hedging instrument. At The FHLBNY had no financial instruments with embedded derivatives that required bifurcation.

When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective fair value hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value, ceases to adjust the hedged asset or liability for changes in fair value, and amortizes the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using the level-yield methodology.

199

Federal Home Loan Bank of New York
Notes to Financial Statements

When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective cash flow hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value and reclassifies the cumulative other comprehensive income adjustment to earnings when earnings are affected by the existing hedge item, which is the original forecasted transaction. Under limited circumstances, when the FHLBNY discontinues cash flow hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period plus the following two months, but it is probable the transaction will still occur in the future, the gain or loss on the derivative remains in accumulated other comprehensive income and is recognized into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within two months after that, the gains and losses that were accumulated in Other comprehensive income are recognized immediately in earnings.

When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the FHLBNY would continue to carry the derivative on the balance sheet at its fair value, removing from the balance sheet any asset or liability that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings.

Cash Collateral associated with Derivative Contracts

The Bank reports derivative assets and derivative liabilities in its Statements of Condition after giving effect to legally enforceable master netting agreements with derivative counterparties, which include interest receivable and payable on derivative contracts and the fair values of the derivative contracts. With the adoption of FSP Fin-39-1, the Bank records cash collateral received and paid in the Statements of Condition as Derivative assets and liabilities. Cash collateral pledged by the Bank is reported as an offset within Derivative liabilities; cash collateral received from derivative counterparties is reported as an offset within Derivative assets. No securities were either pledged or received as collateral for derivatives at December 31, 2008 or 2007.

Mandatorily Redeemable Capital Stock

Generally, the FHLBNY’s capital stock is redeemable at the option of both the member and the FHLBNY, subject to certain conditions, and is subject to the provisions under SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”(“SFAS 150”). Dividends related to capital stock classified as mandatorily redeemable are accrued at an estimated dividend rate and reported as interest expense in the Statements of Income.

Mandatorily redeemable stock at December 31, 2008 and 2007 represents stock held by former members who are no longer members by virtue of being acquired by members of another FHLBank. Under existing practice, such stock will be repurchased when the stock is no longer required to support outstanding transactions with the FHLBNY. The FHLBNY repurchases excess stock upon the receipt of a request for redemption of such stock from a member, and the member’s stock is typically repurchased by the Bank by the next business day.

Redemption rights under the Capital Plan

Under the Capital Plan, no provision is available for the member to request the redemption of stock in excess of the stock required to support the member’s business transactions with the FHLBNY. This type of stock is referred to as “Activity-Based Stock” in the Capital Plan. However, the FHLBNY may at its discretion repurchase excess Activity-Based Stock. Separately, the member may request the redemption of Membership Stock (the capital stock representing the member’s basic investment in the FHLBNY) in excess of the member’s Membership Stock purchase requirement, and the FHLBNY may also in its discretion repurchase such excess stock.

200

Federal Home Loan Bank of New York
Notes to Financial Statements

Under the Capital Plan, a notice of intent to withdraw from membership must be provided to the FHLBNY five years prior to the withdrawal date. At the end of such five-year period, the FHLBNY will redeem such stock unless it is needed to meet any applicable minimum stock investment requirements in the Capital Plan (e.g., to help secure any remaining advances) or if other limitations apply as specified in the Capital Plan.

The redemption notice may be cancelled by giving written notice to the FHLBNY at any time prior to the expiration of the five-year period. Also, the notice will be automatically cancelled if, within five business days of the expiration of the five-year period, the member would be unable to meet its minimum stock investment requirements following such redemption. However, if the member rescinds the redemption notice during the five-year period (or if the notice is automatically cancelled), the FHLBNY may charge a $500 cancellation fee, which may be waived only if the FHLBNY’s Board of Directors determines that the requesting member has a bona fide business reason to do so and the waiver is consistent with Section 7(j) of the FHLBank Act. Section 7(j) requires that the FHLBNY’s Board of Directors administer the affairs of the FHLBNY fairly and impartially and without discrimination in favor of or against any member.

Accounting considerations under the Capital Plan

There are three triggering events that could cause the FHLBNY to repurchase capital stock.

• a member requests redemption of excess membership stock;

• a member delivers notice of its intent to withdraw from membership; or

• a member attains non-member status (through merger into or acquisition by a non-member, or involuntary termination from membership).

The member’s request to redeem excess Membership Stock will be considered to be revocable until the stock is repurchased. Since the member’s request to redeem excess Membership Stock can be withdrawn by the member without penalty, the FHLBNY considers the member’s intent regarding such request to not be substantive in nature and therefore no reclassification to a liability will be made at the time the request is delivered.

Under the Capital Plan, when a member delivers a notification of its intent to withdraw from membership, the reclassification from equity to a liability will become effective upon receipt of the notification. The FHLBNY considers the member’s intent regarding such notification to be substantive in nature and, therefore, reclassification to a liability will be made at the time the notification of the intent to withdraw is delivered. There were no requests for voluntary withdrawal from membership during 2008 or 2007. When a member is acquired by a non-member, the FHLBNY reclassifies stock of former members to a liability on the day the member’s charter is dissolved.

In compliance with SFAS 150, the FHLBNY reclassifies stock subject to mandatory redemption from equity to a liability once a member exercises a written redemption right, gives notice of intent to withdraw from membership, or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership. Shares of capital stock meeting this definition are reclassified to a liability at fair value. Unpaid dividends related to capital stock classified as a liability are accrued at an estimated dividend rate and reported as interest expense in the Statements of Income. The repurchase of these mandatorily redeemable financial instruments is reflected as a cash outflow in the financing activities section of the statements of cash flows.

The Bank reports capital stock subject to mandatory redemption at the redemption value of the stock, which is par plus accrued estimated dividends. Accrued estimated dividends were not material and was included with interest payable in the Statements of Condition. The FHLBanks have a unique cooperative structure. Stocks can only be acquired and redeemed at par value. Shares are not traded and no market mechanism exists for the exchange of stock outside the cooperative structure.

201

Federal Home Loan Bank of New York
Notes to Financial Statements

Premises, Software and Equipment

The Bank computes depreciation using the straight-line method over the estimated useful lives of assets ranging from three to seven years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful lives or the terms of the underlying leases, which range up to 10 years. The Bank capitalizes improvements and major renewals but expenses ordinary maintenance and repairs when incurred. The Bank includes gains and losses on disposal of premises and equipment in Other income (loss).

Concessions on Consolidated Obligations

The FHLBNY defers and amortizes concessions over the contractual maturity of the bonds, using the level-yield method. Concessions are paid to dealers in connection with the issuance of certain consolidated obligation bonds. The Office of Finance prorates the amount of the concession to the FHLBNY based upon the percentage of the debt issued that is assumed by the FHLBNY. Concessions paid on consolidated obligations designated under SFAS 159, are expensed as incurred. Concessions paid on consolidated obligations not designated under SFAS 159, are deferred and amortized, using a level-yield methodology, over the terms to maturity or the estimated lives of the consolidated obligations. The FHLBNY charges to expense as incurred the concessions applicable to the sale of consolidated obligation discount notes because of their short maturities; amounts are recorded in consolidated obligations interest expense.

Discounts and Premiums on Consolidated Obligations

The FHLBNY expenses the discounts on consolidated obligation discount notes, using the level-yield method, over the term of the related notes and amortizes the discounts and premiums on callable and non-callable consolidated bonds, also using the level-yield method, over the contractual term to maturity of the consolidated obligation bonds.

Resolution Funding Corporation (“REFCORP”) Assessments

Although the FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax, it is required to make payments to REFCORP. Each FHLBank is required to pay 20 percent of income calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”) after the assessment for Affordable Housing Program, but before the assessment for the REFCORP. The Affordable Housing Program and REFCORP assessments are calculated simultaneously because of their interdependence on each other. The FHLBNY accrues its REFCORP assessment on a monthly basis. The FHLBanks will expense this amount until the aggregate amounts actually paid by all twelve FHLBanks are equivalent to a $300 million annual annuity whose final maturity date is April 15, 2030, at which point the required payment of each FHLBank to REFCORP will be fully satisfied. The Finance Agency, in consultation with the Secretary of the U.S. Treasury, selects the appropriate discounting factors to be used in this annuity calculation.

Because the assessment is based on net income at all the FHLBanks, which cannot be forecasted with reasonable certainty, the timing of the satisfaction of the REFCORP assessment cannot be predicted.

REFCORP assessment, as discussed above, is based on a fixed percentage of net income after AHP assessment. If a full-year loss is incurred, no assessment or assessment credit is due or accrued.

202

Federal Home Loan Bank of New York
Notes to Financial Statements

Finance Agency and Office of Finance Expenses

The FHLBNY is assessed for its proportionate share of the costs of operating the Finance Agency and the Office of Finance. The Finance Agency is authorized to impose assessments on the FHLBanks including FHLBNY, in amounts sufficient to pay the Finance Agency’s annual operating expenses.

The Office of Finance is also authorized to impose assessments on the FHLBanks, including the FHLBNY, in amounts sufficient to pay the Office of Finance’s annual operating and capital expenditures. Each FHLBank is assessed a prorated amount based on the amount of capital stock outstanding, the volume of consolidated obligations issued, and the amount of consolidated obligations outstanding as a percentage of the total of the items for all 12 FHLBanks.

Earnings per Common Share

SFAS 128, “Earnings per Share,” addresses the presentation of basic and diluted earnings per share (“EPS”) in the income statement. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if convertible securities or other contracts to issue common stock were converted or exercised into common stock. Capital stock classified as mandatorily redeemable capital stock is excluded from this calculation. Basic and diluted earnings per share are the same as the Bank has no additional potential common shares that may be dilutive.

Cash Flows

In the statements of cash flows, the FHLBNY considers Cash and due from banks to be cash and cash equivalents. Federal funds sold, certificates of deposits, and interest-earning balances at the Federal Reserve Banks are reported in the Statements of cash flows as investing activities. Cash collateral pledged is reported as a component of Derivative liabilities and cash collateral received is reported as a component of Derivative assets in the Statements of Condition. In the Statements of Cash Flows, cash collateral pledged or received are reported as net changes in investing and financing activities, respectively.

Cash flows from a derivative instrument that is accounted for as a fair value or cash flow hedge are generally classified in the same category as the cash flows from the items being hedged provided that the derivative instrument does not include an other-than-insignificant financing element at inception.

In the third quarter of 2008, the Bank replaced a significant amount of derivative contracts that had been executed with Lehman Brothers Special Financing Inc. (“LBSF”), when LBSF filed for bankruptcy. The derivatives were replaced at terms that were generally “off-market” and required the derivative counterparties to pay cash to the FHLBNY to assume the derivatives which were primarily in a gain position from the perspective of the counterparties. All cash inflows and outflows of the replacement trades were reported as a financing activity at the inception of the trades in the Statements of Cash Flows. The interest rate exchanges at each payment dates are also reported as a financing activity as well because the derivatives traded contained a financing element considered to be more-than-insignificant at inception.

Cash flows associated derivatives classified as standalone or as an economic hedge are reflected as cash flows from operating activities in the Statements of Cash Flows.

The Bank treats gains and losses on debt extinguishments as an operating activity and reports the cash payments from the early retirement of debt net of these amounts under financing activity in the statements of cash flows.

203

Federal Home Loan Bank of New York
Notes to Financial Statements

Reclassifications

Certain amounts in the 2007 and 2006 financial statements have been reclassified to conform to the 2008 presentation. In particular, during the third quarter of 2008, on a retrospective basis, the FHLBNY reclassified its investments in certain certificates of deposit, previously reported as interest-bearing deposits, as held-to-maturity securities in its Statements of Condition and income as they met the definition of a security under SFAS 115. These financial instruments have been classified as held-to-maturity securities based on their short-term nature and the FHLBNYs’ history of holding them until maturity. This reclassification had no effect on Total assets, Net interest income and Net income.

In addition, in accordance with FSP FIN 39-1, the FHLBNY recognized the effects of applying FSP FIN 39-1 as a change in accounting principle through retrospective application for all financial statement periods presented.

Recently issued Accounting Standards and Interpretations

SFAS 161 — In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (January 1, 2009 for the FHLBNY). Since SFAS 161 only requires additional disclosures concerning derivatives and hedging activities, adoption of SFAS 161 will not have an effect on our financial condition, results of operations or cash flows.

FSP No. FAS 133-1 and FIN 45-4. In September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.” FSP No. FAS 133-1 and FIN 45-4 require enhanced disclosures about credit derivatives and guarantees and amends FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” to exclude credit derivative instruments accounted for at fair value under SFAS No. 133. The FSP is effective for financial statements issued for reporting periods ending after November 15, 2008. Since FSP No. FAS 133-1 and FIN 45-4 only require additional disclosures concerning credit derivatives and guarantees, adoption of FSP No. FAS 133-1 and FIN 45-4 will not have an effect on our financial condition, results of operations or cash flows.

FSP No. FAS 157-3 — In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”, which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial instrument when the market for that financial asset is not active. The FSP was effective upon issuance. The application of this FSP did not have an impact on the FHLBNY’s financial position, results of operations or cash flows.

FSP EITF 99-20-1 — In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20 (“FSP EITF 99-20-1”)”. FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirement in SFAS 115 and other related guidance. FSP EITF 99-20-1 is effective and should be applied prospectively for financial statements issued for fiscal years and interim periods ending after December 15, 2008 (December 31, 2008 for the FHLBNY). Adoption of FSP EITF 99-20-1 at December 31, 2008 did not have a material effect on the FHLBNY’s financial condition, results of operations or cash flows.

204

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 2. Cash and due from banks

Cash on hand, cash items in the process of collection, and amounts due from correspondent banks and the Federal Reserve Banks are included in cash and due from banks.

Compensating balances

The Bank maintained average required clearing balances with the Federal Reserve Banks of approximately $1.0 million for the years ended December 31, 2008 and 2007. The Bank uses earnings credits on these balances to pay for services received from the Federal Reserve Banks.

Pass-through deposit reserves

The Bank acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks. Pass-through reserves deposited with Federal Reserve Banks were $31.0 million and $19.6 million as of December 31, 2008 and 2007. The Bank includes member reserve balances in other liabilities in the Statements of Condition.

Note 3. Interest-bearing deposits

In October 2008, the Board of Governors of the Federal Reserve System directed the Federal Reserve Banks to pay interest on balances in excess of certain required reserve and clearing balances. The formula for calculating interest earned is based on average excess over the calculation period; rates are generally tied to the federal funds rate. The balance at December 31, 2008, represents the actual excess balance with the Federal Reserve Bank of New York at December 31, 2008.

Note 4. Held-to-maturity securities

Held-to-maturity securities consist of mortgage- and asset-backed securities (collectively mortgage-backed securities or “MBS”), state and local housing finance agency bonds, and short-term certificates of deposits issued by highly-rated banks and financial institutions. The FHLBNY had pledged MBS with an amortized cost of $2.7 million to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY at December 31, 2008.

Mortgage-backed securities – Investments in mortgage-backed securities issued by Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corp (“Freddie Mac”) (together, government sponsored enterprises or “GSE”) at December 31, 2008 constituted 100% of $2.9 billion of the fair values of MBS classified as available-for-sale, and $7.6 billion, or 81.3%, of the amortized cost of MBS classified as held-to-maturity . The Bank’s held-to-maturity portfolio also included $1.7 billion of amortized cost of privately issued mortgage- and asset-backed securities at December 31, 2008. These securities primarily included residential and commercial mortgage-and asset-backed securities, and mortgage pass-throughs and Real Estate Mortgage Investment conduit bonds, and securities supported by manufactured housing loans.

205

Federal Home Loan Bank of New York
Notes to Financial Statements

Investments in GSE issued securities, specifically those issued by Fannie Mae and Freddie Mac, were affected by investor concerns regarding those entities’ capital levels needed to offset expected credit losses that may result from declining home prices. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. Additionally, in September 2008, the U.S. Treasury and the Finance Agency announced that Fannie Mae and Freddie Mac were placed into conservatorship, with the Finance Agency named as conservator. The Finance Agency will manage Fannie Mae and Freddie Mac in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. As the securities are guaranteed and the Bank has the ability and intent to hold the securities to recovery of their values, the Bank believes any unrealized loss will be recovered. The Bank believes that unrealized losses on GSE and government agency issued securities are primarily a result of the liquidity issues in the credit markets.

Certificates of deposits — Investments in certificates of deposits, all maturing within one year were $1.2 billion and $10.3 billion at December 31, 2008 and 2007.

State and local housing finance agency bonds — Investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) were classified as held-to-maturity and amortized cost was $804.1 million and $577.0 million at December 31, 2008 and 2007.

Impairment analysis and conclusions — Determining whether a decline in fair value is other-than-tempory requires significant judgment. The FHLBNY evaluates its individual held-to-maturity investment in private label issued mortgage-and- asset backed securities for other-than-temporary impairment on a quarterly basis. As part of this process, the FHLBNY considers its ability and intent to hold each security for a sufficient time to allow for any anticipated recovery of unrealized losses. To determine which individual securities are at risk for other-than-temporary impairment, the FHLBNY considers various characteristics of each security including, but not limited to, the following: the credit rating and related outlook or status; the creditworthiness of the issuers of the debt securities; the underlying type of collateral; the year of securitization or vintage, the duration and level of the unrealized loss; any credit enhancements or insurance for securities that were “wrapped” at inception; and certain other collateral-related characteristics such as FICO credit scores, and delinquency rates. The relative importance of this information varies based on the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment, and, if insured, the financial strength of the “monoline insurers” where the security relies on the insurer for support either currently or potentially in future periods. In determining monoline insurer support, the Bank considers the contractual terms of the insurance guarantee, and whether the credit protection under the terms of the agreement travels with the security; if the security is estimated to rely on insurance protection for cash flow deficiency either currently or in the future.

GSE issued securities — The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac or a government agency by considering the creditworthiness and performance of the debt securities and the strength of the GSE’s guarantees of the securities. Based on the Bank’s analysis, GSE and agency issued securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE and agency issued securities given the current levels of collateral and credit enhancements and guarantees that exist to protect the investments.

206

Federal Home Loan Bank of New York
Notes to Financial Statements

Non-agency PLMBS — The FHLBNY evaluated all 55 non-agency private label residential mortgage-backed securities in the portfolio by performing a security-level review. Commercial mortgage-backed securities were also reviewed at a security level. As a result of this security level review, the FHLBNY identified 21 residential mortgage-backed securities with weaker performance measures considered to be “at risk” of other-than-temporary impairment. These securities were evaluated further by analyzing and estimating projected cash flows based on the structure of the security under certain assumptions, such as estimated default rates, loss severity and prepayment speeds, to determine whether the FHLBNY expects to receive the contractual cash flows when it is entitled. The Bank’s cash flow projections employed multiple scenarios for each of its significant assumptions — loss severity, default rates and prepayment assumption: (1) loan-level vectors (where available) generated by mortgage models that used projected home price assumptions under different interest-rate environment. (2) market-based statistical information from specific issuer and shelf-specific performance research sourced from private-label MBS dealers and investors; and (3) current trustee/servicer reports for each security.

Monoline support — Fourteen of the 21 securities considered to be “at risk” at December 31, 2008 are insured by Ambac and MBIA and the insurance is part of the credit protection considered in the Bank’s analysis of impairment. A description of the fourteen securities follows:

• MBIA — Two securities, rated triple-B, with amortized cost basis of $37.6 million and fair value of $22.4 million are insured by MBIA. MBIA’s insurance arm, which provides bond insurance, was downgraded on February 17, 2009 to single-B. The Bank’s analysis at December 31, 2008 projected under various cash flow scenarios indicates that these securities would need support from MBIA to meet scheduled payments in the future.

• Ambac — Three securities, rated single-A, with amortized cost basis of $91.1 million and fair value of $48.6 million, and nine securities, rated triple-B, with amortized cost basis of $122.2 million and fair value of $70.3 million are insured by Ambac, which is rated triple-B. Currently, Ambac is paying claims on three securities with amortized cost basis of $28.3 million and fair value of $17.9 million in order to meet current cash flow deficiency within the structure of the securities. The Bank’s analysis at December 31, 2008 projected under various cash flow scenarios indicates that these securities would need support from Ambac to meet scheduled payments in the future.

The monoline insurers have been subject to adverse ratings and financial performance in 2008. Ratings downgrade imply an increased risk that the insurer will fail to fulfill its obligations to reimburse the investor for claims under the insurance policies. The Bank has analyzed the going-concern basis of the monoline insurers and their financial strength to perform with respect to their contractual obligations for the securities owned by the FHLBNY, and has concluded that Ambac and MBIA can be relied upon based on the timing and amount of the potential claim payments on securities owned by the FHLBNY. The Bank will continue to closely monitor the viability of the monoline insurers on an on-going basis.

Conclusion — Due to the issuers’ continued satisfaction of their obligations under the contractual terms of the securities, the estimated performance of the underlying collateral, the evaluation of the fundamentals of the issuers’ financial condition, the estimated support from the monoline insurers under the contractual terms of insurance, and the FHLBNY’s consideration of its intent and ability to hold the securities for a period of time sufficient to allow for the anticipated recovery in the market value of the securities, the FHLBNY believes that these securities were not other-than-temporarily impaired as of December 31, 2008 and 2007. However, without recovery in the near term such that liquidity returns to the mortgage-backed securities market and spreads return to levels that reflect underlying credit characteristics, or if the credit losses of the underlying collateral within the mortgage-backed securities perform worse than expected, or if the presumption of the ability of monoline insurers to support the insured securities identified at December 31, 2008 as dependent on insurance is negatively impacted by the insuers’ future financial performance, it would be likely that other-than-temporary impairment may occur in future periods.

207

Federal Home Loan Bank of New York
Notes to Financial Statements

Major Security Types

The amortized cost, gross unrealized gains, losses, and the fair value of held-to-maturity securities, were as follows (in thousands):

	December 31, 2008
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
State and local housing agency obligations	$	804,100	$	6,573	$	(47,512	)	$	763,161
Mortgage-backed securities		9,326,443		187,531		(342,662	)		9,171,312
Certificates of deposit		1,203,000		328		—			1,203,328
Total	$	11,333,543	$	194,432	$	(390,174	)	$	11,137,801

	December 31, 2007
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
State and local housing agency obligations	$	576,971	$	9,780	$	(200	)	$	586,551
Mortgage-backed securities		9,707,783		82,670		(97,191	)		9,693,262
Certificates of deposit		10,300,200		7,178		—			10,307,378
Total	$	20,584,954	$	99,628	$	(97,391	)	$	20,587,191

The following table summarizes the amortized cost of mortgage-backed securities classified as held-to-maturity securities by issuer (dollars in thousands):

	December 31,		Percentage			December 31,		Percentage
	2008		of total			2007		of total
U.S. government sponsored enterprise residential mortgage-backed securities	$	7,577,036		81.24	%	$	6,829,668		70.35	%
U.S. agency residential mortgage-backed securities		6,325		0.07			7,482		0.08
Private-label issued securities backed by home equity loans		636,466		6.83			752,808		7.76
Private-label issued residential mortgage-backed securities		609,908		6.54			769,140		7.92
Private-label issued commercial mortgage-backed securities		266,994		2.86			1,087,713		11.20
Private-label issued securities backed by manufactured housing loans		229,714		2.46			260,972		2.69
Total Held-to-maturity securities—MBS	$	9,326,443		100.00	%	$	9,707,783		100.00	%

208

Federal Home Loan Bank of New York
Notes to Financial Statements

Rating information of Held-to-maturity securities is presented below. For securities to which different rating levels have been assigned by external ratings agencies, the lowest rating category is reported.(in thousands):

	December 31, 2008
	AAA-rated		AA-rated		A-rated		BBB-rated		Total
Long-term securities
Mortgage-backed securities	$	8,705,952	$	229,714	$	192,678	$	198,099	$	9,326,443
State and local housing agency obligations		74,881		672,999		—		56,220		804,100
Total Long-term securities		8,780,833		902,713		192,678		254,319		10,130,543
Short-term securities
Certificates of deposit		—		628,000		575,000		—		1,203,000
Total	$	8,780,833	$	1,530,713	$	767,678	$	254,319	$	11,333,543

	December 31, 2007
	AAA-rated		AA-rated		A-rated		BBB-rated		Total
Long-term securities
Mortgage-backed securities	$	9,707,783	$	—	$	—	$	—	$	9,707,783
State and local housing agency obligations		271,253		305,718		—		—		576,971
Total Long-term securities		9,979,036		305,718		—		—		10,284,754
Short-term securities
Certificates of deposit		—		6,988,100		3,312,100		—		10,300,200
Total	$	9,979,036	$	7,293,818	$	3,312,100	$	—	$	20,584,954

209

Federal Home Loan Bank of New York
Notes to Financial Statements

Temporary Impairment

The following tables summarize held-to-maturity securities with fair values below their amortized cost, in an unrealized loss position. The fair values and unrealized losses are aggregated by major security type and by the length of time individual securities have been in a continuous unrealized loss position. Gross unrealized losses at December 31, 2008 were caused by interest rate changes, or actual credit losses in the underlying collateral, credit spread widening and reduced liquidity in the applicable markets. The FHLBNY has reviewed the investment security holdings and determined, based on creditworthiness of the securities and including any underlying collateral and/or insurance provisions of the security, that unrealized losses in the analysis below represent temporary impairment.

	December 31, 2008 (in thousands)
	Less than 12 months					12 months or more					Total
	Estimated Fair		Unrealized			Estimated Fair		Unrealized			Estimated Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Non-MBS Investment Securities
State and local housing agency bonds	$	78,261	$	(16,065	)	$	84,108	$	(31,447	)	$	162,369	$	(47,512	)
Total Non-MBS		78,261		(16,065	)		84,108		(31,447	)		162,369		(47,512	)
MBS Investment Securities
MBS — Other US Obligations
Ginnie Mae		6,137		(187	)		—		—			6,137		(187	)
MBS-GSE
Fannie Mae		3,452		(125	)		—		—			3,452		(125	)
Freddie Mac		1,102		(30	)		32		—			1,134		(30	)
Other		—		—			—		—			—		—
Total MBS-GSE		4,554		(155	)		32		—			4,586		(155	)
MBS-Other		509,273		(115,061	)		718,321		(227,259	)		1,227,594		(342,320	)
Total MBS		519,964		(115,403	)		718,353		(227,259	)		1,238,317		(342,662	)
Total Temporarily Impaired	$	598,225	$	(131,468	)	$	802,461	$	(258,706	)	$	1,400,686	$	(390,174	)

	December 31, 2007 (in thousands)
	Less than 12 months					12 months or more					Total
	Estimated Fair		Unrealized			Estimated Fair		Unrealized			Estimated Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Non-MBS Investment Securities
State and local housing agency obligations	$	—	$	—		$	9,800	$	(200	)	$	9,800	$	(200	)
Total Non-MBS		—		—			9,800		(200	)		9,800		(200	)
MBS Investment Securities
MBS-GSE
Fannie Mae		72,283		(72	)		1,600,551		(30,995	)		1,672,834		(31,067	)
Freddie Mac		—		—			931,565		(10,492	)		931,565		(10,492	)
Other		—		—			—		—			—		—
Total MBS-GSE		72,283		(72	)		2,532,116		(41,487	)		2,604,399		(41,559	)
MBS-Other		897,575		(16,747	)		1,010,739		(38,886	)		1,908,314		(55,633	)
Total MBS		969,858		(16,819	)		3,542,855		(80,373	)		4,512,713		(97,192	)
Total Temporarily Impaired	$	969,858	$	(16,819	)	$	3,552,655	$	(80,573	)	$	4,522,513	$	(97,392	)

210

Federal Home Loan Bank of New York
Notes to Financial Statements

Redemption terms

The amortized cost and estimated fair value of held-to-maturity securities, by contractual maturity, were as follows (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	December 31, 2008				December 31, 2007
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
State and local housing agency obligations
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years		17,665		18,209		32,009		32,474
Due after five years through ten years		60,400		55,060		20,400		20,938
Due after ten years		726,035		689,892		524,562		533,139
State and local housing agency obligations		804,100		763,161		576,971		586,551
Mortgage-backed securities
Due in one year or less		257,999		258,120		243,309		242,471
Due after one year through five years		—		—		546,303		555,003
Due after five years through ten years		1,142,000		1,149,541		103,792		104,563
Due after ten years		7,926,444		7,763,651		8,814,379		8,791,225
Mortgage-backed securities		9,326,443		9,171,312		9,707,783		9,693,262
Certificates of deposit
Due in one year or less		1,203,000		1,203,328		10,300,200		10,307,378
Due after one year through five years		—		—		—		—
Due after five years through ten years		—		—		—		—
Due after ten years		—		—		—		—
Certificates of deposit		1,203,000		1,203,328		10,300,200		10,307,378
Total held-to-maturity securities	$	11,333,543	$	11,137,801	$	20,584,954	$	20,587,191

The amortized cost of mortgage-backed securities classified as held-to-maturity includes discounts of $19.8 million as of December 31, 2008 and premiums of $1.1 million as of December 31, 2007. Amortization expense, net of accretion charged to interest income was $1.8 million, $1.9 million, and $3.9 million for the years ended December 31, 2008, 2007 and 2006.

211

Federal Home Loan Bank of New York
Notes to Financial Statements

Interest rate payment terms

The following table summarizes interest rate payment terms of long-term securities classified as held-to-maturity (excludes certificates of deposit) (in thousands):

	December 31,
	2008		2007
State and local housing agency obligations — amortized cost
Fixed-rate	$	240,820	$	308,180
Variable-rate		563,280		268,791
		804,100		576,971
Mortgage-backed securities — amortized cost
Pass-through securities
Fixed-rate		2,960,477		3,420,037
Variable-rate		134,703		188,369
Collateralized mortgage obligations
Fixed-rate		6,213,857		6,078,767
Variable-rate		17,406		20,610
		9,326,443		9,707,783
Total	$	10,130,543	$	10,284,754

Note 5. Available-for-sale securities

The Bank’ s entire portfolio of mortgage-backed securities classified as Available-for-sale (“AFS”) are comprised of securities issued by GSEs, variable rate collateralized mortgage obligations which are “pass through” securities. The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac or a government agency by considering the creditworthiness and performance of the debt securities and the strength of the government-sponsored enterprises’ guarantees of the securities. Based on the Bank’s analysis, GSE and government agency issued securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE and government agency issued securities given the current levels of collateral and credit enhancements and guarantees that exist to protect the investments. The FHLBNY has the intent and ability to hold the securities for a period of time sufficient to allow for the anticipated recovery in the market value of the securities, and believes that these securities were not other-than-temporarily impaired as of December 31, 2008. Two small grantor trusts with investments in money market and bond funds make up the remainder of the AFS portfolio. The Bank established two grantor trusts to fund current and future payments under two supplemental pension plans. Investments in equity and fixed-income funds are redeemable at short notice. Realized gains and losses from investments in the funds were not significant. No security classified as available-for-sale had been pledged at December 31, 2008 and December 31, 2007.

212

Federal Home Loan Bank of New York
Notes to Financial Statements

The unamortized cost, gross unrealized gains, losses, and the fair value of investments classified as available-for-sale were as follows (in thousands):

	December 31, 2008
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Cash equivalents	$	836	$	—	$	—		$	836
Equity funds		8,978		—		(3,516	)		5,462
Fixed income funds		3,833		66		(10	)		3,889
Mortgage-backed securities		2,912,642		364		(61,324	)		2,851,682
Total	$	2,926,289	$	430	$	(64,850	)	$	2,861,869

	December 31, 2007
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Cash equivalents	$	791	$	—	$	—		$	791
Equity funds		8,386		—		(570	)		7,816
Fixed income funds		4,383		197		—			4,580
Total	$	13,560	$	197	$	(570	)	$	13,187

Temporary Impairment – Available-for-sale securities

	December 31, 2008
	Less than 12 months					12 months or more					Total
	Estimated Fair		Unrealized			Estimated Fair		Unrealized			Estimated Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities
MBS — GSE
Fannie Mae	$	1,662,928	$	(35,047	)	$	142,630	$	(3,539	)	$	1,805,558	$	(38,586	)
Freddie Mac		957,617		(21,744	)		39,077		(994	)		996,694		(22,738	)
Total MBS-GSE		2,620,545		(56,791	)		181,707		(4,533	)		2,802,252		(61,324	)
Total Temporarily Impaired	$	2,620,545	$	(56,791	)	$	181,707	$	(4,533	)	$	2,802,252	$	(61,324	)

Gross unrealized losses at December 31, 2008 were caused by interest rate changes, credit spread widening and reduced liquidity in the applicable markets. The FHLBNY has reviewed the investment security holdings and determined, based on creditworthiness of the securities and including any underlying collateral and/or insurance provisions of the security, that unrealized losses in the analysis above represent temporary impairment.

There were no investments in MBS classified as available-for-sale at December 31, 2007.

213

Federal Home Loan Bank of New York
Notes to Financial Statements

Rating information of Available-for-sale securities is presented below (in thousands):

	December 31, 2008
	AAA-rated		AA-rated		A-rated		BBB-rated		Unrated		Total
Available-for-sale securities 1
Mortgage-backed securities	$	2,851,682	$	—	$	—	$	—	$	—	$	2,851,682
Other — Grantor trusts		—		—		—				10,187		10,187
Total	$	2,851,682	$	—	$	—	$	—	$	10,187	$	2,861,869

¹ Available-for-sale securities are at fair value.

	December 31, 2007
	AAA-rated		AA-rated		A-rated		BBB-rated		Unrated		Total
Available-for-sale securities 1
Mortgage-backed securities	$	—	$	—	$	—	$	—	$	—	$	—
Other — Grantor trusts		—		—		—		—		13,187		13,187
Total	$	—	$	—	$	—	$	—	$	13,187	$	13,187

¹ Available-for-sale securities are at fair value.

214

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 6 . Advances

Redemption terms

Contractual redemption terms and yields of advances were as follows (dollars in thousands):

	December 31,
	2008									2007
				Weighted 2									Weighted 2
				Average			Percentage						Average			Percentage
	Amount			Yield			of Total			Amount			Yield			of Total
Overdrawn demand deposit accounts	$	—			0.00	%		0.00	%	$	—			0.00	%		0.00	%
Due in one year or less		32,420,095			2.52			31.36			24,140,285			4.72			29.95
Due after one year through two years		16,150,121			3.71			15.62			7,714,912			4.87			9.57
Due after two years through three years		7,634,680			3.76			7.39			8,730,643			5.13			10.83
Due after three years through four years		6,852,514			3.74			6.63			3,153,113			4.89			3.91
Due after four years through five years		3,210,575			3.88			3.11			5,988,142			4.76			7.43
Due after five years through six years		836,689			3.74			0.81			556,095			3.44			0.69
Thereafter		36,275,053			3.96			35.08			30,308,864			4.29			37.62
Total par value		103,379,727			3.44	%		100.00	%		80,592,054			4.62	%		100.00	%
Discount on AHP advances 1		(330	)								(417	)
SFAS 133 hedging basis adjustments 1		5,773,479									1,498,030
Total	$	109,152,876								$	82,089,667

1

Discounts on AHP advances were amortized to interest income using the level-yield method and were not significant for all periods reported. Amortization of fair value basis adjustments for terminated hedges was a charge to interest income and amounted to ($2.0) million, ($0.4) million, and ($0.4) million for the years ended December 31, 2008, 2007 and 2006. All other amortization charged to interest income aggregated ($0.0) million, ($0.5) million, and ($0.6) million for the years ended December 31, 2008, 2007 and 2006. Interest rates on AHP advances ranged from 1.25% to 6.04% in 2008 and 2007.

2

The weighed average yield is the weighted average coupon rates for advances, unadjusted for swaps.

The Bank offers putable advances to members. With a putable advance, the Bank effectively purchases a put option from the member that allows the Bank to terminate the fixed-rate advance, which is normally exercised when interest rates have increased from those prevailing at the time the advance was made. When the Bank exercises the put option, it will offer to extend additional credit on then prevailing market rates and terms. As of December 31, 2008 and 2007, the Bank had putable advances outstanding totaling $43.4 billion and $38.8 billion.

215

Federal Home Loan Bank of New York
Notes to Financial Statements

The table below offers a view of the advance portfolio with the possibility of the exercise of the put option that is controlled by the FHLBNY, and put dates are summarized into similar maturity tenors as the previous table that summarizes advances by contractual maturities (dollars in thousands):

	December 31,
				Percentage of						Percentage of
	2008			total			2007			total
Overdrawn demand deposit accounts	$	—			0.00	%	$	—			0.00	%
Due or putable in one year or less		63,251,007			61.18			48,005,147			59.57
Due or putable after one year through two years		18,975,821			18.36			16,112,362			19.99
Due or putable after two years through three years		10,867,530			10.51			7,546,243			9.36
Due or putable after three years through four years		5,293,364			5.12			2,607,563			3.24
Due or putable after four years through five years		2,728,075			2.64			4,180,492			5.19
Due or putable after five years through six years		230,189			0.22			121,095			0.15
Thereafter		2,033,741			1.97			2,019,152			2.50
Total par value		103,379,727			100.00	%		80,592,054			100.00	%
Discount on AHP advances		(330	)					(417	)
SFAS 133 hedging basis adjustments		5,773,479						1,498,030
Total	$	109,152,876					$	82,089,667

Security Terms

The FHLBNY lends to financial institutions involved in housing finance within its district. The FHLBank Act requires the FHLBNY to obtain sufficient collateral on advances to protect against losses and to accept as collateral on such advances only certain U.S. government or government agency securities, residential mortgage loans, cash or deposits in the FHLBNY and other eligible real estate-related assets. In addition, the FHLBNY is permitted, but not required, to accept collateral in the form of small business or agricultural loans (“expanded collateral”) from Community Financial Institutions (“CFIs”). CFIs are defined in the Housing Act as those institutions that have, as of the date of the transaction at issue, less than $1.0 billion in average total assets over the three years preceding that date (subject to annual adjustment by the Finance Agency director based on the consumer price index). It is the FHLBNY’s policy not to accept such expanded collateral for advances. Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances. As of December 31, 2008 and 2007, the FHLBNY had rights to collateral with an estimated value greater than outstanding advances. Based upon the financial condition of the member, the FHLBNY:

(1)	Allows a member to retain possession of the collateral assigned to the FHLBNY, if the member executes a written security agreement and agrees to hold such collateral for the benefit of the FHLBNY; or
(2)	Requires the member specifically to assign or place physical possession of such collateral with the FHLBNY or its safekeeping agent.

Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by a member to the FHLBNY priority over the claims or rights of any other party. The two exceptions are claims that would be entitled to priority under otherwise applicable law or perfected security interests. All member obligations with the Bank were fully collateralized throughout their entire term. The total of collateral pledged to the Bank includes excess collateral pledged above the Bank’s minimum collateral requirements. These minimum requirements range from 103% to 125% of outstanding advances, based on the collateral type. It is not uncommon for members to maintain excess collateral positions with the

216

Federal Home Loan Bank of New York
Notes to Financial Statements

Bank for future liquidity needs. Based on several factors (e.g. advance type, collateral type or member financial condition) members are required to comply with specified collateral requirements, including but not limited to, a detailed listing of pledged mortgage collateral and/or delivery of pledged collateral to the Bank or its designated collateral custodian(s). For example, all pledged securities collateral must be delivered to the Bank’s nominee name at Citibank, N.A., its securities safekeeping custodian. Mortgage collateral that is required to be in the Bank’s possession is typically delivered to the Bank’s Jersey City, New Jersey facility. However, in certain instances, delivery to a Bank approved custodian may be allowed. In both instances, the members provide periodic listings updating the information of the mortgage collateral in possession.

As of December 31, 2008, members pledged a total of $186.0 billion in collateral to the Bank. At a minimum, each member pledged sufficient collateral to adequately secure their outstanding obligations with the Bank. Of the total collateral securing all outstanding member obligations, $60.5 billion was in the Bank’s physical possession or that of its safekeeping agent(s); $125.5 billion was specifically listed. Under this collateralization arrangement, the member holds physical possession of specific collateral pledged to the FHLBNY but the member provides listings of loans pledged to the FHLBNY with detailed loan information such as loan amount, payments, maturity date, interest rate, loan-to-value, collateral type, FICO scores, etc.

Credit Risk

The FHLBNY has never experienced a credit loss on an advance. The management of the Bank has policies and procedures in place to appropriately manage credit risk. There were no past due advances and all advances were current for each of the periods ended December 31, 2008 and 2007. Management does not anticipate any credit losses, and accordingly, the Bank has not provided an allowance for credit losses on advances. The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions and insurance companies.

Concentration of advances outstanding - Advances to the FHLBNY’s top five borrowing member institutions aggregated $52.2 billion, representing 50.4% of the par amounts of advances outstanding at December 31, 2008. The FHLBNY held sufficient collateral to cover the advances to all of these institutions, and it does not expect to incur any credit losses.

Interest Rate Payment Terms

The following table summarizes interest rate payment terms for advances (dollars in thousands):

	December 31,
	2008						2007
				Percentage						Percentage
	Amount			of total			Amount			of total
Fixed-rate	$	83,173,877			80.45	%	$	60,779,510			75.42	%
Variable-rate		19,740,850			19.10			18,654,850			23.15
Variable-rate capped		465,000			0.45			1,157,694			1.43
Total par value		103,379,727			100.00	%		80,592,054			100.00	%
Discount on AHP Advances		(330	)					(417	)
SFAS 133 hedging basis adjustments		5,773,479						1,498,030
Total	$	109,152,876					$	82,089,667

Variable-rate advances were mainly indexed to the London Interbank Offered Rate (LIBOR) or the Federal funds effective rate.

217

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 7. Affordable Housing Program and REFCORP

The FHLBank Act requires each FHLBank to establish an AHP. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the AHP the greater of $100 million or 10% of regulatory income. The FHLBNY charges the amount set aside for AHP to income and recognizes it as a liability. The FHLBNY relieves the AHP liability as members use the subsidies. If the result of the aggregate 10% calculation described above is less than $100 million for all twelve FHLBanks, then the FHLBank Act requires the shortfall to be allocated among the FHLBanks based on the ratio of each FHLBank’s income before AHP and REFCORP to the sum of the income before AHP and REFCORP of the twelve FHLBanks. There was no shortfall in 2008, 2007 or 2006. The FHLBNY had outstanding principal in AHP-related advances of $5.0 million and $5.6 million as of December 31, 2008 and 2007.

Regulatory income is income before assessments, and before interest expense related to mandatorily redeemable capital stock under SFAS 150, but after the assessment for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation. The AHP and REFCORP assessments are calculated simultaneously because of their interdependence on each other. Each FHLBank accrues this expense monthly based on its income before assessments. An FHLBank reduces its AHP liability as members use subsidies.

If an FHLBank experienced a regulatory loss during a quarter, but still had regulatory income for the year, the FHLBank’s obligation to the AHP would be calculated based on the FHLBank’s year-to-date regulatory income. If the FHLBank had regulatory income in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the FHLBank experienced a regulatory loss for a full year, the FHLBank would have no obligation to the AHP for the year unless the aggregate 10 percent calculation described above was less than $100 million for all 12 FHLBanks, if it were, each FHLBank would be required to assure that the aggregate contribution of the FHLBanks equals $100 million. The pro ration would be made on the basis of an FHLBank’s income in relation to the income of all FHLBanks for the previous year. Each FHLBank’s required annual AHP contribution is limited to its annual net earnings.

The following provides roll-forward information with respect to changes in Affordable Housing Program liabilities (in thousands):

	Years ended December 31,
	2008			2007			2006
Beginning balance	$	119,052		$	101,898		$	91,004
Additions from current period’s assessments		29,783			37,204			32,031
Net disbursements for grants and programs		(26,386	)		(20,050	)		(21,137	)
Ending balance	$	122,449		$	119,052		$	101,898

Each FHLBank is required to pay to REFCORP 20 percent of income calculated in accordance with GAAP after the assessment for AHP, but before the assessment for REFCORP. The AHP and REFCORP assessments are calculated simultaneously because of their interdependence on each other. Each FHLBank accrues its REFCORP assessment on a monthly basis. REFCORP has been designated as the calculation agent for AHP and REFCORP assessments. Each FHLBank provides its net income before AHP and REFCORP to REFCORP, which then performs the calculations for each quarter end.

218

Federal Home Loan Bank of New York
Notes to Financial Statements

The FHLBanks will continue to be obligated to pay these amounts until the aggregate amounts actually paid by all 12 FHLBanks are equivalent to a $300 million annual annuity (or a scheduled payment of $75 million per quarter) whose final maturity date is April 15, 2030, at which point the required payment of each FHLBank to REFCORP will be fully satisfied. The cumulative amount to be paid to REFCORP by each FHLBank is not determinable at this time because it depends on the future earnings of all FHLBanks and interest rates. If an FHLBank experienced a net loss during a quarter, but still had net income for the year, the FHLBank’s obligation to REFCORP would be calculated based on the FHLBank’s year-to-date GAAP net income. If the FHLBank had net income in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the FHLBank experienced a net loss for a full year, the FHLBank would have no obligation to REFCORP for the year.

The Finance Agency is required to extend the term of the FHLBanks’ obligation to REFCORP for each calendar quarter in which the FHLBanks’ quarterly payment falls short of $75 million.

Note 8. Mortgage loans held-for-portfolio

Mortgage Partnership Finance program loans, or (“MPF”) constitute the majority of the mortgage loans held-for-portfolio. The MPF program involves investment by the FHLBNY in mortgage loans that are purchased from or originated through its participating financial institutions (“PFIs”). The members retain servicing rights and may credit-enhance the portion of the loans participated to the FHLBNY. No intermediary trust is involved. In the CMA program, FHLBNY participated in residential, multi-family and community economic development mortgage loans originated by its members. Included in outstanding balances were $36.8 million and $40.5 million at December 31, 2008 and 2007 with respect to loans that are considered to be originated by the FHLBNY.

Included in mortgage loans were loans in the Community Mortgage Asset program (“CMA”), which has been inactive since 2001. Outstanding balances of CMA loans were $4.0 million and $4.1 million at December 31, 2008 and 2007.

The following table presents information on mortgage loans held-for-portfolio (dollars in thousands):

	December 31,
	2008			Percentage			2007			Percentage
Real Estate:
Fixed medium-term single-family mortgages	$	467,845			32.15	%	$	529,839			35.61	%
Fixed long-term single-family mortgages		983,493			67.58			953,946			64.11
Multi-family mortgages		4,009			0.27			4,102			0.28
Total par value		1,455,347			100.00	%		1,487,887			100.00	%
Unamortized premiums		10,662						11,779
Unamortized discounts		(6,310	)					(6,805	)
Basis adjustment 1		(408	)					(600	)
Total mortgage loans held-for-portfolio		1,459,291						1,492,261
Allowance for credit losses		(1,406	)					(633	)
Total mortgage loans held-for-portfolio after allowance for credit losses	$	1,457,885					$	1,491,628

¹ Represents fair value basis of open and closed delivery commitments.

219

Federal Home Loan Bank of New York
Notes to Financial Statements

Loans insured by the Federal Housing Administration and Veteran Administration were $7.0 million and $8.4 million at December 31, 2008 and 2007. Conventional mortgages and loans in the CMA program constituted the remaining balance of mortgage loans held-for-portfolio.

The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit losses into layers (See Note 1 — Summary of Significant Accounting Policies). The first layer is typically 100 basis points but varies with the particular MPF program. The amount of the first layer, or First Loss Account or “FLA”, was estimated as $13.8 million and $12.9 million at December 31, 2008 and 2007. The FLA is not recorded or reported as a reserve for loan losses as it serves as a memorandum information account. The FHLBNY is responsible for absorbing the first layer. The second layer is that amount of credit obligations that the Participating Financial Institution (“PFI”) has taken on which will equate the loan to a double-A rating. The FHLBNY pays a Credit Enhancement fee to the PFI for taking on this obligation. The FHLBNY assumes all residual risk. Credit Enhancement fee accrued was $1.7 million for each of the years ended December 31, 2008, 2007 and 2006, and reported as a reduction to mortgage loan interest income. The amount of charge-offs in each period reported was insignificant and it was not necessary for the FHLBNY to recoup any losses from the PFIs.

The following provides roll-forward analysis of the allowance for credit losses (in thousands):

	Year ended December 31,
	2008			2007		2006
Beginning balance	$	633		$	593	$	582
Charge-offs		21			—		(18	)
Recoveries		(21	)		—		18
Net charge-offs		—			—		—
Provision (Recovery) for credit losses on mortgage loans		773			40		11
Ending balance	$	1,406		$	633	$	593

As of December 31, 2008 and 2007, the FHLBNY had $4.8 million and $4.2 million of non-accrual loans. The estimated fair value of the mortgage loans as of December 31, 2008 and 2007 is reported in Note 19 – Fair Values of Financial Instruments. Mortgage loans are considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreements. As of December 31, 2008 and 2007, the FHLBNY had no investment in impaired mortgage loans, other than the non-accrual loans.

The following table summarizes mortgage loans held-for-portfolio, all Veterans Administrations insured loans, past due 90 days or more and still accruing interest (in thousands):

	December 31,
	2008		2007
Secured by 1-4 family	$	507	$	384

220

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 9. Related party transactions

The FHLBNY is a cooperative and the members own almost all of the stock of the Bank. Stock that is not owned by members is held by former members. The majority of the members of the Board of Directors of the FHLBNY are elected by and from the membership. The FHLBNY conducts its advances business almost exclusively with members. The Bank considers its transactions with its members and non-member stockholders as related party transactions in addition to transactions with other FHLBanks, the Office of Finance, and the Finance Agency. All transactions with all members, including those whose officers may serve as directors of the FHLBNY, are at terms that are no more favorable than comparable transactions with other members. The FHLBNY may from time to time borrow or sell overnight and term Federal funds at market rates to members.

Debt Transfers

During 2008, there was no transfer of consolidated obligation bonds to other FHLBanks. In 2007 and 2006, the Bank transferred par amounts of $487.0 million and $755.0 million, and recorded losses of $4.6 million and $25.4 million. Amounts transferred were in exchange for a cash price that represented the fair market values of the bonds. No bonds were transferred to the FHLBNY from another FHLBank in 2008 and 2007.

At trade date, the transferring bank notifies the Office of Finance of a change in primary obligor for the transferred debt.

Advances sold or transferred

No advances were transferred/sold to the FHLBNY or from the FHLBNY to another FHLBank in 2008, 2007 and 2006.

MPF Program

In the MPF program, the FHLBNY may participate out certain portions of its purchases of mortgage loans from its members. Transactions are at market rates. The FHLBank of Chicago, the MPF provider’s cumulative share of interest in the FHLBNY’s MPF loans at December 31, 2008 was $125.0 million from inception of the program through mid-2004. Since 2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago. Fees paid to the FHLBank of Chicago were $566.0 thousand, $559.0 thousand and $515.0 thousand for the years ended December 31, 2008, 2007 and 2006.

Mortgage-backed Securities

No mortgage-backed securities were acquired from other FHLBanks during the periods in this report.

Intermediation

Notional amounts of $300.0 million and $70.0 million were outstanding at December 31, 2008 and 2007 in which the FHLBNY acted as an intermediary to sell derivatives to members. These were offset by identical transactions with unrelated derivatives counterparties. Fair value exposures of these transactions at December 31, 2008 and 2007 were not material. The intermediated derivative transactions were fully collateralized.

Loans to other Federal Home Loan Banks

At December 31, 2008, the FHLBNY had extended no loans to another FHLBank. At December 31, 2007, the FHLBNY had extended $55.0 million as an overnight loan to another FHLBank on an unsecured basis. In 2008, loans made to other FHLBanks were uncollateralized and averaged $2.7 million; in 2007 and 2006, loans averaged $151.0 thousand and $685.0 thousand. The maximum balance was $200.0 million and $55.0 million in 2008 and 2007. Interest income from such loans was $31.0 thousand, $2.0 thousand and $37.0 thousand for the years ended December 31, 2008, 2007 and 2006.

221

Federal Home Loan Bank of New York
Notes to Financial Statements

Borrowings from other Federal Home Loan Banks

The FHLBNY borrows from other FHLBanks, generally for a period of one day. Such borrowings averaged $5.5 million, $3.0 million and $2.9 million for the years ended December 31, 2008, 2007 and 2006. There were no borrowings outstanding as of December 31, 2008 and 2007. Interest expense for the years ended December 31, 2008, 2007 and 2006 was $159.4 thousand, $146.0 thousand, and $144.0 thousand.

The following tables summarize outstanding balances with related parties at December 31, 2008 and 2007, and transactions for each of the years ended December 31, 2008, 2007 and 2006 (in thousands):

Related Party: Outstanding Assets, Liabilities and Capital

	December 31, 2008				December 31, 2007
	Related		Unrelated		Related		Unrelated
Assets
Cash and due from banks	$	—	$	18,899	$	—	$	7,909
Interest-bearing deposits		—		12,169,096		—		—
Federal funds sold		—		—		—		4,381,000
Available-for-sale securities		—		2,861,869		—		13,187
Held-to-maturity securities
Long-term securities		—		10,130,543		—		10,284,754
Certificates of deposit		—		1,203,000		—		10,300,200
Advances		109,152,876		—		82,089,667		—
Mortgage loans 1		—		1,457,885		—		1,491,628
Loans to other FHLBanks		—		—		55,000		—
Accrued interest receivable		433,755		59,101		402,439		159,884
Premises, software, and equipment		—		13,793		—		13,154
Derivative assets 2		—		20,236		—		28,978
Other assets 3		153		18,685		87		17,004
Total assets	$	109,586,784	$	27,953,107	$	82,547,193	$	26,697,698
Liabilities and capital
Deposits	$	1,451,978	$	—	$	1,605,535	$	—
Consolidated obligations		—		128,586,611		—		101,117,387
Mandatorily redeemable capital stock		143,121		—		238,596		—
Accrued interest payable		814		425,330		60		655,810
Affordable Housing Program 4		122,449		—		119,052		—
Payable to REFCORP		—		4,780		—		23,998
Derivative liabilities 2		—		861,660		—		673,342
Other liabilities 5		31,003		44,750		19,584		40,936
Total liabilities	$	1,749,365	$	129,923,131	$	1,982,827	$	102,511,473
Capital		5,867,395		—		4,750,591		—
Total liabilities and capital	$	7,616,760	$	129,923,131	$	6,733,418	$	102,511,473

1	Includes insignificant amounts of mortgage loans purchased from members of another FHLBank.
2	Derivative assets and liabilities include insignificant fair values due to intermediation activities on behalf of members.
3	Includes insignificant amounts of miscellaneous assets that are considered related party.
4	Represents funds not yet disbursed to eligible programs.
5	Related column includes member pass-through reserves at the Federal Reserve Bank.

222

Federal Home Loan Bank of New York
Notes to Financial Statements

Related Party: Income and Expense transactions

	Years ended December 31,
	2008				2007				2006
	Related		Unrelated		Related		Unrelated		Related		Unrelated
Interest income
Advances	$	3,030,799	$	—	$	3,495,312	$	—	$	3,302,174	$	—
Interest-bearing deposits 1		—		28,012		—		3,333		—		2,744
Federal funds sold		—		77,976		—		192,845		—		145,420
Available-for-sale securities		—		80,746		—		—		—		—
Held-to-maturity securities
Long-term securities		—		531,151		—		596,761		—		580,002
Certificates of deposit		—		232,300		—		408,308		—		297,742
Mortgage loans 2		—		77,862		—		78,937		—		76,111
Loans to other FHLBanks and other		33		—		7		2		49		5
Total interest income	$	3,030,832	$	1,028,047	$	3,495,319	$	1,280,186	$	3,302,223	$	1,102,024
Interest expense
Consolidated obligations	$	—		3,318,160		—	$	4,153,094	$	—		3,846,219
Deposits		36,193		—		106,777		—		81,442		—
Mandatorily redeemable capital stock		8,984		—		11,731		—		3,086		—
Cash collateral held and other borrowings		163		881		146		4,370		144		3,238
Total interest expense	$	45,340	$	3,319,041	$	118,654	$	4,157,464	$	84,672	$	3,849,457
Service fees	$	3,357	$	—	$	3,324	$	—	$	3,368	$	—

1	Includes de minimis amounts of interest income from MPF service provider.
2	Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank.

Note 10. Deposits

The FHLBNY accepts demand, overnight and term deposits from its members. A member that services mortgage loans may deposit in the FHLBNY funds collected in connection with the mortgage loans, pending disbursement of such funds to the owners of the mortgage loans.

The following table summarizes term deposits (in thousands):

	December 31,
	2008		2007
Due in one year or less	$	117,400	$	16,900
Total term deposits	$	117,400	$	16,900

223

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 11. Borrowings

Securities sold under agreements to repurchase

The FHLBNY did not have any securities sold under agreement to repurchase as of December 31, 2008 or 2007. Terms, amounts and outstanding balances of borrowings from other Federal Home Loan Banks are described under Note 9 — Related party transactions.

Note 12. Consolidated obligations

Consolidated obligations are the joint and several obligations of the FHLBanks and consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their fiscal agent. Consolidated bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated discount notes are issued primarily to raise short-term funds. Discount notes sell at less than their face amount and are redeemed at par value when they mature.

The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations. Although it has never occurred, to the extent that an FHLBank would make a payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank would be entitled to reimbursement from the non-complying FHLBank. However, if the Finance Agency determines that the non-complying FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis the Finance Agency may determine.

Based on management’s review, the FHLBNY has no reason to record actual or contingent liabilities with respect to the occurrence of events or circumstances that would require the FHLBNY to assume an obligation on behalf of other FHLBanks. The par amounts of the FHLBanks’ outstanding consolidated obligations, including consolidated obligations held by other FHLBanks, were approximately $1,251.5 billion and $1,189.7 billion as of December 31, 2008 and 2007.

Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations, participations, mortgages, or other securities of or issued by the United States or an agency of the United States; and securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is located.

The FHLBNY met the qualifying unpledged asset requirements in each of the years reported as follows:

	December 31,
	2008			2007
Percentage of unpledged qualifying assets to consolidated obligations		107	%		108	%

224

Federal Home Loan Bank of New York
Notes to Financial Statements

To provide the holders of consolidated obligations issued before January 29, 1993 (prior bondholders) with the protection equivalent to that provided under the FHLBanks’ previous leverage limit of twelve times the FHLBanks’ capital stock, prior bondholders have a claim on the qualifying assets [Special Asset Account (SAA)] if capital stock is less than 8.33% of consolidated obligations. As of December 31, 2008 and 2007, the combined FHLBanks’ capital stock was 4.14% and 4.32% of the par value of consolidated obligations outstanding, and the SAA balance was approximately $6 thousand at December 31, 2008 and $6 thousand at December 31, 2007. Further, the regulations require each FHLBank to transfer qualifying assets in the amount of its allocated share of the FHLBanks’ SAA to a trust for the benefit of the prior bondholders, if its capital-to-assets ratio falls below 2.0%. No transfer has been made because the ratio has never been below 2.0%.

General Terms

Consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that use a variety of indices for interest rate resets. These indices include the London Interbank Offered Rate (“LIBOR”), Constant Maturity Treasury (“CMT”), 11th District Cost of Funds Index (“COFI”), and others. In addition, to meet the expected specific needs of certain investors in consolidated obligations, both fixed- and variable-rate bonds may also contain certain features that may result in complex coupon payment terms and call options. When such consolidated obligations are issued, the FHLBNY may enter into derivatives containing offsetting features that effectively convert the terms of the bond to those of a simple variable- or fixed-rate bond.

These consolidated obligations, beyond having fixed-rate or simple variable-rate coupon payment terms, may also include Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in whole or in part at its discretion on predetermined call dates, according to the terms of the bond offerings.

With respect to interest payment terms, consolidated bonds may also have step-up, or step-down terms. Step-up bonds generally pay interest at increasing fixed rates for specified intervals over the life of the bond. Step-down bonds pay interest at decreasing fixed rates. These bonds generally contain provisions enabling the FHLBNY to call bonds at its option on predetermined exercise dates at par.

The following summarizes consolidated obligations issued by the FHLBNY and outstanding at December 31, 2008 and 2007 (in thousands):

	December 31, 2008		December 31, 2007
Consolidated obligation bonds-amortized cost	$	80,978,383	$	66,066,027
SFAS 133 fair value basis adjustments		1,254,523		259,405
Fair value basis on terminated hedges		7,857		385
SFAS 159 valuation adjustments and accrued interest		15,942		—
Total Consolidated obligation-bonds	$	82,256,705	$	66,325,817
Discount notes — amortized cost	$	46,329,545	$	34,791,570
Fair value basis adjustments		361		—
Total Consolidated obligation-discount notes	$	46,329,906	$	34,791,570

225

Federal Home Loan Bank of New York
Notes to Financial Statements

Redemption Terms of consolidated obligation bonds

The following is a summary of consolidated bonds outstanding by year of maturity (dollars in thousands):

	December 31,
	2008									2007
				Weighted									Weighted
				Average			Percentage						Average			Percentage
Maturity	Amount			Rate 1			of total			Amount			Rate 1			of total
One year or less	$	49,568,550			1.93	%		61.23	%	$	38,027,475			4.69	%		57.57	%
Over one year through two years		16,192,550			3.20			20.00			11,047,950			4.78			16.73
Over two years through three years		5,299,700			3.73			6.55			6,344,300			4.85			9.60
Over three years through four years		2,469,575			4.75			3.05			2,309,100			4.99			3.50
Over four years through five years		3,352,450			3.99			4.14			2,972,845			5.14			4.50
Over five years through six years		989,300			5.06			1.22			728,250			5.27			1.10
Thereafter		3,082,050			5.35			3.81			4,626,050			5.31			7.00
Total par value		80,954,175			2.64	%		100.00	%		66,055,970			4.80	%		100.00	%
Bond premiums		63,737									38,586
Bond discounts		(39,529	)								(28,529	)
SFAS 133 fair value basis adjustments		1,254,523									259,405
Fair value basis adjustments on terminated hedges		7,857									385
SFAS 159 valuation adjustments and accrued interest		15,942									—
Total bonds	$	82,256,705								$	66,325,817

¹ Weighted average rate represents the weighted average coupons of bonds, unadjusted for swaps. The weighted average coupon of bonds outstanding at December 31, 2008 and 2007, represent contractual coupons payable to investors.

Amortization of bond premiums and discounts resulted in net reduction of interest expense of $14.1 million, $1.8 million, and $17.4 million for the years ended December 31, 2008, 2007 and 2006. Amortization of basis adjustments from terminated hedges was a net increase of $5.9 million, $2.1 million and $0.05 million for the years ended December 31, 2008, 2007 and 2006.

Debt extinguished

During the year ended December 31, 2008, the FHLBNY did not retire consolidated bonds. During 2007, the FHLBNY retired $626.2 million of consolidated bonds at a cost that exceeded book value by $8.6 million. The bonds retired were associated with the prepayment of advances or commercial mortgage-backed securities (“CMBS”) for which prepayment fees were received.

Transfers of consolidated bonds to other FHLBanks

The Bank transfers certain bonds at negotiated market rates to other FHLBanks to meet the FHLBNY’s asset and liability management objectives. There was no transfer in 2008. See Note 9 — Related party transactions for more information.

226

Federal Home Loan Bank of New York
Notes to Financial Statements

The following summarizes bonds outstanding by year of maturity or next call date (dollars in thousands):

	December 31,
				Percentage						Percentage
	2008			of total			2007			of total
Year of Maturity or next call date
Due or callable in one year or less	$	53,034,550			65.51	%	$	47,346,975			71.68	%
Due or callable after one year through two years		15,472,350			19.11			9,924,450			15.02
Due or callable after two years through three years		4,843,700			5.98			3,551,100			5.38
Due or callable after three years through four years		1,445,575			1.79			980,100			1.48
Due or callable after four years through five years		2,954,450			3.65			910,845			1.38
Due or callable after five years through six years		684,800			0.85			435,250			0.66
Thereafter		2,518,750			3.11			2,907,250			4.40
Total par value		80,954,175			100.00	%		66,055,970			100.00	%
Bond premiums		63,737						38,586
Bond discounts		(39,529	)					(28,529	)
SFAS 133 fair value adjustments		1,254,523						259,405
Fair value basis adjustments on terminated hedges		7,857						385
SFAS 159 valuation adjustments and accrued interest		15,942						—
Total carrying value	$	82,256,705					$	66,325,817

The FHLBNY uses fixed-rate callable debt to finance callable advances and mortgage-backed securities. Simultaneous with such a debt issue, the FHLBNY may also enter an interest-rate swap (in which the FHLBNY pays variable and receives fixed) with a call feature that mirrors the option embedded in the debt (a sold callable swap). The combined sold callable swap and callable debt allows the Bank to provide members attractively priced, fixed-rate advances.

	December 31, (in thousands)
	2008		2007
Non-callable/non-putable	$	76,037,875	$	53,777,670
Callable		4,916,300		12,278,300
Total par value	$	80,954,175	$	66,055,970

227

Federal Home Loan Bank of New York
Notes to Financial Statements

Interest rate payment terms

The following summarizes types of bonds issued and outstanding (in thousands).

	December 31,
				Percentage of						Percentage of
	2008			total			2007			total
Fixed-rate, non-callable	$	36,367,875			44.92	%	$	39,642,670			60.01	%
Fixed-rate, callable		4,828,300			5.96			11,420,300			17.29
Step Up, callable		73,000			0.09			843,000			1.28
Step Down, callable		15,000			0.02			15,000			0.02
Single-index floating rate		39,670,000			49.01			14,135,000			21.40
Total par value		80,954,175			100.00	%		66,055,970			100.00	%
Bond premiums		63,737						38,586
Bond discounts		(39,529	)					(28,529	)
SFAS 133 fair value basis adjustments		1,254,523						259,405
Fair value basis adjustments on terminated hedges		7,857						385
SFAS 159 valuation adjustments and accrued interest		15,942						—
Total bonds	$	82,256,705					$	66,325,817

Discount notes

Consolidated discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities up to 360 days. These notes are issued at less than their face amount and redeemed at par when they mature. The FHLBNY’s outstanding consolidated discount notes were as follows (dollars in thousands):

	December 31,
	2008			2007
Par value	$	46,431,347		$	34,984,105
Amortized cost	$	46,329,545		$	34,791,570
Fair value basis adjustments		361			—
Total	$	46,329,906		$	34,791,570
Weighted average interest rate		1.00	%		4.28	%

Note 13. Mandatorily redeemable capital stock

Generally, the FHLBNY’s capital stock is redeemable at the option of either the member and the FHLBNY subject to certain conditions, and is subject to the provisions under SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”).

The FHLBNY is a cooperative whose member financial institutions own almost all of the FHLBNY’s capital stock. Member shares cannot be purchased or sold except between the FHLBank and its members at its $100 per share par value. Also, the FHLBNY does not have equity securities that trade in a public market. Future filings with the SEC will not be in anticipation of the sale of equity securities in a public market as the FHLBNY is prohibited by law from doing so, and the FHLBNY is not controlled by an entity that has equity securities traded or contemplated to be traded in a public market. Therefore, the FHLBNY is a nonpublic entity based on the definition of SFAS 150. In addition, although the FHLBNY is a nonpublic entity, the FHLBanks issue consolidated obligations that are traded in the public market. Based on this factor, the FHLBNY complies with the provisions of SFAS 150 as a nonpublic SEC registrant.

228

Federal Home Loan Bank of New York
Notes to Financial Statements

In compliance with SFAS 150, the FHLBNY reclassifies the stock subject to redemption from equity to a liability once a member: irrevocably exercises a written redemption right; gives notice of intent to withdraw from membership; or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership. Under such circumstances, the member shares will then meet the definition of a mandatorily redeemable financial instrument and are reclassified to a liability at fair value. Dividends on member shares classified as a liability are accrued at the estimated dividend rate and recorded as interest expense in the Statement of Income. The repayment of these mandatorily redeemable financial instruments will be reflected as financing cash outflows in the statement of cash flows.

In compliance with this provision, dividends on mandatorily redeemable capital stock in the amount of $9.0 million, $11.7 million and $3.1 million were recorded as interest expense for the years ended December 31, 2008, 2007 and 2006.

If a member cancels notice of withdrawal, the FHLBNY will reclassify mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.

At December 31, 2008, mandatorily redeemable capital stocks of $143.1 million were held by former members who had attained non-member status by virtue of being acquired by non-members. A small number of members also became non-members by re-locating their charter to outside the FHLBNY’s membership districts.

Anticipated redemptions of mandatorily redeemable capital stock were as follows (in thousands):

	December 31,
	2008		2007
Redemption less than one year	$	38,328	$	127,010
Redemption from one year to less than three years		83,159		94,629
Redemption from three years to less than five years		14,646		15,281
Redemption after five years or greater		6,988		1,676
Total	$	143,121	$	238,596

Anticipated redemption assumes the Bank will follow its current practice of daily redemption of capital in excess of the amount required to support advances. Commencing January 1, 2008, the Bank may also redeem, at its discretion, non-members’ membership stock.

Voluntary withdrawal from membership — As of December 31, 2008, there were no members who had formally notified the Bank of their intent to withdraw from membership and voluntarily redeem their capital stock, and no members’ or non-members’ redemption requests for stock remained pending at December 31, 2008.

Members acquired by non-members — When a member is acquired by a non-member, the FHLBNY reclassifies stock of members to a liability on the day the member’s charter is dissolved. Under existing practice, the FHLBNY repurchases stock held by former members if such stock is considered “excess” and is no longer required to support outstanding advances. Membership stock held by former members is reviewed annually and repurchased.

229

Federal Home Loan Bank of New York
Notes to Financial Statements

The following table provides roll-forward information with respect to changes in mandatorily redeemable capital stock liabilities (in thousands):

	December 31,
	2008			2007			2006
Beginning balance	$	238,596		$	109,950		$	18,087
Capital stock subject to mandatory redemption reclassified from equity		64,758			186,981			230,851
Redemption of mandatorily redeemable capital stock 1		(160,233	)		(58,335	)		(138,988	)
Ending balance	$	143,121		$	238,596		$	109,950
Accrued interest payable	$	1,260		$	4,921		$	1,825

1	Redemption includes repayment of excess stock.
	(The annualized rate accrual is at 3.50%, 8.05% and 6.25% for 2008, 2007 and 2006)

Note 14. Capital

The FHLBanks, including the FHLBNY, have a cooperative structure. To access FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in FHLBNY. The members’ stock requirement is generally based on its use of FHLBNY products, subject to a minimum membership requirement, as prescribed by the FHLBank Act and the FHLBNY Capital Plan. FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share. It is not publicly traded. An option to redeem capital stock that is greater than a member’s minimum requirement is held by both the member and the FHLBNY.

The FHLBNY offers two sub-classes of Class B capital stock, Class B1 and Class B2. Class B1 stock is issued to meet membership stock purchase requirements. Class B2 stock is issued to meet activity-based requirements. The FHLBNY requires member institutions to maintain Class B1 stock based on a percentage of the member’s mortgage-related assets and Class B2 stock-based on a percentage of advances and acquired member assets outstanding with the FHLBank and certain commitments outstanding with the FHLBank. Class B1 and Class B2 stockholders have the same voting rights and dividend rates.

Historical Background

In November 1999, the FHLBank Act was significantly modified by the Federal Home Loan Bank System Modernization Act, which was enacted as Title VI of the Gramm-Leach-Bliley Act (“GLB Act”). The GLB Act established voluntary membership for all members. A member may withdraw from membership and have its capital stock redeemed after providing to the FHLBNY the required notice. The GLB Act resulted in a number of changes in the capital structure of the FHLBanks. The GLB Act also removed the provision that required a non-thrift member to purchase additional stock to borrow from the FHLBank if the non-thrift member’s mortgage-related assets were less than 65 percent of total assets. A member may, at the FHLBank’s discretion, redeem at par value any capital stock greater than its statutory requirement or sell it at par value to another member of that FHLBank. The final Finance Agency capital rule was published on January 30, 2001, and required each FHLBank to submit a capital structure plan (“Capital Plan”) to the Finance Agency by October 29, 2001 in accordance with the provisions of the GLB Act and final capital rule. The Finance Agency approved the FHLBNY’s Capital Plan on July 18, 2002. The FHLBNY implemented its new Capital Plan, under the provisions of the GLB Act and the Finance Agency rules, on December 1, 2005.

230

Federal Home Loan Bank of New York
Notes to Financial Statements

Prior to the conversion to the new capital plan on December 1, 2005, the FHLBank Act required members to hold capital stock in the FHLBNY equal to the greater of:

• 5 % of the member’s total outstanding advances plus 5 % of the FHLBNY’s interest in the aggregate unpaid principal balance of all loans sold by the members to the FHLBNY, or

• 1% of the member’s total unpaid principal balance of residential mortgage loans (usually as of the most recent year-end), or

• $500.

Under the GLB Act, each FHLBank may offer two classes of stock. Members can redeem Class A stock by giving six months’ notice, and redeem Class B stock by giving 5 year’s notice. Only “permanent” capital, defined as retained earnings and Class B stock, satisfies the FHLBank risk-based capital requirement. In addition, the GLB Act specifies a 5 percent minimum leverage ratio based on total capital and a 4 percent minimum capital ratio that does not include the 1.5 weighting factor applicable to the permanent capital that is used in determining compliance with the 5 percent minimum leverage ratio.

Capital Plan under GLB Act

The FHLBNY implemented its new capital plan on December 1, 2005 through the issuance of Class B stock. The conversion was considered a capital exchange and was accounted for at par value. Members’ capital stock held immediately prior to the conversion date was automatically exchanged for an equal amount of Class B Capital Stock, comprised of Membership Stock (referred to as “Subclass B1 Stock”) and Activity-Based Stock (referred to as “Subclass B2 Stock”).

Any member that withdraws from membership must wait 5 years from the divestiture date for all capital stock that is held as a condition of membership unless the institution has cancelled its notice of withdrawal prior to that date and before being readmitted to membership in any FHLBank. Commencing in 2008, the Bank at its discretion may repay a non-member’s membership stock. See Footnote 1 next page.

The FHLBNY is subject to risk-based capital rules. Specifically, the FHLBNY is subject to three capital requirements under the new capital structure plan. First, the FHLBNY must maintain at all times permanent capital in an amount at least equal to the sum of its credit risk, its market risk, and operations risk capital requirements calculated in accordance with the FHLBNY policy, rules, and regulations of the Finance Agency. Only permanent capital, defined as Class B stock and retained earnings, satisfies this risk-based capital requirement. The Finance Agency may require the FHLBNY to maintain a greater amount of permanent capital than is required as defined by the risk-based capital requirements. In addition, the FHLBNY is required to maintain at least a 4% total capital-to-asset ratio and at least a 5% leverage ratio at all times. The leverage ratio is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 time divided by total assets. The FHLBNY was in compliance with the aforementioned capital rules and requirements.

¹ On December 12, 2007 the Finance Board approved amendments to the FHLBNY’s ’s capital plan. The amendments allow the FHLBNY to recalculate the membership stock purchase requirement any time after 30 days subsequent to a merger. The amendments also permit the FHLBNY to use a zero mortgage asset base in performing the calculation, which recognizes the fact that the corporate entity that was once its member no longer exists. As a result of these amendments, the FHLBNY could determine that all of the membership stock formerly held by the member becomes excess stock, which would give the FHLBNY the discretion, but not the obligation, to repurchase that stock prior to the expiration of the five-year notice period.

231

Federal Home Loan Bank of New York
Notes to Financial Statements

The following table summarizes the Bank’s risk-based capital ratios (dollars in thousands):

	December 31, 2008						December 31, 2007
	Required 4			Actual			Required 4			Actual
Regulatory capital requirements:
Risk-based capital1	$	650,333		$	6,111,676		$	578,653		$	5,024,861
Total capital-to-asset ratio		4.00	%		4.44	%		4.00	%		4.58	%
Total capital2	$	5,501,596		$	6,113,082		$	4,387,304		$	5,025,494
Leverage ratio		5.00	%		6.67	%		5.00	%		6.87	%
Leverage capital3	$	6,876,995		$	9,168,920		$	5,484,130		$	7,537,925

1	Actual “Risk-based capital” is capital stock and retained earnings plus mandatorily redeemable capital stock. Section 932.2 of the Finance Agency’s regulations also refers to this amount as “Permanent Capital.”
2	Actual “Total capital” is “Risk-based capital” plus allowance for credit losses. Does not include reserves for the Lehman Brothers receivable which is a specific reserve.
3	Actual Leverage capital is “Risk-based capital” times 1.5 plus allowance for loan losses.
4	Required minimum.

The Finance Agency has indicated that the SFAS 150 accounting treatment for certain shares of the Bank’s capital stock will not affect the definition of total capital for purposes of determining the Bank’s compliance with regulatory capital requirements, calculating mortgage securities investment authority (300 percent of total capital), calculating unsecured credit exposure to other GSEs (100 percent of total capital), or calculating unsecured credit limits to other counterparties (various percentages of total capital depending on the rating of the counterparty).

232

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 15. Total comprehensive income

Total comprehensive income is comprised of Net income and other comprehensive income (loss), which includes unrealized gains and losses on available-for-sale securities, cash flow hedging activities and the additional minimum liability on employee supplemental retirement plans. Adjustments to adopt SFAS 158 in 2006, were included at December 31, 2006 as components of accumulated other comprehensive income only. Changes in Accumulated other comprehensive income (loss) and total comprehensive income were as follows for each of the three years ended December 31, 2008 (in thousands):

										Accumulated
	Available-			Cash			Supplemental			Other					Total
	for-sale			flow			Retirement			Comprehensive			Net		Comprehensive
	securities			hedges			Plans			Income (Loss)			Income		Income
Balance, December 31, 2005	$	—		$	5,352		$	(1,839	)	$	3,513
Net change		—			(10,115	)		2,195			(7,920	)	$	285,195	$	277,275
Incremental impact of adopting SFAS 158		—			—			(6,141	)		(6,141	)
Balance, December 31, 2006		—			(4,763	)		(5,785	)		(10,548	)
Net change		(373	)		(25,452	)		698			(25,127	)	$	323,105	$	297,978
Balance, December 31, 2007		(373	)		(30,215	)		(5,087	)		(35,675	)
Net change		(64,047	)		24			(1,463	)		(65,486	)	$	259,060	$	193,574
Balance, December 31, 2008	$	(64,420	)	$	(30,191	)	$	(6,550	)	$	(101,161	)

Note 16. Earnings per share of capital

The following table sets forth the computation of earnings per share (dollars in thousands except per share amounts):

	December 31,
	2008			2007			2006
Net income	$	259,060		$	323,105		$	285,195
Net income available to stockholders	$	259,060		$	323,105		$	285,195
Weighted average shares of capital		50,894			39,178			37,879
Less: Mandatorily redeemable capital stock		(1,664	)		(1,463	)		(509	)
Average number of shares of capital used to calculate earnings per share		49,230			37,715			37,370
Net earnings per share of capital	$	5.26		$	8.57		$	7.63

Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive potential common shares or other common stock equivalents.

233

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 17. Employee retirement plans

The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (“DB Plan”). The DB Plan is a tax-qualified multiple-employer defined benefit pension plan that covers substantially all officers and employees of the Bank. For accounting purposes, the DB Plan is a multi-employer plan and does not segregate its assets, liabilities, or costs by participating employer. As a result, disclosure of the accumulated benefit obligations, projected benefit obligations, plan assets, and the components of annual pension expense attributable to the Bank are not made.

The Bank also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified defined contribution plan. The Bank’s contributions are a matching contribution equal to a percentage of voluntary employee contributions, subject to certain limitations.

In addition, the FHLBNY maintains a Benefit Equalization Plan (“BEP”) that restores defined benefits and contribution benefits to those employees who have had their qualified defined benefit and defined contribution benefits limited by IRS regulations. The contribution component of the BEP plan is a supplemental defined contribution plan. The plan’s liability consists of the accumulated compensation deferrals and accrued interest on the deferrals. The BEP is an unfunded plan. The FHLBNY also offers a Retiree Medical Benefit Plan, which is a postretirement health benefit plan. There are no funded plan assets that have been designated to provide postretirement health benefits. In the third quarter of 2007, the Bank established two grantor trusts to meet future benefit obligations and current payments to beneficiaries in the two supplemental pension plans.

The Board of Directors of the FHLBNY approved certain amendments to the Postretirement Health Benefit plan effective as of January 1, 2008. The amendments did not have a material impact on reported results of operations or financial condition of the Bank.

The Bank adopted the provisions of SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” as of December 31, 2006. The incremental impact in 2006 of the adoption was an increase of $6.1 million to pension liabilities and an offsetting decrease in accumulated other comprehensive income.

Effective January 1, 2009, the Bank offers a Nonqualified Deferred Compensation Plan to certain officers employees and to the members of the Board of Directors of the Bank. Participants in the plan may elect to defer all or a portion of their compensation earned. The deferment period is for a minimum period of five years.

234

Federal Home Loan Bank of New York
Notes to Financial Statements

Retirement Plan Expenses — Summary

The following table presents employee retirement plan expenses for the years ended (in thousands):

	December 31,
	2008		2007		2006
Defined Benefit Plan	$	5,872	$	6,006	$	5,536
Benefit Equalization Plan (defined benefit)		1,878		1,908		1,260
Defined Contribution Plan and BEP Thrift		721		1,346		1,141
Postretirement Health Benefit Plan		990		2,377		1,830
Total retirement plan expenses	$	9,461	$	11,637	$	9,767

Benefit Equalization Plan (BEP)

The plan’s liability consisted of the accumulated compensation deferrals and accrued interest on the deferrals. There were no plan assets that have been designated for the BEP plan.

The accrued pension costs for the Bank’s BEP plan were as follows (in thousands):

	December 31,
	2008			2007
Accumulated benefit obligation	$	14,030		$	11,005
Effect of future salary increase		3,392			4,026
Projected benefit obligation		17,422			15,031
Unrecognized prior service cost		523			666
Unrecognized net (loss)		(6,158	)		(5,396	)
Accrued pension cost	$	11,787		$	10,301

Components of the projected benefit obligation for the Bank’s BEP plan were as follows (in thousands):

	December 31,
	2008			2007
Projected benefit obligation at the beginning of the year	$	15,031		$	11,580
Service		614			626
Interest		944			880
Benefits paid		(392	)		(346	)
Actuarial loss		1,225			2,786
Plan amendments		—			(495	)
Projected benefit obligation at the end of the year	$	17,422		$	15,031

The measurement date used to determine current period projected benefit obligation for the BEP plan was December 31, 2008.

235

Federal Home Loan Bank of New York
Notes to Financial Statements

Amounts recognized in the Statements of Condition for the Bank’s BEP plan were as follows (in thousands):

	December 31,
	2008			2007
Unrecognized (gain)/loss	$	6,158		$	5,396
Prior service cost		(523	)		(666	)
Accumulated other comprehensive loss	$	5,635		$	4,730

Changes in the BEP plan assets were as follows (in thousands):

	December 31,
	2008			2007
Fair value of the plan assets at the beginning of the year	$	—		$	—
Employer contributions		392			346
Benefits paid		(392	)		(346	)
Fair value of the plan assets at the end of the year	$	—		$	—

Components of the net periodic pension cost for the defined benefit component of the BEP, an unfunded plan, were as follows (in thousands):

	December 31,
	2008			2007			2006
Service cost	$	614		$	626		$	388
Interest cost		944			880			604
Amortization of unrecognized prior service cost		(143	)		(112	)		(50	)
Amortization of unrecognized net loss		463			514			318
Net periodic benefit cost	$	1,878		$	1,908		$	1,260

Other changes in benefit obligations recognized in Accumulated other comprehensive income were as follows (in thousands):

	December 31,
	2008			2007
Net loss (gain)	$	1,225		$	2,786
Prior service cost (benefit)		—			381
Amortization of net loss (gain)		(463	)		(514	)
Amortization of prior service cost (benefit)		143			112
Amortization of net obligation		—			—
Total recognized in other comprehensive income	$	905		$	2,765
Total recognized in net periodic benefit cost and other comprehensive income	$	2,783		$	4,673

236

Federal Home Loan Bank of New York
Notes to Financial Statements

The net transition obligation (asset), prior service cost (credit), and the estimated net loss (gain) for the BEP plan that are expected to be amortized from Accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are shown in the table below (in thousands):

	December 31,
	2009			2008
Expected amortization of net (gain)/loss	$	539		$	463
Expected amortization of prior service cost/(credit)	$	(143	)	$	(143	)
Expected amortization of transition obligation/(asset)	$	—		$	—

Key assumptions and other information for the actuarial calculations to determine current year’s benefit obligations for the FHLBNY’s BEP plan were as follows (dollars in thousands):

	2008			2007			2006
Discount rate *		6.14	%		6.37	%		5.65	%
Salary increases		5.50	%		5.50	%		5.50	%
Amortization period (years)		8			8			8
Benefits paid during the year	$	(392	)	$	(346	)	$	(346	)

* The discount rate was based on the Citigroup Pension Liability Index at December 31, 2008 and adjusted for durations.

Future BEP plan benefits to be paid were estimated to be as follows (in thousands):

Years	Payments
2009	$	544
2010		639
2011		872
2012		914
2013		972
2014-2018		6,020
Total	$	9,961

The net periodic benefit cost for 2009 is expected to be $2.1 million.

237

Federal Home Loan Bank of New York
Notes to Financial Statements

Postretirement Health Benefit Plan

The FHLBNY has a postretirement health benefit plan for retirees. Assumptions used in determining the accumulated postretirement benefit obligation (“APBO”) included a discount rate of 6.14%. The effect of a percentage point increase in the assumed healthcare trend rates would be an increase in postretirement benefit expense of $230.5 thousand and in APBO of $2.1 million. The effect of a percentage point decrease in the assumed healthcare trend rates would be a decrease in postretirement benefit expense of $188.6 thousand and in APBO of $1.7 million. Employees over the age of 55 are eligible provided they have completed ten years of service after age 45.

Components of the accumulated postretirement benefit obligation for the postretirement health benefits plan for the years ended December 31, 2008 and 2007 were (in thousands):

	December 31,
	2008			2007
Accumulated postretirement benefit obligation at the beginning of the year	$	13,109		$	14,577
Service cost		505			727
Interest cost		820			903
Actuarial loss		(184	)		2,574
Benefits paid, net of participants’ contributions		(296	)		(381	)
Change in plan assumptions		403			(812	)
Change in plan provisions		—			(4,479	)
Accumulated postretirement benefit obligation at the end of the year		14,357			13,109
Unrecognized net gain		—			—
Accrued postretirement benefit cost	$	14,357		$	13,109

Changes in postretirement health benefit plan assets were (in thousands):

	December 31,
	2008			2007
Fair value of plan assets at the beginning of the year	$	—		$	—
Employer contributions		296			381
Benefits paid, net of participants’ contributions and subsidy received		(296	)		(381	)
Fair value of plan assets at the end of the year	$	—		$	—

Amounts recognized in Accumulated other comprehensive income for the Bank’s postretirement benefit obligation were (in thousands):

	December 31,
	2008			2007
Prior service cost/(credit)	$	(3,566	)	$	(4,297	)
Net loss/(gain)		4,481			4,654
Accrued pension cost	$	915		$	357

238

Federal Home Loan Bank of New York
Notes to Financial Statements

The net transition obligation (asset), prior service cost (credit), and estimated net loss (gain) for the postretirement health benefit plan are expected to be amortized from Accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are shown in the table below (in thousands);

	December 31,
	2009			2008
Expected amortization of net (gain)/loss	$	312		$	265
Expected amortization of prior service cost/(credit)	$	(731	)	$	(731	)
Expected amortization of transition obligation/(asset)	$	—		$	—

Components of the net periodic benefit cost for the postretirement health benefit plan were (in thousands):

	December 31,
	2008			2007			2006
Service cost (benefits attributed to service during the period)	$	505		$	727		$	814
Interest cost on accumulated postretirement health benefit obligation		820			903			748
Amortization of loss		396			319			268
Additional gain on recognition of plan amendment		—			611			—
Amortization of prior service cost/(credit)		(731	)		(183	)		—
Net periodic postretirement health benefit cost	$	990		$	2,377		$	1,830

Other changes in benefit obligations recognized in Accumulated other comprehensive income were as follows (in thousands):

	December 31,
	2008			2007
Net loss (gain)	$	218		$	1,763
Prior service cost (benefit)		—			(4,479	)
Amortization of net loss (gain)		(396	)		(319	)
Amortization of prior service cost (benefit)		731			(428	)
Amortization of net obligation		—			—
Total recognized in other comprehensive income	$	553		$	(3,463	)
Total recognized in net periodic benefit cost and other comprehensive income	$	1,543		$	(1,086	)

The measurement date used to determine current year’s benefit obligation was December 31, 2008.

239

Federal Home Loan Bank of New York
Notes to Financial Statements

Key assumptions and other information to determine current year’s obligation for the FHLBNY’s postretirement health benefit plan were as follows:

	2008			2007			2006
Weighted average discount rate at the end of the year		6.14	%		6.37	%		5.65	%
Health care cost trend rates:
Assumed for next year		7.00	%		7.00	%		7.00	%
Ultimate rate		5.00	%		4.50	%		4.50	%
Year that ultimate rate is reached		2011			2016			2016
Alternative amortization methods used to amortize
Prior service cost	Straight — line			Straight — line			Straight — line
Unrecognized net (gain) or loss	Straight — line			Straight — line			Straight — line

The discount rate was based on the Citigroup Pension Liability Index at December 31, 2008 and adjusted for duration.

Future postretirement benefit plan expenses to be paid were estimated to be as follows (in thousands):

Years	Payments
2009	$	502
2010		533
2011		563
2012		594
2013		608
2014-2018		3,139
Total	$	5,939

The Bank’s postretirement health benefit plan accrual for 2009 is expected to be $1.0 million.

Note 18. Derivatives and hedging activities

General — The FHLBNY may enter into interest-rate swaps, swaptions, and interest-rate cap and floor agreements to manage its exposure to changes in interest rates. The FHLBNY may also use callable swaps to potentially adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk management objectives. The FHLBNY uses derivatives in three ways: by designating them as a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction; by acting as an intermediary; or by designating the derivative as an asset-liability management hedge (i.e., an “economic hedge”). For example, the FHLBNY uses derivatives in its overall interest-rate risk management to adjust the interest-rate sensitivity of consolidated obligations to approximate more closely the interest-rate sensitivity of assets (both advances and investments), and/or to adjust the interest-rate sensitivity of advances, investments or mortgage loans to approximate more closely the interest-rate sensitivity of liabilities. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, the FHLBNY also uses derivatives: to manage embedded options in assets and liabilities; to hedge the market value of existing assets and liabilities and anticipated transactions; to hedge the duration risk of prepayable instruments; and to reduce funding costs where possible.

240

Federal Home Loan Bank of New York
Notes to Financial Statements

In an economic hedge, a derivative hedges specific or non-specific underlying assets, liabilities or firm commitments, but the hedge does not qualify for hedge accounting under SFAS 133; it is, however, an acceptable hedging strategy under the FHLBNY’s risk management program. These strategies also comply with the Finance Agency’s regulatory requirements prohibiting speculative use of derivatives. An economic hedge introduces the potential for earnings variability due to the changes in fair value recorded on the derivatives that are not offset by corresponding changes in the value of the economically hedged assets, liabilities, or firm commitments. The FHLBNY will execute an interest rate swap to match the terms of a asset or liability that is elected under the Fair Value Option under SFAS 159 and the swap is also considered as an economic hedge to mitigate the volatility of the FVO designated asset or liability due to change in the full fair value of the designated asset or liability. In the third quarter of 2008, the FHLBNY elected the FVO for certain consolidated obligation bonds and executed interest rate swaps to offset the fair value changes of the bonds.

The FHLBNY, consistent with Finance Agency’s regulations, enters into derivatives to manage the market risk exposures inherent in otherwise unhedged assets and funding positions. The FHLBNY utilizes derivatives in the most cost efficient manner and may enter into derivatives as economic hedges that do not qualify for hedge accounting under SFAS 133 accounting rules. As a result, when entering into such non-qualified hedges, the FHLBNY recognizes only the change in fair value of these derivatives in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities with no offsetting fair value adjustments for the hedged asset, liability, or firm commitment.

Hedging activities

Consolidated Obligations — The FHLBNY manages the risk arising from changing market prices and volatility of a consolidated obligation by matching the cash inflows on the derivative with the cash outflow on the consolidated obligation. While consolidated obligations are the joint and several obligations of the FHLBanks, one or more FHLBanks may individually serve as counterparties to derivative agreements associated with specific debt issues. For instance, in a typical transaction, fixed-rate consolidated obligations are issued for one or more FHLBanks, and each of those FHLBanks could simultaneously enter into a matching derivative in which the counterparty pays to the FHLBank fixed cash flows designed to mirror in timing and amount the cash outflows the FHLBank pays on the consolidated obligations. Such transactions are treated as fair value hedges under SFAS 133. In the third quarter of 2008, the FHLBNY elected the Fair Value Option under SFAS 159 for certain consolidated obligation bonds and these were measured under the provisions of SFAS 157 as of September 30, 2008. The Bank also executed interest rate swaps to mitigate the volatility resulting from changes in fair values of the bonds designated under the FVO. The FHLBanks may issue variable-rate consolidated obligations bonds indexed to 1 month-LIBOR, the U.S. Prime rate, or federal funds rate and simultaneously execute interest-rate swaps to hedge the basis risk of the variable rate debt to 3-month LIBOR, the Bank’s preferred funding base. The interest rate swaps were accounted as economic hedges of the floating-rate bonds.

The issuance of the FHLB fixed-rate bonds to investors and the execution of interest rate swaps typically results in cash flow pattern in which the FHLBNY has effectively converted the bonds’ cash flows to variable cash flows that closely match the interest payments it receives on short-term or variable-rate advances. From time-to-time, this intermediation between the capital and swap markets has permitted the FHLBNY to raise funds at a lower cost than would otherwise be available through the issuance of simple fixed- or floating-rate consolidated obligations in the capital markets. The FHLBNY does not issue consolidated obligations denominated in currencies other than U.S. dollars.

241

Federal Home Loan Bank of New York
Notes to Financial Statements

Advances — With a putable advance (also referred to as convertible) advance borrowed by a member, the FHLBNY may purchase from the member a put option that enables the FHLBNY to effectively convert an advance from fixed rate to floating rate if interest rates increase, or to terminate the advance and extend additional credit on new terms. The FHLBNY may hedge a convertible advance by entering into a cancelable derivative where the FHLBNY pays fixed and receives variable. This type of hedge is treated as a fair value hedge under SFAS 133. The swap counterparty can cancel the derivative on the put date, which would normally occur in a rising rate environment, and the FHLBNY can terminate the advance and extend additional credit on new terms.

The optionality embedded in certain financial instruments held by the FHLBNY can create interest-rate risk. When a member prepays an advance, the FHLBNY could suffer lower future income if the principal portion of the prepaid advance were reinvested in lower-yielding assets that continue to be funded by higher-cost debt. To protect against this risk, the FHLBNY generally charges a prepayment fee that makes it financially indifferent to a borrower’s decision to prepay an advance. When the Bank offers advances (other than short-term) that members may prepay without a prepayment fee, it usually finances such advances with callable debt. The Bank has not elected the FVO for any advances.

Mortgage Loans — The FHLBNY invests in mortgage assets. The prepayment options embedded in mortgage assets can result in extensions or reductions in the expected maturities of these investments, depending on changes in estimated prepayment speeds. Finance Agency regulations limit this source of interest-rate risk by restricting the types of mortgage assets the Bank may own to those with limited average life changes under certain interest-rate shock scenarios and by establishing limitations on duration of equity and changes in market value of equity. The FHLBNY may manage against prepayment and duration risk by funding some mortgage assets with consolidated obligations that have call features. In addition, the FHLBNY may use derivatives to manage the prepayment and duration variability of mortgage assets. Net income could be reduced if the FHLBNY replaces the mortgages with lower yielding assets and if the Bank’s higher funding costs are not reduced concomitantly.

The FHLBNY manages the interest rate and prepayment risks associated with mortgages through debt issuance. The FHLBNY issues both callable and non-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The FHLBNY analyzes the duration, convexity and earnings risk of the mortgage portfolio on a regular basis under various rate scenarios. The Bank has not elected the FVO for any mortgage loans.

Firm Commitment Strategies — Mortgage delivery commitments are considered derivatives under the provisions of SFAS 133, and the FHLBNY accounts for them as freestanding derivatives, and records the fair values of mortgage loan delivery commitments on the balance sheet with an offset to current period earnings. Fair values were de minimis for all periods reported.

The FHLBNY may also hedge a firm commitment for a forward starting advance through the use of an interest-rate swap. In this case, the swap will function as the hedging instrument for both the firm commitment and the subsequent advance. The basis movement associated with the firm commitment will be added to the basis of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment will then be amortized into interest income over the life of the advance.

Forward Settlements — There were no forward settled securities at December 31, 2008 or at December 31, 2007 that would settle outside the shortest period of time for the settlement of such securities.

242

Federal Home Loan Bank of New York
Notes to Financial Statements

Anticipated Debt Issuance — The FHLBNY enters into interest-rate swaps on the anticipated issuance of debt to “lock in” a spread between the earning asset and the cost of funding. The swap is terminated upon issuance of the debt instrument, and amounts reported in Accumulated other comprehensive income (loss) are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued.

Intermediation — To meet the hedging needs of its members, the FHLBNY acts as an intermediary between the members and the other counterparties. This intermediation allows smaller members access to the derivatives market. The derivatives used in intermediary activities do not qualify for SFAS 133 hedge accounting treatment and are separately marked-to-market through earnings. The net impact of the accounting for these derivatives does not significantly affect the operating results of the FHLBNY.

Derivative agreements in which the FHLBNY is an intermediary may arise when the FHLBNY: (1) enters into offsetting derivatives with members and other counterparties to meet the needs of its members, and (2) enters into derivatives to offset the economic effect of other derivative agreements that are no longer designated to either advances, investments, or consolidated obligations. The notional principal of interest rate swaps and interest rate caps and their fair value in which the FHLBNY was an intermediary was $300.0 million and $70.0 million as of December 31, 2008 and 2007. Fair values of derivatives in which the Bank acted as an intermediary were not material at December 31, 2008 and 2007. Collateral with respect to derivatives with member institutions includes collateral assigned to the FHLBNY as evidenced by a written security agreement and held by the member institution for the benefit of the FHLBNY.

Economic hedges — At December 31, 2008, economic hedges comprised primarily of: (1) short- and medium-term interest rate swaps that hedged the basis risk (Prime rate, Fed fund rate, and the 1-month LIBOR index) of variable-rate bonds issued by the FHLBNY. These swaps were considered freestanding and changes in the fair values of the swaps were recorded through income. The FHLBNY believes the operational cost of designating the basis hedges in a SFAS 133 qualifying hedge would outweigh the benefits of applying hedge accounting. (2) Interest rate caps acquired in the second quarter of 2008 to hedge balance sheet risk were considered freestanding derivatives with fair value changes recorded through Other income (loss) as a Net realized and unrealized gain or loss on derivatives and hedging activities. (3) Interest rate swaps hedging balance sheet risk. (4) Interest rate swaps that had been accounted under the provisions of SFAS 133 but had been de-designated from hedge accounting as they were assessed as being not highly effective hedges. (5) Interest rate swaps executed to offset the fair value changes of bonds designated under the provisions of SFAS 159. The FHLBNY is not a derivatives dealer and does not trade derivatives for short-term profit. See tables in the following pages for more information.

243

Federal Home Loan Bank of New York
Notes to Financial Statements

Credit Risk — The FHLBNY is subject to credit risk due to the risk of nonperformance by counterparties to the derivative agreements. The FHLBNY transacts most of its derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations. The degree of counterparty risk on derivative agreements depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The FHLBNY manages counterparty credit risk through credit analysis and collateral requirements and by following the requirements set forth in Finance Board’s regulations.

The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments, but it does not measure the credit risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing favorable interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors if the counterparty defaults and the related collateral, if any, is of insufficient value to the FHLBNY.

The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives. When the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally enforceable master netting agreement exists with the counterparty, the exposure, less collateral held, represents the appropriate measure of credit risk. Substantially all derivative contracts are subject to master netting agreements or other right of offset arrangements. At December 31, 2008 and 2007, the Bank’s credit risk, as defined above, was approximately $20.2 million and $29.0 million after the recognition of collateral held by the FHLBNY. The credit risk at December 31, 2008 and 2007 included $0.7 million and $53.0 million in net interest receivable. In determining credit risk, the FHLBNY considers accrued interest receivables and payables, and the legal right to offset assets and liabilities by counterparty. Exposure to counterparties before offsetting cash collateral received from derivative counterparties totaled $64.9 million, and the exposure was reduced to $3.7 million after giving effect of cash collateral received. The exposures were to counterparties rated at least a single-A. The remaining exposure was to members. The Bank held $61.2 million and $41.3 million in cash as collateral as of December 31, 2008 and 2007. Based on credit analyses and collateral requirements, the management of the FHLBNY does not anticipate any credit losses on its derivative agreements.

244

Federal Home Loan Bank of New York
Notes to Financial Statements

The following table represented outstanding notional balances and estimated fair values of the derivatives outstanding at December 31, 2008 and 2007 (in thousands):

	December 31,
	2008					2007
			Estimated					Estimated
	Notional		Fair Value			Notional		Fair Value
Interest rate swaps
Fair value — SFAS 133	$	84,582,796	$	(4,531,004	)	$	81,766,313	$	(1,243,427	)
Cash flow — SFAS 133		—		—			127,500		(177	)
Economic		39,691,142		(76,412	)		1,538,100		5,454
Fair value matched to hedge liabilities designated under SFAS 159		983,000		7,699			—		—
Interest rate caps/floors
Economic-fair value changes		2,357,000		8,174			1,157,694		2
Mortgage delivery commitments (MPF)
Economic-fair value changes		10,395		(108	)		1,351		5
Other
Intermediation		300,000		484			70,000		22
Total	$	127,924,333	$	(4,591,167	)	$	84,660,958	$	(1,238,121	)
Total derivatives, excluding accrued interest			$	(4,591,167	)			$	(1,238,121	)
Cash collateral pledged to counteparties				3,836,370					396,400
Cash collateral received from counterparties				(61,209	)				(41,300	)
Accrued interest				(25,418	)				238,657
Net derivative balance			$	(841,424	)			$	(644,364	)
Net derivative asset balance			$	20,236				$	28,978
Net derivative liability balance				(861,660	)				(673,342	)
Net derivative balance			$	(841,424	)			$	(644,364	)

The categories —“Fair value”, “Mortgage delivery commitment”, and “Cash Flow” hedges — represent derivative transactions accounted for as hedges. If any such hedges do not qualify for hedge accounting under the provisions of SFAS 133, they are classified as “Economic” hedges. Changes in fair values of economic hedges are recorded through the income statement without the offset of corresponding changes in the fair value of the hedged item. Changes in fair values of SFAS 133 qualifying derivative transactions designated in fair value hedges are recorded through the income statement with the offset of corresponding changes in the fair values of the hedged items. The effective portion of changes in the fair values of derivatives designated in a qualifying cash flow hedge is recorded in Accumulated other comprehensive income (loss).

Prior year-end reclassification — December 31, 2007 presentation was retrospectively conformed as a result of the adoption of FSP FIN 39-1 on January 1, 2008. Cash collateral pledged by the Bank and received by the Bank which had been previously reported as interest-bearing assets and liabilities have been reclassified and are presented at December 31, 2007 as components of Derivative liabilities and Derivative assets in the Statements of Condition.

245

Federal Home Loan Bank of New York
Notes to Financial Statements

Earnings impact of derivatives and hedging activities

Net realized and unrealized gain (loss) on derivatives and hedging activities

The FHLBNY reported the following net gains (losses) from derivatives and hedging activities (in thousands):

	Years ended December 31,
	2008			20072			20062
Earnings impact of derivatives and hedging activities gain (loss):
SFAS 133 Hedging
Cash flow hedge-ineffectiveness	$	(9	)	$	9		$	—
Fair value hedges-ineffectiveness		(12,025	)		5,910			3,150
Economic Hedging
Economic hedges-fair value changes-options		(40,773	)		(2,611	)		(6,604	)
Net interest income-options		101			3,630			7,862
Economic hedges-fair value changes-MPF delivery commitments		(3	)		(171	)		22
Fair value changes-economic hedges 1		(45,239	)		9,695			4,666
Net interest expense-economic hedges 1		(126,533	)		1,894			580
Macro hedge-swaps		18,029			—			—
Fair value matched to hedge liabilities designated under SFAS 159
Fair value changes-interest rate swaps		7,193			—			—
Net impact on derivatives and hedging activities	$	(199,259	)	$	18,356		$	9,676

1	Includes de minimis amount of net gains on member intermediated swaps.
2	Presentations for prior periods have been conformed to match current period presentation and had no impact on the Net gains (losses) on derivatives and hedging activities.

Prior period interest accruals associated with hedges are allocated by category in the table above to conform to current period classification to more precisely match gains and losses from hedging activities. This reclassification has no impact on the recorded Net realized and unrealized gain (loss) on derivatives and hedging activities.

Gains and losses from hedging activities designated as fair value hedges are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss). Ineffectiveness from hedges designated as cash flow hedges was a loss of $9.0 thousand in 2008. Net ineffectiveness from fair value hedges was a loss of $12.0 million in 2008, and gains of $5.9 million and $3.2 million in 2007 and 2006.

Amortization of basis resulting from modified advance hedges amounted to gains of $0.5 million, $1.0 million, and $2.1 million for the years ended December 31, 2008, 2007 and 2006.

Cash Flow hedges

There were no material amounts for the years ended December 31, 2008, 2007 and 2006 that were reclassified into earnings as a result of the discontinuance of cash flow hedges because it became probable that the original forecasted transactions would not occur by the end of the originally specified time period or within a two-month period thereafter. The maximum length of time over which the Bank typically hedges its exposure to the variability in future cash flows for forecasted transactions is between 3 and six months. No cash flow hedges were outstanding at December 31, 2008 although the Bank had executed cash flow hedges during 2008; the notional amount outstanding at December 31, 2007 was $127.5 million.

246

Federal Home Loan Bank of New York
Notes to Financial Statements

The effective portion of the gain or loss on swaps designated and qualifying as a cash flow hedging instrument is reported as a component of Accumulated other comprehensive income and reclassified into earnings in the same period during which the hedged forecasted bond expenses affect earnings. The balances in Accumulated other comprehensive income from terminated cash flow hedges represented net realized losses of $30.2 million at December 31, 2008 and 2007. Over the next 12 months, it is expected that about $7.5 million in net losses recorded in Accumulated other comprehensive income will be recognized as a charge to earnings in 2009 as a yield adjustment to interest expense of consolidated bonds.

Impact of the bankruptcy of Lehman Brothers

On September 15, 2008, Lehman Brothers Holdings, Inc. (LBHI), the parent company of Lehman Brothers Special Financing Inc. (LBSF) and a guarantor of LBSF’s obligations filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. LBSF was a counterparty to FHLBNY on multiple derivative transactions under International Swap Dealers Association, Inc. master agreements with a total notional amount of $16.5 billion at the time of termination of the FHLBanks’ derivative transactions with LBSF. The FHLBNY notified LBSF of the FHLBNY’s intent to early terminate all outstanding derivative positions with LBSF. The FHLBNY had deposited $509.6 million with LBSF in cash as collateral. The net amount that is due to the Bank after giving effect to obligations that are due LBSF was approximately $64.5 million, and the Bank has fully reserved the LBSF receivables as the bankruptcy of LBHI and LBSF make the timing and the amount of the recovery uncertain. The loss has been reported as a charge to Other Income (loss) in the Statements of Income as a Provision for derivative counterparty credit losses.

247

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 19. Fair Values of Financial Instruments

Items Measured at Fair Value on a Recurring Basis

The following table presents for each SFAS 157 hierarchy level, the FHLBNY’s assets and liabilities that were measured at fair value on its Statements of Condition at December 31, 2008 (in thousands):

	December 31, 2008
											Netting
	Total			Level 1		Level 2			Level 3		Adjustments
Assets
Available-for-sale securities	$	2,861,869		$	—	$	2,861,869		$	—	$	—
Advances		—			—		—			—		—
Mortgage Loans		—			—		—			—		—
Derivative assets		20,236			—		81,445			—		(61,209	)
Other assets		—			—		—			—		—
Total assets at fair value	$	2,882,105		$	—	$	2,943,314		$	—	$	(61,209	)
Liabilities
Consolidated obligations:
Discount notes	$	—		$	—	$	—		$	—	$	—
Bonds		(998,942	)		—		(998,942	)		—		—
Derivative liabilities		(861,660	)		—		(4,698,030	)		—		3,836,370
Total liabilities at fair value	$	(1,860,602	)	$	—	$	(5,696,972	)	$	—	$	3,836,370

Items Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities would be measured at fair value on a nonrecurring basis. For the FHLBNY, such items may include mortgage loans in foreclosure, or mortgage loans written down to fair value. Amounts of such items were de minimis at December 31, 2008. No securities designated as held-to-maturity were written down to fair value as a result of other-than-temporary impairment at December 31, 2008.

248

Federal Home Loan Bank of New York
Notes to Financial Statements

Estimated fair values (SFAS 107) – Summary Tables

The carrying value and estimated values of the FHLBNY’s financial instruments were as follows (in thousands):

	December 31, 2008
	Carrying		Net Unrealized			Estimated
Financial Instruments	Value		Gains/Losses			Fair Value
Assets
Cash and due from banks	$	18,899	$	—		$	18,899
Interest-bearing deposits		12,169,096		1,585			12,170,681
Federal funds sold		—		—			—
Available-for-sale securities		2,861,869		—			2,861,869
Held-to-maturity securities
Long-term securities		10,130,543		(196,070	)		9,934,473
Certificates of deposit		1,203,000		328			1,203,328
Advances		109,152,876		268,482			109,421,358
Mortgage loans, net		1,457,885		38,444			1,496,329
Accrued interest receivable		492,856		—			492,856
Derivative assets		20,236		—			20,236
Other financial assets		2,713		—			2,713
Liabilities
Deposits		1,451,978		670			1,452,648
Consolidated obligations:
Bonds		82,256,705		276,343			82,533,048
Discount notes		46,329,906		79,001			46,408,907
Mandatorily redeemable capital stock		143,121		—			143,121
Accrued interest payable		426,144		—			426,144
Derivative liabilities		861,660		—			861,660
Other financial liabilities		38,594		—			38,594

The carrying values and estimated fair values of the FHLBNY’s financial instruments as of December 31, 2007, were as follows (in thousands):

	December 31, 2007
	Carrying		Net Unrealized			Estimated
Financial Instruments	Value		Gains/Losses			Fair Value
Assets
Cash and due from banks	$	7,909	$	—		$	7,909
Federal funds sold		4,381,000		720			4,381,720
Available-for-sale securities		13,187		—			13,187
Held-to-maturity securities
Long-term securities		10,284,754		(4,941	)		10,279,813
Certificates of deposit		10,300,200		7,178			10,307,378
Advances		82,089,667		146,865			82,236,532
Mortgage loans, net		1,491,628		(5,620	)		1,486,008
Loans to other FHLBanks		55,000		—			55,000
Accrued interest receivable		562,323		—			562,323
Derivative assets		28,978		—			28,978
Other financial assets		1,711		—			1,711
Liabilities
Deposits		1,605,535		3			1,605,538
Consolidated obligations:
Bonds		66,325,817		197,907			66,523,724
Discount notes		34,791,570		6,914			34,798,484
Mandatorily redeemable capital stock		238,596		—			238,596
Accrued interest payable		655,870		—			655,870
Derivative liabilities		673,342		—			673,342
Other financial liabilities		28,941		—			28,941

249

Federal Home Loan Bank of New York
Notes to Financial Statements

The following table summarizes the activity related to consolidated obligation bonds for which the Bank elected the fair value option under SFAS 159 (in thousands):

	December 31, 2008
Balance, beginning of the period	$	—
New transaction elected for fair value option		1,014,000
Maturities and terminations		(31,000	)
Change in fair value		8,325
Change in accrued interest		7,617
Balance, end of the period	$	998,942

The following table presents the change in fair value include in the statement of income for the consolidated obligation bonds designated under SFAS 159 (in thousands):

							Total change in fair
	Interest expense on						value included in
	consolidated			Net gain(loss) due to			current period
	obligation bonds			changes in fair value			earnings
Year ended December 31, 2008
Consolidated obligation bonds	$	(7,835	)	$	(8,325	)	$	(16,160	)

The following table compares the aggregate fair value and aggregate remaining contractual fair value and aggregate remaining contractual principal balance outstanding of consolidated obligation bonds for which the fair value option has been elected under SFAS 159 (in thousands):

	December 31, 2008
					Fair value
	Principal Balance		Fair value		over/(under)
Consolidated obligation bonds	$	983,000	$	998,942	$	15,942

Notes to Estimated Fair Values of financial instruments (SFAS 107)

The fair value of financial assets is defined as the price FHLBNY would receive to sell an asset in an orderly transaction between market participants at the measurement date. A financial liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices are not available, valuation models and inputs are utilized. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or markets and the instruments’ complexity.

Beginning with the adoption of SFAS 157 on January 1, 2008, the fair values of financial assets and liabilities reported in the table above were based upon the discussions that follow and valuation techniques described in Note 1 — Accounting Changes, Significant Accounting Policies and Estimates, and Recently Issued Accounting Standards. The Fair Value Summary Tables do not represent an estimate of the overall market value of the FHLBNY as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.

250

Federal Home Loan Bank of New York
Notes to Financial Statements

The estimated fair value amounts have been determined by the FHLBNY using procedures described below. Because an active secondary market does not exist for a portion of the FHLBNY’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change.

Cash and due from banks

The estimated fair value approximates the recorded book balance.

Interest-bearing deposits and Federal funds sold

The FHLBNY determines estimated fair values of certain short-term investments by calculating the present value of expected future cash flows from the investments. The discount rates used in these calculations are the current coupons of investments with similar terms.

Investment securities

The fair value of investment securities is estimated by management using information from specialized pricing services that use pricing models or quoted prices of securities with similar characteristics. Inputs into the pricing models employed by pricing services for most of the Bank’s investments are market based and observable and are considered as Level 2 securities. The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models. Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if securities that are traded in sufficient volumes in the secondary market. The valuation of the Bank’s private-label securities that are all designated as held-to-maturity may require pricing services to use significant inputs that are subjective and may be considered to be Level 3 because the inputs may not be market based and observable.

See Note 1 — Accounting Changes, Significant Accounting Policies and Estimates, and Recently Issued Accounting Standards, for corroboration and other analytical procedures performed by the FHLBNY. Examples of securities priced under such a valuation technique, and which are classified within Level 2 of the valuation hierarchy and valued using the “market approach” as defined under SFAS 157, include GSE issued collateralized mortgage obligations and money market funds.

Advances

The fair values of advances are computed using standard option valuation models for purposes of SFAS 107. The most significant inputs to the valuation model are (1) consolidated obligation debt curve, published by the Office of Finance and available to the public, and (2) LIBOR swap curves and volatilities. The Bank considers both these inputs to be market based and observable as they can be directly corroborated by market participants.

Mortgage loans

The fair value of MPF loans and loans in the inactive CMA programs are priced for purposes of SFAS 107 using a valuation technique referred to as the “market approach” as defined in SFAS 157. Loans are aggregated into synthetic pass-through securities based on product type, loan origination year, gross coupon and loan term. Thereafter, these are compared against closing “TBA” prices extracted from independent sources. All significant inputs to the loan valuations are market based and observable.

Accrued interest receivable and payable

The estimated fair values approximate the recorded book value because of the relatively short period of time between their origination and expected realization.

251

Federal Home Loan Bank of New York
Notes to Financial Statements

Derivative assets and liabilities

The FHLBNY’s derivatives are traded in the over-the-counter market and are valued using discounted cash flow models that use as their basis, readily observable and market based inputs. Significant inputs include interest rates and volatilities. These derivative positions are classified within Level 2 of the valuation hierarchy, and include interest rate swaps, swaptions, interest rate caps and floors, and mortgage delivery commitments. SFAS No. 157 clarified that the valuation of derivative assets and liabilities must reflect the value of the instrument including the values associated with counterparty risk and must also take into account the company’s own credit standing and non-performance risk. The Bank has collateral agreements with all its derivative counterparties and vigorously enforces collateral exchanges at least weekly. The computed fair values of the FHLBNY’s derivatives took into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The Bank and each derivative counterparty have bilateral collateral thresholds that take into account both the Bank’s and counterparty’s credit ratings. As a result of these practices and agreements and the FHLBNY’s assessment of any change in its own credit spread, the Bank has concluded that the impact of the credit differential between the Bank and its derivative counterparties was sufficiently mitigated to an immaterial level and no adjustments were deemed necessary to the recorded fair value of derivative assets and derivative liabilities in the Statement of conditions at December 31, 2008 and 2007.

Deposits

The FHLBNY determines estimated fair values of deposits for purposes of SFAS 107 by calculating the present value of expected future cash flows from the deposits. The discount rates used in these calculations are the current cost of deposits with similar terms.

Consolidated obligations

The FHLBNY estimates fair values for purposes of SFAS 107 based on the cost of raising comparable term debt and prices its bonds and discount notes off of the current consolidated obligations market curve, which has a daily active market. The fair values of consolidated obligation debt (bonds and discount notes) are computed using a standard option valuation model using market based and observable inputs: (1) consolidated obligation debt curve that is available to the public and published by the Office of Finance, and (2) LIBOR curve and volatilities. Model adjustments that are not “market-observable” are not considered significant.

Mandatorily redeemable capital stock

The FHLBNY considers the fair value of capital subject to mandatory redemption, for purposes of SFAS 107, as the redemption value of the stock, which is generally par plus accrued estimated dividend. The FHLBNY has a cooperative structure. Stock can only be acquired by members at par value and redeemed at par value. Stock is not traded publicly and no market mechanism exists for the exchange of stock outside the cooperative structure.

252

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 20. Commitments and contingencies

The FHLBanks have joint and several liability for all the consolidated obligations issued on their behalf. Accordingly, should one or more of the FHLBanks be unable to repay their participation in the consolidated obligations, each of the other FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Agency. Neither the FHLBNY nor any other FHLBank has ever had to assume or pay the consolidated obligation of another FHLBank. The FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future. Under FASB interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others” as amended by FSP No. FAS 133-1 and FIN 45-4. (“FIN 45”), the Bank would have been required to recognize the fair value of the FHLBNY’s joint and several liability for all the consolidated obligations, as discussed above. However, the FHLBNY considers the joint and several liabilities as similar to a related party guarantee, which meets the scope exception in FIN 45. Accordingly, the FHLBNY has not recognized the fair value of a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at December 31, 2008 and 2007. The par amount of the twelve FHLBanks’ outstanding consolidated obligations, including the FHLBNY’s, were approximately $1.258.2 billion and $1,178.9 billion at December 31, 2008 and 2007.

Commitments for additional advances totaled approximately $19.0 billion and $19.5 billion as of December 31, 2008 and 2007. Commitments are conditional and were for periods of up to twelve months. Extension of credit under these commitments is subject to certain collateral requirements and other financial criteria at the time the commitment is drawn upon. Standby letters of credit are executed for a fee on behalf of members to facilitate residential housing, community lending, and members’ asset/liability management or to provide liquidity. A standby letter of credit is a financing arrangement between the FHLBNY and its member. Members assume an unconditional obligation to reimburse the FHLBNY for value given by the FHLBNY to the beneficiary under the terms of the standby letter of credit. The FHLBNY may, in its discretion, permit the member to finance repayment of their obligation by receiving a collateralized advance. Outstanding standby letters of credit were approximately $908.6 million and $442.3 million as of December 31, 2008 and 2007, respectively and had original terms of up to fifteen years, with a final expiration in 2019. Standby letters of credit are fully collateralized at the time of issuance. Unearned fees on standby letters of credit are recorded in other liabilities and were not significant as of December 31, 2008 and 2007. Based on management’s credit analyses and collateral requirements, the FHLBNY does not deem it necessary to have any provision for credit losses on these commitments and letters of credit.

During the third quarter of 2008, each FHLBank, including the FHLBNY, entered into a Lending Agreement with the U.S. Treasury in connection with the U.S. Treasury’s establishment of the Government Sponsored Enterprise Credit Facility (GSECF), as authorized by the Housing Act. The GSECF is designed to serve as a contingent source of liquidity for the housing government-sponsored enterprises, including each of the 12 FHLBanks. Any borrowings by one or more of the FHLBanks under the GSECF are considered consolidated obligations with the same joint and several liability as all other consolidated obligations. The terms of any borrowings are agreed to at the time of issuance. Loans under the Lending Agreement are to be secured by collateral acceptable to the U.S. Treasury, which consists of FHLBank advances to members that have been collateralized in accordance with regulatory standards and mortgage-backed securities issued by Fannie Mae or Freddie Mac. Each FHLBank is required to submit to the Federal Reserve Bank of New York, acting as fiscal agent of the U.S. Treasury a list of eligible collateral updated on a weekly basis. As of December 31, 2008, the FHLBNY had provided the U.S. Treasury listings of advance collateral amounting to $16.3 billion, which provides for maximum borrowings of $14.2 billion. The amount of collateral can be increased or decreased (subject to the approval of the U.S. Treasury) at any time through the delivery of an updated listing of collateral. As of December 31, 2008 no FHLBank had drawn on this available source of liquidity. This temporary authorization expires December 31, 2009 and supplements the existing limit of $4 billion.

253

Federal Home Loan Bank of New York
Notes to Financial Statements

Under the MPF program, the Bank was unconditionally obligated to purchase $10.4 million and $1.4 million in mortgage loans at December 31, 2008 and 2007. Commitments are generally for periods not to exceed 45 days. Under the provision of SFAS 149, “Amendment of Statement 133 on Derivatives Instruments and Hedging Activities,” such commitments entered into after June 30, 2003 were recorded as derivatives at their fair value. In addition, the FHLBNY had entered into conditional agreements under “Master Commitments” with its members in the MPF program to purchase mortgage loans in aggregate of $246.9 million and $268.6 million as of December 31, 2008 and 2007.

The FHLBNY generally executes derivatives with major banks and broker-dealers and generally enters into bilateral collateral agreements. When counterparties are exposed, the Bank would typically pledge cash collateral to mitigate the counterparty’s credit exposure. To mitigate the counterparties exposures, the FHLBNY pledge $3.8 billion and $396.4 million in cash as collateral at December 31, 2008 and 2007, and these amounts were reported in assets and included in interest-bearing deposits. At December 31, 2008 and 2007, the FHLBNY was also exposed to credit risk associated with outstanding derivative transactions measured by the replacement cost of derivatives in a gain position. The Bank’s reported credit exposure was reduced by cash collateral of $61.2 million and $41.3 million delivered by derivatives counterparties and held by the Bank at December 31, 2008 and 2007.

The FHLBNY charged to operating expenses net rental costs of approximately $3.2 million, $3.1 million, and $3.1 million for years ended December 31, 2008, 2007 and 2006. Lease agreements for FHLBNY premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the FHLBNY’s results of operations or financial condition.

254

Federal Home Loan Bank of New York
Notes to Financial Statements

The following table summarizes contractual obligations and contingencies as of December 31, 2008 (in thousands):

	December 31, 2008
	Payments due or expiration terms by period
	Less than		One year		Greater than three		Greater than
	one year		to three years		years to five years		five years		Total
Contractual Obligations
Consolidated obligations-bonds at par 1	$	49,568,550	$	21,492,250	$	5,822,025	$	4,071,350	$	80,954,175
Mandatorily redeemable capital stock 1		38,328		83,159		14,646		6,988		143,121
Premises (lease obligations) 2		3,116		6,233		6,280		8,764		24,393
Total contractual obligations		49,609,994		21,581,642		5,842,951		4,087,102		81,121,689
Other commitments
Standby letters of credit		864,981		19,643		16,024		7,915		908,563
Unused lines of credit and other conditional commitments		19,008,345		—		—		—		19,008,345
Consolidated obligation bonds/discount notes traded not settled		706,501		—		—		—		706,501
Firm commitment-advances		40,000		—		—		—		40,000
Open delivery commitments (MPF)		10,395		—		—		—		10,395
Total other commitments		20,630,222		19,643		16,024		7,915		20,673,804
Total obligations and commitments	$	70,240,216	$	21,601,285	$	5,858,975	$	4,095,017	$	101,795,493

1

Mandatorily redeemable capital stock is categorized by the dates at which the corresponding advances outstanding mature. Excess capital stock is redeemed at that time, and hence, these dates better represent the related commitments than the put dates associated with capital stock, under which stock may not be redeemed until the later of five years from the date the member becomes a nonmember or the related advance matures. Certain consolidated bonds are callable and if exercised by the Bank may result in a shorter duration than the contractual maturities.

2

Immaterial amount of commitment for equipment leases not included.

The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and accordingly no provision for losses is required.

255

Federal Home Loan Bank of New York
Notes to Financial Statements

Note 21. Segment information and concentration

The FHLBNY manages its operations as a single business segment. Management and the FHLBNY’s Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance. Advances to large members constitute a significant percentage of FHLBNY’s advance portfolio and its source of revenues.

The FHLBNY has a unique cooperative structure and is owned by member institutions located within a defined geographic district. The Bank’s market is the same as its membership district which includes New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are members of the FHLBNY must have their principal places of business within this market, but may also operate elsewhere. The FHLBNY’s primary business is making low-cost, collateralized loans, known as “advances,” to its members. Members use advances as a source of funding to supplement their deposit-gathering activities. As a cooperative, the FHLBNY prices advances at minimal net spreads above the cost of its funding to deliver maximum value to members. Advances to large members constitute a significant percentage of FHLBNY’s advance portfolio and its source of revenues.

The FHLBNY’s total assets and capital could significantly decrease if one or more large members were to withdraw from membership or decrease business with the Bank. Members might withdraw or reduce their business as a result of consolidating with an institution that was a member of another FHLBank, or for other reasons. The FHLBNY has considered the impact of losing one or more large members. In general, a withdrawing member would be required to repay all indebtedness prior to the redemption of its capital stock. Under current conditions, the FHLBNY does not expect the loss of a large member to impair its operations, since the FHLBank Act of 1999 does not allow the FHLBNY to redeem the capital of an existing member if the redemption would cause the FHLBNY to fall below its capital requirements. Consequently, the loss of a large member should not result in an inadequate capital position for the FHLBNY. However, such an event could reduce the amount of capital that the FHLBNY has available for continued growth. This could have various ramifications for the FHLBNY, including a possible reduction in net income and dividends, and a lower return on capital stock for remaining members.

256

Federal Home Loan Bank of New York
Notes to Financial Statements

The top five advance holders at December 31, 2008, 2007 and 2006, and associated interest income for the years then ended are summarized as follows (dollars in thousands):

	December 31, 2008
					Percentage of
			Par		Total Par Value			Interest
	City	State	Advances		of Advances			Income
Hudson City Savings Bank 1	Paramus	NJ	$	17,525,000		17.0	%	$	671,146
Metropolitan Life Insurance Company	New York	NY		15,105,000		14.6			260,420
Manufacturers and Traders Trust Company	Buffalo	NY		7,999,689		7.7			257,649
New York Community Bank 1	Westbury	NY		7,796,517		7.5			337,019
Astoria Federal Savings and Loan Assn.	Long Island City	NY		3,738,000		3.6			151,066
Total			$	52,164,206		50.4	%	$	1,677,300

¹ Officer of member bank also serves on the Board of Directors of the FHLBNY.

	December 31, 2007
					Percentage of
			Par		Total Par Value			Interest
	City	State	Advances		of Advances			Income
Hudson City Savings Bank	Paramus	NJ	$	14,191,000		17.6	%	$	461,568
New York Community Bank	Westbury	NY		8,138,625		10.1			326,012
Manufacturers and Traders Trust Company	Buffalo	NY		6,505,625		8.1			247,104
HSBC Bank USA, National Association	New York	NY		5,508,585		6.8			240,347
Metropolitan Life Insurance Company	New York	NY		4,555,000		5.7			81,724
Total			$	38,898,835		48.3	%	$	1,356,755

	December 31, 2006
					Percentage of
			Par		Total Par Value			Interest
	City	State	Advances		of Advances			Income
Hudson City Savings Bank	Paramus	NJ	$	8,873,000		15.0	%	$	289,348
New York Community Bank	Westbury	NY		7,878,877		13.4			315,626
HSBC Bank USA, National Association	New York	NY		5,009,503		8.5			260,749
Manufacturers and Traders Trust Company	Buffalo	NY		3,423,231		5.8			188,514
Astoria Federal Savings and Loan Assn.	Long Island City	NY		2,480,000		4.2			114,426
Total			$	27,664,611		46.9	%	$	1,168,663

The following table summarizes capital stock held by members who were beneficial owners of more than 5% of the FHLBNY’s outstanding capital stock as of December 31, 2008 (shares in thousands):

		Number		Percent
	December 31, 2008	of shares		of total
Name of beneficial owner	Principal Executive Office Address	owned		capital stock
Hudson City Savings Bank *	West 80 Century Road, Paramus, NJ 07652		8,656		15.11	%
Metropolitan Life Insurance Company	200 Park Ave., New York, NY 10166		8,302		14.49
Manufacturers and Traders Trust Company	One M & T Plaza, Buffalo, NY 14203		4,327		7.55
New York Community Bank *	615 Merrick Avenue, Westbury, NY 11590		3,928		6.86
			25,213		44.01	%

* Officer of member bank also serves on the Board of Directors of the FHLBNY.

257

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures: An evaluation of the Bank’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”)) was carried out under the supervision and with the participation of the Bank’s President and Chief Executive Officer, Alfred A. DelliBovi, and Senior Vice President and Chief Financial Officer, Patrick A. Morgan, at December 31, 2008. Based on this evaluation, they concluded that as of December 31, 2008, the Bank’s disclosure controls and procedures were effective at a reasonable level of assurance in ensuring that the information required to be disclosed by the Bank in the reports it files or submits under the Act is (i) accumulated and communicated to the Bank’s management (including the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b)

Changes in Internal Control Over Financial Reporting: There were no changes in the Bank’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the Bank’s fourth quarter that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

Management’s Reporting on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm thereon are set forth in Part II , Item 8 of the Annual Report on Form 10-K and incorporated hereon by reference.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

2008/2009 Board of Directors

The FHLBank Act, as amended by the Housing and Economic Recovery Act of 2008 (“HERA”), provides that an FHLBank’s board of directors is to comprise 13 directors, or such other number as the Director of the Federal Housing Finance Agency determines appropriate. For 2009, the Director has designated 17 directorships for the Bank, 10 of which are member directorships and seven of which are independent directorships. In contrast, in 2008, there were 16 directorships: 10 member directorships and 6 independent directorships. (Prior to the adoption of HERA on July 30, 2008, the member directorships were known as elected directorships and the independent directors were known as appointed directorships.)

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All individuals serving as Bank directors must be United States citizens. A majority of the directors must be member directors and at least 2/5 must be independent directors. A member directorship may be held only by an officer or director of a member institution that is located within the Bank’s district and that meets all minimum regulatory capital requirements. Member directors are elected by stockholders in, respectively, New York, New Jersey, and Puerto Rico and the U.S. Virgin Islands. In contrast, an independent directorship may be held only by an individual who is a bona fide resident of the Bank’s district, who is not a director, officer, or employee of a member institution or of any person that receives advances from the Bank, and who is not an officer of any FHLBank. Independent directors are elected through a district-wide election process. See Item 4 of this Form 10-K for more information about the director election process.

The following table sets forth information regarding each of the directors of the FHLBNY who served on the Board at any time during the period from January 1, 2008 through the date of this annual report on Form 10-K. Unless otherwise indicated, all persons in the below table served continuously on the Board from January 1, 2008 through the date of this annual report on Form 10-K. Footnotes are used to specifically identify those directors who: (i) served on the Board only for a portion of 2008; (ii) served on the Board only for a portion of 2008 and who were also elected to serve by Bank members for a new term on the Board commencing January 1, 2009; or (iii) did not serve on the Board in 2008 but who were elected to serve by Bank members for a term on the Board commencing January 1, 2009. The footnotes also provide additional information about the Directors who served as Chair and Vice Chair of the Board during the aforementioned time period. After the table is biographical information for each director.

No director has any family relationship with any other director or executive officer of the Bank. No director or executive officer has an involvement in any legal proceeding required to be disclosed pursuant to Item 401(f) of Regulation S-K.

			Bank		Expiration		Represents
	Age as of		Director		of Term		Bank	Director
Director Name	3/27/2009		Since		12/31/		Members in	Type
Michael M. Horn (Chair) a		69		4/2007		2009	2nd District	Independent
José Ramon González (Vice Chair) b		54		1/2004		2009	PR & USVI	Member
David W. Lindstrom (Past Chair) c		69		1/2003		2008	NJ	Member
Anne Evans Estabrook		64		1/2004		2010	2nd District	Independent
Joseph R. Ficalora		62		1/2005		2010	NY	Member
Carl A. Florio d		60		1/2006		2008	NY	Member
Jay M. Ford e		59		6/2008		2012	NJ	Member
James W. Fulmer		57		1/2007		2009	NY	Member
Ronald E. Hermance, Jr.		61		1/2005		2010	NJ	Member
Katherine J. Liseno		64		1/2004		2009	NJ	Member
Kevin J. Lynch		62		1/2005		2010	NJ	Member
Joseph J. Melone		77		4/2007		2009	2nd District	Independent
Richard S. Mroz		47		3/2002		2010	2nd District	Independent
Thomas M. O’Brien f		58		4/2008		2012	NY	Member
C. Cathleen Raffaeli		52		4/2007		2012	2nd District	Independent
Edwin C. Reed		55		4/2007		2012	2nd District	Independent
John M. Scarchilli		57		8/2006		2010	NY	Member
DeForest B. Soaries, Jr. g		57		1/2009		2011	2nd District	Independent
George Strayton		65		6/2006		2011	NY	Member

^a Mr. Horn, who had served as Vice Chair of the Board since January 1, 2008, became Acting Board Chair on May 8, 2008 and Board Chair on May 13, 2008, thus filling the unexpired portion of the Chair term that is scheduled to expire on December 31, 2009.

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b	Mr. Gonzalez became Board Vice Chair on June 19, 2008, thus filling the unexpired portion of the Vice Chair term that was scheduled to run through December 31, 2008. The Board later elected him to serve as Vice Chair for the years 2009 and 2010.
c	Mr. Lindstrom’s service as a director on the Board ended on May 7, 2008 (prior to the end of his scheduled term, which was December 31, 2008) as a result of the end of his employment with Bank member Franklin Bank; under Finance Agency regulations, one must be an officer or director of a member in order to serve as a member director on the Bank’s Board. He served as Board Chair from January 1 through May 7, 2008.
d	Mr. Florio’s service as a director on the Board ended on January 22, 2008 (prior to the end of his scheduled term, which was December 31, 2008) as a result of the end of his employment with Bank member First Niagara Bank; under Finance Agency regulations, one must be an officer or director of a member in order to serve as a member director on the Bank’s Board.
e	Mr. Ford was elected by the Board on June 19, 2008 to finish Mr. Lindstrom’s unexpired term as Director, which had been scheduled to run through December 31, 2008. He was later elected by the Bank’s membership in New Jersey to serve a new term commencing January 1, 2009.
f	Mr. O’Brien was elected by the Board on April 2, 2008 to, commencing on April 3, 2008, finish Mr. Florio’s unexpired term as Director; this term had been scheduled to run through December 31, 2008. He was later elected by the Bank’s membership in New York to serve a new term on the Board commencing January 1, 2009.
g	Dr. Soaries was not a member of the Board in 2008. He was elected by the Bank’s membership for a term on the Board commencing January 1, 2009.

Mr. Horn (Vice Chair — January 1, 2008 through May 7, 2008; Acting Chair — May 8, 2008 — May 12, 2008; Chair — May 13, 2008 through the present) has been a partner in the law firm of McCarter & English, LLP since 1990. He has served as the Commissioner of Banking for the State of New Jersey and as the New Jersey State Treasurer. He was also a member of the New Jersey State Assembly and served a member of the Assembly Banking Committee. In addition, Mr. Horn served on New Jersey’s Executive Commission on Ethical Standards as both as its Vice Chair and Chairman, was appointed as a State Advisory Member of the Federal Financial Institutions Examination Council, and was a member of the Municipal Securities Rulemaking Board. Mr. Horn is counsel to the New Jersey Bankers Association, chairman of the Bank Regulatory Committee of the Banking Law Section of the New Jersey State Bar Association, a member of the Board of Directors of the Community Foundation of New Jersey, and a Fellow of the American Bar Foundation. He served as a director of Ryan Beck & Co. through December 31, 2006.

Mr. González (Vice Chair — June 19, 2008 through the present) was President and Chief Executive Officer of Santander BanCorp and Banco Santander Puerto Rico from October 2002 until August 2008. Since 2000, he has served as a Director of Santander BanCorp and he has served as a Director of Banco Santander Puerto Rico since 2002. Mr. González joined the Santander Group in August 1996 as President and Chief Executive Officer of Santander Securities Corporation. He later served as Executive Vice President and Chief Financial Officer of Santander BanCorp and in April 2002 was named President and Chief Operating Officer. Mr. González is a past President of the Puerto Rico Bankers Association and a past president of the Securities Industry Association of Puerto Rico. Mr. González was at Credit Suisse First Boston from 1983 to 1986 as Vice President of Investment Banking, and from 1989 to 1995 as President and Chief Executive Officer of the firm’s Puerto Rico subsidiary. From 1986 to 1989, Mr. González was President and Chief Executive Officer of the Government Development Bank for Puerto Rico. From 1980 to 1983, he was in the private practice of law in San Juan, Puerto Rico with the law firm of O’Neill & Borges.

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Mr. Lindstrom (Chair — January 1, 2008 through May 7, 2008; Past Vice Chair — 2007) served as President, Chief Executive Officer, and Director of Franklin Bank of Woodstown, New Jersey from 1985 through May of 2008. He served on the New Jersey League of Community Banker’s (“New Jersey League”) Board of Governors and was its Chair from 1990 to 1991. He was a member of the New Jersey League’s Legislative and Regulatory Affairs Committee, and was a director of the New Jersey League’s subsidiary Banker’s Cooperative Group, Inc. Mr. Lindstrom served as a member of the Board of Directors of the Pentegra Defined Benefit Plan For Financial Institutions from 2005 until 2008. He also served on the Board of Directors of Pentegra Services, Inc. from 2005 until 2008 and was the Chair of that Board from 2005 through 2007. Further, he served on the Board of the Pentegra Defined Contribution Plan For Financial Institutions from 1991 through 2004; he was the Chair of that Board from 1997 to 1998 and again from 2001 to 2004. In addition, Mr. Lindstrom served as a director and chairman of the Philadelphia Federal Reserve Thrift Council, was a member of the American Bankers Association (“ABA”) Government Relations Summit and also served as chair of the ABA’s Directors Publication Advisory Group.

Ms. Estabrook has been chief executive of Elberon Development Co. in Cranford, New Jersey since 1984. It, together with its affiliated companies, own approximately two million square feet of rental property. Most of the property is industrial with the remainder serving commercial and retail tenants. She is the past chairman of the New Jersey Chamber of Commerce and, until June 2007, served on its executive committee, and chaired its nominating committee. She previously served as a director on the boards of Summit Bank, United Jersey Bank, Constellation Bancorp, the National State Bank of Elizabeth and New Brunswick Savings Bank. Ms. Estabrook also served as a member of the Lay Board of the Delbarton School in Morristown for 15 years, including five years as chair. Since 2005, Ms. Estabrook has served as a Director of New Jersey American Water Company, Inc. Ms. Estabrook is also currently a member and Secretary of the Board of Trustees of Catholic Charities, serves on its Executive Committee and its Audit Committee, and Chairs its Finance Committee and Building and Facilities Committees. She is on the Board of Overseers of the Weill Cornell Medical School, and is also on the Board of Trustees of Monmouth Medical Center, where she serves on its Executive and Community Action Committees, and Chairs the Children’s Hospital Committee. Ms. Estabrook serves as a Member of the Liberty Hall Museum Board at Kean University in Union, NJ, she is on the Council of the New Jersey Performing Arts Center, and is a the Trustee of the New Jersey Network Foundation.

Mr. Ficalora has been President and Chief Executive Officer and a Director of New York Community Bancorp, Inc. since its inception on July 20, 1993 and President and Chief Executive Officer and a Director of its primary subsidiaries, New York Community Bank (“New York Community”) and New York Commercial Bank (“New York Commercial”), since January 1, 1994 and December 30, 2005, respectively. On January 1, 2007, he was appointed Chairman of New York Community Bancorp, Inc., New York Community and New York Commercial, a position he previously held at New York Community Bancorp, Inc. from July 20, 1993 through July 31, 2001 and at New York Community from May 20, 1997 through July 31, 2001. Since 1965, when he joined New York Community (formerly Queens County Savings Bank), Mr. Ficalora has held increasingly responsible positions, crossing all lines of operations. Prior to his appointment as President and Chief Executive Officer of New York Community in 1994, Mr. Ficalora served as President and Chief Operating Officer (beginning in October 1989); before that, he served as Executive Vice President, Comptroller and Secretary. A graduate of Pace University with a degree in business and finance, Mr. Ficalora provides leadership to several professional banking organizations. In addition to previously serving as a member of the Executive Committee and as Chairman of the former Community Bankers Association of New York State, Mr. Ficalora is a Director of the New York State Bankers Association and Chairman of its Metropolitan Area Division. Mr. Ficalora also serves as a member of the Board of Directors of the Thrift Institutions Advisory Council of the Federal Reserve Board in Washington, D.C., and previously served as a member of the Thrift Institutions Advisory Panel of the Federal Reserve Bank of New York. In addition, he is a member of the Board of Directors of the RSI Retirement Trust and also of Peter B. Cannell and Co., Inc., an investment advisory firm that became a subsidiary of New York Community in 2004. Mr. Ficalora has previously served as a director of Computhrift Corporation, Chairman and board member of the New York Savings Bank Life Insurance Fund, President and Director of the MSB Fund and President and Director of the Asset Management Fund Large Cap Equity Institutional Fund, Inc. Mr. Ficalora has been a member of the Board of Directors of the Queens Chamber of Commerce since 1990 and a member of its Executive Committee since April 1992. In addition, Mr. Ficalora is President of the Queens Library Foundation Board, and serves on the Boards of Directors of the Queens Borough Public Library, the New York Hall of Science, Flushing Cemetery, and on the Advisory Council of the Queens Museum of Art. He previously served on the Board of Trustees of the Queens College Foundation and the Queens Museum of Art.

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Mr. Florio was, from July 2007 until January 2008, Senior Vice President of First Niagara. Prior to that, from August 2006 until July 2007, he was Counsel to the President and CEO of First Niagara. Before that, from January 2005 until August 2006, Mr. Florio was Eastern New York Regional President of First Niagara. Before joining First Niagara, Mr. Florio was (from 1993 to 1996) the Chief Financial Officer and then (from 1996 through January 2005) the President and Chief Executive Officer of Hudson River Bank & Trust Co. Mr. Florio’s earlier work experience included several years as a partner in the accounting firm of Pattison, Koskey, Rath & Florio, where he specialized in auditing commercial banks and savings institutions throughout the Hudson Valley. Mr. Florio was also active in many professional and community service organizations. He served as a board member of Hudson River Bank & Trust Company Foundation, State University of New York at Albany Foundation, Fuller Road Management, Columbia-Greene Community College Foundation, Columbia Children’s Center, AAA Hudson Valley and ABMC. Mr. Florio, a Certified Public Accountant, received a Bachelor of Science degree from the State University of New York at Albany.

Mr. Ford has been President and Chief Executive Officer of Crest Savings Bank, headquartered in Wildwood, NJ, since 1993. He has worked in the financial services industry in the southern New Jersey market for over thirty years. Mr. Ford served as the 2003-04 chairman of the New Jersey League of Community Bankers (“New Jersey League”), and has also served as a member of the New Jersey League’s Executive and Conference Committees, Committee on Examination and Supervision, and Policy Review Task Force. He has also served as a trustee of the New Jersey League’s Savings Association Political Election Committee. Mr. Ford served as Chairman of the Community Bank Council of the Federal Reserve Bank of Philadelphia in 1998-1999. He also served on the board of directors of America’s Community Bankers (“ACB”) and on ACB’s Audit, Finance & Investment, and Professional Development & Education Committees. Mr. Ford serves on the boards of the Cape Regional Medical Center Foundation, Atlantic Cape Community College Foundation, Main Street Wildwood and the Doo Wop Preservation League and has previously served as a director and treasurer of Habitat for Humanity, Cape May County, from 1996 to 2001, and as Divisional Chairman of the March of Dimes for Atlantic and Cape May Counties from 1997 to 1999. In December 2000, he was appointed by Governor Christine Todd Whitman to the New Jersey Department of Banking & Insurance Study Commission. Mr. Ford is a graduate of Marquette University with a degree in accounting and is a member of the American Institute of Certified Public Accountants and the New Jersey Society of CPAs.

Mr. Fulmer has been a director of The Bank of Castile since 1988, the Chairman since 1992, Chief Executive Officer since 1996, and President since 2002. Mr. Fulmer has also been Vice Chairman of Tompkins Financial Corporation, the parent company of The Bank of Castile, since 2007 and has served as President and a Director of Tompkins Financial Corporation since 2000. Since 2001, he has served as Chairman of the Board of Tompkins Insurance Agencies, Inc. and, since 2006, he has served as Chairman of AM&M Financial Services, Inc., both subsidiaries of Tompkins Financial Corporation. In addition, since 1999, Mr. Fulmer has served as director of Mahopac National Bank, which is also a subsidiary of Tompkins Financial Corporation. He served as the President and Chief Executive Officer of Letchworth Independent Bancshares Corporation from 1991 until its merger with Tompkins Financial Corporation in 1999. Before joining The Bank of Castile, Mr. Fulmer held various executive positions with Fleet Bank of New York (formerly known as Security New York State Corporation and Norstar Bank) for approximately 12 years. He is an active community leader, serving as a member of the Board of Directors of the Erie & Niagara Insurance Association, Cherry Valley Insurance Company, United Memorial Medical Center in Batavia, New York, WXXI Public Broadcasting Council, and the Genesee County Economic Development Center. Mr. Fulmer currently serves on the Government Relations Committee of the American Bankers Association. He is a former director of the Monroe Title Corporation and the Catholic Heath System of Western New York. Mr. Fulmer is also a former president of the Independent Bankers Association of New York State and a former member of the Board of Directors of the New York Bankers Association.

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Mr. Hermance, Chairman, President and Chief Executive Officer of Hudson City Savings Bank, Paramus, New Jersey, has over 20 years of service with that institution. He joined Hudson City as Senior Executive Vice President and Chief Operating Officer and was also named to the Board of Directors. In 1997, he was promoted to President, and on January 1, 2002, he became Chief Executive Officer. On January 1, 2005, Mr. Hermance assumed the title of Chairman in addition to President and Chief Executive Officer. Mr. Hermance carries similar titles in Hudson City Bancorp, the parent company, which trades on NASDAQ. He serves as a member of the Thrift Institutions Advisory Panel of the Federal Reserve Bank of New York.

Ms. Liseno has been President and Chief Executive Officer of Metuchen Savings Bank since 1979, having begun her career with the bank in 1962.  She was a member of the New Jersey League of Community Banker’s (“New Jersey League”) Legislative and Regulatory Affairs Committee. She also served on the New Jersey League’s Executive Committee and also was the Chairman of the Board of Governors of the New Jersey League. Ms. Liseno also served on the Board of Bankers Cooperative Group, Inc. She currently serves on the Board of the Thrift Institutions Community Investment Corp. (TICIC), a subsidiary of the New Jersey Bankers Association (the entity formerly known as the New Jersey League). She is also a trustee of the Savings Association Political Election Committee of the New Jersey Bankers Association (SAPEC-NJ). She is also past president of the Central Jersey Savings League.

Mr. Lynch has been President and Chief Executive Officer of Oritani Bank headquartered in the Township of Washington, New Jersey since July 1, 1993. He has also been President and Chief Executive Officer of Oritani Financial Corporation, the holding company of Oritani Bank, since 1998. Mr. Lynch has also served as Chair of the two aforementioned entities since August of 2006; prior to that time, he served as a Director. Mr. Lynch is a former Chairman of the New Jersey League of Community Bankers and served as a member of its Board of Governors for several years and also served on the Board of its subsidiary, the Thrift Institutions Community Investment Corp. (TICIC). Mr. Lynch is a member of the Professional Development and Education Committees of the American Bankers Association. He has been a member of the Board of Directors of the Pentegra Defined Benefit Plan For Financial Institutions since 1997, was Chair of that Board in 2004 and 2005 and was Vice Chair in 2002 and 2003. He has also been a member of the Board of Pentegra Services, Inc. since 2007. He is a member of the American Bar Association and a former member of the Board of Directors of Bergen County Habitat for Humanity. Mr. Lynch is also a member of the Board of Directors of the Hackensack Main Street Business Alliance. Prior to appointment to his current position at Oritani Bank in 1993, Mr. Lynch was Vice President and General Counsel of a leasing company and served as a director of Oritani Bank. Mr. Lynch earned a Juris Doctor degree from Fordham University, an LLM degree from New York University, an MBA degree from Rutgers University and a BA in Economics from St. Anselm’s College.

Mr. Melone has been chairman emeritus of The Equitable Companies, Incorporated since April 1998. Prior to that, he was President and Chief Executive Officer of The Equitable Companies from 1996 until April 1998 and, from 1990 until April 1998, he was Chairman and Chief Executive Officer of its principal insurance subsidiary, The Equitable Life Assurance Society of the United States (“Equitable Life”). Until August of 2007, he served on the board of directors of BISYS; until December of 2007, he served on the board of directors of Foster Wheeler. Previously, Mr. Melone served as a director of both The Equitable Companies and Equitable Life as well as subsidiaries Donaldson, Lufkin & Jenerette, Inc. and Alliance Capital Management Corporation. Prior to joining Equitable Life in 1990, Mr. Melone was president of The Prudential Insurance Company of America. He is a former Huebner Foundation fellow, and previously served as an associate professor of insurance at The Wharton School of the University of Pennsylvania and research director at The American College. Mr. Melone is a Chartered Life Underwriter, Chartered Financial Consultant and Chartered Property and Casualty Underwriter. He is Chairman of the Board of Horace Mann Educators, Inc. and has held leadership positions in a number of insurance industry associations, as well as numerous civic organizations. He received his bachelor’s, master’s and doctoral degrees from the University of Pennsylvania.

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Mr. Mroz, of Haddonfield, New Jersey, is a government and public affairs consultant and lawyer. For six years, until December 31, 2006, Mr. Mroz was Of Counsel to the law firm of Stradley Ronon Stevens & Young, LLP. On January 1, 2007, he became president of Salmon Ventures, Ltd., which is a non-legal government, regulatory and public affairs consulting firm. Mr. Mroz represents clients in New Jersey and nationally in connection with legislative, regulatory and business development affairs. Mr. Mroz, as a governmental affairs agent, is an advocate for clients in the utility, real estate, insurance and banking industries for federal, state, and local regulatory, administrative, and legislative matters. He also became Of Counsel to the law firm of Gruccio, Pepper, DeSanto & Ruth on April 1, 2007. In his law practice he concentrates on real estate, corporate and regulatory issues. He has a distinguished record of community and public service. Mr. Mroz is the former Chief Counsel to New Jersey Governor Christine Todd Whitman, serving in that position in 1999 and 2000. Prior to that, he served in various capacities in the Whitman Administration, including Special Counsel, Director of the Authorities, and member of the Governor’s Transition Team. He served as County Counsel for Camden County, New Jersey, from 1991 to 1994. Mr. Mroz is also active in community affairs, serving on the board of directors for the New Jersey Alliance for Action and Volunteers for America, Delaware Valley. Mr. Mroz currently serves as counsel to the New Jersey Conference of Mayors, and was former counsel to the Delaware River Bay Authority and to the Atlantic City Hotel and Lodging Association. He is also the solicitor for the Waterford Township, N.J., Planning Board. He has been a frequent commentator on Philadelphia radio and TV stations regarding election and political issues.

Mr. O’Brien joined State Bank of Long Island as President and CEO in November of 2006, following six years serving as the President and CEO of Atlantic Bank of New York. Since November of 2006, he has also served as a director of State Bancorp, Inc., the holding company of State Bank of Long Island. Mr. O’Brien has served as Vice Chairman of North Fork Bancorporation as well as Chairman of the Board, President and CEO of North Side Savings Bank. Mr. O’Brien is a past Chairman of the New York Bankers Association. He serves as an independent trustee of Prudential Insurance Company’s Mutual Fund Complex, a trustee of the Catholic Healthcare System of New York and Catholic Healthcare Foundation, and a trustee of Niagara University. He has been a trustee of Molloy College, a member of the National Advisory Board of Fannie Mae and an advisory board member for Neighboring Housing Services of New York City.

Ms. Raffaeli has been the President and Managing Director of the Hamilton White Group, LLC since 2002. The Hamilton White Group is an investment and advisory firm dedicated to assisting companies grow their businesses, pursue new markets and acquire capital. From 2004 to 2006, she was also the President and Chief Executive Officer of the Cardean Learning Group. Additionally, she served as the President and Chief Executive Officer of Proact Technologies, Inc. from 2000 to 2002 and Consumer Financial Network from 1998 to 2000. Ms. Raffaeli also served as the Executive Director of the Commercial Card Division of Citicorp and worked in executive positions in Citicorp’s Global Transaction Services and Mortgage Banking Divisions from 1994 to 1998. She has also held senior positions at Chemical Bank and Merrill Lynch. Ms. Raffaeli serves on the Board of Directors of E*Trade, American Home Mortgage Holdings, Inc., and Indecomm Global, a privately held company.

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Rev. Reed has served as Chief Executive Officer of the Greater Allen Development Corporation from July 2007 through March 2009. The Greater Allen Development Corporation and its related development entities rehabilitates communities through its involvement in affordable housing projects, mixed use commercial/residential projects, and other development opportunities.  Rev. Reed previously was the Chief Financial Officer of Greater Allen AME Cathedral located in Jamaica, Queens, New York from 1996 to July 2007. From 1986 to 1995, Rev. Reed served as the campaign manager and Chief of Staff for Congressman Floyd H. Flake. Prior to becoming involved in public policy, Rev. Reed managed the $6 billion liquid asset portfolio for General Motors and was a financial analyst for Chevrolet, Oldsmobile, Pontiac, Cadillac, Buick and GM of Canada. Rev. Reed gained his initial financial experience as a banker at First Tennessee Bank in Memphis, Tennessee. Rev. Reed earned a Masters of Business Administration from Harvard Business School, a Bachelor of Business Administration from Memphis State University and a Masters of Divinity at Virginia Union University. He currently serves on the following organizations in the following positions: Chairman of Audit Committee, Board of Trustees, Hofstra University; Chairman, Jamaica Business Resource Center; Secretary/Treasurer, Outreach Project; Board Member, JP Morgan Chase Bank National Community Advisory Board; and Board Member, Wheelchair Charities.

Mr. Scarchilli has been President and Chief Executive Officer of Pioneer Bank, headquartered in Troy, New York, since 1997 and is a member of the Board of Trustees. Mr. Scarchilli is a graduate of Hudson Valley Community College in Troy and has a Bachelor’s Degree in Accounting from Siena College. Mr. Scarchilli also serves as President, CEO and Director of Pioneer Commercial Bank and serves as Chairman of the Board of PSB Financial Services, Inc., both wholly-owned subsidiaries of Pioneer Bank. He is also a Director of the New York Bankers Association and was Chairman of that Association through February 9, 2009. He was a Director of the American Bankers Association, a national banking trade organization, in 2008. Mr. Scarchilli serves as a member of the Thrift Institutions Advisory Panel of the Federal Reserve Bank of New York, serves as a Director on the Banking Board of the New York State Banking Department, and also serves as a Director of the Independent Bankers Association of New York State. Through January 8, 2007, Mr. Scarchilli served as a Director of Asset Management Fund Large Cap Equity Fund Institutional Fund, Inc. In 2005, Mr. Scarchilli served as a trustee on the RSI Retirement Trust Board. Mr. Scarchilli also serves on numerous not-for-profit boards in the local community. He is a Director of the Center for Economic Growth, Co-Chair of Troy 20/20, and the annual Chairman of the Hudson Valley Community College President’s Circle. Additionally, he serves as a member of the Audit and Compliance Committee of Ordway Research Institute. Mr. Scarchilli served as a Director of the Albany-Colonie Regional Chamber of Commerce until December of 2008.

Dr. Soaries has been the Senior Pastor of the First Baptist Church of Lincoln Gardens in Somerset, New Jersey since November 1990. A pioneer of faith-based community development, Dr. Soaries has led First Baptist in the construction of a new $20 million church complex and the formation of many not-for-profit entities to serve the community surrounding the church. Highlights of Dr. Soaries’ ministry include recruiting 325 families to become foster parents to 500 children; helping 200 children find adoptive parents; constructing 124 new homes for low and moderate income residents to own; redeveloping 150,000 square feet of commercial real estate; operating the Central New Jersey STRIVE program for job readiness; serving hundreds of youth in an after school center and homework club; forming a youth entrepreneurship program; organizing a community development credit union; and creating the “Housing Assistance and Recovery Program”, or “HARP”, a program designed to help homeowners recover homes lost through foreclosure. From January 12, 1999 to January 15, 2002, Dr. Soaries served as New Jersey’s 30th Secretary of State. In 2004 he also served as the first chairman of the United States Election Assistance Commission, having been appointed by the President and confirmed by the United States Senate.

Mr. Strayton has been President and Chief Executive Officer of Provident Bank, an independent full service community bank with $3.0 billion in assets headquartered in Montebello, New York, since 1986. He is also President, Chief Executive Officer and a Director of Provident New York Bancorp, the holding company of Provident Bank. Mr. Strayton joined Provident Bank in 1982 after 18 years with Bankers Trust Company. Mr. Strayton is currently a director of the New York Bankers Association and a member of the Government Affairs Committee of the American Bankers Association. He also currently serves on the Thrift Institutions Advisory Panel of the Federal Reserve Bank of New York. Further, he serves as a director of Orange & Rockland Utilities and the New York Business Development Corporation. Mr. Strayton’s career includes chairmanships of the Community Bankers Association of New York State, St. Thomas Aquinas College, Rockland Business Association, Rockland County Boy Scouts of America, and Rockland United Way, among other local organizations.

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Executive Officers

The following sets forth the executive officers of the FHLBNY at December 31, 2008 and as of the date of this annual report on Form 10-K. The Bank has determined that its executive officers are those officers who are members of the Bank’s internal Management Committee. All Bank officers are “at will” employees and do not serve for a fixed term.

						Management
		Age as of		Employee of		Committee
Executive officer	Position held	3/27/2009		Bank since		member since
Alfred A. DelliBovi	President & Chief Executive Officer		63		11/30/92		03/31/04
Eric P. Amig	Senior Vice President & Director of Bank Relations		50		02/01/93		01/01/09
James A. Gilmore *	Senior Vice President & Head of Marketing & Sales		61		02/14/84		03/31/04
Adam Goldstein	Senior Vice President & Head of Sales & Marketing		35		07/14/97		03/20/08
Robert R. Hans **	Senior Vice President & Head of Technology & Support Services		59		01/03/72		03/31/04
Paul B. Héroux	Senior Vice President & Head of Member Services		50		02/27/84		03/31/04
Peter S. Leung	Senior Vice President & Chief Risk Officer		54		01/20/04		03/31/04
Patrick A. Morgan	Senior Vice President & Chief Financial Officer		68		02/16/99		03/31/04
Kevin M. Neylan	Senior Vice President & Head of Strategy and Business Development		51		04/30/01		03/31/04
Craig E. Reynolds	Senior Vice President & Head of Asset Liability Management		60		06/27/94		03/31/04

*	Retired 3/19/08
**	Terminated 1/15/75; rehired 9/16/75

Alfred A. DelliBovi was elected President of the Federal Home Loan Bank of New York in November 1992. As President, he serves as the Chief Executive Officer and directs the Bank’s overall operations to facilitate the extension of credit products and services to the Bank’s member-lenders. Since 2005, Mr. DelliBovi has been a member of the Board of Directors of the Pentegra Defined Contribution Plan for Financial Institutions; he previously served on this board from 1994 through 2000. He also served on the Board of Directors of the Pentegra Defined Benefit Plan for Financial Institutions from 2001 through 2003. In addition, Mr. DelliBovi was appointed by the U.S. Department of the Treasury in September 2006, to serve as a member of the Directorate of the Resolution Funding Corporation, and was appointed Chairman in September 2007. Prior to joining the Bank, Mr. DelliBovi served as Deputy Secretary of the U.S. Department of Housing and Urban Development, from 1989 until 1992. In May 1992, President Bush appointed Mr. DelliBovi Co-Chairman of the Presidential Task Force on Recovery in Los Angeles. Mr. DelliBovi served as a senior official at the U.S. Department of Transportation in the Reagan Administration, was elected to four terms in the New York State Assembly, and earned a Master of Public Administration degree from Bernard M. Baruch College, City University of New York.

Eric P. Amig has served as Director of Bank Relations since joining the Bank in February 1993. From 1985 through January 1993, he worked in the U.S. Department of Housing and Urban Development; during this time he served as Special Assistant to the Deputy Secretary from 1990-1993. Mr. Amig has also served as a legislative aide in the Pennsylvania State Senate and House of Representatives.

James A. Gilmore, who retired from the Bank in March 2008, was named Head of Marketing and Sales in April 2004. He joined the Bank in 1984 after almost ten years with the Federal Reserve Bank of New York. During his 24 years at the FHLBNY, Mr. Gilmore served in several positions in the areas of marketing and sales and correspondent banking. Mr. Gilmore continues to provide occasional consulting services to the Bank.

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Adam Goldstein was named Head of Sales and Marketing in March 2008; in this role, he leads the Sales, Marketing Communications and Business Research and Development efforts at the Bank. He joined the Bank in June 1997 and has held a number of key positions in the Bank’s sales and marketing areas. In addition to an undergraduate degree from the SUNY College at Oneonta and an M.B.A. in Financial Marketing from SUNY Binghamton University, Mr. Goldstein has received post-graduate program certifications in Business Excellence from Columbia University, in Management Development from Cornell University, and in Management Practices from New York University.

Robert R. Hans was named Head of Technology and Support Services in March 2004; in this role, he is responsible for the Bank’s Information Technology and Corporate Services areas. Mr. Hans has been with the FHLBNY for more than 35 years, primarily working in management positions in bank operations and technology.

Paul B. Héroux was named Head of Member Services in March 2004; in this role, he oversees several functions at the Bank, including Credit and Correspondent Services, Collateral Services, Acquired Member Assets and Community Investment/Affordable Housing Operations. Mr. Héroux joined the Bank in 1984 as a Human Resources Generalist and served as the Director of Human Resources from 1988 to 1990. In his tenure with the Bank, he has held other key positions including Director of Financial Operations and Chief Credit Officer. He received an undergraduate degree from St. Bonaventure University and is a recent graduate of the Columbia Senior Executive Program. Prior to joining the Bank, Mr. Héroux held positions at Merrill Lynch & Co. and E.F. Hutton & Co.

Peter S. Leung joined the Bank as Chief Risk Officer in January 2004. Mr. Leung has more than twenty-two years experience in the Federal Home Loan Bank System. Prior to joining the Bank, Mr. Leung was the Chief Risk Officer of the Federal Home Loan Bank of Dallas for three years, and the Associate Director and then Deputy Director of the Office of Supervision of the Federal Housing Finance Board for a total of 11 years. He also served as an examiner with the Federal Home Loan Bank of Seattle and with the Office of Thrift Supervision for a total of four years in the 1980’s. Mr. Leung is a CPA and has an undergraduate degree from SUNY at Buffalo and an M.B.A. from City University, Seattle, Washington.

Patrick A. Morgan was named the Chief Financial Officer in March 2004. Mr. Morgan joined the FHLBNY in 1999 after more than fifteen years in the financial services industry including working for one of the largest international banks in the U.S. Prior to that, Mr. Morgan was a senior audit manager with one of the Big Four public accounting firms. He is a CPA and a member of the New York State Society of CPAs and the American Institute of CPAs.

Kevin M. Neylan was named Head of Strategy and Business Development in January 2009. He was previously Head of Strategy and Organizational Performance from January 2005 to December 2008, and was Director, Strategy and Organizational Performance from January 2004 to December 2004. Mr. Neylan is responsible for developing and monitoring the execution of the Bank’s business strategy. He is also responsible for overseeing the Bank’s Marketing and Sales, Human Resources and Legal functions. Mr. Neylan had approximately twenty years of experience in the financial services industry prior to joining the Bank in April 2001. He was a partner in the financial service consulting group of one of the Big Four accounting firms. He holds an M.S. in corporate strategy from the MIT Sloan School of Management.

Craig E. Reynolds was named Head of Asset and Liability Management in March 2004. Prior to this position, he served as Treasurer of the Bank. Mr. Reynolds joined the FHLBNY in 1994 after more than 22 years in banking, with almost half this time spent working abroad in international banking. He was the treasurer of a U.S. bank’s branch in Tokyo and later resided in Riyadh, Saudi Arabia as the treasurer of a Saudi Arabian bank for over five years. He received an undergraduate degree from Manhattan College in the Bronx, New York.

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Section 16 (a) Beneficial Ownership Reporting Compliance

In accordance with correspondence from the Office of Chief Counsel of the Division of Corporation Finance of the U.S. Securities and Exchange Commission dated August 26, 2005, Directors, officers and 10% stockholders of the Bank are exempted from Section 16 of the Securities Exchange Act of 1934 with respect to transactions in or ownership of Bank capital stock.

Audit Committee

The Audit Committee of the FHLBNY’s Board of Directors is primarily responsible for overseeing the services performed by the FHLBNY’s independent registered public accounting firm and internal audit department, evaluating the FHLBNY’s accounting policies and its system of internal controls and reviewing significant financial transactions. For the period from January 1, 2008 through the date of the filing of this annual report on Form 10-K, the members of the Audit Committee included, at various times: Anne E. Estabrook, Joseph R. Ficalora, Carl A. Florio, Jay M. Ford, José R. González, Michael M. Horn, Katherine J. Liseno, Joseph J. Melone and John M. Scarchilli. As of the date of the filing of this annual report on Form 10-K, the members of the Audit Committee are: Anne Evans Estabrook (Chair), Katherine J. Liseno (Vice Chair), Joseph R. Ficalora, Jay M. Ford, José R. González, Michael M. Horn, Joseph J. Melone and John M. Scarchilli.

Audit Committee Financial Expert

The FHLBNY’s Board of Directors has determined that for the period from January 1, 2008 through the date of the filing of this annual report on Form 10-K, José R González of the FHLBNY’s Audit Committee qualified as an “audit committee financial expert” under Item 407 (d) of Regulation S-K but was not considered “independent” as the term by the rules of the New York Stock Exchange.

Code of Ethics

It is the duty of the Board of Directors to oversee the Chief Executive Office and other senior management in the competent and ethical operation of the FHLBNY on a day-to-day basis and to assure that the long-term interests of the shareholders are being served. To satisfy this duty, the directors take a proactive, focused approach to their position, and set standards to ensure that the FHLBNY is committed to business success through maintenance of the highest standards of responsibility and ethics. In this regard, the Board has adopted a Code of Business Conduct and Ethics that applies to all employees as well as the Board. The Code of Business Conduct and Ethics is posted on the Corporate Governance Section of the FHLBNY’s website at http://www.fhlbny.com. The FHLBNY intends to disclose any changes in or waivers from its Code of Business Conduct and Ethics by filing a Form 8-K or by posting such information on its website.

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ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

The mission of the Federal Home Loan Bank of New York (“Bank”) is to advance housing opportunity and local community development by maximizing the capacity of its community-based member-lenders to serve their markets.

The Bank meets its mission by providing its members with access to economical wholesale credit and technical assistance through the provision of credit products, mortgage finance programs, housing and community development programs and correspondent services intended to increase the availability of home finance to families of all incomes.

Achieving the Bank’s Mission and Goals

The Bank operates in a very competitive market for financial talent. Without the capability to attract, motivate and retain talented employees, the ability of the Bank to fulfill its mission would be in jeopardy. All employees, and particularly senior and middle management, are frequently required to perform multiple tasks requiring a variety of skills. These employees do not only have talent that is extensive, but they also possess skill sets that are difficult to afford in the marketplace. In this regard, as of December 31, 2008, the Bank employed 245 employees, a relatively small workforce for a New York City-based financial institution that had, as of that date, $137.54 billion in assets.

Compensation and Human Resources Committee

Compensation is a key element in attracting, motivating and retaining talent. In this regard, it is the role of the Compensation and Human Resource Committee (“C&HR Committee”) of the Bank’s Board of Directors (“Board”) to:

1. review and recommend to the Board changes regarding the Bank’s compensation and benefits programs for employees and retirees;

2. review and approve individual performance ratings and related merit increases for the Bank’s Chief Executive Officer and for the other Management Committee members;

3. review salary adjustments for Bank officers;

4. review and approve annually the Bank’s Incentive Compensation Plan (“Incentive Plan”), year-end Plan results and Plan award payouts;

5. advise the Board on compensation, benefits and human resources matters affecting Bank employees;

6. review and discuss with Bank management the Compensation Discussion and Analysis (“CD&A”) to be included in the Bank’s Form 10-K and determine whether to recommend to the Board that the CD&A be included in the Form 10-K; and

7. review and monitor compensation arrangements for the Bank’s executives so that the Bank continues to retain, attract, motivate and align quality management consistent with the investment rationale and performance objectives contained in the Bank’s annual business plan and budget, subject to the direction of the Board.

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The Board has delegated to the C&HR Committee the sole authority to retain and replace, and approve fees and other retention terms for: i) any compensation and benefits consultant to be used to assist in the evaluation of Chief Executive Officer’s compensation, and ii) any other advisors that it shall deem necessary to assist it in fulfilling its duties. The Charter of the C&HR Committee is available at the Corporate Governance section of the Bank’s web site at www.fhlbny.com.

The role of Bank management (including executive officers) with respect to compensation is limited to administering Board-approved programs and providing proposals for the consideration of the C&HR Committee. No member of Bank management serves on the Board or any Board committee.

Finance Agency Oversight of Executive Compensation

Notwithstanding the role of the C&HR Committee discussed in this CD&A, Section 1113 of HERA requires that the Director of the Federal Housing Finance Agency prevent an FHLBank from paying compensation to its executive officers that is not reasonable and comparable to that paid for employment in similar businesses involving similar duties and responsibilities. In connection with the fulfillment of these responsibilities, the Finance Agency in October 2008 directed the FHLBanks to submit all compensation actions involving an NEO to the Finance Agency for review at least four weeks in advance of any planned board of director decision with respect to those actions.

Compensation decisions for all of the Bank’s NEOs require action of the C&HR Committee of the Board of Directors. Accordingly, in November 2008 and January 2009, the Bank submitted proposed 2008 merit-related base pay increases for 2009 and proposed 2008 incentive award payments, respectively, to the Finance Agency for the four-week review period prior to final action by the Committee. The merit-related base pay increases and incentive award payments occurred after the expiration of the four-week period and following final approval by the Compensation and Human Resources Committee.

Compensation Policy

The C&HR Committee-recommended and Board-approved Compensation Policy acknowledges the Bank’s business environment and the additional factors the Bank takes into account to remain competitive in its labor market. Those additional factors include but are not limited to:

• Geographical area — The New York Metropolitan area is a highly competitive market for talent in the financial disciplines;

• Cost of living — The New York Metropolitan area has a high cost of living that may require compensation premiums for some positions, particularly at more junior levels; and

• Availability/demand for talent — Recruiting critical positions with high market demand typically requires a recruiting premium to entice an individual to change firms.

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Total Compensation Program

In response to the challenging environment that the Bank operates in, compensation and benefits at the Bank consist of the following components: (a) cash compensation (i.e., (i) base salary, and, for exempt employees, (ii) “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., Qualified Defined Benefit Plan; Qualified Defined Contribution Plan; Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (“BEP”); Nonqualified Defined Contribution Portion of the BEP; Nonqualified Profit Sharing Plan; and, effective January 1, 2009, a Nonqualified Deferred Compensation Plan); and (c) health and welfare programs and other benefits which are listed and explained in Section IV C below. These components make up the Bank’s total compensation program. It is the role of the C&HR Committee to formulate the structure of the Bank’s total compensation program and it is the role of management to administer that program. As changes are made to one element of the total compensation program mix, the Committee considers the impact on the other elements of the total compensation program.

This CD&A provides information related to the Bank’s total compensation program provided to its named executive officers (or “NEOs”) for 2008 — that is, the Bank’s Principal Executive Officer (“PEO”), Principal Financial Officer (“PFO”) and the three most highly-compensated executive officers other than the PEO and PFO. The information includes, among other things, the objectives of the Bank’s total compensation program and the elements of compensation the Bank provides to its NEOs (and other employees).

I. Objectives of the Bank’s total compensation program

The objectives of the Bank’s total compensation program are to help motivate employees to achieve superior results for the Bank, and to provide a program that allows the Bank to compete for and retain talent that otherwise might be lured away from the Bank.

The Bank’s total compensation program consists of the following components: (a) cash compensation (i.e., (i) base salary, and, for exempt employees (ii) “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., Qualified Defined Benefit Plan; Qualified Defined Contribution Plan; Nonqualified Defined Benefit Portion of the BEP; Nonqualified Defined Contribution Portion of the BEP; Nonqualified Profit Sharing Plan; and, effective January 1, 2009, a Nonqualified Deferred Compensation Plan); and (c) health and welfare and other benefits.

2006 — 2007 Aon Compensation and Benefit Study

On June 29, 2006, the Committee engaged compensation specialists Aon Consulting, Inc. (“Aon”), and its subsidiary, McLagan Partners, Inc. (“McLagan”), which focuses on executive compensation (collectively, “Aon”), to study the Bank’s compensation and benefits. To assist the C&HR Committee’s review of the process behind, and the conclusions of, Aon’s study, the Committee engaged another compensation and benefits consultant, Pearl Meyers and Partners (“Pearl Meyers”), as a check and balance to the process. (Aon had, previous to the above engagement, been retained by the Bank with regard to matters pertaining to retiree medical benefits reporting as well as a review of actuarial assumptions and valuations used by the administrator of the Bank’s Defined Benefit and Benefit Equalizations Plans. McLagan had also been previously engaged by the Bank for compensation consulting.)

The purpose of the Aon engagement was to retain an outside expert who would perform a broad and comprehensive review of all the Bank’s compensation and benefits programs. Specifically, Aon was instructed by the C&HR Committee to: (i) determine how the Bank’s compensation and benefit programs and level of rewards were compared to and aligned with the market; (ii) ascertain the current and projected costs of each Bank benefit and identify ways to control these costs; (iii) determine the optimal mix of compensation and benefits for the Bank; and (iv) determine if there were alternative benefit structures that should be considered. Aon was informed of the Bank’s continued desire to attract, motivate and retain talented employees.

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A major undertaking for Aon during the review process was to identify the Bank’s peer group for “benchmarking” purposes (that is, for purposes of comparing levels of benefits and compensation). Aon weighed a number of factors in order to arrive at the selection of a peer group. Among the factors considered were firms that were either business competitors or labor market competitors (focusing attention on firms either headquartered or having major offices in the same or similar geographic markets), and firms similar in size (assets, revenues and employee population) to the Bank. Through Aon’s experience working with other Home Loan Banks and through direct interviews with the Bank’s senior management, Aon identified the current and future skill sets needed to meet the Bank’s business objectives and also noted that the Bank tended to hire employees from and lose employees to certain institutions.

While “Wall Street” firms were considered, Aon recommended they not be used as benchmark peers because of an inconsistency between business compensation models. These firms tend to base their compensation levels to a significant extent on activities that carry a high degree of risk and commensurate level of return. In contrast, the Bank, as a Federally-regulated provider of liquidity to financial institutions, operates using a low risk/return business model.

Based on these considerations, Aon recommended that the Bank’s peer group should be regional and commercial banks.

In addition, Aon proposed that Bank officer positions be matched one position level down versus commercial/regional banks. Aon’s rationale was that officer positions at commercial/regional banks are one level more significant than at the Bank because they manage multiple business lines in multiple locations. In contrast, the Bank only has two locations and one main business segment. Therefore, the Bank generally recruits senior level positions from a “divisional” level at commercial/regional banks as opposed to the higher “corporate” level of such organizations. The C&HR Committee and the Board agreed with these recommendations.

A representative list of the peer group that was used in the Aon study is set forth in the table below. For the firms listed below that had multiple lines of business, the Bank benchmarked total compensation against the wholesale banking functions at those companies.

Australia & New	Cargill	GMAC	Royal Bank of Canada
Zealand Banking	CIBC World Markets	HSBC Bank	Royal Bank of
Group	Citigroup	HSBC Corporate,	Scotland/Greenwich
ABN AMRO	Citizens Bank	Investment Banking	Capital
Allied Irish Bank	Commerzbank	& Markets	Societe Generale
The Bank of Nova	Commonwealth Bank	Hypo Vereinsbank	Standard Chartered Bank
Scotia	of Australia	ING Bank	Sumitomo Mitsui
Banco Santander	DVB Bank	JP Morgan Chase	Banking Corporation
Bank of New	DZ Bank	KeyCorp	SunTrust Banks
York/Mellon	Deutsche Bank	Lloyds TSB	TD Securities
Bank of Tokyo -	Dresdner Kleinwort	M&T Bank	Wachovia Corporation
Mitsubishi UFJ	Wasserstein	Corporation	Wells Fargo Bank
Bank of America	Fifth Third Bank	Mizuho Corporate	WestLB
BMO Financial	Fortis Financial	Bank, Ltd.	Westpac Banking
Group	Services LLC	National Australia	Corporation
BNP Paribas	GE Commercial	Bank
Brown Brothers	Finance	Rabobank Nederland
Harriman
The CIT Group

Note: Benchmarking data from international banks only contained results from their New York operations.

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Compensation and Benefits Study Results

Aon’s review was presented to the Board on August 3, 2007. The results of the study completed by Aon indicated that the Bank’s:

• cash compensation was generally below the Bank’s peer groups and heavily weighted towards base pay (the Bank does not have a long-term incentive program);

• cash compensation and retirement-related benefits were slightly above the Bank’s peers and heavily weighted towards benefits;

• cash compensation, retirement-related benefits and Health & Welfare Benefits were generally above the Bank’s peers and heavily weighted towards benefits; and

• mix of compensation and benefits was consistent with the risk-averse culture of the Bank.

Aon’s recommendations to the Board were based on the C&HR Committee’s direction to Aon that:

• dominant features of the Bank’s current compensation and benefits program which stressed fixed compensation over variable to support the Bank’s risk-averse culture should be retained;

• greater weight on benefits vs. competitor peer group should be retained; and

• heavier reliance on base pay vs. incentive pay should be retained.

To help align the Bank’s total compensation program with its peer group, Aon recommended, and the Board approved, changes to the Bank’s retirement plan for certain active employees effective as of July 1, 2008, and changes to the Bank’s health and welfare plans effective as of January 1, 2008 for all active employees and certain employees who retired on or after January 1, 2008. Aon also recommended the establishment of a new Nonqualified Profit Sharing Plan for certain Bank employees that became effective July 1, 2008. The changes to these plans as well as the addition of the new Nonqualified Profit Sharing Plan will be discussed below.

All of the elements of the Bank’s total compensation program are available to all employees, including NEOs, except with respect to: 1) the Bank’s Incentive Plan; and 2) the Bank’s nonqualified plans. Participation in the short-term incentive compensation plan is offered to all exempt (non-hourly) employees. Exempt employees constituted 84% of all Bank employees as of year-end 2008. The Nonqualified Defined Benefit Portion of the BEP and the Nonqualified Defined Contribution Portion of the BEP are offered to employees at the rank of Vice President and above who exceed income limitations established by the Internal Revenue Code (“IRC”) for three out of five consecutive years and who are also approved for inclusion by the Bank’s nonqualified plan committee. Aon, as part of the total compensation and benefits study, recommended that the Bank retain the Bank’s Incentive Plan and the nonqualified plans as part of the Program’s design. Further, as stated above, a new Nonqualified Profit Sharing Plan became available on July 1, 2008 for certain employees.

Pearl Meyers stated during the August 3, 2007 meeting that the Bank’s peer group had been correctly identified; that the level of compensation and all alternatives had been explored; and that the outcome was reasonable. Pearl Meyers was also of the view that the Committee exercised its fiduciary duties throughout the process.

While Aon interviewed members of management and conducted focus sessions with various employees at all levels to gather information during the course of the study, the C&HR Committee and the Board acted on Aon’s recommendations independently of the Bank’s management and employees.

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II. The Bank’s total compensation program is designed to reward for performance and employee longevity and to compete with compensation programs offered by the Bank’s competitors

The Bank’s total compensation program is designed to attract, retain and motivate employees and to reward employees based on Bank overall performance achievement as compared to the Bank’s goals and individual employee performance. The Bank also strives to ensure that its employees are compensated fairly and consistent with employees at the Bank’s peer group.

All exempt employees are eligible to receive annual incentive awards through participation in the Incentive Plan. These awards are based on a combination of Bank performance results and individual performance results. The better the Bank and/or the employee perform, the higher the employee’s potential award is likely to be, up to a predetermined limit. In addition, the better the employee’s performance, the greater the employee’s annual salary increase is likely to be, up to a predetermined limit.

The Bank is prohibited by law from offering equity-based compensation, and the Bank does not offer long-term incentives. However, many of the firms in the Bank’s peer group do offer these types of compensation. The Bank’s total compensation program takes into account the existence of these other types of compensation by offering a defined benefit and defined contribution plan to help the Bank effectively compete for talent.

The Bank’s defined benefit and defined contribution plans are designed to reward employees for continued strong performance over their careers — that is, the longer an employee works at the Bank, the greater the benefit the employee is likely to accumulate.

The Bank’s Nonqualified Profit Sharing Plan, which became effective on July 1, 2008, is designed to address the compensation inequities that affected a group of highly compensated employees (including one NEO) who were negatively affected by the changes to the Bank’s Qualified Defined Benefit Plan formula and who would be compensated less than similar positions in the Bank’s peer group.

III. The elements of total compensation

The Bank’s total compensation program consists of the following components: (a) cash compensation (i.e., (i) base salary, and (ii) “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., Qualified Defined Benefit Plan; Qualified Defined Contribution Plan; Nonqualified Defined Benefit Portion of the Benefit Equalization Plan; Nonqualified Defined Contribution Portion of the Benefit Equalization Plan; Nonqualified Profit Sharing Plan; and, effective January 1, 2009, a Nonqualified Deferred Compensation Plan); and (c) health and welfare programs and other benefits. The Summary Compensation Table included below provides information regarding reportable compensation for each of the Bank’s NEOs.

IV. Explanation of why the Bank chooses to pay each element of total compensation

As a result of the Aon study and recommendations described above, the Board approved a revised Compensation Policy in November 2007 designed to help ensure that the Bank provides competitive compensation necessary to retain and motivate current employees while attracting the talent needed to successfully execute the Bank’s current and future business plans. The major components of the revised Compensation Policy, which is currently in effect, include the following:

• Maintain an overall greater emphasis on base salary and benefits (versus annual and long-term incentives) than would be typical of regional/commercial banks.

• A focus on regional/commercial banks (see the peer group list in Section I above) as the primary peer group for benchmarking at the 50^th percentile of the market total compensation (cash compensation [i.e., (i) base salary, and (ii) “variable” or “at risk” short-term incentive compensation]; and health and welfare programs and other benefits), discounted by 15% to account for the incremental value provided by the Bank’s benefit programs for establishing competitive pay levels.

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• A philosophical determination to match Bank officer positions one position level down versus commercial/regional banks. The rationale is that officer positions at commercial/regional banks are one level more significant than at the Bank because they manage multiple business lines in multiple locations. In contrast, the Bank generally recruits senior level positions from a ‘divisional’ level at commercial/regional banks and not the higher ‘corporate’ level.

• Target cash compensation pay at the 75^th percentile of the FHLBanks where regional/commercial bank data is not available. The 15% discount to account for the incremental value provided by the Bank’s benefit programs will not be applied to benchmark results from the other FHLBanks, as the other FHLBanks offer similar benefits.

• Conduct detailed cash compensation benchmarking for approximately one-third of the Bank’s Officer positions each year. (In this regard, the Bank collects information regarding benchmarking from Aon as well as a variety of other reputable sources.)

• Evaluate the value of total compensation delivered to employees including base pay, incentive compensation, retirement and health & welfare benefits in determining market competitiveness every third year.

The next total compensation and benefits evaluation will begin three years after the Bank completes final implementation of Board-approved total compensation program design changes which was July 1, 2008. It should be noted that, due to the fact that the Bank conducts detailed benchmarking for only one-third of the Bank’s Officer positions on an annual basis, the effectiveness of the benchmarking program of the Bank for each NEO can be demonstrated once every three years.

Additional factors that the Bank will take into account to remain competitive in its labor market include:

• Geographical area — New York City is a highly competitive market.

• Cost of living — The New York Metropolitan area has a high cost of living that may require compensation premiums for some positions, particularly at more junior levels.

• Availability/demand for talent — Recruiting critical positions with high market demand typically requires a recruiting premium to entice an individual to change firms.

The following is an explanation of why the Bank chooses to pay each element of compensation.

A. Cash Compensation

1. Base Pay

The goal of offering competitive base pay is to make the Bank successful in attracting, motivating and retaining the talent needed to execute the Bank’s business strategies.

In addition, a performance-based merit increase program exists for all employees that has an impact on base pay. Generally, employees receive merit increases on an annual basis. Such merit increases are based upon the attainment of a performance rating of “Outstanding,” “Exceeds Requirements,” or “Meets Requirements” achieved on individual performance evaluations. Merit guidelines are determined each year and distributed to managers. These guidelines establish the maximum merit increase percentage permissible for employee performance during that year. In October of 2007, the C&HR Committee determined that merit-related officer base pay increases for 2008 would be 3.5% for officers rated ‘Meets Requirements’; 4.5% for officers rated ‘Exceeds Requirements’; and 5.5% for officers rated ‘Outstanding’ for their performance in 2007. In October of 2008, the C&HR Committee determined that merit-related officer base pay increases for 2009 would be the same as in 2008.

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2.  Incentive Plan

The objective of the Bank’s Incentive Plan is to motivate exempt employees to perform at a high level and take actions that: i) support the Bank’s strategies, ii) lead to the attainment of the Bank’s business plan, and iii) fulfill its mission. Funding for the Bank’s Incentive Plan is approved by the Board as part of the annual business plan process. Payment is approved by the Board if the Bank’s business plan is met.

Aon reported in the course of its Aon study described earlier that most firms in the Bank’s peer group provide their employees with annual short-term incentives. As such, for the Bank not to offer this element of compensation would put it at a distinct disadvantage with respect to its competitors for new talent as well as pose a challenge with respect to the retention of key employees.

Incentive Plan participants have two types of performance measures that impact their Incentive Plan award: i) Bankwide performance goals, and ii) individual performance goals (which can include work performed as part of a group) as established and measured through the annual performance evaluation process.

The Bank’s Incentive Plan Bankwide goals for 2008 were: i) Dividend Capacity from Income; ii) Enterprise Risk Management; and iii) Targeted Housing and Community Development. The first and second goals were approved by the Executive Committee of the Board and the third goal was approved by the Board’s Housing Committee; all of the goals were reported to the Board. A description of these goals is set forth below:

i) Dividend Capacity from Income: This measure is generally defined as net income divided by capital stock. The weight of this goal, in proportion to all of the Bankwide goals, is 45%.

ii) Enterprise Risk Management: Risk is measured and quantified in the following four areas: i) market risk, ii) credit risk, iii) derivatives risk, and iv) operations risk. The weight of this goal, in proportion to all of the Bankwide goals, is 45%. (The rationale for having the Dividend Capacity and Enterprise Risk Management goals weighted equally is to motivate management to take a balanced approach to managing risks and returns).

iii) Targeted Housing and Community Development: This goal has the purpose of ensuring the Bank’s achievement of mission-related activities having to do with community development. The weight of this goal, in proportion to all of the Bankwide goals, is 10%.

The Bank believes that employees at higher ranks have a greater impact on the achievement of Bankwide goals than employees at lower ranks. Therefore, employees at higher ranks have a greater weighting placed on the Bankwide performance component of their Incentive Plan award opportunities as opposed to the individual performance component. For the Bank’s Chief Executive Officer and the other Management Committee members (a group that includes all of the NEOs), the overall incentive compensation opportunity is weighted 90% on Bankwide performance goals and 10% on individual performance goals. There are differences among the NEOs with regard to their individual performance goals; however, these differences do not have a material impact on the amount of incentive compensation payout.

The Incentive Plan is administered by the Chief Executive Officer subject to any requirements for review and approval by the C&HR Committee that the Committee may establish. In all areas not specifically reserved by the Committee for its review and approval, decisions of the Chief Executive Officer or his designee concerning the Incentive Plan shall be binding on the Bank and on all Incentive Plan participants.

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When employees are individually evaluated, they receive one of five performance ratings: “Outstanding”; “Exceeds Requirements”; “Meets Requirements”; “Needs Improvement” or “Unsatisfactory”. Incentive Plan participants that are rated as “Exceeds Requirements” or “Outstanding” on their individual performance evaluations receive an additional 3% or 6%, respectively, of their base salary added to their Incentive Plan award.

Incentive Plan awards are only paid to participants who have attained at least a specified threshold rating within the “Meets Requirements” category on their individual performance evaluations and do not have any unresolved disciplinary matters. Participants will receive an individual Incentive Plan award payment even if Bankwide goal results are such that no payments are awarded for the Bankwide portion of the Incentive Plan.

B. Retirement Benefits

The Qualified Defined Benefit Plan, Qualified Defined Contribution Plan, Nonqualified Defined Benefit Portion of the Benefit Equalization Plan, and Nonqualified Defined Contribution Portion of the Benefit Equalization Plan are elements of the Bank’s total compensation program and are intended to help encourage the accumulation of wealth by employees over a long period of time. These benefits are also part of the Bank’s strategy to compete for and retain talent that might otherwise be lured away from the Bank by competing financial enterprises who offer their employees long-term incentives and equity-sharing opportunities – forms of compensation that the Bank does not offer. The Qualified Defined Benefit Plan was amended for eligible Bank employees as of July 1, 2008 and, as a consequence, the terms of the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan for certain Bank employees also changed as of that date as the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan mirrors the structure of the Qualified Defined Benefit Plan.

The Nonqualified Plan Committee (a management committee which must include at least one member of the Board and which currently includes two members of the Board), administers various operational/ministerial matters pertaining to the Benefit Equalization Plan, the Nonqualified Profit Sharing Plan and the new (as of January 1, 2009) Nonqualified Deferred Compensation Plan. These matters include, but are not limited to, approving employees as participants of the BEP and approving the payment method of benefits. The Nonqualified Plan Committee is chaired by the Chair of the C&HR Committee; other members include another Board Director who is a member of the C&HR Committee, the Bank’s Chief Financial Officer, and the Bank’s Director of Human Resources. The Nonqualified Plan Committee reports its actions to the C&HR Committee by submitting its meeting minutes to the C&HR Committee on a regular basis for review.

i) Qualified Defined Benefit Plan

The Pentegra Qualified Defined Benefit Plan for Financial Institutions (“DB Plan”), as adopted by the Bank, is an IRS-qualified defined benefit plan which covers all Bank employees who have achieved four months of service. The DB Plan is part of a multiple-employer defined benefit program administered by Pentegra Services.

Bank participants who as of July 1, 2008 had five years of DB Plan service and were age 50 years or older are provided with a benefit of 2.50% of a participant’s highest consecutive 3-year average earnings, multiplied by the participant’s years of benefit service, not to exceed 30 years. Earnings are defined as base salary plus short-term incentives, and overtime, subject to the annual IRC limit. These participants are identified herein as “Grandfathered”.

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For all other participants (identified herein as “Non-Grandfathered”), the DB Plan provides a benefit of 2.0% (as opposed to 2.5% provided to Grandfathered participants) of a participant’s highest consecutive 5-year average earnings (as opposed to consecutive 3-year average earnings as previously provided to Grandfathered participants), multiplied by the participant’s years of benefit service, not to exceed 30 years. The Normal Form of Payment is a life annuity (i.e., an annuity paid until the death of the participant), as opposed to a guaranteed twelve year payout as previously provided to Grandfathered participants. Also, cost of living adjustments (“COLAs”) are no longer provided on future accruals (as opposed to a 1% simple interest COLA beginning at age 66 as previously provided).

The table below summarizes the DB Plan changes affecting the Non-Grandfathered employees commencing on July 1, 2008. For purposes of the following table, please note the following definitions:

“Defined Benefit Plan” — An Internal Revenue Code qualified deferred compensation arrangement that pays an employee and his/her designated beneficiary upon retirement a lifetime annuity or the lump sum actuarial equivalent of that annuity.

Benefit Multiplier — The annuity paid from the Bank’s DB Plan is calculated on an employee’s years of service, up to a maximum of 30 years, multiplied by 2.5% per year.  Beginning July 1, 2008, the Benefit Multiplier changed to 2.0 for Non-Grandfathered Employees.

Final Average Pay Period — Is that period of time that an employee’s salary is used in the calculation of that employee’s benefit. For Grandfathered Employees, the Benefit Multiplier, 2.5%, is multiplied by the average of the employee’s three highest consecutive years of salary multiplied by that employee’s years of service, not to exceed thirty years at the date of termination. For Non-Grandfathered Employees, benefits accrued before July 1, 2008, the Benefit Multiplier mirrored the Grandfathered Employees. After July 1, 2008 a Benefits Multiplier of 2% is multiplied by the employee’s years of service (total service not to exceed thirty years) multiplied by the average of the employee’s five highest consecutive years of salary is used.

Normal Form of Payment — The DB Plan must state the form of the annuity to be paid to the retiring employee.  For unmarried Grandfathered retirees, the Normal Form of Payment as a life annuity with a 12 year guaranteed payment (“Guaranteed 12 Year Payout”) which means that if the unmarried Grandfathered retiree dies prior to receiving 12 years of annuity payments, the retiree’s beneficiary will receive a lump sum equal to the remaining unpaid payments in the 12 year period. For married Grandfathered retirees, the Normal Form of Payment is a 50% joint and survivor annuity which provides a continuation of half of the monthly annuity to the surviving beneficiary. The initial 50% Joint and Survivor Annuity monthly payment is actuarially equivalent to the 12 year guarantee payment provided to single retirees under the formula. Effective July 1, 2008, the DB Plan provides single Non-Grandfathered retirees with a straight “Life Annuity” as the Normal Form of Payment, which means that, once a retiree dies, the annuity terminates. For married Non-Grandfathered retirees, the Normal Form of Payment will be a 50% Joint and Survivor Annuity that is actuarially equivalent to the straight Life Annuity.

Cost of Living Adjustments (or “COLAs”) — Once a Non-Grandfathered Employee retiree reaches age 65, in each succeeding year he/she will receive an extra payment annually equal to one percent of the original benefit amount multiplied by the number of years in pay status after age 65. As of July 1, 2008, this adjustment is no longer offered to Non-Grandfathered Employees on benefits accruing after that date.

Early Retirement Subsidy:

Grandfathered Employees

A subsidy or benefit enhancement for Grandfathered Employees retirees that retire prior to normal retirement age (65).  Any participant who retires early and elects to draw pension benefits prior to age 65, and who has a combined age and length of service of at least 70 years, will realize a reduction of 1.5% to his/her early retirement benefit for each year benefits commence earlier than age 65. If that employee had not accumulated a total of 70 years, the reduction would be 3% for each year benefits commence earlier than age 65.

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Non-Grandfathered Employees

Effective as of July 1, 2008, if an employee on the date of his/her retirement, before 65, had accumulated a total of 70 or more years, the reduction will be 3% every year between his/her age and age 65.  However, if a Non-Grandfathered Employee on the date of his/her retirement, before 65, had not accumulated 70 or more years, the reduction will be the actuarial equivalent between his/her age and age 65. At early retirement, the new early retirement factors will apply to the Non-Grandfathered Employee’s total service benefit. The retiree will be entitled to receive the greater of this early retirement benefit or the early retirement benefit accrued as of July 1, 2008 under the old plan formula.

Vesting — Grandfathered Employees are entitled, starting with the second year of employment service, to 20% of his/her accumulated benefit per year. As a result, after the sixth year of employment service, an employee will be entitled to 100% of his/her accumulated benefit.  Non-Grandfathered Employees who entered the DB Plan on or after July 1, 2008 will not receive such benefit until such employee has completed five years of employment service. At that point, the employee will be entitled to 100% of his/her accumulated benefit. The term “5 Year Cliff” is a reference to the foregoing provision. Grandfathered and Non-Grandfathered Employees already participating in the DB Plan prior to July 1, 2008 will vest at 20% per year starting with the second year through the fourth year of employment service and will be accelerated to 100% vesting after the fifth year.

DEFINED BENEFIT PLAN	GRANDFATHERED	NON-GRANDFATHERED
PROVISIONS	EMPLOYEES	EMPLOYEES
Benefit Multiplier	2.5%	2.0%
Final Average Pay Period	High 3 Year	High 5 Year
Normal Form of Payment	Guaranteed 12 Year Payout	Life Annuity
Cost of Living Adjustments	1% Per Year Cumulative Commencing at Age 66	None
Early Retirement Subsidy<65:
a) Rule of 70	1.5% Per Year	3% Per Year
b) Rule of 70 Not Met	3% Per Year	Actuarial Equivalent
*Vesting	20% Per Year Commencing Second Year of Employment	5 Year Cliff

* Greater of DB Plan Vesting or New Plan Vesting applied to employees participating in the DB Plan prior to July 1, 2008.

Earnings under the Bank’s DB Plan continue to be defined as base salary plus short-term incentives, and overtime, subject to the annual IRC limit. The IRC limit on earnings for calculation of the DB Plan benefit for 2008 was $230,000.

The DB Plan pays monthly annuities, or a lump sum amount available at or after age 59-1/2, calculated on an actuarial basis, to vested participants or the beneficiaries of deceased vested participants. Annual benefits provided under the DB Plan also are subject to IRC limits, which vary by age and benefit payment option selected.

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ii) Nonqualified Defined Benefit Portion of the Benefit Equalization Plan

Employees at the rank of Vice President and above who exceed income limitations established by the IRC for three out of five consecutive years and who are also approved for inclusion by the Bank’s Nonqualified Plan Committee are eligible to participate in the BEP, commonly referred to as a “Supplemental Employee Retirement Plan,” a non-qualified retirement plan that in many respects mirrors the DB Plan.

The primary objective of the Nonqualified Defined Benefit Portion of the BEP is to ensure that participants receive the full amount of benefits to which they would have been entitled under the DB Plan in the absence of limits on maximum benefits levels imposed by the IRC.

The Nonqualified Defined Benefit Portion of the BEP utilizes the identical benefit formulas applicable to the Bank’s DB Plan. In the event that the benefits payable from the Bank’s DB Plan have been reduced or otherwise limited by government regulations, the employee’s “lost” benefits are payable under the terms of the defined benefit portion of the BEP.

The Nonqualified Defined Benefit Portion of the BEP, as well as the Nonqualified Defined Contribution Portion of the BEP described below, are unfunded arrangements. However, the Bank established a grantor trust to assist in financing the payment of benefits under these plans. The trust was approved by the Nonqualified Plan Committee in March of 2006 and established in June of 2007.

iii) Qualified Defined Contribution Plan

Bank employees who have met the eligibility requirements contained in the Pentegra Qualified Defined Contribution Plan for Financial Institutions (“DC Plan”) can choose to contribute to the DC Plan, a retirement savings plan qualified under the IRC. Employees are eligible for membership in the DC Plan on the first day of the month coinciding with or next following the date the employee completes 3 full calendar months of employment.

An employee may contribute 1% to 19% of base salary into the DC Plan, up to IRC limitations. The IRC limit for 2008 was $15,500 for employees under the age of 50. An additional “catch up” contribution of $5,000 is permitted under IRC rules for employees who attain age 50 before the end of the calendar year. The Bank matches up to 100% of the first 3% of the employee’s contribution through the third year of employment; 150% of the first 3% of contribution during the fourth and fifth years of employment; and 200% of the first 3% of contribution starting with the sixth year of employment.

iv) Nonqualified Defined Contribution Portion of the Benefit Equalization Plan

Employees at the rank of Vice President and above who exceed income limitations established by the IRS for three out of five consecutive years and who are also approved for inclusion by the Bank’s Nonqualified Plan Committee are eligible to participate in a Nonqualified Defined Contribution Portion of the Benefit Equalization Plan (which is a separate portion of the aforementioned BEP). The Nonqualified Defined Contribution Portion of the BEP ensures, among other things, that participants whose benefits under the DC Plan would otherwise be restricted under certain provisions of the IRC are able to make elective pre-tax deferrals and to receive the same Bank match relating to such deferrals as would have been received under the DC Plan. In 2007, the Nonqualified Plan Committee established a grantor trust to finance the nonqualified defined contribution portion of the BEP.

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v) Nonqualified Profit Sharing Plan

The Bank’s Nonqualified Profit Sharing Plan, which became effective on July 1, 2008, is designed to address the compensation inequities that affected a group of highly compensated employees (including one NEO) who were negatively affected by the changes to the Bank’s Qualified Defined Benefit Plan formula and who would be compensated less than employees in similar positions in the Bank’s peer group.

To address this shortfall to certain highly compensated employees, Aon proposed, and the Board approved, the establishment of the Nonqualified Profit Sharing Plan. The Nonqualified Profit Sharing Plan became effective on July 1, 2008, which is the date that the current DB Plan formula changed.

All Non-Grandfathered employees who have five years of Bank service and are members of the BEP will be entitled to participate in the Bank’s Nonqualified Profit Sharing Plan. The Nonqualified Profit Sharing Plan will credit participants with 8% of salary (defined as base pay plus any Incentive Plan award) conditioned on the Bank achieving its threshold targets for certain Bank-wide performance goals used in the Bank’s Incentive Plan. The credit to participants into the Nonqualified Profit Sharing Plan will be held in a deferred account for participants and paid in a lump sum six months after termination of a participant’s employment.

A grantor trust similar to those in operation for the BEP was established by the Nonqualified Plan Committee for the Nonqualified Profit Sharing Plan in December 2008.

vi) Nonqualified Deferred Compensation Plan

The Bank’s Board of Directors approved the establishment of a Nonqualified Deferred Compensation Plan, effective January 1, 2009, for the Board and Bank employees at a rank of Assistant Vice President and higher. A Nonqualified Deferred Compensation Plan is a vehicle that a corporation establishes for its Directors and employees for the purpose of enabling them to defer the present taxation of compensation to a date in the future — for example, when these individuals retire and would presumably be in a lower tax bracket. In addition, Directors and certain employees have the ability to have interest on their deferred compensation calculated based on the performance of investment vehicles of their own choosing, using a menu of investment choices similar to that of a 401(k) plan.    

The Bank does not provide a match on these deferrals. All deferred monies will be the property of the Bank until distribution to the Directors and employees and thus subject to claims of Bank creditors until distribution.

A grantor trust similar to those in operation for the BEP was established by the Nonqualified Plan Committee for the Nonqualified Deferred Compensation Plan in December 2008.  

C. Health and Welfare Programs and Other Benefits

In addition to the foregoing, the Bank offers a comprehensive benefits package for all regular employees (including NEOs) which include the following significant benefits: 

Medical and Dental

Employees can choose preferred provider or managed care medical and dental plan coverage. Both types of medical coverage include a prescription benefit. Employees contribute to cover a portion of the costs for this benefit.

As of January 1, 2008, employees can choose between preferred provider or managed care coverage; however, employees can also choose to receive medical and dental coverage; or medical-only coverage; or dental-only coverage.

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Retiree Medical

The Bank offers eligible employees medical coverage when they retire.  Employees are eligible to participate in the Retiree Medical Benefits Plan if they are at least 55 years old with 10 years of Bank service when they retire from active service.  

Under the Plan as in effect since May 1, 1995, retirees who retire before age 62 pay the full Bank premium for the coverage they had as employees until they attain age 62. Thereafter, they contribute a percentage of the Bank’s premium based on their total completed years of service (no adjustment is made for partial years of service) on a “Defined Benefit” basis, as defined below, as follows:

Completed
Years of	Percentage of Premium Paid
Service	by Retiree
10		50.0	%
11		47.5	%
12		45.0	%
13		42.5	%
14		40.0	%
15		37.5	%
16		35.0	%
17		32.5	%
18		30.0	%
19		27.5	%
20 or more		25.0	%

The premium paid by retirees upon becoming Medicare-eligible (either at age 65 or prior thereto as a result of disability) is a premium reduced to take into account the status of Medicare as the primary payer of the medical benefits of Medicare-eligible retirees.

As a result of the Aon study described above and the recommendations that resulted from such study, the Board directed that certain changes in the Plan be made, effective January 1, 2008. Employees who, on December 31, 2007, had 5 years of service and were age 60 or older were not affected by this change.  These employees are identified herein as “Grandfathered.” However, for all other employees, identified herein as “Non-Grandfathered,” the Plan premium-payment requirements beginning at age 62 were changed. From age 62 until the retiree or a covered dependent of the retiree becomes Medicare-eligible (usually at age 65 or earlier, if disabled), the Bank will contribute $45 per month toward the premium of a Non-Grandfathered retiree multiplied by the number of years of service earned by the retiree after age 45 and by the number of individuals (including the retiree, the retiree’s spouse, and each other dependent of the retiree) covered under the Plan.  

After the retiree or a covered dependent of the retiree becomes Medicare-eligible, the Bank’s contribution toward the premium for the coverage of the Medicare-eligible individual will be reduced to $25 per month. The $45 and $25 amounts are fixed for the 2008 calendar year. Each year thereafter, these amounts will increase by a cost-of-living adjustment (“COLA”) factor not to exceed 3%. 

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The table below summarizes the Retiree Medical Benefits Plan changes that affect Non-Grandfathered employees who retire on or after January 1, 2008. For purposes of the following table and the preceding discussion on the Retiree Medical Benefits Plan , the following definitions have been used:

Defined Benefit — A medical plan in which the Bank provides medical coverage to a retired employee and collects from the retiree a monthly fixed dollar portion of the premium for the coverage elected by the employee.

Defined Dollar Plan— A medical plan in which the Bank provides medical coverage to a retired employee up to a fixed Bank cost for the coverage elected by the employee and the retiree assumes all costs above the Bank’s stated contribution.

	Provisions for	Provisions for
	Grandfathered	Non-Grandfathered
	Retirees	Retirees
Plan Type	Defined Benefit	Defined Dollar Plan
Medical Plan Formula	1) Same coverage offered to active employees prior to age 65	1) Retiree, (and covered individual), is eligible for $45/month x years of service after age 45, and has attainted the age of 62. There is a 3% Cost of Living Adjustment each year
	2) Supplement Medicare coverage for retirees Age 65 and over	2) Retiree, (and covered individual), is eligible for $25/month x years of service after age 45 and after age 65. There is a 3% Cost of Living Adjustment each year
Employer
Cost Share Examples:	0% for Pre-62	$0 for Pre-62
10 years of service after age 45	50% for Post-62	Pre-65/Post-65 $5400/$3000
15 years of service after age 45	62.5% for Post-62	$8100/$4500
20 years of service after age 45	75% for Post-62	$10800/$6000

Vision Care

Employees can choose from two types of coverage offered. Basic vision care is offered at no charge to employees.  Employees contribute to the cost for the enhanced coverage.

Life Insurance

Group Term Life insurance providing a death benefit of twice an employee’s annual salary (including incentive compensation) is provided at no cost to the employee other than taxation of coverage in excess of $50,000.

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Retiree Life Insurance

Retiree Life Insurance provides a death benefit in relation to the amount of coverage one chooses at the time of retirement. The continued benefit is calculated by the insurance broker and is paid for by the retiree. Coverage can be chosen in $1000 increments up to a maximum of $20,000.

Business Travel Accident Insurance

Business Travel & Accident insurance provides a death benefit at no cost to the employee.

Short and Long Term Disability Insurance

Short and long term disability insurance is provided at no cost to the employee.

Supplemental Short Term Disability Coverage

The Bank provides for supplemental short term disability coverage at no cost to the employee. This coverage provides 66.67% (up to a maximum of $1000 per week) of a person’s salary while they are on disability leave. Once state disability coverage is confirmed, the Bank reduces any supplemental calculations by the amount payable from the Short Term Disability provider.

Flexible Spending Accounts

Flexible spending accounts in accordance with IRC rules are provided to employees to allow tax benefits for certain medical expenses, dependent medical expenses, mass transit expenses associated with commuting and parking expenses associated with commuting.  The administrative costs for these accounts are paid by the Bank.

Employee Assistance Program

Employee assistance counseling is available at no cost to employees.  

Educational Development Assistance

Educational Development Assistance provides tuition reimbursement, subject to the satisfaction of certain conditions.  

Voluntary Life Insurance

Employees are afforded the opportunity to purchase additional life insurance for themselves and their eligible dependents.

Long Term Care

Employees are afforded the opportunity to purchase Long Term Care insurance for themselves and their eligible dependents.

Fitness Club Reimbursement

Fitness club reimbursement, up to $250 per year, is available subject to the satisfaction of certain criteria.

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Severance Plan

The Bank has a formal Board-approved Severance Plan available to all Bank employees who work twenty or more hours a week and have at least one year of employment.

Perquisites

Perquisites are as a benefit an insubstantial and insignificant amount of compensation totaling less than $10,000 for the year 2008 per NEO for all such expenditures.

V. Explanation of how the Bank determines the amount and, where applicable, the formula for each element of compensation

Please see subsection IV directly above for an explanation of the mechanisms used by the Bank to determine employee compensation.

VI. Explanation of how each element of compensation and the Bank’s decisions regarding that element fit into the Bank’s overall compensation objectives and affect decisions regarding other elements of compensation

The Committee believes it has developed a unified, coherent system of compensation.

The Bank’s compensation and benefits program consists of the following components: i) cash compensation (i.e., base salary and a “variable” or “at risk” short-term incentive compensation); ii) retirement-related benefits (i.e., Qualified Defined Benefit Plan; Qualified Defined Contribution Plan; Nonqualified Defined Benefit Portion of the Benefit Equalization Plan; Nonqualified Defined Contribution Portion of the Benefit Equalization Plan; Nonqualified Profit Sharing Plan; and, effective January 1, 2009, a Nonqualified Deferred Compensation Plan); and iii) health and welfare programs and other benefits.

The Bank’s overall objective with regard to its compensation and benefits program is to motivate employees to achieve superior results for the Bank, and to provide a program that allows the Bank to compete for and retain talent that otherwise might be lured away from the Bank.

As the Bank makes changes to one element of the compensation and benefits program mix, the C&HR Committee considers the impact on the other elements of the mix. The C&HR Committee strives to maintain programs that keep the Bank within the parameters of its Compensation Policy.

The Bank notes that differences in compensation levels that may exist among the NEOs are primarily attributable to the benchmarking process. The Board does have the power to adjust compensation from the results of the benchmarking process; however, this power is not normally exercised.

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COMPENSATION COMMITTEE REPORT

The Compensation and Human Resources Committee (“Committee”) of the Board of Directors of the Bank has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Bank’s annual report on Form 10-K for the year 2008.

THE COMPENSATION AND HUMAN RESOURCES COMMITTEE

C. Cathleen Raffaeli, Chair
James W. Fulmer
José R. González
Katherine J. Liseno
Kevin J. Lynch
Richard S. Mroz
Thomas M. O’Brien

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Executive Compensation

The table below summarizes the total compensation earned by each of the Named Executive Officers for the years ended December 31, 2008, December 31, 2007 and December 31, 2006 (in whole dollars):

Summary Compensation Table for Fiscal Years 2008, 2007 and 2006

													Change in
											Non-Equity		Pension Value		All Other
											Incentive		and Nonqualified		Compensation
											Plan		Deferred		(D,E,F,G,H, I,J)
Name and Principal							Stock		Option		Compensation		Compensation		(d,e,f,g,h,i,j)
Position	Year		Salary		Bonus		Awards		Awards		(A) (a) (1)		(B,C) (b,c)(2,3)		(4,5,6,7,8)		Total
Alfred A. DelliBovi		2008	$	603,054		—		—		—	$	379,938	$	1,092,000	$	76,328	$	2,151,320
President &		2007	$	583,539		—		—		—	$	421,964	$	479,000	$	75,855	$	1,560,358
Chief Executive Officer (PEO)		2006	$	560,018		—		—		—	$	349,364	$	294,000	$	73,047	$	1,276,429
Peter S. Leung		2008	$	396,874		—		—		—	$	181,414	$	328,000	$	49,045	$	955,333
Senior Vice President,		2007	$	387,623		—		—		—	$	204,407	$	499,000	$	46,917	$	1,137,947
Chief Risk Officer		2006	$	371,999		—		—		—	$	176,842	$	47,000	$	34,332	$	630,173
Paul B. Héroux		2008	$	282,194		—		—		—	$	128,993	$	400,000	$	57,200	$	868,387
Senior Vice President,		2007	$	275,616		—		—		—	$	145,342	$	171,000	$	43,425	$	635,383
Head of Member Services		2006	$	264,507		—		—		—	$	125,742	$	98,000	$	37,880	$	526,129
Patrick A. Morgan		2008	$	299,234		—		—		—	$	136,782	$	268,000	$	36,933	$	740,949
Senior Vice President,		2007	$	292,259		—		—		—	$	154,118	$	279,000	$	31,184	$	756,561
Chief Financial Officer (PFO)		2006	$	280,479		—		—		—	$	133,335	$	211,000	$	28,793	$	653,607
Craig E. Reynolds		2008	$	276,897		—		—		—	$	126,572	$	330,000	$	44,657	$	778,126
Senior Vice President,		2007	$	270,443		—		—		—	$	142,614	$	183,000	$	42,877	$	638,934
Head of Asset Liability		2006	$	259,542		—		—		—	$	123,382	$	100,000	$	42,433	$	525,357

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Footnotes for Summary Compensation Table for the Year Ending December 31, 2008

A	Bonuses are not provided. However, the non-equity incentive plan compensation in the above table may be considered by some to be deemed a “bonus”.
B	Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions:
A.	DelliBovi — $151,000
P.	Morgan — $74,000
P.	Leung — $105,000
P.	Héroux — $156,000
C.	Reynolds — $135,000
C	Change in Pension Value for the Nonqualified Defined Benefit Portion of the Bank’s Benefit Equalization Plan:
A.	DelliBovi — $941,000
P.	Morgan — $194,000
P.	Leung — $223,000
P.	Héroux — $244,000
C.	Reynolds — $195,000
D	For all Named Executive Officers, includes these items paid by the Bank for all employees: amount of funds matched by the Bank in connection with the Pentegra Defined Contribution Plan for Financial Institutions, payment of group term life insurance premium, payment of long term disability insurance premium, payment of health insurance premium, payment of aggregate and individual “stop loss” coverage (i.e., insurance to protect the Bank against significant insurance claims paid under its self-insured health insurance plan), payment of health and dental administrative charges (i.e., network medical utilization charges, network medical administrative charges, and dental indemnity administrative charges), payment of dental insurance premium, payment of vision insurance premium and payment of employee assistance program premium.
E	For A. DelliBovi, P. Morgan, P. Leung, and C. Reynolds, includes these items paid by the Bank for all eligible officers: amount of funds matched by the Bank in connection with the Nonqualified Defined Contribution Portion of the Benefit Equalization Plan (amount of funds matched for A. DelliBovi was $23,407, for P. Morgan $9,908, for P. Leung $17,016, and for C. Reynolds $5,697).
F	For A. DelliBovi, includes value of leased automobile ($8,100).
G	For A. DelliBovi, includes payment of this item paid by the Bank for all eligible employees: Years of Service Award.
H	For A..DelliBovi, includes payment of this item paid by the Bank for all eligible officers: officer physical examination.
I	For A. DelliBovi, P. Héroux and C. Reynolds, includes this item paid by the Bank for all eligible officers: payment of term life insurance premium.
J	For P. Heroux, includes payment of this item paid by the Bank for all eligible employees: Nonqualified Profit Sharing Plan.

Footnotes for Summary Compensation Table for the Year Ending December 31, 2007

a	Bonuses are not provided. However, the non-equity incentive plan compensation in the above table may be considered by some to be deemed a “bonus”.
b	Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions:
A.	DelliBovi — $126,000
P.	Morgan — $91,000
P.	Leung — $51,000
P.	Héroux — $67,000
C.	Reynolds — $93,000
c	Change in Pension Value for the Nonqualified Defined Benefit Portion of the Bank’s Benefit Equalization Plan:
A.	DelliBovi — $353,000
P.	Morgan — $188,000
P.	Leung — $448,000
P.	Héroux — $104,000
C.	Reynolds — $90,000
d	For all Named Executive Officers, includes these items paid by the Bank for all employees: amount of funds matched by the Bank in connection with the Pentegra Defined Contribution Plan for Financial Institutions, payment of group term life insurance premium, payment of long term disability insurance premium, payment of health insurance premium, payment of aggregate and individual “stop loss” coverage (i.e., insurance to protect the Bank against significant insurance claims paid under its self-insured health insurance plan), payment of health and dental administrative charges (i.e., network medical utilization charges, network medical administrative charges, and dental indemnity administrative charges), payment of dental insurance premium, and payment of employee assistance program premium.

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e	For A. DelliBovi, P. Leung, P. Héroux, and C. Reynolds, includes these items paid by the Bank for all eligible officers: amount of funds matched by the Bank in connection with the Nonqualified Defined Contribution Portion of the Benefit Equalization Plan (amount of funds matched for A. DelliBovi was $22,839, for P. Leung $15,994, for P. Héroux $4,732, and for C. Reynolds $8,981).
f	For A. DelliBovi, P. Leung, P. Morgan, and C. Reynolds, includes this item paid by the Bank for all participating employees: payment of vision insurance premium.
g	For A. DelliBovi, includes value of leased automobile ($11,856).
h	For P. Héroux, includes payment of this item paid by the Bank for all eligible officers: officer physical examination.
i	For A. DelliBovi, P. Héroux and C. Reynolds, includes this item paid by the Bank for all eligible officers: payment of term life insurance premium.
j	For P. Héroux, includes payment of this item paid by the Bank for all eligible employees: fitness center membership reimbursement.

Footnotes for Summary Compensation Table for the Year Ending December 31, 2006

1	Bonuses are not provided. However, the non-equity incentive plan compensation in the above table may be considered by some to be deemed a “bonus”.
2	Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions:
A.	DelliBovi — $109,000
P.	Morgan — $78,000
P.	Leung — $47,000
P.	Héroux — $59,000
C.	Reynolds — $82,000
3	Change in Pension Value for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan:
A.	DelliBovi — $185,000
P.	Morgan — $133,000
P.	Leung — not eligible to participate in the Nonqualified Benefit Portion of the Benefit Equalization Plan as of 12/31/06.
P.	Héroux — $39,000
C.	Reynolds — $18,000
4	For all Named Executive Officers, includes these items paid by the Bank for all employees: amount of funds matched by the Bank in connection with the Pentegra Defined Contribution Plan for Financial Institutions, payment of group term life insurance premium, payment of long term disability insurance premium, payment of health insurance premium, payment of aggregate and individual “stop loss” coverage (i.e., insurance to protect the Bank against significant insurance claims paid under its self-insured health insurance plan), payment of health and dental administrative charges (i.e., network medical utilization charges, network medical administrative charges, and dental indemnity administrative charges), payment of dental insurance premium, and payment of employee assistance program premium.
5	For A. DelliBovi, P. Héroux and C. Reynolds, includes these items paid by the Bank for all eligible officers: amount of funds matched by the Bank in connection with the Nonqualified Defined Contribution Portion of the Benefit Equalization Plan (amount of funds matched for A. DelliBovi was $19,600, for P. Héroux $3,894 and for C. Reynolds $8,637), and payment of term life insurance premium.
6	For A. DelliBovi, P. Leung, P. Morgan and C. Reynolds, includes this item paid by the Bank for all participating employees: payment of vision insurance premium.
7	For A. DelliBovi, includes value of leased automobile ($12,432).
8	For C. Reynolds, includes payment of this item paid by the Bank for all eligible officers: officer physical examination.

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The following table sets forth information regarding all incentive plan award opportunities made available to Named Executive Officers for the fiscal year 2008 (in whole dollars):

Grants of Plan-Based Awards for Fiscal Year 2008
															All Other		All Other		Exercise		Grant
															Stock		Option		or		Date
															Awards:		Awards:		Base		Fair Value
			Estimated Future Payouts						Estimated Future Payouts						Number of		Number of		Price of		of Stock
			Under Non-Equity Incentive						Under Equity Incentive						Shares of		Securities		Option		and Option
	Grant		Plan Awards (2) (3)						Plan Awards						Stock		Underlying		Awards		Awards
Name	Date (1)		Threshold		Target		Maximum		Threshold		Target		Maximum		or Units		Options		($/Sh)		($/Sh)
Alfred A. DelliBovi		02/26/08	$	135,439	$	246,253	$	467,881		—		—		—		—		—		—		—
Peter S. Leung		02/26/08	$	66,836	$	121,520	$	230,888		—		—		—		—		—		—		—
Paul B. Héroux		02/26/08	$	47,524	$	86,406	$	164,171		—		—		—		—		—		—		—
Patrick A. Morgan		02/26/08	$	50,392	$	91,623	$	174,084		—		—		—		—		—		—		—
Craig E. Reynolds		02/26/08	$	46,631	$	84,784	$	161,089		—		—		—		—		—		—		—

1	On this date, the Board of Directors’ Compensation and Human Resources Committee approved the 2008 Incentive Compensation Plan (“ICP”). Approval of the ICP does not mean a payout is guaranteed.
2	Figures represent an assumed rating attained by the NEO of at least a specified threshold rating within the “Meets Requirements” category for the Named Executive Officers with respect to their individual performance.
3	Amounts represent potential awards under the 2008 Incentive Compensation Plan; actual amounts awarded are reflected in the Summary Compensation Table above.

Employment Arrangements

The Bank is an “at will” employer and does not provide written employment agreements to any of its employees. However, employees, including Named Executive Officers (or “NEOs”), receive (a) cash compensation (i.e., (i) base salary, and, for exempt employees, (ii) “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., Qualified Defined Benefit Plan; Qualified Defined Contribution Plan; Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (“BEP”); Nonqualified Defined Contribution Portion of the BEP; Nonqualified Profit Sharing Plan; and, effective January 1, 2009, a Nonqualified Deferred Compensation Plan); and (c) health and welfare programs and other benefits. Other benefits, which are available to all regular employees, include medical, dental, vision care, life, business travel accident, and short and long term disability insurance, flexible spending accounts, an employee assistance program, educational development assistance, voluntary life insurance, long term care insurance, fitness club reimbursement and severance pay. An additional benefit offered to all officers, age 40 or greater, or who are at Vice President rank or above, is a physical examination every 18 months.

The annual base salaries for the Named Executive Officers are as follows (whole dollars):

	2008		2009
Alfred A. DelliBovi	$	615,634	$	649,494
Patrick A. Morgan		305,411		319,154
Peter S. Leung		405,066		423,294
Paul B. Héroux		288,019		300,980
Craig E. Reynolds		282,613		295,331

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The 2009 increases in base salaries of NEOs from 2008 were based on their 2008 performance.

In addition, a performance-based merit increase program exists for all employees that has an impact on base pay. Generally, employees receive merit increases on an annual basis. Such merit increases are based upon the attainment of a performance rating of “Outstanding,” “Exceeds Requirements,” or “Meets Requirements” achieved on individual performance evaluations. Merit guidelines are determined each year and distributed to managers. These guidelines establish the maximum merit increase percentage permissible for employee performance during that year. In October of 2007, the C&HR Committee determined that merit-related officer base pay increases for 2008 would be 3.5% for officers rated ‘Meets Requirements’; 4.5% for officers rated ‘Exceeds Requirements’; and 5.5% for officers rated ‘Outstanding’ for their performance in 2007. In October of 2008, the C&HR Committee determined that merit-related officer base pay increases for 2009 would be the same as in 2008.

See the “Grant of Plan-Based Awards” table for 2008 incentive compensation opportunity information.

Short-Term Incentive Compensation Plan (“Incentive Plan”)

The objective of the Bank’s Incentive Plan is to motivate exempt employees to perform at a high level and take actions that: i) support the Bank’s strategies, ii) lead to the attainment of the Bank’s business plan, and iii) fulfill its mission. Funding for the Bank’s Incentive Plan is approved by the Board as part of the annual business plan process. Payment is approved by the Board if the Bank’s business plan is met.

Aon reported in the course of its study described earlier that most firms in the Bank’s peer group provide their employees with annual short-term incentives. As such, for the Bank not to offer this element of compensation would put it at a distinct disadvantage with respect to its competitors for new talent as well as pose a challenge with respect to the retention of key employees.

Incentive Plan participants have two types of performance measures that impact their Incentive Plan award: i) Bankwide performance goals, and ii) individual performance goals (which can include work performed as part of a group) as established and measured through the annual performance evaluation process.

The Bank’s Incentive Plan Bankwide goals for 2008 were: i) Dividend Capacity from Income; ii) Enterprise Risk Management; and iii) Targeted Housing and Community Development. The first and second goals were approved by the Executive Committee of the Board and the third goal was approved by the Board’s Housing Committee; all of the goals were reported to the Board. A description of these goals is set forth below:

i) Dividend Capacity from Income: This measure is generally defined as net income divided by capital stock. The weight of this goal, in proportion to all of the Bankwide goals, is 45%.

ii) Enterprise Risk Management: Risk is measured and quantified in the following four areas: i) market risk, ii) credit risk, iii) derivatives risk, and iv) operations risk. The weight of this goal, in proportion to all of the Bankwide goals, is 45%. (The rationale for having the Dividend Capacity and Enterprise Risk Management goals weighted equally is to motivate management to take a balanced approach to managing risks and returns).

iii) Targeted Housing and Community Development: This goal has the purpose of ensuring the Bank’s achievement of mission-related activities having to do with community development. The weight of this goal, in proportion to all of the Bankwide goals, is 10%.

The Bank believes that employees at higher ranks have a greater impact on the achievement of Bankwide goals than employees at lower ranks. Therefore, employees at higher ranks have a greater weighting placed on the Bankwide performance component of their Incentive Plan award opportunities as opposed to the individual performance component. For the Bank’s Chief Executive Officer and the other Management Committee members (a group that includes all of the NEOs), the overall incentive compensation opportunity is weighted 90% on Bankwide performance goals and 10% on individual performance goals. There are differences among the NEOs with regard to their individual performance goals; however, these differences do not have a material impact on the amount of incentive compensation payout.

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The Incentive Plan is administered by the Chief Executive Officer subject to any requirements for review and approval by the C&HR Committee that the Committee may establish. In all areas not specifically reserved by the Committee for its review and approval, decisions of the Chief Executive Officer or his designee concerning the Incentive Plan shall be binding on the Bank and on all Incentive Plan participants.

When employees are individually evaluated, they receive one of five performance ratings: “Outstanding”; “Exceeds Requirements”; “Meets Requirements”; “Needs Improvement” or “Unsatisfactory”. Incentive Plan participants that are rated as “Exceeds Requirements” or “Outstanding” on their individual performance evaluations receive an additional 3% or 6%, respectively, of their base salary added to their Incentive Plan award.

Incentive Plan awards are only paid to participants who have attained at least a specified threshold rating within the “Meets Requirements” category on their individual performance evaluations and do not have any unresolved disciplinary matters. Participants will receive an individual Incentive Plan award payment even if Bankwide goal results are such that no payments are awarded for the Bankwide portion of the Incentive Plan.

Qualified Defined Contribution Plan

Bank employees who have met the eligibility requirements contained in the Pentegra Qualified Defined Contribution Plan for Financial Institutions (“DC Plan”) can choose to contribute to the DC Plan, a retirement savings plan qualified under the IRC. Employees are eligible for membership in the DC Plan on the first day of the month coinciding with or next following the date the employee completes 3 full calendar months of employment.

An employee may contribute 1% to 19% of base salary into the DC Plan, up to IRC limitations. The IRC limit for 2008 was $15,500 for employees under the age of 50. An additional “catch up” contribution of $5,000 is permitted under IRC rules for employees who attain age 50 before the end of the calendar year. The Bank matches up to 100% of the first 3% of the employee’s contribution through the third year of employment; 150% of the first 3% of contribution during the fourth and fifth years of employment; and 200% of the first 3% of contribution starting with the sixth year of employment.

Additional Information

Additional information about compensation and benefits are provided in the discussions immediately following the below pension and compensation tables.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
AND OPTION EXERCISES AND STOCK VESTED

The tables disclosing (i) outstanding option and stock awards and (ii) exercises of stock options and vesting of restricted stock for Named Executive Officers are omitted because all employees of Federal Home Loan Banks are prohibited by law from holding capital stock issued by a Federal Home Loan Bank. As such, these tables are not applicable.

PENSION BENEFITS

The table below shows the present value of accumulated benefits payable to each of the Named Executive Officers, the number of years of service credited to each such person, and payments during the last fiscal year (if any) to each such person, under the Pentegra Defined Benefit Plan for Financial Institutions and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (amounts in whole dollars):

	Pension Benefits for Fiscal Year 2008
		Number of		Present Value		Payment During
	Plan	Years Credited		of Accumulated		Last
Name	Name	Service [1]		Benefit [2]		Fiscal Year
Alfred A. DelliBovi	Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan		15.75	$	932,000		—
	Nonqualified Defined Benefit Portion of the Benefit Equalization Plan		15.75	$	3,248,000		—
Peter S. Leung	Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan		11.50	$	417,000		—
	Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (3)		11.50	$	671,000		—
Paul B. Héroux	Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan		24.50	$	640,000		—
	Nonqualified Defined Benefit Portion of the Benefit Equalization Plan		24.50	$	639,000		—
Patrick A. Morgan	Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan		9.50	$	630,000		—
	Nonqualified Defined Benefit Portion of the Benefit Equalization Plan		9.50	$	612,000		—
Craig E. Reynolds	Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan		14.17	$	692,000		—
	Nonqualified Defined Benefit Portion of the Benefit Equalization Plan		14.17	$	586,000		—

1	Number of years of credited service pertains to eligibility/participation in the qualified plan. Years of credited service for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan are the same as for the Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan. However, the dates of eligible enrollment for both the Qualified and Nonqualified Defined Benefit plans may differ because enrollment eligibility in the nonqualified plan is much more stringent than for the qualified plan.
2	As of 12/31/2008.
3	Mr. Leung’s 11.5 years of credited service includes 3.6 years of credited service working for the Office of Thrift Supervision; 3.0 years of credited service working for the Federal Home Loan Bank of Dallas (including two months of severance) and 4.9 years of credited service working for the Federal Home Loan Bank of New York.

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The following discussions provide more information with respect to the compensation and pension benefits tables in the preceding pages.

Qualified Defined Benefit Plan

The Pentegra Qualified Defined Benefit Plan for Financial Institutions (“DB Plan”), as adopted by the Bank, is an IRS-qualified defined benefit plan which covers all Bank employees who have achieved four months of service. The DB Plan is part of a multiple-employer defined benefit program administered by Pentegra Services.

Bank participants who as of July 1, 2008 had five years of DB Plan service and were age 50 years or older are provided with a benefit of 2.50% of a participant’s highest consecutive 3-year average earnings, multiplied by the participant’s years of benefit service, not to exceed 30 years. Earnings are defined as base salary plus short-term incentives, and overtime, subject to the annual IRC limit. These participants are identified herein as “Grandfathered”

For all other participants (identified herein as “Non-Grandfathered”), the DB Plan provides a benefit of 2.0% (as opposed to 2.5% provided to Grandfathered participants) of a participant’s highest consecutive 5-year average earnings (as opposed to consecutive 3-year average earnings as previously provided to Grandfathered participants), multiplied by the participant’s years of benefit service, not to exceed 30 years. The Normal Form of Payment is a life annuity (i.e., an annuity paid until the death of the participant), as opposed to a guaranteed twelve year payout as previously provided to Grandfathered participants. Also, cost of living adjustments (“COLAs”) are no longer provided on future accruals (as opposed to a 1% simple interest COLA beginning at age 66 as previously provided).

The table below summarizes the DB Plan changes affecting the Non-Grandfathered employees commencing on July 1, 2008. For purposes of the following table, please note the following definitions:

“Defined Benefit Plan” — An Internal Revenue Code qualified deferred compensation arrangement that pays an employee and his/her designated beneficiary upon retirement a lifetime annuity or the lump sum actuarial equivalent of that annuity.

Benefit Multiplier — The annuity paid from the Bank’s DB Plan is calculated on an employee’s years of service, up to a maximum of 30 years, multiplied by 2.5% per year.  Beginning July 1, 2008, the Benefit Multiplier changed to 2.0 for Non-Grandfathered Employees.

Final Average Pay Period — Is that period of time that an employee’s salary is used in the calculation of that employee’s benefit. For Grandfathered Employees, the Benefit Multiplier, 2.5%, is multiplied by the average of the employee’s three highest consecutive years of salary multiplied by that employee’s years of service, not to exceed thirty years at the date of termination. For Non-Grandfathered Employees, benefits accrued before July 1, 2008, the Benefit Multiplier mirrored the Grandfathered Employees. After July 1, 2008 a Benefits Multiplier of 2% is multiplied by the employee’s years of service (total service not to exceed thirty years) multiplied by the average of the employee’s five highest consecutive years of salary is used.

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Normal Form of Payment — The DB Plan must state the form of the annuity to be paid to the retiring employee.  For unmarried Grandfathered retirees, the Normal Form of Payment as a life annuity with a 12 year guaranteed payment (“Guaranteed 12 Year Payout”) which means that if the unmarried Grandfathered retiree dies prior to receiving 12 years of annuity payments, the retiree’s beneficiary will receive a lump sum equal to the remaining unpaid payments in the 12 year period. For married Grandfathered retirees, the Normal Form of Payment is a 50% joint and survivor annuity which provides a continuation of half of the monthly annuity to the surviving beneficiary. The initial 50% Joint and Survivor Annuity monthly payment is actuarially equivalent to the 12 year guarantee payment provided to single retirees under the formula. Effective July 1, 2008, the DB Plan provides single Non-Grandfathered retirees with a straight “Life Annuity” as the Normal Form of Payment, which means that, once a retiree dies, the annuity terminates. For married Non-Grandfathered retirees, the Normal Form of Payment will be a 50% Joint and Survivor Annuity that is actuarially equivalent to the straight Life Annuity.

Cost of Living Adjustments (or “COLAs”) — Once a Non-Grandfathered Employee retiree reaches age 65, in each succeeding year he/she will receive an extra payment annually equal to one percent of the original benefit amount multiplied by the number of years in pay status after age 65. As of July 1, 2008, this adjustment is no longer offered to Non-Grandfathered Employees on benefits accruing after that date.

Early Retirement Subsidy:

Grandfathered Employees

A subsidy or benefit enhancement for Grandfathered Employees retirees that retire prior to normal retirement age (65).  Any participant who retires early and elects to draw pension benefits prior to age 65, and who has a combined age and length of service of at least 70 years, will realize a reduction of 1.5% to his/her early retirement benefit for each year benefits commence earlier than age 65. If that employee had not accumulated a total of 70 years, the reduction would be 3% for each year benefits commence earlier than age 65.

Non-Grandfathered Employees

Effective as of July 1, 2008, if an employee on the date of his/her retirement, before 65, had accumulated a total of 70 or more years, the reduction will be 3% every year between his/her age and age 65.  However, if a Non-Grandfathered Employee on the date of his/her retirement, before 65, had not accumulated 70 or more years, the reduction will be the actuarial equivalent between his/her age and age 65. At early retirement, the new early retirement factors will apply to the Non-Grandfathered Employee’s total service benefit. The retiree will be entitled to receive the greater of this early retirement benefit or the early retirement benefit accrued as of July 1, 2008 under the old plan formula.

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Vesting — Grandfathered Employees are entitled, starting with the second year of employment service, to 20% of his/her accumulated benefit per year. As a result, after the sixth year of employment service, an employee will be entitled to 100% of his/her accumulated benefit.  Non-Grandfathered Employees who entered the DB Plan on or after July 1, 2008 will not receive such benefit until such employee has completed five years of employment service. At that point, the employee will be entitled to 100% of his/her accumulated benefit. The term “5 Year Cliff” is a reference to the foregoing provision. Grandfathered and Non-Grandfathered Employees already participating in the DB Plan prior to July 1, 2008 will vest at 20% per year starting with the second year through the fourth year of employment service and will be accelerated to 100% vesting after the fifth year.

DEFINED BENEFIT PLAN	GRANDFATHERED	NON-GRANDFATHERED
PROVISIONS	EMPLOYEES	EMPLOYEES
Benefit Multiplier	2.5%	2.0%
Final Average Pay Period	High 3 Year	High 5 Year
Normal Form of Payment	Guaranteed 12 Year Payout	Life Annuity
Cost of Living Adjustments	1% Per Year Cumulative Commencing at Age 66	None
Early Retirement Subsidy<65:
a) Rule of 70	1.5% Per Year	3% Per Year
b) Rule of 70 Not Met	3% Per Year	Actuarial Equivalent
*Vesting	20% Per Year Commencing Second Year of Employment	5 Year Cliff

* Greater of DB Plan Vesting or New Plan Vesting applied to employees participating in the DB Plan prior to July 1, 2008.

Earnings under the Bank’s DB Plan continue to be defined as base salary plus short-term incentives, and overtime, subject to the annual IRC limit. The IRC limit on earnings for calculation of the DB Plan benefit for 2008 was $230,000.

The DB Plan pays monthly annuities, or a lump sum amount available at or after age 59-1/2, calculated on an actuarial basis, to vested participants or the beneficiaries of deceased vested participants. Annual benefits provided under the DB Plan also are subject to IRC limits, which vary by age and benefit payment option selected.

Nonqualified Defined Benefit Portion of the Benefit Equalization Plan

Employees at the rank of Vice President and above who exceed income limitations established by the IRC for three out of five consecutive years and who are also approved for inclusion by the Bank’s Nonqualified Plan Committee are eligible to participate in the BEP, commonly referred to as a “Supplemental Employee Retirement Plan,” a non-qualified retirement plan that in many respects mirrors the DB Plan.

The primary objective of the Nonqualified Defined Benefit Portion of the BEP is to ensure that participants receive the full amount of benefits to which they would have been entitled under the DB Plan in the absence of limits on maximum benefits levels imposed by the IRC.

The Nonqualified Defined Benefit Portion of the BEP utilizes the identical benefit formulas applicable to the Bank’s DB Plan. In the event that the benefits payable from the Bank’s DB Plan have been reduced or otherwise limited by government regulations, the employee’s “lost” benefits are payable under the terms of the defined benefit portion of the BEP.

The Nonqualified Defined Benefit Portion of the BEP, as well as the Nonqualified Defined Contribution Portion of the BEP described below, are unfunded arrangements. However, the Bank established a grantor trust to assist in financing the payment of benefits under these plans. The trust was approved by the Nonqualified Plan Committee in March of 2006 and established in June of 2007.

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NONQUALIFIED DEFERRED COMPENSATION

The following table discloses contributions to nonqualified deferred compensation plans, each Named Executive Officer’s withdrawals (if any), aggregate earnings and year-end balances in such plans (whole dollars):

	Nonqualified Deferred Compensation for Fiscal Year 2008
	Executive		Registrant		Aggregate			Aggregate		Aggregate
	Contributions in		Contributions in		Earnings in			Withdrawals/		Balance at
Name	Last FY (1)		Last FY (2) (3) (4)		Last FY (5)			Distributions		Last FYE (6)
Alfred A. DelliBovi	$	39,805	$	23,407	$	(347,090	)		—	$	880,261
Patrick A. Morgan	$	27,377	$	9,908	$	(1,944	)		—	$	35,341
Paul B. Héroux	$	0	$	16,680	$	(15,945	)		—	$	735
Peter S. Leung	$	54,906	$	17,016	$	(41,088	)		—	$	97,821
Craig E. Reynolds	$	2,935	$	5,697	$	12,756			—	$	446,614

1	These amounts are included in the “Salary” column of the Summary Compensation Table; these amounts would have been paid as salary but for deferral into the Nonqualified Defined Contribution Portion of the Benefit Equalization Plan (BEP).
2	These totals are also included in the “All Other Compensation” column of the Summary Compensation Table.
3	Registrant contributions for A. DelliBovi, P. Morgan, P. Leung and C. Reynolds are for the Nonqualified Defined Contribution portion of the Benefit Equalization Plan. P. Heroux elected not to contribute to the Plan.
4	Registrant contributions for P. Heroux are for the Nonqualified Profit Sharing Plan.
5	Aggregate earnings for all participants are for the Nonqualified Defined Contribution portion of the Benefit Equalization Plan.
6	Aggregate balances for A. DelliBovi, P. Morgan, P. Leung and C. Reynolds are for the Nonqualified Defined Contribution portion of the Benefit Equalization Plan. Aggregate balance for P. Heroux is the combined total for the Nonqualified Defined Contribution portion of the Benefit Equalization Plan and the Nonqualified Profit Sharing Plan.

Nonqualified Defined Contribution Portion of the Benefit Equalization Plan

Employees at the rank of Vice President and above who exceed income limitations established by the IRS for three out of five consecutive years and who are also approved for inclusion by the Bank’s Nonqualified Plan Committee are eligible to participate in the Nonqualified Defined Contribution Portion of the Benefit Equalization Plan (which is a separate portion of the aforementioned BEP). The Nonqualified Defined Contribution portion of the BEP ensures, among other things, that participants whose benefits under the DC Plan would otherwise be restricted under certain provisions of the IRC are able to make elective pre-tax deferrals and to receive the same Bank match relating to such deferrals as would have been received under the DC Plan. In 2007, the Nonqualified Plan Committee established a grantor trust to finance the Nonqualified Defined Contribution Portion of the BEP.

Nonqualified Profit Sharing Plan

The Bank’s Nonqualified Profit Sharing Plan, which became effective on July 1, 2008, is designed to address the compensation inequities that affected a group of highly compensated employees (including one NEO) who were negatively affected by the changes to the Bank’s Qualified Defined Benefit Plan formula and who would be compensated less than employees in similar positions in the Bank’s peer group.

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To address this shortfall to certain highly compensated employees, Aon proposed, and the Board approved, the establishment of the Nonqualified Profit Sharing Plan. The Nonqualified Profit Sharing Plan became effective on July 1, 2008, which is the date that the current DB Plan formula changed.

All Non-Grandfathered employees who have five years of Bank service and are members of the BEP will be entitled to participate in the Bank’s Nonqualified Profit Sharing Plan. The Nonqualified Profit Sharing Plan will credit participants with 8% of salary (defined as base pay plus any Incentive Plan award) conditioned on the Bank achieving its threshold targets for certain Bank-wide performance goals used in the Bank’s Incentive Plan. The credit to participants into the Nonqualified Profit Sharing Plan will be held in a deferred account for participants and paid in a lump sum six months after termination of a participant’s employment.

A grantor trust similar to those in operation for the BEP was established by the Nonqualified Plan Committee for the Nonqualified Profit Sharing Plan in December 2008.

Nonqualified Deferred Compensation Plan

The Bank’s Board of Directors approved the establishment of a Nonqualified Deferred Compensation Plan, effective January 1, 2009, for the Board and Bank employees at a rank of Assistant Vice President and higher. A Nonqualified Deferred Compensation Plan is a vehicle that a corporation establishes for its Directors and employees for the purpose of enabling them to defer the present taxation of compensation to a date in the future – for example, when these individuals retire and would presumably be in a lower tax bracket. In addition, Directors and certain employees have the ability to have interest on their deferred compensation calculated based on the performance of investment vehicles of their own choosing, using a menu of investment choices similar to that of a 401(k) plan.    

The Bank does not provide a match on these deferrals. All deferred monies will be the property of the Bank until distribution to the Directors and employees and thus subject to claims of Bank creditors until distribution.

A grantor trust similar to those in operation for the Nonqualified Defined Contribution Portion and Nonqualified Defined Benefit Portion of the Benefit Equalization Plan was established by the Nonqualified Plan Committee for the Nonqualified Deferred Compensation Plan in December 2008.

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DISCLOSURE REGARDING TERMINATION AND CHANGE IN CONTROL PROVISIONS

Severance Plan

The Bank has a formal Board-approved Severance Plan (“Severance Plan”) available to all Bank employees who work twenty or more hours a week and have at least one year of employment.

Severance benefits are paid to employees who:

(i) are part of a reduction in force;

(ii) have resigned from the Bank following a reduction in salary grade, level, or rank;

(iii) refuse a transfer of fifty miles or more;

(iv) have their position eliminated; or

(v) are unable to perform his/her duties in a satisfactory manner and is warranted that the employee would not be discharged for cause.

An Officer of the Bank shall be eligible for two (2) weeks of severance benefits for each six month period of service with the Bank, but not less than six (6) weeks of severance benefits. Non-officers are eligible for severance benefits in accordance with different formulas.

An Officer is eligible to receive severance benefits, in the aggregate for all six month periods of service, whether or not continuous, totaling more than the lesser of (i) thirty-six (36) weeks or (ii) two (2) times the lesser of (a) the sum of the employee’s annualized compensation based upon his or her annual rate of pay for services as an employee for the year preceding the year in which the employment of the employee by the Bank terminated (adjusted for any increase during that year that was expected to continue indefinitely if the employment of the employee had not terminated) or (b) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the IRC for the year in which the employment of the employee terminated.

Payment of severance benefits under the Severance Plan is contingent on an employee executing a severance agreement which includes a release of any claim the employee may have against the Bank and any present and former director, officer and employee of the Bank.

299

The following table describes estimated severance payout information for each NEO assuming that severance would have occurred on December 31, 2008:

	Number of weeks Used to		2008 Annual
	Calculate Severance Amount		Base Salary		Severance Amount
Alfred A. DelliBovi		36	$	615,634	$	426,208
Peter S. Leung		20	$	405,066	$	155,795
Patrick A. Morgan		36	$	305,411	$	211,438
Paul B. Héroux		36	$	288,019	$	199,398
Craig E. Reynolds		36	$	282,613	$	195,655

The severance benefits payable under the Severance Plan shall be paid as salary, coinciding with the normal payroll cycle, for a period of time equal to the number of weeks of severance benefits for which the employee is eligible, commencing with the first payroll period following the termination of employment of the employee and the receipt by the Bank of an agreement signed by the employee, and shall be subject to withholding of Federal and State income taxes and other employment taxes based upon the number of withholding allowances.

Notwithstanding the foregoing, benefits under the severance plan may be paid from time to time through methods other then the payment method described above.

In addition, employees receiving severance benefits also receive, if applicable, life insurance for the severance period and a reimbursement covering the difference between their Consolidated Omnibus Budget Reconciliation Act (“COBRA”) cost and what they would have paid for health insurance as employees.

Life insurance premiums paid on behalf of employees on severance are paid monthly by the Bank, coinciding with the monthly invoice processing. Employees on severance who are covered under the Bank’s health insurance plan are reimbursed for health insurance expenses (COBRA), minus the cost of health insurance that they would have paid as an active employee. Reimbursements are made monthly coinciding with the monthly invoice processing and upon receipt of payment by the employee receiving severance.

Other Potential Post-Employment Payments

The Bank maintains no arrangements which contain “change in control” provisions.

300

DIRECTOR COMPENSATION

The following table summarizes the compensation paid by the Bank to each of its Directors for the year ended December 31, 2008 (whole dollars)*:

									Change in Pension
									Value and
	Fees						Non-Equity		Nonqualified Deferred		All
	Earned or		Stock		Option		Incentive Plan		Compensation		Other
Name	Paid in Cash		Awards		Awards		Compensation		Earnings		Compensation		Total
Michael M. Horn	$	31,232		—		—		—		—		—	$	31,232
José R. González		24,986		—		—		—		—		—		24,986
David W. Lindstrom		19,520		—		—		—		—		—		19,520
Anne E. Estabrook		18,739		—		—		—		—		—		18,739
Joseph R. Ficalora		18,739		—		—		—		—		—		18,739
Carl A. Florio		2,343		—		—		—		—		—		2,343
Jay M. Ford		14,058		—		—		—		—		—		14,058
James W. Fulmer		18,739		—		—		—		—		—		18,739
Ronald E. Hermance, Jr.		18,739		—		—		—		—		—		18,739
Katherine J. Liseno		18,739		—		—		—		—		—		18,739
Kevin J. Lynch		18,739		—		—		—		—		—		18,739
Joseph J. Melone		18,739		—		—		—		—		—		18,739
Richard S. Mroz		18,739		—		—		—		—		—		18,739
Thomas M. O’Brien		16,401		—		—		—		—		—		16,401
C. Cathleen Raffaeli		18,739		—		—		—		—		—		18,739
Edwin C. Reed		18,739		—		—		—		—		—		18,739
John M. Scarchilli		18,739		—		—		—		—		—		18,739
George Strayton		18,739		—		—		—		—		—		18,739
	$	333,408											$	333,408

* All of the Directors listed in the above table served on the Board for at least of portion of 2008. See the footnotes to the Director information table in Item 10 of this Form 10-K for information as to when various Directors left or joined the Board during 2008, as well as information about changes to the Board Chair and Vice Chair during that time.

The Board establishes on an annual basis a Director Compensation Policy governing compensation for Board meeting attendance. This policy is established in accordance with the provisions of the Federal Home Loan Bank Act and related Federal Housing Finance Agency regulations. In 2008, the Bank Act provided for strict annual limits on the total amount of compensation that could be paid to directors. However, as a result of the enactment of the Housing and Economic Recovery Act of 2008, these statutory annual limits were removed, thus leaving the determination of director compensation limits up to each FHLBank’s Board of Directors beginning in 2009.

In connection with setting director compensation for 2009, the Bank participated in an FHLB System review of director compensation which included a director compensation study prepared by McLagan Partners.  The McLagan study included a separate analysis of director compensation for small asset size commercial banks, Farm Credit Banks and S&P 1500 firms.  The study recommended setting payments at the lower end of the commercial bank benchmarks, with additional payments for the Chair, Vice Chair and Committee Chair positions.  The Board concurred with these recommendations. The current annual compensation for the Bank’s directors is near the lower end of the median level of director compensation for smaller sized commercial banks.

301

Below are tables summarizing the Director fees established by the Board and the annual compensation limits that were set by the Bank’s regulator for 2008. Following these tables are additional tables summarizing the Director fees established by the Board and the annual compensation limits set by the Board for 2009.

Director Fees — 2008 (in whole dollars)

Position	Fee Per Board Meeting
Chairman	$	3,904
Vice Chairman	$	3,124
Director	$	2,343

Director Annual Compensation Limits — 2008 (in whole dollars)

Position	Annual Limit
Chairman	$	31,232
Vice Chairman	$	24,986
Director	$	18,739

Director Fees — 2009 (in whole dollars)

	Fees For Service Paid
	Quarterly
Position	in Arrears
Chairman	$	15,000
Vice Chairman	$	13,750
Committee Chair *	$	12,500
All Other Directors	$	11,250

* A Committee Chair will not receive any further payment if he or she serves as the Chair of more than one Committee. In addition, the Board Chair and Board Vice Chair will not receive any additional compensation if they serve as a Chair of one or more Board Committees.

Director Annual Compensation Limits — 2009 (in whole dollars)

Position	Annual Limit
Chairman	$	60,000
Vice Chairman	$	55,000
Committee Chair	$	50,000
All Other Directors	$	45,000

302

In 2009, the Directors will able to participate in the Nonqualified Deferred Compensation Plan described in more detail above under the heading “Nonqualified Deferred Compensation Plan”.

The Director Compensation Policy also authorizes the FHLBNY to reimburse Directors for necessary and reasonable travel, subsistence, and other related expenses incurred in connection with the performance of their official duties. For expense reimbursement purposes, Directors’ official duties can include:

• Meetings of the Board and Board Committees

• Meetings requested by the Federal Housing Finance Board

• Meetings of Federal Home Loan Bank System committees

• Federal Home Loan Bank System director orientation meetings

• Meetings of the Council of Federal Home Loan Banks and Council committees

• Attendance at other events on behalf of the Bank with prior approval of the Board of Directors

303

The following table, which is included here pursuant to FHFA regulations, includes information about reimbursed expenses for 2008 (whole dollars):

	Directors’ Expenses
	Reimbursed
Name	(Paid in Cash)
Michael M. Horn	$	7,962
José R. González		12,975
David W. Lindstrom		5,273
Anne E. Estabrook		4,015
Joseph R. Ficalora		—
Carl A. Florio		436
Jay M. Ford		1,109
James W. Fulmer		5,956
Ronald E. Hermance, Jr.		—
Katherine J. Liseno		2,718
Kevin J. Lynch		3,683
Joseph J. Melone		—
Richard S. Mroz		4,149
Thomas M. O’Brien		—
C. Cathleen Raffaeli		1,003
Edwin C. Reed		2,816
John M. Scarchilli		3,430
George Strayton		795
	$	56,320

Total expenses incurred by the FHLBNY for Board expenses, including amounts reimbursed in cash to Directors, totaled $124,000, $183,000, and $137,000 in 2008, 2007 and 2006.

Compensation Committee Interlocks and Insider Participation

The following persons served on the Board’s Compensation and Human Resources Committee during all or some of the period from January 1, 2008 through the date of this annual report on Form 10-K: Carl A. Florio, James W. Fulmer, José R. González, David W. Lindstrom, Katherine J. Liseno, Kevin J. Lynch, Richard Mroz, Thomas O’Brien and C. Cathleen Raffaeli. During this period, no interlocking relationships existed between any member of the FHLBNY’s Board of Directors or the Compensation and Human Resources Committee and any member of the board of directors or compensation committee of any other company, nor did any such interlocking relationship existed in the past. Further, no member of the Compensation and Human Resources Committee listed above is or was formerly an officer or an employee of the Bank.

304

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

FHLBNY stock can only be held by member financial institutions. No person, including directors and executive officers of the FHLBNY, may own the Bank’s capital stock. As such, the FHLBNY does not offer any compensation plan to any individuals under which equity securities of the Bank are authorized for issuance. The following tables provide information about those members who were beneficial owners of more than 5% of the FHLBNY’s outstanding capital stock (shares in thousands) as of:

		Number		Percent
	February 28, 2009	of shares		of total
Name of beneficial owner	Principal Executive Office Address	owned		capital stock
Hudson City Savings Bank *	West 80 Century Road, Paramus, NJ 07652		8,858		15.84	%
Metropolitan Life Insurance Company	200 Park Ave., New York, NY 10166		8,302		14.84
New York Community Bank *	615 Merrick Avenue, Westbury, NY 11590		4,245		7.59
Manufacturers and Traders Trust Company	One M & T Plaza, Buffalo, NY 14203		4,091		7.31
			25,496		45.58	%

		Number		Percent
	December 31, 2008	of shares		of total
Name of beneficial owner	Principal Executive Office Address	owned		capital stock
Hudson City Savings Bank *	West 80 Century Road, Paramus, NJ 07652		8,656		15.11	%
Metropolitan Life Insurance Company	200 Park Ave., New York, NY 10166		8,302		14.49
Manufacturers and Traders Trust Company	One M & T Plaza, Buffalo, NY 14203		4,327		7.55
New York Community Bank *	615 Merrick Avenue, Westbury, NY 11590		3,928		6.86
			25,213		44.01	%

* Officer of member bank also serves on the Board of Directors of the FHLBNY.

The following table sets forth information with respect to capital stock outstanding to members whose officers or directors served as Directors of the FHLBNY as of December 31, 2008, the most practicable date for the information provided (shares in thousands):

				Number		Percent
				of shares		of total
Name	Director	City	State	owned		capital stock
Hudson City Savings Bank	Ronald E. Hermance, Jr.	Paramus	New Jersey		8,656		15.11	%
New York Community Bank	Joseph R. Ficalora	Westbury	New York		3,928		6.86
Banco Santander Puerto Rico	José R. González	San Juan	Puerto Rico		616		1.08
Provident Bank	George Strayton	Montebello	New York		292		0.51
Oritani Savings Bank	Kevin J. Lynch	Township of Washington	New Jersey		241		0.42
The Bank of Castile	James W. Fulmer	Batavia	New York		30		0.05
Crest Savings Bank	Jay M. Ford	Wildwood	New Jersey		27		0.05
Metuchen Savings Bank	Katherine J. Liseno	Metuchen	New Jersey		22		0.04
Pioneer Savings Bank	John M. Scarchilli	Troy	New York		16		0.03
State Bank of Long Island	Thomas M. O’Brien	Jericho	New York		14		0.02
					13,842		24.17	%

All capital stock held by each member of the FHLBNY is by law automatically pledged to the FHLBNY as additional collateral for all indebtedness of each such member to the FHLBNY.

305

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

The FHLBNY is a cooperative and the members own all of the stock of the FHLBNY. Capital stock ownership is a prerequisite to the transaction by members of any business with the FHLBNY. The majority of the members of the Board of Directors of the FHLBNY are Member Directors (i.e., directors elected by the Bank’s members who are officers or directors of Bank members). The remaining members of the Board are Independent Directors (i.e., directors elected by the Bank’s members who are not officers or directors of Bank members). The FHLBNY conducts its advances business almost exclusively with members. Therefore, in the normal course of business, the FHLBNY extends credit to members, whose officers or directors may serve as directors of the FHLBNY. All loans extended by the FHLBNY to such members are on market terms that are no more favorable to them than the terms of comparable transactions with other members. In addition, the FHLBNY also extends credit to members who own more than 5% of the FHLBNY’s stock. All loans extended by the FHLBNY to these members are on market terms that are no more favorable to them than the terms of comparable transactions with other members. Under the provisions of Section 7(j) of the FHLBank Act (12 U.S.C. § 1427(j)), the Bank’s Board is required to administer the business of the Bank with its members without discrimination in favor of or against any member. For more information about transactions with stockholders, see Note 9 — Related Party Transactions, in the notes to the audited financial statements included in this Form 10-K.)

The review and approval of transactions with related persons is governed by the Bank’s written Code of Ethics and Business Conduct (“Code”), which is posted on the Corporate Governance Section of the FHLBNY’s website at http://www.fhlbny.com. Under the Code, each director is required to disclose to the Board of Directors all actual or apparent conflicts of interest, including any personal financial interest that he or she has, as well as such interests of any immediate family member or business associate of the director known to the director, in any matter to be considered by the Board of Directors or in which another person does, or proposes to do, business with the Bank. Following such disclosure, the Board of Directors is empowered to determine whether an actual conflict exists. In the event the Board of Directors determines the existence of a conflict with respect to any matter, the affected director must excuse himself or herself from all further considerations relating to that matter. Issues under the Code regarding conflicts of interests involving directors are administered by the Board or, in the Board’s discretion, the Board’s Corporate Governance Committee.

The Code also provides that, subject to certain limited exceptions for, among other items, interests arising through ownership of mutual funds and certain financial interests acquired prior to employment by the Bank, no Bank employee may have a financial interest in any Bank member. Extensions of credit from members to employees are acceptable that are entered into or established in the ordinary, normal course of business, so long as the terms are no more favorable than would be available in like circumstances to persons who are not employees of the Bank. Employees provide disclosure regarding financial interests and financial relationships on a periodic basis. These disclosures are provided to and reviewed by the Director of Human Resources, who is one of the Bank’s two Ethics Officers; the Ethics Officers have responsibility for enforcing the Code of Ethics with respect to employees on a day-to-day basis.

306

Director Independence

In General

During the period from January 1, 2008 through and including the date of this annual report on Form 10-K, the Bank had a total of 19 directors serving on its Board, 12 of whom were Member Directors (i.e., directors elected by the Bank’s members who are officers or directors of Bank members) and 7 of whom were Independent Directors (i.e., directors who were, until the enactment of the Housing and Economic Recovery Act of 2009, appointed by the Bank’s former safety and soundness regulator, the Federal Housing Finance Board and who are now subject to election by the Bank’s members who are not officers or directors of Bank members). All of the Bank’s directors were independent of management from the standpoint that they were not, and could not serve as, Bank employees or officers. Also, all individuals, including the Bank’s directors, are prohibited by law from personally owning stock or stock options in the Bank. In addition, the Bank is required to determine whether its directors are independent under two distinct director independence standards. First, Federal Housing Finance Agency (“Finance Agency”) regulations establish independence criteria for directors who serve as members of the Audit Committee of the Board of Directors. Second, the Securities and Exchange Commission’s (“SEC”) regulations require that the Bank’s Board of Directors apply the independence criteria of a national securities exchange or automated quotation system in assessing the independence of its directors.

Finance Agency Regulations Regarding Independence

The Finance Agency director independence standards prohibit individuals from serving as members of the Bank’s Audit Committee if they have one or more disqualifying relationships with the Bank or its management that would interfere with the exercise of that individual’s independent judgment. Under Finance Agency regulations, disqualifying relationships can include, but are not limited to: employment with the Bank at any time during the last five years; acceptance of compensation from the Bank other than for service as a director; being a consultant, advisor, promoter, underwriter or legal counsel for the Bank at any time within the last five years; and being an immediate family member of an individual who is or who has been within the past five years, a Bank executive officer. The Board of Directors has assessed the independence of all directors under the Finance Agency’s independence standards, regardless of whether they serve on the Audit Committee. From January 1, 2008 through and including the date of this Annual Report on Form 10-K, all of the persons who served as a director of the Bank, including all directors who served as members of the Audit Committee, were independent under these criteria.

NYSE Rules Regarding Independence

In addition, pursuant to SEC regulations, the Board has adopted the independence standards of the New York Stock Exchange (“NYSE”) to determine which of its directors are independent and which members of its Audit Committee are not independent.

After applying the NYSE independence standards, the Board has determined that all of the Bank’s Independent Directors who served at any time during the period from January 1, 2008 through and including the date of this annual report on Form 10-K (Anne Evans Estabrook, Michael M. Horn, Joseph J. Melone, Richard S. Mroz, C. Cathleen Raffaeli, Edwin C. Reed and DeForest B. Soaries, Jr.) were independent.

Separately, the Board was unable to affirmatively determine that there were no material relationships (as defined in the NYSE rules) between the Bank and its Member Directors, and has therefore concluded that none of the Bank’s Member Directors who served at any time during the aforementioned period were independent under the NYSE independence standards.

307

In making this determination, the Board considered the cooperative relationship between the Bank and its members. Specifically, the Board considered the fact that each of the Bank’s Member Directors are officers of a Bank member institution, and that each member institution has access to, and is encouraged to use, the Bank’s products and services.

Furthermore, the Board acknowledges that under NYSE rules, there are certain objective tests that, if not passed, would preclude a finding of independence. One such test pertains to the amount of business conducted with the Bank by the Member Director’s institution. It is possible that a Member Director could satisfy this test on a particular day. However, because the amount of business conducted by an Member Director’s institution may change frequently, and because the Bank generally desires to increase the amount of business it conducts with each member, the directors deemed it inappropriate to draw distinctions among the Member Directors based solely upon the amount of business conducted with the Bank by any director’s institution at a specific time.

Notwithstanding the foregoing, the Board believes that it functions as a governing body that can and does act with good judgment with respect to the corporate governance and business affairs of the Bank. The Board is aware of its statutory responsibilities under Section 7(j) of the Federal Home Loan Bank Act, which specifically provides that the Board of Directors of a Federal Home Loan Bank must administer the affairs of the Home Loan Bank fairly and impartially and without discrimination in favor of or against any member borrower.

The Board has a standing Audit Committee. For the reasons noted above, the Board has determined that none of the Member Directors who served at any time as members of the Bank’s Audit Committee during the period from January 1, 2008 through and including the date of this annual report on Form 10-K (Joseph R. Ficalora, Carl A. Florio, Jay M. Ford, José R. González, Katherine J. Liseno, and John M. Scarchilli) were independent under the NYSE standards for audit committee members. The Board also determined that the Independent Directors who served at any time as members of the Bank’s Audit Committee during the period from January 1, 2008 through and including the date of this annual report on Form 10-K (Anne Evans Estabrook, Michael M. Horn and Joseph J. Melone) were independent under the NYSE independence standards for audit committee members.

308

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth the fees paid to the FHLBNY’s independent registered public accounting firm, PricewaterhouseCoopers, LLP (“PwC”), during years ended December 31, 2008, 2007 and 2006 (in thousands):

	20081		2007		2006
Audit Fees	$	1,341	$	1,163	$	1,342
Audit-related Fees		56		33		60
All Other Fees		2		18		4
	$	1,399	$	1,214	$	1,406

¹ The 2008 amounts in the table do not include the assessment from OF for the Bank’s share of the audit fees of approximately $36 thousand incurred in connection with the audit of the combined financial statements published by the OF.

Audit Fees

Audit fees relate to professional services rendered in connection with the audit of the FHLBNY’s annual financial statements and review of interim financial statements included in quarterly reports on Form 10-Q.

Audit-Related Fees

Audit-related fees primarily relate to consultation services provided in connection with the implementation of the requirements under Section 404 of the Sarbanes-Oxley Act, and consultation with respect to certain accounting and reporting standards.

All Other Fees

These other fees relate to PwC’s attendance at FHLBank Accounting Conferences, and access to PwC’s accounting research and reference tools.

Policy on Audit Committee Pre-approval of Audit and Non-Audit Services Performed by the Independent Registered Public Accounting Firm.

The FHLBNY has adopted an independence policy that prohibits its independent registered public accounting firm from performing non-financial consulting services, such as information technology consulting and internal audit services. This policy also mandates that the audit and non-audit services and related budget be approved by the Audit Committee in advance, and that the Audit Committee be provided with quarterly reporting on actual spending. In accordance with this policy, all services to be performed by PwC were pre-approved by the Audit Committee.

Subsequent to the enactment of the Sarbanes-Oxley Act of 2002 (the “Act”), the Audit Committee has met with PwC to further understand the provisions of that Act as it relates to independence. PwC will rotate the lead audit partner and other partners as appropriate in compliance with the Act. The Audit Committee will continue to monitor the activities undertaken by PwC to comply with the Act.

309

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements

	The financial statements included as part of this Form 10-K are identified in the index to the Financial Statements appearing in Item 8 of this Form 10-K, which index is incorporated in this Item 15 by reference.
2.	Financial Statement Schedules
	Financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes, under Item 8, “Financial Statement and Supplementary Data.”

310

3. Exhibits

			Filed with
No.		Exhibit Description	this Form 10-K	Form		File No.		Date Filed
	3.01	Restated Organization Certificate of the Federal Home Loan Bank of New York (“Bank”)			8-K		000-51397		12/1/2005
	3.02	Bylaws of the Bank			8-K		000-51397		4/22/2008
	4.01	Amended and Restated Capital Plan of the Bank			10-K		000-51397		3/28/2008
	10.01	Bank 2007 Incentive Compensation Plan* a			10-Q		000-51397		5/11/2007
	10.02	Bank 2008 Incentive Compensation Plan* a			10-Q		000-51397		5/14/2008
	10.03	2007 Director Compensation Policy a			10-K		000-51397		3/28/2008
	10.04	2008 Director Compensation Policy a			10-Q		000-51397		5/14/2008
	10.05	Bank Severance Pay Plan a			10-K		000-51397		3/28/2008
	10.06	Qualified Defined Benefit Plan a b			10-K		000-51397		3/28/2008
	10.07	Qualified Defined Contribution Plan a c	X
	10.08	Bank Benefit Equalization Plan a	X
	10.09	Nonqualified Profit Sharing Plan a	X
	10.10	Nonqualified Deferred Compensation Plan a	X
	10.11	Compensatory Arrangements for Named Executive Officers a	X
	10.12	Federal Home Loan Banks P&I Funding and Contingency Plan Agreement			8-K		000-51397		6/27/2006
	10.13	Lending Facility with United States Treasury			8-K		000-51397		9/9/2008
	12.01	Computation of Ratio of Earnings to Fixed Charges	X
	31.01	Certification of Registrant’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002	X
	31.02	Certification of the Registrant’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002	X
	32.01	Certification of Registrant’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002	X
	32.02	Certification of Registrant’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002	X
	99.01	Audit Committee Report	X
	99.02	Audit Committee Charter	X

Notes:

*	Confidential treatment has been requested with respect to portions of this exhibit.
a	This exhibit includes a management contract, compensatory plan or arrangement required to be noted herein.
b	This document was identified as the “Comprehensive Retirement Plan” in previous filings.
c	This document was identified as the “Financial Institutions Thrift Plan” in previous filings.

311

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Federal Home Loan Bank of New York
By:	/s/ Alfred A. DelliBovi
	Alfred A. DelliBovi
	President and Chief Executive Officer (Principal Executive Officer)

Date: March 27, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below:

Signature	Title	Date
/s/ Alfred A. DelliBovi	President and Chief Executive Officer	March 27, 2009
Alfred A. DelliBovi
(Principal Executive Officer)
/s/ Patrick A. Morgan	Senior Vice President and Chief Financial Officer	March 27, 2009
Patrick A. Morgan
(Principal Financial Officer)
/s/ Backer Ali	Vice President and Controller	March 27, 2009
Backer Ali
(Principal Accounting Officer)
/s/ Michael M. Horn	Chairman of the Board of Directors	March 27, 2009
Michael M. Horn
/s/ José R. González	Vice Chairman of the Board of Directors	March 27, 2009
José R. González
/s/ Anne Evans Estabrook	Director	March 27, 2009
Anne Evans Estabrook
/s/ Joseph R. Ficalora	Director	March 27, 2009
Joseph R. Ficalora

312

Signature	Title	Date
/s/ Jay M. Ford	Director	March 27, 2009
Jay M. Ford
/s/ James W. Fulmer	Director	March 27, 2009
James W. Fulmer
/s/ Ronald E. Hermance, Jr.	Director	March 27, 2009
Ronald E. Hermance, Jr.
/s/ Katherine J. Liseno	Director	March 27, 2009
Katherine J. Liseno
/s/ Kevin J. Lynch	Director	March 27, 2009
Kevin J. Lynch
/s/ Joseph J. Melone	Director	March 27, 2009
Joseph J. Melone
/s/ Richard S. Mroz	Director	March 27, 2009
Richard S. Mroz
/s/ Thomas M. O’Brien	Director	March 27, 2009
Thomas M. O’Brien
/s/ C. Cathleen Raffaeli	Director	March 27, 2009
C. Cathleen Raffaeli
/s/ Edwin C. Reed	Director	March 27, 2009
Edwin C. Reed
/s/ John M. Scarchilli	Director	March 27, 2009
John M. Scarchilli
/s/ DeForest B. Soaries, Jr.	Director	March 27, 2009
DeForest B. Soaries, Jr.
/s/ George Strayton	Director	March 27, 2009
George Strayton

313

EXHIBIT INDEX

			Filed with
No.		Exhibit Description	this Form 10-K	Form		File No.		Date Filed
	3.01	Restated Organization Certificate of the Federal Home Loan Bank of New York (“Bank”)			8-K		000-51397		12/1/2005
	3.02	Bylaws of the Bank			8-K		000-51397		4/22/2008
	4.01	Amended and Restated Capital Plan of the Bank			10-K		000-51397		3/28/2008
	10.01	Bank 2007 Incentive Compensation Plan* a			10-Q		000-51397		5/11/2007
	10.02	Bank 2008 Incentive Compensation Plan* a			10-Q		000-51397		5/14/2008
	10.03	2007 Director Compensation Policy a			10-K		000-51397		3/28/2008
	10.04	2008 Director Compensation Policy a			10-Q		000-51397		5/14/2008
	10.05	Bank Severance Pay Plan a			10-K		000-51397		3/28/2008
	10.06	Qualified Defined Benefit Plan a b			10-K		000-51397		3/28/2008
	10.07	Qualified Defined Contribution Plan a c	X
	10.08	Bank Benefit Equalization Plan a	X
	10.09	Nonqualified Profit Sharing Plan a	X
	10.10	Nonqualified Deferred Compensation Plan a	X
	10.11	Compensatory Arrangements for Named Executive Officers a	X
	10.12	Federal Home Loan Banks P&I Funding and Contingency Plan Agreement			8-K		000-51397		6/27/2006
	10.13	Lending Facility with United States Treasury			8-K		000-51397		9/9/2008
	12.01	Computation of Ratio of Earnings to Fixed Charges	X
	31.01	Certification of Registrant’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002	X
	31.02	Certification of the Registrant’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002	X
	32.01	Certification of Registrant’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002	X
	32.02	Certification of Registrant’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002	X
	99.01	Audit Committee Report	X
	99.02	Audit Committee Charter	X

Notes:

*	Confidential treatment has been requested with respect to portions of this exhibit.
a	This exhibit includes a management contract, compensatory plan or arrangement required to be noted herein.
b	This document was identified as the “Comprehensive Retirement Plan” in previous filings.
c	This document was identified as the “Financial Institutions Thrift Plan” in previous filings.

EX-10.07

Exhibit 10.07

PENTEGRA DEFINED CONTRIBUTION PLAN
FOR FINANCIAL INSTITUTIONS

16^th Revision, Amended and Restated, Effective January 1, 2008

108 Corporate Park Drive
White Plains, N.Y. 10604

A tax-exempt, trusteed savings plan
established July 1, 1970
in order that eligible employees
of financial institutions and other organizations serving them
may save and invest on a regular, long term basis.

TABLE OF CONTENTS

	Page
PURPOSE		i
ARTICLE I DEFINITIONS		1
ARTICLE II PARTICIPATION AND MEMBERSHIP		8
Section 1. Employer Participation		8
Section 2. Employee Membership		8
ARTICLE III CONTRIBUTIONS		12
Section 1. Contributions by Members.		12
Section 2. Regular Contributions by Employer		12
Section 3. Supplemental Contributions by Employer		14
Section 4. 401(k) Features		15
Section 5. Remittance of Contributions		22
Section 6. Transfer of Funds and Rollover Contributions		22
Section 7. Limitations on Member Contributions and Matching Employer Contributions		27
Section 8. Profit Sharing Feature		30
Section 9. Catch-up Contributions		33
Section 10. Automatic Enrollment		33
ARTICLE IV INVESTMENT OF CONTRIBUTIONS		37
Section 1. General		37
Section 2. Qualified Default Investment Alternative		38
ARTICLE V MEMBERS’ ACCOUNTS, UNITS AND VALUATION		40
ARTICLE VI VESTING OF UNITS		41
Section 1. Vesting		41
Section 2. Forfeitures		44
ARTICLE VII WITHDRAWAL PAYMENTS		46
Section 1. General		46
Section 2. Account Withdrawal While Employed		47
Section 3. Account Withdrawal Upon Termination of Employment or Employer Participation		47
Section 4. Account Withdrawal Upon Member’s Disability		52
Section 5. Member’s Death		53
Section 6. Minimum Distribution Requirements		54

- i - 

	Page
ARTICLE VIII LOAN PROGRAM		60
Section 1. General		60
Section 2. Loan Application		60
Section 3. Permitted Loan Amount		61
Section 4. Source of Funds for Loan		61
Section 5. Conditions of Loan		61
Section 6. Crediting of Repayment		62
Section 7. Cessation of Payments on Loan		63
Section 8. Loans to Former Members and Beneficiaries		63
ARTICLE IX ADMINISTRATION OF PLAN		64
Section 1. Board of Directors		64
Section 2. Trust Agreement		65
ARTICLE X MISCELLANEOUS PROVISIONS		67
Section 1. General Limitations		67
Section 2. Top Heavy Provisions		69
Section 3. Information and Communications		72
Section 4. Small Account Balances		72
Section 5. Amounts Payable to Incompetents, Minors or Estates		72
Section 6. Non-alienation of Amounts Payable		72
Section 7. Unclaimed Amounts Payable		73
Section 8. Leaves of Absence		73
Section 9. Return of Contributions to Employer		74
Section 10. Controlling Law		74
ARTICLE XI TERMINATION OF EMPLOYER PARTICIPATION		75
Section 1. Termination by Employer		75
Section 2. Termination by Board		75
Section 3. Termination Distribution		75
ARTICLE XII AMENDMENT OR TERMINATION OF THE PLAN AND TRUST		76
TRUSTS ESTABLISHED UNDER THE PLAN		77

- ii - 

PURPOSE

The purpose of the Pentegra Defined Contribution Plan for Financial Institutions (the “Plan” or “Pentegra DC Plan”) is to provide Members of participating Employers with a convenient way to save on a regular and long term basis and, in addition to, or in lieu of such benefit, a benefit under a Profit Sharing Feature, all as elected by the Employer, and as set forth herein and in the Trust Agreement adopted as a part of this Plan. This Plan, as hereby amended and restated, and the Trust established hereunder, are intended to qualify as a plan and trust which meet the requirements of Sections 401(a), 401(k), and 501(a), respectively, of the Internal Revenue Code of 1986, as now in effect or hereafter amended, or any other applicable provisions of law including, without limitation, the Employee Retirement Income Security Act of 1974, as amended. The Plan is applicable to Members who earn one Hour of Employment on or after the Plan’s Effective Date unless specifically provided otherwise herein or otherwise required by applicable law. If a Member has not earned an Hour of Employment on or after the Plan’s Effective Date, the Member’s benefits shall be based on the Plan’s predecessor plan document. The Effective Date of this Plan, as herein amended and restated, is generally as of January 1, 2008, unless otherwise provided herein or under applicable law.

- i - 

ARTICLE I DEFINITIONS

The following words and phrases as used in this Plan shall have the following meanings:

1.	“Account” means the Plan account established and maintained in respect of each Member pursuant to Article V, including the Member’s 401(k) Account, Roth 401(k) Account, Regular Account, Rollover Account (including Profit Sharing Rollover Amounts), Safe Harbor CODA Account, and Profit Sharing Account.
2.	“Actual Deferral Percentage Test Safe Harbor” means the method described in Section 4(J) of Article III for satisfying the actual deferral percentage test of Section 401(k) (3) of the Code.
3.	“Actual Deferral Percentage Test Safe Harbor Contributions” means Employer matching contributions and non-elective contributions described in Section 4(J) of Article III.
4.	“Basic Amounts” means, with respect to a Member, the contributions made on behalf of the Member by the Employer pursuant to Article III, Section 2(B) and earnings thereon.
5.	“Beneficiary” means the person or persons designated to receive any amount payable under the Plan upon the death of a Member. Such designation may be made or changed only by the Member on a form provided by, and filed with, the Board prior to his death. If the Member is not survived by a Spouse and if no Beneficiary is designated, or if the designated Beneficiary predeceases the Member, then any such amount payable shall be paid to such Member’s estate upon his death.
6.	“Board” means the Board of Directors provided for in Article IX, Section 1.
7.	“Break in Service” means a Plan Year during which an individual has not completed more than 500 Hours of Employment, as determined by the Board in accordance with the IRS Regulations. Solely for purposes of determining whether a Break in Service has occurred, an individual shall be credited with the Hours of Employment which such individual would have completed but for a maternity or paternity absence, as determined by the Board in accordance with this Article I, Paragraph (7), the Code and the applicable regulations issued by the DOL and the IRS; provided, however, that the total Hours of Employment so credited shall not exceed 501 and the individual timely provides the Board with such information as it may require. Hours of Employment credited for a maternity or paternity absence shall be credited entirely (i) in the Plan Year in which the absence began if such hours of Employment are necessary to prevent a Break in Service in such year, or (ii) in the following Plan Year. For purposes of this Article I, Paragraph (7), maternity or paternity absence shall mean an absence from work by reason of the individual’s pregnancy, the birth of the individual’s child or the placement of a child with the individual in connection with the adoption of the child by such individual, or for purposes of caring for a child for the period immediately following such birth or placement.
8.	“Code” means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered.

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9.	“Commencement Date” means the date on which an Employer begins to participate in the Plan.
10.	“Contribution Determination Period” means the Plan Year, fiscal year, or calendar or fiscal quarter, as elected by an Employer, upon which eligibility for and the maximum permissible amount of any contribution to the Profit Sharing Feature, as defined in Article III, Section 8, is determined. Notwithstanding the foregoing, for purposes of Article VI, Section 2(B), Contribution Determination Period means the Plan Year.
11.	“Disability” means a Member’s disability as defined in Article VII, Section 4.
12.	“DOL” means the United States Department of Labor.
13.	“Employee” means any person in the Employment of, and who receives a salary from, an Employer, and any leased employee within the meaning of Section 414(n)(2) of the Code, unless the Employer elects to exclude leased employees from participation of the Plan under Article II, Section 2(H). Notwithstanding the foregoing, if such leased employees constitute less than twenty percent (20%) of the Employer’s Non-highly compensated workforce within the meaning of Section 414(n)(5)(C)(ii) of the Code, such leased employees are not Employees if they are covered by a plan meeting the requirements of Section 414(n)(5)(B) of the Code. A director of the Employer is not eligible to participate in the Plan unless he is also an Employee.
14.	“Employer” means any entity which has adopted the Plan in accordance with Article II, Section 1.
15.	“Employment” means all periods of service with an Employer commencing with the Employee’s first day of employment or reemployment and ending on the date a break in service begins. The first day of employment or reemployment is the first day the Employee performs an hour of service. An Employee will also receive credit for any period of severance of less than 12 consecutive months. Fractional periods of a year will be expressed in terms of days.
	Hour of service shall mean each hour for which an Employee is paid or entitled to payment for the performance of duties for an Employer.
	For purposes of this Section 15, break in service is a period of severance of at least 12 consecutive months.
	Period of severance is a continuous period of time during which the Employee is not employed by an Employer. Such period begins on the date the Employee retires, quits or is discharged or, if earlier, the 12 month anniversary of the date on which the Employee was otherwise first absent from service.
	If an Employer is a member of an affiliated service group (under Section 414(m) of the Code), a controlled group of corporations (under Section 414(b) of the Code), a group of trades or businesses (under Section 414(c) of the Code), or any other entity required to be aggregated with the Employer pursuant to section 414(o) of the Code, service will be credited for any employment for any period of time for any other member of such group. Service will also be credited for any individual required under section 414(n) or section 414(o) to be considered an employee of any Employer aggregated under section 414(b), (c), or (m).

2

	In the case of an Employee who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a break in service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the Employee, (2) by reason of the birth of a child of the Employee, (3) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement.
	Solely for purposes of determining vesting, “Employment” shall include service performed by an individual for an Employer or members of an affiliated service group (under Code Section 414(m)), a controlled group of corporations (under Code Section 414(b)), or a group of trades or businesses under common control (under Code Section 414(c)), of which the Employer is a member, during the period such individual is not a member of a class of Employees otherwise eligible to participate in the Plan.
16.	“Enrollment Date” means the date on which an Employee becomes a Member as provided under Article II, Section 2.
17.	“ERISA” means the Employee Retirement Income Security Act of 1974, as now in effect or as hereafter amended.
18.	“401(k) Account” means the Plan account established and maintained in respect of a Member pursuant to Article III, Section 4 and Article V, and shall include all amounts (and earnings thereon) credited thereto on behalf of the Member pursuant to the provisions of Article III. Unless specified otherwise, the term “401(k) Account” shall also include a Member’s Roth 401(k) Account.
19.	“401(k) Elective Deferral” means a Member’s pre-tax elective Salary deferrals pursuant to Article III, Section 4 and a Member’s Roth Elective Deferrals pursuant to Article III, Section 4(D).
20.	“Highly Compensated Employee” or “Highly Compensated Member” means an Employee or a Member (i) who is a 5 percent owner at any time during the look-back year or determination year, or (ii) (a) who is employed during the determination year and who during the look-back year received compensation from the Employer in excess of $105,000 (in 2008) (as adjusted pursuant to the Code and Regulations for changes in the cost of living), and (b) if elected by the Employer was in the top-paid group of Employees for such look-back year.
	For this purpose, the determination year shall be the Plan Year. The look-back year shall be the 12-month period immediately preceding the determination year. The top-paid group shall consist of the top 20 percent of the Employees when ranked on the basis of compensation paid by the Employer.
	The determination of who is a Highly Compensated Employee will be made in accordance with Section 414(q) of the Code and the IRS Regulations thereunder.

3

21. “Hour of Employment” means

(A) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for an Employer. These hours will be credited to the Employee for the computation period in which the duties are performed; and

(B) Each hour for which an Employee is paid, or entitled to payment, by an Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Employment will be credited under this Subsection (B) for any single continuous period (whether or not such period occurs in a single computation period). Hours under this Subsection (B) will be calculated and credited pursuant to Section 2530.200b-2 of the DOL Regulations which is incorporated herein by this reference; and

(C) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Employer. The same Hours of Employment will not be credited both under Subsection (A) or (B), as the case may be, and under this Subsection (C). These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made.

Hours of Employment will be credited for employment with other members of an affiliated service group (under Code Section 414(m)), a controlled group of corporations (under Code Section 414(b)), or a group of trades or businesses under common control (under Code Section 414(c)), of which the Employer is a member, and any other entity required to be aggregated with such Employer pursuant to Code Section 414(o).

Hours of Employment will also be credited for any individual considered an Employee for purposes of the Plan under Code Section 414(n) or Section 414(o).

Solely for purposes of determining eligibility to participate, “Hour of Employment” shall include service performed by an individual for an Employer or members of an affiliated service group (under Code Section 414(m)), a controlled group of corporations (under Code Section 414(b)), or a group of trades or businesses under common control (under Code Section 414(c)), of which the Employer is a member, during the period such individual is not a member of a class of Employees otherwise eligible to participate in the Plan.

22.	“IRS” means the United States Internal Revenue Service.
23.	“Leave of Absence” means an absence authorized by an Employee’s Employer on a uniform basis, in accordance with Article X, Section 8.

4

24.	“Matching Amounts” means, with respect to a Member, the contributions made on behalf of the Member by the Employer pursuant to Article III, Section 2(A) and earnings thereon.
25.	“Member” means an Employee enrolled in the membership of the Plan under Article II, Section 2. Notwithstanding the foregoing, Member shall include a former Member, except for purposes of Article III (other than Section 6 thereof) of the Plan.
26.	“Month” means any calendar month.
27.	“Non-highly Compensated Employee” means an Employee who is not a Highly Compensated Employee.
28.	“Normal Retirement Age” means the Member’s sixty-fifth (65th) birthday.
29.	“Plan” or “Pentegra DC Plan” means the Pentegra Defined Contribution Plan for Financial Institutions established herein and as from time to time amended.
30.	“Plan Year” means a 12 month period ending December 31.
31.	“Profit Sharing Account” means the Plan account established in respect of each Member pursuant to Article III, Section 8(B)(2) and Article V which shall be maintained separate from any other Account established in respect of such Member under the Plan. Except as otherwise indicated under the Plan, a Member’s Profit Sharing Account shall not include his Profit Sharing Rollover Amounts.
32.	“Profit Sharing Rollover Amounts” means, with respect to an Employee or Member whose Employer participates in the Plan solely under Article III, Section 8 (Profit Sharing Feature), any amounts (and earnings thereon) transferred or contributed on behalf of such Employee or Member pursuant to Article III, Section 6(C).
33.	“Qualified Default Investment Alternative” or “QDIA” means an investment alternative under Article IV, Section 2 that satisfies the requirements of Section 404(c)(5) of ERISA and U.S. Department of Labor Regulations Section 2550.404c-5(e), and any guidance issued thereunder, and which has been approved by the Board.
34.	“Regular Account” means the Plan account established and maintained in respect of a Member pursuant to Article III, Section 2(C) and Article V, and shall include all amounts (and earnings thereon) credited thereto on behalf of the Member pursuant to the provisions of Article III.
35.	“Regulations” means the applicable regulations issued under the Code, ERISA or other applicable law, by the IRS, the DOL or any other governmental authority and any proposed or temporary regulations or rules promulgated by such authorities pending the issuance of such regulations.
36.	“Rollover Account” means the Plan account established in respect of each Member pursuant to Article III, Section 6(C) and Article V which shall be maintained separate from any other Account established in respect of such Member under the Plan. For purposes of Article III, Section 4(H), Article VII, Sections 1 and 2, and Article VIII, a Member’s Rollover Account shall not include his Profit Sharing Rollover Amounts unless otherwise indicated therein.

5

37.	“Roth Elective Deferral” means an elective deferral that is: (a) designated irrevocably by the Member at the time of the cash or deferred election as a Roth contribution that is being made in lieu of all or a portion of the pre-tax elective deferrals the Member is otherwise eligible to make under the Plan; and (b) treated by the Employer as includible in the Member’s income at the time the Member would have received that amount in cash if the Member had not made a cash or deferred election.
38.	“Roth 401(k) Account” means the Plan account established and maintained in respect of a Member pursuant to Article III, Section 4(D) and Article V, and shall include all amounts (and earnings thereon) credited thereto on behalf of the Member pursuant to the provisions of Article III, Section 4(D) and including Roth Elective Deferrals made pursuant to an Employer’s automatic enrollment program under Article III, Section 10, where such automatic 401(k) Elective Deferrals are Roth Elective Deferrals.
39.	“Safe Harbor CODA Account” means the Plan account established in respect of each Member pursuant to Article III, Section 4(J) and Article V which shall be maintained separate from any other Account established in respect of such Member under the Plan.
40.	“Salary” means regular basic monthly (or other periodic) salary or wages, exclusive of special payments such as overtime, bonuses, fees, deferred compensation (other than amounts deferred pursuant to a Member’s election under Article III, Section 4), severance payments, and contributions by the Employer under this or any other plan (other than before tax contributions made on behalf of a Member under a Code Section 125 cafeteria plan or contributions made under Code Section 132(f), unless the Employer specifically elects to exclude such contributions). Commissions shall be included at the Employer’s option within such limits, if any, as may be set by the Employer and applied uniformly to all its commission Employees. In addition, Salary may also include, at the Employer’s option, special payments such as (i) overtime or (ii) overtime plus bonuses. If an Employer elects to generally include bonuses in the definition of Salary, the Employer may nevertheless elect to exclude a particular type of bonus (e.g, long term incentive compensation payments), provided such exclusion is applied uniformly to all its Employees.
	If an Employer elects to include the special payments enumerated in (i) or (ii) above in the definition of Salary or, if the Employer elects to include commissions in the definition of Salary, such Salary shall be determined based on the amounts received by the Member during the relevant determination period. Otherwise, unless an Employer specifically requests to include Salary changes received by a Member during the relevant determination period and is granted permission by the Board, a Member’s monthly Salary rate is one twelfth of his annual Salary rate as of each January 1. If commissions are included in Salary, unless an Employer specifically requests to include commissions received by a Member during the relevant determination period and is granted permission by the Board, they shall be calculated on a uniform basis based on the commissions received by the Member during the 12 month period prior to the determination period. As an alternative to the foregoing definition, at the Employer’s option, Salary may be defined to include total taxable compensation reported on the Member’s IRS Form W-2, plus deferrals, if any, pursuant to Section 401(k) of the Code, Section 125 of the Code, and Section 132(f) of the Code (unless the Employer specifically elects to exclude such Section 125 and Section 132(f) deferrals), but excluding the payment of compensation deferred from previous years. In no event, may a Member’s Salary for any Plan Year exceed for purposes of the Plan $200,000 or, effective January 1, 1994, $150,000 (adjusted for cost of living to the extent permitted by the Code and the IRS Regulations).

6

	For Plan Years beginning after December 31, 1996, the family member aggregation rules of Code Section 414(q)(6) (as in effect prior to the Small Business Job Protection Act of 1996) are eliminated.
	The annual Salary of each Member taken into account in determining allocations, shall not exceed $230,000 (in 2008) as adjusted for cost-of-living increases in accordance with section 401(a)(17)(B) of the Code.
41.	“Spouse” or “Surviving Spouse” means the individual to whom a Member or former Member was married on the date such Member withdraws his Account, or if such Member has not withdrawn his Account, the individual to whom the Member or former Member was married on the date of his death.
42.	“Supplemental Amounts” means, with respect to a Member, the contributions made on behalf of the Member by the Employer pursuant to Article III, Section 3 and earnings thereon.
43.	“Trustee” means the Trustee or Trustees provided for in Article IX, Section 2.
44.	“Trust Fund” means the Trust Fund or Funds established by the Trust Agreement or Agreements provided for in Article IX, Section 2.
45.	“Unit” means the unit of measure described in Article V of a Member’s proportionate interest in the Plan’s Investment Funds.
46.	“Valuation Date” means any business day of any month for the Trustee, except that in the event the underlying portfolios of any Investment Fund cannot be valued on such date, the Valuation Date for such Investment Fund shall be the next subsequent date on which the underlying portfolio(s) can be valued. Valuations shall be made as of the close of business on such valuation date(s).
47.	“Year of Employment” means a 12-month period of Employment.
48.	“Year of Service” means any Plan Year during which an individual completed at least 1,000 Hours of Employment, or satisfied any alternative requirement, as determined by the Board in accordance with any applicable regulations issued by the DOL and the IRS.
49.	The masculine pronoun wherever used shall include the feminine pronoun.

7

ARTICLE II PARTICIPATION AND MEMBERSHIP

Section 1. Employer Participation

Any financial institution, or other organization serving it, may apply to the Board for participation in the Plan if: (A) as of its Commencement Date and in accordance with Section 410(b) of the Code and the IRS Regulations (i) the percentage of Non-highly Compensated Employees who will benefit under the Plan is at least 70% of the percentage of Highly Compensated Employees who will benefit under the Plan (excluding such employees as are permitted to be excluded under IRS Regulations), or (ii) the average benefit percentage test (as defined in Section 410(b)(2) of the Code and the IRS Regulations) will be satisfied with respect to the Employer. The applicant shall submit the formal application and all required information, and the Board, in its discretion, shall decide upon admittance and determine the Commencement Date. The Board may, in its discretion and at such times as it may determine, require an affirmative showing by an Employer of its continued compliance with the requirements of Section 410(b) of the Code and IRS Regulations. Initial and continued participation shall be subject to the determination of the IRS that the Plan and the Trust Fund are tax qualified and tax exempt under Sections 401(a) and 501(a) of the Code, respectively. In addition, any Employee who participated in the Plan but who has been transferred to a governmental or quasi-governmental agency serving the financial industry shall, notwithstanding anything to the contrary in this Section, be permitted to continue to participate in the Plan; provided that, in such case, such Employee’s employing agency has adopted the Plan.

An Employer may, at its option, subject to the provisions of the Plan, adopt different Plan features and provisions (basis of participation) for different definable groups of employees, including for employees acquired pursuant to a merger or acquisition. The Employer will be required to demonstrate that this Section 1 and all other applicable Code and IRS Regulations continue to be satisfied following the adoption of different bases of participation for separate and definable groups of employees.

Section 2. Employee Membership

(A)

Employer contributions on behalf of any Member shall be conditioned upon the Member making contributions under Article III, Section 1, except in the case of the basic contribution feature described in Article III, Section 2; the supplemental contribution feature (Formula (2)) described in Article III, Section 3; the 401(k) Feature described in Article III, Section 4(B); the Safe Harbor CODA non-elective contribution feature described in Article III, Section 4(J); or the Profit Sharing Feature described in Article III, Section 8.

(B)

Every Employee (other than Employees who, at the election of the Employer, are excluded from participation under this Section 2) shall be eligible for membership in the Plan on the later of:

(1)

His Employer’s Commencement Date, or

(2)

The first day of the month, or, at the election of the Employer, the first day of the calendar quarter, coincident with or next following his satisfaction of one or more of the eligibility requirements described hereunder, as designated by his Employer: (i) the Employee’s first day of Employment; (ii) the completion of any number of months not to exceed 12 consecutive months or (iii) the completion of one Year of Service or two Years of Service, and/or (iv) if the Employer so elects, it may adopt a minimum age requirement from age 18 to age 21. An Employer, at its election and in a uniform and nondiscriminatory manner, may waive the eligibility requirement(s) for participation specified under this paragraph (B) for (1) all Employees, or (2) all those Employees employed on or up to 12 months after the Employer’s Commencement Date under the Plan.

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The eligibility requirement(s) designated by the Employer shall apply uniformly to all Plan Features elected by the Employer. Notwithstanding the foregoing, the Employer may elect to establish as an eligibility requirement (as a minimum service requirement, minimum age requirement, or both) for Employer matching contributions, Employer basic contributions, Employer supplemental contributions, Employer Safe Harbor CODA contributions, and/or Employer Profit Sharing contributions (i) the completion of any number of months not to exceed 12 consecutive months, or (ii) the completion of one 12-consecutive-month period, and/or (iii) if the Employer so elects, it may adopt a minimum age requirement from age 18 to age 21. If, pursuant to Section 410(b)(4)(B), the Employer applies Code Section 410(b) separately to the portion of the Plan (within the meaning of Code Section 414(l)) that benefits only Employees who satisfy the eligibility requirements of this Section 2 that are lower than age twenty-one (21) and completion of a Year of Service, the Plan is treated as two separate plans for purposes of Code Section 401(k). Accordingly, if the Employer elects to make a Safe Harbor CODA contribution, then such contribution shall not be made on behalf of Employees who have not attained age twenty-one (21) and completed a Year of Service. However, in such a case, Section 401(k) Elective Deferrals and the matching contribution made pursuant to Article III, Section 2(A) on behalf of those Employees must satisfy Article III, Sections 4(E), (F) and (G) and Article III, Section 7.

Subject to the requirements of the Code, where an Employee who participated as a Member under the Plan terminates employment with an Employer and thereafter is reemployed by the same (or a different) Employer, such Employee, subject to any applicable break in service rules, shall participate immediately upon returning to employment with respect to the Profit Sharing Feature and the Basic and Supplemental Employer Contribution and shall participate on the next applicable payroll date with respect to Member Contributions, Matching Employer Contributions, Safe Harbor Employer Contributions and the 401(k) Feature, as and to the extent any such contribution feature is then maintained by such Employee’s Employer and the Member has satisfied the eligibility requirements for receiving such Employer contributions. In the case of an Employer that adopts a 401(k) Feature under Article III, Section 4, the eligibility requirement(s) under such Feature, and any other Plan Feature adopted by the Employer in addition to the 401(k) Feature, shall not exceed the period described in clause (i) above, and, at the election of the Employer, attainment of an age as elected by the Employer from age 18 to age 21 as described in clause (iii) above. In the event a Member is no longer part of an eligible class of Employees and thus becomes ineligible to participate in the Plan, such Employee, subject to any applicable break in service rules, shall participate immediately upon returning to an eligible class of Employees with respect to the Profit Sharing Feature and the Basic and Supplemental Employer Contribution and shall participate on the next applicable payroll date with respect to Member Contributions, Matching Employer Contributions, Safe Harbor CODA contributions, and the 401(k) Feature, as and to the extent any such contribution feature is then maintained by such Employee’s Employer and the Member has satisfied the eligibility requirements for receiving such Employer contributions.

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(C) Where an Employer designates a one Year of Service or two Years of Service eligibility requirement, an Employee must complete at least 1,000 Hours of Employment during each 12-consecutive-month eligibility computation period (measured from his date of Employment and then from each January 1, thereafter). Where an Employer designates an eligibility waiting period of less than 12 months, an Employee must, for purposes of eligibility, complete a required number of hours (measured from his date of Employment and each anniversary thereafter) which is arrived at by multiplying the number of months of the eligibility waiting period requirement by 83 ; provided, however, if the Employee completes at least 1,000 Hours of Employment during the 12-consecutive-month eligibility computation period (measured from his date of Employment and then from each January 1 thereafter) the Employee shall be deemed to satisfy the eligibility waiting period designated by the Employer.

(D)	(1)	The Employer shall notify each Employee of his membership in the Plan and shall furnish him with an enrollment application in order that he may elect to make or receive contributions on his behalf under Article III at the earliest possible date consonant with this Article.
	(2)	All Employees whose Employment commences after the expiration date of the Employer’s waiver of the eligibility requirement(s) shall be enrolled in the Plan in accordance with the eligibility requirement(s) designated in Paragraph (B) above.
	(3)	If it is determined that an Employee who is eligible to be enrolled has, for any reason, not been so notified, such Employee shall be furnished an application by his Employer and be retroactively enrolled, in accordance with the Plan and applicable law, as of the date he first became eligible, upon receipt by the Board of the application properly executed. In accordance with the Plan and applicable law, the Employer may be required to make certain contributions, and the Employee may, at his election, make any contributions he could have made, had the Employee been enrolled on such earlier date. The Account of an Employee who is retroactively enrolled shall, upon such enrollment, consist solely of the number of Units which, as of the Valuation Date coincident with or next following such enrollment, may be credited to him pursuant to Article V based upon the amount of contributions received by the Board.

(E) An Employee shall become a Member on his Enrollment Date which shall be the date on which he becomes eligible. However, no person shall under any circumstances become a Member unless and until his enrollment application is filed with, and accepted by, the Plan. If an Employee fails to complete the enrollment form furnished to him, the Employer shall do so on his behalf.

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(F)	At the option of the Employer, an Employee who is employed on or prior to his Employer’s Commencement Date may make a one time election to waive participation in the Plan on the Employer’s Commencement Date.
(G)	Membership under all provisions of the Plan shall terminate upon the earlier of (a) a Member’s termination of Employment and payment to him of his entire vested interest, or (b) his death.
(H)	The following Employees, at the Employer’s election, may be excluded from participation in the Plan:

(i)	Employees who are included in a unit of Employees covered by a collective bargaining agreement between the Employee representatives and one or more Employers if there is evidence that retirement benefits were the subject of good faith bargaining between such Employee representatives and such Employer(s). For this purpose, the term “Employee representative” does not include any organization where more than one-half of the membership is comprised of owners, officers and executives of the Employer;
(ii)	Employees who are non-resident aliens and who receive no earned income from the Employer which constitutes income from sources within the United States;
(iii)	Employees who are employed on an hourly basis. Notwithstanding, if the Employee is employed on an hourly basis following the adoption date of the Plan by the Employer, but prior to the adoption of an hourly exclusion by his Employer, such employee shall will continue to receive benefits on the same basis as a regular salaried Member, despite classification as an hourly employee unless the employee is otherwise excluded from participation in the Plan at the election of the Employer under this Section 2(H). In the event an individual who was not part of an eligible class of Employees becomes part of an eligible class, such individual will be eligible to participate in the Plan in accordance with the provisions of this Article II;
(iv)	Employees who are not regular full-time or part-time Employees (Flex Staff Employees);
(v)	Leased Employees within the meaning of Section 414(n)(2) of the Code; and
(vi)	Employees hired under a written agreement which precludes membership and provides for a specific period of employment not in excess of one year.

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ARTICLE III CONTRIBUTIONS

Section 1. Contributions by Members

A Member of an Employer may elect to make contributions under the Plan (in 1% increments) up to a maximum percentage specified by the Employer not to exceed 100% of his Salary. Each Employer shall elect whether: (A) its Members’ contributions must be based on a percentage of Salary (in 1% increments); (B) its Members’ contributions must be based on a flat dollar amount of Salary; or (C) to permit its Members to make contributions based on either a percentage or flat dollar amount of Salary. A Member may change his contribution rate or suspend his contributions at any time, but reduced or suspended contributions may not subsequently be made up.

Section 2. Regular Contributions by Employer

(A)	Matching Employer Contributions
	Under this Section, an Employer shall contribute to the Plan on behalf of each of its Members (subject to any possible suspension under Article VII) an amount equal to a percentage (as specified by the Employer) of the Member’s contributions (determined, if elected by the Employer, on the basis of the Plan Year) not in excess of a maximum of 50% (as specified by the Employer) of his Salary. Such contributions, unless otherwise elected by the Employer, shall be made on a payroll period basis. Notwithstanding, the Employer may elect to determine Employer matching contributions based upon the entire Plan Year. A Member’s Salary and any limitation on matching contributions shall be applied based upon the applicable payroll period, unless the Employer elects to determine matching contributions based upon the Plan Year. In such instance, a Member’s Salary and the applicable limits for the entire Plan Year shall be used to determine Employer matching contributions.
	The percentage chosen by the Employer shall be in accordance with the schedule of contribution formulas listed below. Such contribution formula must be uniformly applicable to all its Members on a payroll period basis (or on the basis of such other period as elected by the Employer), except where the Employer has elected to provide a separate basis of participation for different definable groups of employees under the Plan.

Formula 0	-	0% of the Member’s contributions.
Formula 25	-	25% of the Member’s contributions.
Formula 50	-	50% of the Member’s contributions.
Formula 75	-	75% of the Member’s contributions.
Formula 100	-	100% of the Member’s contributions.

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Formula Step (1)	-	(i)	50% of the Member’s contributions through the third year of Employment.
		(ii)	75% of the Member’s contributions during the fourth and fifth years of Employment.
		(iii)	100% of the Member’s contributions upon completion of 5 or more years of Employment.
Formula Step (2)	-	(i)	100% of the Member’s contributions through the third year of Employment.
		(ii)	150% of the Member’s contributions during the fourth and fifth years of Employment.
		(iii)	200% of the Member’s contributions upon completion of 5 or more years of Employment.
Formula Step (3)	-	A percentage of the Member’s contributions chosen by the Employer through the Member’s third year of Employment with an increased percentage of the Member’s contributions as elected by the Employer to apply during the fourth and fifth years of Employment and a further increased percentage of the Member’s contributions to apply upon completion of 5 or more years of Employment.
Formula 150	-	150% of the Member’s contributions.
Formula 200	-	200% of the Member’s contributions.

Notwithstanding the matching formulas provided above, an Employer may at its option, specify the percentage of the Member’s contributions which will be matched by the Employer.

(B)	Basic Employer Contributions
	An Employer may, at its option, make a basic contribution equal to a uniform percentage (as specified by the Employer) of each of its Members’ Salaries for each month or payroll period, as applicable, provided that in no event shall such percentage exceed 15%. The percentage so specified may be elected or changed by the Employer by filing a properly completed form with the Pentegra DC Plan Office. No more than one such change may be made by an Employer during any year. An employer may restrict the allocation of such basic contribution to those Members who were employed with the Employer on the last working day of the month or payroll period for which the basic contribution is made.
	At the election of the Employer, any basic contribution shall be credited to its Members’ 401(k) Accounts or Regular Accounts on a uniform basis.
(C)	Regular Accounts
	A Regular Account shall be established and maintained for each Member on whose behalf contributions are made to the Plan pursuant to Section 1 or 2 of this Article.

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Section 3. Supplemental Contributions by Employer

An Employer may, at its option, make a supplemental contribution under Formula (1) or (2) below:

Formula (1) - A uniform percentage (as specified by the Employer) of each Member’s contributions not in excess of a maximum percentage (if the Employer elects to impose such a maximum) of the Member’s Salary which were received by the Plan during the preceding Plan Year. Such supplemental contribution may be made on or before the last day of February in any year on behalf of all those Members who were in its employ on the last working day of the preceding Plan Year. For purposes of this Section, Members on a Type 1 non-military Leave of Absence (as defined under Article I, Paragraph (23) and Article X, Section 8(B)(1)), or a Type 4 military Leave of Absence (as defined under Article I, Paragraph (23) and Article X, Section 8(B)(4)), shall be deemed employed on the last working day of such preceding Plan Year.

Formula (2) - A uniform dollar amount per Member or a uniform percentage limited to a specific dollar amount, if elected by the Employer, of each Member’s Salary (i) for the preceding Plan Year or fiscal year, regardless of whether the Member was eligible to participate in the Plan during the entire Plan Year (or fiscal year), or (ii) if an Employer so elects with respect to all of its Members, for the portion of the preceding Plan Year (or fiscal year) during which the Member was eligible to participate in the Plan. Such supplemental contribution may be made within the time prescribed by law, including extensions of time, for filing of the Employer’s federal income tax return on behalf of all those Members who were in its employ on the last working day of the preceding Plan Year (or, at the Employer’s option, the Employer’s fiscal year). Notwithstanding anything herein to the contrary, Employer contributions under Article III, Sections 2(A) and 2(B) and Formula 2 of this Article III, Section 3 shall not exceed, in the aggregate, 25% of the Member’s Salary for such Plan Year. The Employer may, at its option, elect to make a contribution under this paragraph to only those Members whose Salary is less than an amount to be specified by the Employer to the extent that such Salary limit is less than the dollar amount under Section 414(q) of the Code for such year.

For purposes of this Section, Members on a Type 1 non-military Leave of Absence (as defined under Article I, Paragraph (23) and Article X, Section 8(B)(1)), or a Type 4 military Leave of Absence (as defined under Article I, Paragraph (23) and Article X, Section 8(B)(4)), shall be deemed employed on the last working day of such preceding Plan Year (or fiscal year). The percentage contributed under this Formula (2) shall be limited in accordance with the Employer’s matching formula and basic contribution rate under Section 2 of this Article such that the sum of the Employer’s Formula (2) supplemental contribution plus the Employer basic contribution and the maximum Employer matching contribution under Section 2 of this Article shall not exceed 15% of Salary for such year.

At the election of the Employer, any supplemental contribution shall be credited either to its Members’ 401(k) Accounts (but not to the Member’s Roth 401(k) Account) or Regular Accounts on a uniform and nondiscriminatory basis.

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Section 4. 401(k) Features

(A)	An Employer may, at its option, adopt either the 401(k) Feature under Paragraph (B) of this Section or one of the 401(k) Features described in Paragraph (C) of this Section. In addition, an Employer may elect, in conjunction with electing a Paragraph (B) or Paragraph (C) 401(k) Feature, a Roth Elective Deferral feature under Paragraph (D). Under any 401(k) Feature, there shall be established for each of its Members a “401(k) Account.” A Member’s 401(k) Account shall be invested pursuant to his overall directions under Article IV but maintained separately from his Regular Account (consisting of the value of contributions made under Sections 1 and 2 of this Article). Based on the Employer’s election in accordance with Article III, Section 1, a Member contributing under this 401(k) feature shall be permitted to make deferrals based upon a uniform percentage (in whole percentages), or flat dollar amount of his Salary, as his Employer shall elect, so that the Member reaches the Code Section 402(g) limit by the end of the Plan Year. Should such Member not reach the 402(g) limit by the last contribution reporting period, the Member will be permitted to make a final 401(k) Elective Deferral which will enable a Member to precisely reach the limit under 402(g) of the Code. Such final contribution may be made based on a percentage of the Member’s compensation which is not a whole percentage. Notwithstanding anything in this Article III, Section 4 to the contrary, and in accordance with IRS Regulation Section 1.401(k)- 1(a)(3)(iii), Member contributions may not be made prior to the Member’s performance of services with respect to which the Member contributions are made or, if earlier, when the compensation on which the Member contribution is based would be currently available.
(B)	Option 1 - Under the 401(k) Feature provided in this Paragraph (B), each Member may elect to defer 1% up to a maximum percentage specified by the Employer not to exceed 100% (in 1% increments) of his Salary or, subject to Article III, Section 3, a flat dollar amount of his Salary, or, if permitted by the Employer, either a percentage of his Salary or flat dollar amount, as the Member shall elect, and direct his Employer to contribute such amount to his 401(k) Account. Such deferral to the 401(k) Account shall reduce the Member’s contribution under Section 1 of this Article.
	The Employer shall contribute to each Member’s 401(k) Account an amount equal to 2% of his Salary not in excess of $3,750, subject to Article X, Section 1 of the Plan, unless the Member has deferred amounts of his Salary pursuant to the preceding paragraph, in which case the Employer’s 2% contribution will be allocated to the Member’s Regular Account. The amount which the Employer would otherwise be required to contribute with respect to each Member under Section 2 of this Article shall be reduced, but not below zero, by the amount which it contributes with respect to the Member under this Paragraph (B). Notwithstanding anything in this Paragraph to the contrary, should a Member’s deferrals to the 401(k) Account reach the maximum specified under the provisions of Paragraph (I) below in any Plan Year, the Employer’s 2% contribution will be allocated to the Member’s Regular Account for the remainder of such Plan Year.

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The Employer, at its option, may adopt either of the two additional 401(k) Features described below:

(C)	Option 2 - Under this Feature, each Member may elect to make deferrals to his 401(k) Account and/or contributions to his Regular Account in an amount of 1% of, or subject to Article III, Section 1, a flat amount of, Salary, or, if permitted by the Employer, either a percentage of his Salary or flat dollar amount, up to a maximum percentage specified by the Employer not to exceed 100% (in 1% increments) of his Salary, except that amounts deferred to the 401(k) Account shall reduce the Member’s contribution under Section 1 of this Article. Amounts contributed under this Option 2 may be allocated between the 401(k) Account and/or the Regular Account based on multiples of 1%. Notwithstanding anything herein to the contrary, a Member making a Roth 401(k) Elective Deferral may only make such deferral to his 401(k) Account. If so adopted, Employer contributions under the Plan, which shall be made on behalf of each Member in an amount equal to a percentage of the Member’s 401(k) Elective Deferrals to his 401(k) Account and contributions to his Regular Account as specified by the Employer under Section 2 of Article III of his Salary, shall first be allocated to a Member’s 401(k) Account until total Member deferrals and Employer contributions allocated to the Member’s 401(k) Account equal a percentage specified by the Employer. Thereafter, the Employer contributions, with respect to both Member 401(k) Elective Deferrals and Regular contributions, shall be contributed to the Member’s Regular Account in an amount pursuant to the percentage elected in the preceding sentence. Notwithstanding the Employer election made under this Option 2, if the Member has deferred amounts of his Salary equal to the maximum specified under the provisions of Paragraph (I) below, the Employer shall contribute the remaining Employer contributions to the Member’s Regular Account.
	Option 3 - Under this Feature each Member may make deferrals to his 401(k) Account, but not contributions to his Regular Account. The Employer shall contribute under the Plan on behalf of each Member an amount equal to a percentage, specified by the Employer under Section 2 of Article III, of the Member’s 401(k) Elective Deferrals to his 401(k) Account. The Employer’s contributions under this Feature shall be made to the Member’s Regular Account.
(D)	Roth Elective Deferrals.

(1) General Application.

(a)	This subsection will apply to contributions beginning June 1, 2006.
(b)	As of June 1, 2006, if an Employer so elects, the Plan will accept Roth Elective Deferrals made on behalf of Members. A Member’s Roth Elective Deferrals will be allocated to a separate account maintained for such deferrals as described in Paragraph (D)(2).
(c)	Unless specifically stated otherwise or as provided under applicable law, Roth Elective Deferrals will be treated as elective deferrals for all purposes under the Plan.

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(2) Separate Accounting.

(a) Contributions and withdrawals of Roth Elective Deferrals will be credited and debited, respectively, to the Roth 401(k) Account maintained for each Member.

(b)	The Plan will maintain a record of the amount of Roth Elective Deferrals in each Member’s Roth 401(k) Account.
(c)	Gains, losses and other credits or charges must be separately allocated on a reasonable and consistent basis to each Member’s Roth 401(k) Account and the Member’s other Accounts under the Plan.
(d)	No contributions other than Roth Elective Deferrals and properly attributable earnings will be credited to Member’s Roth 401(k) Account.

(E) The actual deferral percentages for Highly Compensated Employees shall, in accordance with the Code and IRS Regulations, satisfy either (1) or (2) as follows:

(1)	Prior Year Testing:
	Notwithstanding any other provision of this Section 4, the actual deferral percentage for a Plan Year for Highly Compensated Employees for such Plan Year and the prior year’s actual deferral percentage for Members who were Non-highly Compensated Employees for the prior Plan Year must satisfy one of the following tests: (a) the actual deferral percentage for a Plan Year of those Employees who are Highly Compensated Employees for the Plan Year shall not exceed the prior year’s actual deferral percentage of those Members who are Non-highly Compensated Employees for the prior Plan Year multiplied by 1.25; or (b) the actual deferral percentage for a Plan Year for Members who are Highly Compensated Employees for the Plan Year shall not exceed the prior year’s actual deferral percentage for Members who were Non-highly Compensated Employees for the prior Plan Year multiplied by 2.0, provided that the actual deferral percentage for Members who are Highly Compensated Employees does not exceed the actual deferral percentage for Members who were Non-highly Compensated Employees in the prior Plan year by more than 2 percentage points.
	For the first Plan Year that the Plan permits any Member to make elective deferrals and this is not a successor plan, for purposes of the foregoing tests, the prior year’s Non-highly Compensated Employees’ actual deferral percentage shall be 3 percent unless the Employer has elected to use the current Plan Year’s actual deferral percentage for these Members. The Employer may elect to change from the Prior Year Testing method to the Current Year Testing method in accordance with the Code and IRS Regulations.
(2)	Current Year Testing:
	If elected by the Employer, the actual deferral percentage tests in (a) and (b) above, will be applied by comparing the current Plan Year’s actual deferral percentage for Members who are Highly Compensated Employees for such Plan Year with the current Plan Year’s actual deferral percentage for Members who are Non-highly Compensated Employees for such year. Once made, this election can only be changed and the Prior Year Testing method applied if the Plan meets the requirements for changing to Prior Year Testing set forth in applicable IRS regulations.

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For purposes of this Section 4, the “actual deferral percentage” for a Plan Year means, for a specified group of Members for a Plan Year, the average of the ratios (calculated separately for each Member in such group) of (a) the amount of deferrals and/or contributions made to the Member’s 401(k) Account for the Plan Year, to (b) the amount of the Member’s compensation (as defined in Section 414(s) of the Code) which, at the Employer’s election, shall include the compensation required to be reported under Section 6041 or 6051 of the Code (i.e., “W-2 compensation”) for the Plan Year or, alternatively, where specifically elected by the Employer, for only that part of the Plan Year during which the Member was eligible to participate in the Plan. An Employee’s actual deferral percentage shall be zero if no 401(k) Elective Deferral or contribution is made by him or on his behalf for such applicable Plan Year. If the Plan and one or more other plans which include cash or deferred arrangements are considered as one plan for purposes of Sections 401(a)(4) and 410(b) of the Code, the cash or deferred arrangements included in such plans shall be treated as one arrangement for purposes of this Section 4.

In accordance with IRS Regulations, the actual deferral percentage of a Member who is a Highly Compensated Employee and who is eligible to participate in two or more cash or deferred arrangements maintained by his Employer shall be determined by treating all such cash or deferred arrangements as a single arrangement.

(3) Notwithstanding anything herein to the contrary, and in accordance with IRS Regulation Section 1.401(k)-2(a)(6)(iv) and 1.401(m)-2(a)(6)(v), no qualified nonelective contributions shall be taken into account in determining the actual deferral percentage for a Plan Year for a Non-highly Compensated Employee under the Plan to the extent such contributions exceed for such Non-highly Compensated Employee the greater of (a) 5% of the Non-highly Compensated Employee’s compensation (as defined in Code Section 414(s)) and (b) the product of (i) two times the “Plan’s representative contribution rate” (within the meaning, as applicable, of IRS Regulation Section 1.401(k)-2(a)(6)(iv) and Section 1.401(m)-2(a)(6)(v) and (ii) the Non-highly Compensated Employee’s compensation (as defined in Code Section 414(s)).

(F) The Pentegra DC Plan Office shall determine as of the end of the Plan Year whether one of the actual deferral percentage tests specified in Paragraph (E) above is satisfied for such Plan Year. This determination shall be made after first determining the treatment of excess deferrals within the meaning of Section 402(g) of the Code under Paragraph (I) below.

(1) In the event that neither of such actual deferral percentage tests is satisfied, the Pentegra DC Plan Office shall, to the extent permissible under the Code and the IRS Regulations, refund the excess contributions for the Plan Year in the following order of priority: by (i) refunding such amounts deferred by the Member and allocated to his 401(k) Account, or Roth 401(k) Account in accordance with Paragraph F(2) below which were not matched by his Employer (and any earnings and losses allocable thereto), and (ii) refunding amounts deferred for such Plan Year by the Member and allocated to his 401(k) Account, or Roth 401(k) Account in accordance with Paragraph (F)(2) below, (and any earnings and losses allocable thereto) and, in accordance with the Code and applicable IRS Regulations, forfeiting the amounts contributed for such Plan Year by the Employer with respect to the Member’s 401(k) Elective Deferrals that are returned pursuant to this Paragraph (and any earnings and losses allocable thereto).

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(2)

In the case of a distribution of excess contributions, the Plan will distribute pre- tax elective deferrals first.

(3)

The distribution of such excess contributions shall be made to Highly Compensated Members to the extent practicable before the 15th day of the third month immediately following the Plan Year for which such excess contributions were made, but in no event later than the end of the Plan Year following such Plan Year or, in the case of the termination of the Plan in accordance with Article XII or termination of Employer participation in the Plan in accordance with Article XI, no later than the end of the twelve-month period immediately following the date of such termination. For purposes of this Section 4, “excess contributions” means, with respect to any Plan Year, the excess of the aggregate amount of 401(k) Elective Deferrals and/or contributions (and any earnings and losses allocable thereto) made to the 401(k) Accounts of Highly Compensated Members for such Plan Year, over the maximum amount of such deferrals and/or contributions that could be made to the 401(k) Accounts of such Members without violating the requirements of Paragraph (E) above, determined by reducing 401(k) deferrals and/or contributions made by or on behalf of Highly Compensated Members in order of the actual deferral percentages beginning with the Highly Compensated Employee with the largest 401(k) Elective Deferral amount for the Plan Year until such amount is reduced to be equal to the Highly Compensated Employee with the next largest 401(k) Elective Deferral amount. The procedure described in the preceding sentence shall be repeated until all excess contributions have been eliminated and, as applicable, refunded. Notwithstanding anything herein to the contrary, and in accordance with IRS Regulation Section 1.401(k)-2(b)(2)(iv), the income allocable to the excess contributions to be refunded shall be equal to the allocable gain or loss for the Plan Year in question and, as applicable, for the “gap period” following the close of the Plan Year and ending on the date that is seven days preceding the distribution date. The Plan shall determine the allocable income in accordance with IRS Regulation Section 1.401(k)-2(b)(2)(iv)(C) or (D) or, in accordance with IRS Regulation Section 1.401(k)-2(b)(2)(iv)(B), any reasonable method for computing the income allocable to the excess contribution.

(G) Notwithstanding the provisions of Paragraphs (E) and (F) above, the amount of excess contributions to be distributed pursuant to Paragraph (F) above, with respect to a Member for a Plan Year, shall be reduced by any excess deferrals distributed to such Member for such Plan Year pursuant to Paragraph (I) below.

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(H)

A withdrawal from the vested portion of a Member’s 401(k) Account may be made only upon (a) attainment of age 591/2, (b) hardship (as determined by the Board in accordance with this Paragraph (H)), (c) termination of Employment, (d) death, (e) disability or (f) termination of an Employer’s participation in the Plan provided the Employer certifies in writing in such form as is satisfactory to counsel that no “alternative defined contribution plan” within the meaning of Code Section 401(k)(10) and IRS Regulations Section 1.401(k)-1(d)(4) will be established or maintained by the Employer at the time of termination of participation in the Plan or will be maintained through the period ending twelve months after distribution of all assets from the Plan attributable to the Employer’s participation in the Plan and amounts distributed upon such event shall be in the form of a “lump sum distribution” within the meaning of Section 402(e)(4)(D) of the Code (without regard to Code Sections 402(e)(4)(D)(i)(i)-(iv)). A withdrawal is on account of hardship only if the distribution is both made on account of an immediate and heavy financial need of the Member and is necessary to satisfy such financial need, and further provided that no earnings in the Member’s 401(k) Account credited on or after January 1, 1989 and/or Employer contributions made to the Member’s 401(k) Account on or after January 1, 1989 may be distributed in satisfying such need. For the purposes of this Paragraph (H), the term “immediate and heavy financial need” shall be limited to the need of funds for (i) the payment of medical expenses described in Section 213(d) of the Code previously incurred by the Member, the Member’s Spouse, or any of the Member’s dependents (as defined in Section 152 of the Code) or necessary for those persons to obtain such care, (ii) the payment of tuition and room and board for the next twelve months of post secondary education of the Member, the Member’s Spouse, the Member’s children, or any of the Member’s dependents (as defined in Section 152 of the Code and, for taxable years beginning on or after January 1, 2005, without regard to Section 152(b)(1),(b)(2) and (d)(1)(B)), (iii) the purchase (excluding mortgage payments) of a principal residence for the Member, (iv) the prevention of eviction of the Member from his principal residence or the prevention of foreclosure on the mortgage of the Member’s principal residence; (v) payments for burial or funeral expenses for the Member’s deceased parent, Spouse, children or dependents (as defined in Section 152 of the Code, without regard to Code Section 152(d)(1)(B)); or (vi) expenses for the repair of damage to the Member’s principal residence that would qualify for the casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income). For purposes of this Paragraph (H), a distribution generally may be treated as “necessary to satisfy a financial need” if the Employer reasonably relies upon the Member’s written representation that the need cannot be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by reasonable liquidation of the Member’s assets, to the extent such liquidation would not itself cause an immediate and heavy financial need, (iii) by cessation of Member 401(k) Elective Deferrals pursuant to Article III, Section 4 of the Plan or Member Regular contributions pursuant to Article III, Section 1 of the Plan or (iv) by other distributions or nontaxable (at the time of the loan) loans from plans maintained by the Employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms. The amount of any withdrawal pursuant to this Paragraph (H) shall not exceed the amount required to meet the demonstrated financial hardship, including any amounts necessary to pay any federal income taxes and penalties reasonably anticipated to result from the distribution, as certified to the Plan by the Member.

No amounts may be withdrawn on account of hardship pursuant to this Paragraph prior to a Member’s withdrawal of the remaining vested balance of his Regular Account and Rollover Account, notwithstanding the withdrawal restrictions contained in Article VII, Section 2 or below.

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Only one in-service withdrawal under this Paragraph may be made in any Plan Year, and any amounts paid under this Article may not be returned to the Plan. The amount of a withdrawal under this Paragraph (H) must be not less than the lesser of (i) $1,000, (ii) the full value of the vested portion of the 401(k) Account (reduced by the amount of post-December 31, 1988 earnings and Employer 401(k) contributions for those Members who have not attained age 59¹/2), if such value is less than $1,000, or (iii) the amount approved as a hardship withdrawal by the Board.

(I) Notwithstanding any other provision of the Plan, no Member may defer to his 401(k) Account during any Plan Year an amount in excess of $15,500 (in 2008) or such other amount as may be provided in Section 402(g)(1) of the Code, and as adjusted for cost-of-living increases in accordance with Section 402(g)(4) of the Code. In the event that the 401(k) Elective Deferrals for a Member exceeds the limitation in the previous sentence, the amount of such excess, increased by any income and decreased by any losses attributable thereto, shall be refunded to such Member no later than the April 15 of the Plan Year following the Plan Year for which the elective deferrals were made.

For purposes of Article III, Section 4 of the Plan, no Member shall be permitted to have elective deferrals made under this Plan, or any other qualified plan maintained by the Employer during the taxable year, in excess of the dollar limitation contained in section 402(g) of the Code in effect for such taxable year, except to the extent permitted under Section 9 of this Article and section 414(v) of the Code, if applicable.

(J) Safe Harbor CODA

If the Employer has elected the Safe Harbor CODA option, the provisions of this Section shall apply for the Plan Year and any provisions relating to the actual deferral percentage test described in Section 401(k)(3) of the Code or the actual contribution percentage test described in Section 401(m)(2) of the Code do not apply. Notwithstanding anything in the Plan to the contrary, if the Employer has elected the Safe Harbor CODA option, then such option shall comply and be administered in accordance with the applicable provisions of the safe harbor requirements under the IRS Regulation Sections 1.401(k)-3 and 1.401(m)-3. To the extent that any other provision of the Plan is inconsistent with the provisions of this section, the provisions of the section govern.

(i) Actual Deferral Percentage Test Safe Harbor

(1) Unless the Employer elects to make enhanced matching contributions (within the meaning of Section 401(k)(12)(B) of the Code and IRS Regulations Section 1.401(k)-3(c)(3)), the Employer will elect to contribute monthly or on another basis for the Plan Year: (a) a safe harbor matching contribution to the Plan on behalf of each eligible Employee equal to (I) 100 percent of the amount of the Employee’s 401(k) Elective Deferrals that do not exceed 3 percent of the Employee’s Salary for the Plan Year, plus (II) 50 percent of the amount of the Employee’s 401(k) Elective Deferrals that exceed 3 percent of the Employee’s Salary but that do not exceed 5 percent of the Employee’s Salary (“Basic Matching Contributions”); or (b) a safe harbor non-elective contribution to the Plan on behalf of each eligible Employee equal to at least 3 percent of the Employee’s Salary for the Plan Year.

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(2) The Member’s benefit derived from the Actual Deferral Percentage Test Safe Harbor Contributions is nonforfeitable and may not be distributed earlier than separation from service, death, disability, an event described in Section 401(k)(10) of the Code, or the attainment of age 59¹/2. In addition, such contributions must satisfy the Actual Deferral Percentage Test Safe Harbor without regard to permitted disparity under Section 401(l) of the Code.

(3) At least 30 days, but not more that 90 days, before the beginning of the Plan Year, the Employer will provide each Eligible Employee a comprehensive notice of the Employee’s rights and obligations under the Plan, written in a manner calculated to be understood by the average Eligible Employee. If an Employee becomes eligible after the 90th day before the beginning of the Plan Year and does not receive the notice for that reason, the notice must be provided no more than 90 days before the Employee becomes eligible but not later than the date the Employee becomes eligible.

(4) In addition to any other election periods provided under the Plan, each Eligible Employee may make or modify a deferral election during the 30-day period immediately following receipt of the notice described above.

Section 5. Remittance of Contributions

The contributions of both Members and their Employer (including an administrative fee, as determined by the Board, to be paid by the Employer to defray expenses attributable to its participation in the Plan) shall be recorded by the Employer and remitted to the Board so that (i) in the case of Employer Contributions the Board shall be in receipt thereof by the 15th day of the month next following the month in respect of which such contributions are payable and (ii) in the case of Member after-tax contributions and 401(k) Elective Deferrals, the Trustee or custodian shall be in receipt thereof as soon as reasonably practicable, but in no event later than the 15th business day of the month following the month in which the Member contributions are received by the Employer or the 15th business day of the month following the month in which such amount would otherwise have been payable to the Member in cash. Such amounts shall be credited to the Member’s Account pursuant to Article V.

Section 6. Transfer of Funds and Rollover Contributions

(A) Upon such terms and conditions as the Board and the IRS shall approve, and provided that all benefits (including all optional forms of benefit) under the prior retirement plan are protected in accordance with Section 411(d)(6) of the Code, or any successor thereto, and the IRS Regulations thereunder, a transfer of funds may be made to the Plan from a prior retirement plan of an employer which was qualified under Section 401(a) of the Code so long as such funds (a) have been allocated to the individual members of such prior plan, (b) shall be allocated to the Accounts of the Members of the Plan to whom they were allocated under such prior plan, and (c) shall be applied so that each Member affected thereby would receive a benefit immediately after the transfer, if the Plan then terminated, at least equal to the benefit he would have received upon a termination of such prior plan immediately before such transfer. In addition to protecting those prior retirement plan benefits as required in the preceding sentence, the Pentegra DC Plan Office may, in its discretion, preserve any other prior retirement plan options which it determines to be economically and administratively feasible and which are not required to be protected under Section 411(d)(6) of the Code. Each Employee with respect to whom such a transfer is made shall, upon such transfer, be eligible for membership in the Plan.

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(B) If the funds so transferred are transferred from a retirement plan subject to Code Section 401(a)(11), then such funds shall be maintained in a separate account (including, as applicable, a separate account for any such transfers that represent after-tax contributions and related earnings) and any subsequent distribution of those funds, and earnings thereon, shall be subject to the following provisions:

(1) The benefit to which a married Member is entitled shall, except as otherwise provided in this Paragraph (B), be payable by purchase from an insurance company of a single premium contract providing for a Qualified Joint and Survivor Annuity. The term, “Qualified Joint and Survivor Annuity,” means a benefit providing an annuity commencing immediately for the life of the Member, ending with the payment due on the last day of the month coincident with or preceding the date of his death, and, if the Member dies leaving a Surviving Spouse, a survivor annuity for the life of such Surviving Spouse equal to one half of the annuity payable for the life of the Member under his Qualified Joint and Survivor Annuity, commencing on the last day of the month following the date of the Member’s death and ending with the payment due on the first day of the month coincident with or preceding the date of such Surviving Spouse’s death.

(2) In lieu of the form of benefit described immediately above, any benefit payable pursuant to this Paragraph (B) may be paid in one cash payment thereof, subject to the provisions of Subparagraph (5) below.

(3) If a Member dies prior to the date payment of his benefit commences (i) without leaving a Surviving Spouse, or (ii) leaving a Surviving Spouse and having made a valid election to waive the Preretirement Survivor Annuity in accordance with Subparagraph (5) below, then the remaining value of the Member’s account subject to this Paragraph (B) shall become payable to his Beneficiary in a lump sum subject to Article III, Section 8(E)(2) and Article VII, Section 3(B).

(4) A Preretirement Survivor Annuity shall be paid to the Surviving Spouse of a Member or former Member who dies before the commencement of payment of any benefit from an account subject to this Paragraph (B). The term “Preretirement Survivor Annuity” means a benefit providing for payment of 50% of the Member’s account balance as of the Valuation Date coincident with or preceding the date of his death, by the purchase of a single premium contract issued by an insurance company providing a survivor annuity to his Surviving Spouse, for the life of such Surviving Spouse. Payment of a Preretirement Survivor Annuity shall commence in the month following the month in which the Member dies or as soon as practicable thereafter; provided, however, that to the extent required by law, if the value of the amount used to purchase a Preretirement Survivor Annuity exceeds $500, then payment of the Preretirement Survivor Annuity shall not commence prior to the date the Member reached (or would have reached, had he lived) Normal Retirement Age without the written consent of the Member’s Surviving Spouse. Absence of any required consent will result in a deferral of payment of the Preretirement Survivor Annuity to the month following the month in which occurs the earlier of (i) the date the required consent is received by the Board or (ii) the date the Member would have reached Normal Retirement Age had he lived.

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(5) (i) In the case of the Qualified Joint and Survivor Annuity, the Fund shall no less than 30 days and no more than 90 days prior to the annuity starting date provide each Member a written explanation of: (i) the terms and conditions of the Qualified Joint and Survivor Annuity; (ii) the Member’s right to make and the effect of an election to waive the Qualified Joint and Survivor Annuity form of benefit; (iii) the rights of a Member’s Spouse; and (iv) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity. In the case of the Preretirement Survivor Annuity, the Fund shall provide each Member within the applicable period for such Member a written explanation of the Preretirement Survivor Annuity in such terms and in such manner as would be comparable to the explanation provided for meeting the requirements applicable to the Qualified Joint and Survivor Annuity.

The applicable period for a Member is whichever of the following periods ends last: (i) the period beginning with the first day of the Plan Year in which the Member attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Member attains age 35; (ii) a reasonable period ending after the individual becomes a Member; or (iii) a reasonable period ending after this subparagraph (i) first applies to the Member. Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from service in the case of a Member who separated from service before attaining age 35.

For purposes of applying the preceding paragraph, a reasonable period ending after the enumerated events described in (ii) and (iii) is the end of the two-year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. In the case of a Member who separates from service before the Plan Year in which age 35 is attained, notice shall be provided within the two-year period beginning one year prior to separation and ending one year after separation. If such a Member thereafter returns to employment with an Employer, the applicable period for such Member shall be redetermined.

(ii) A Member may, with the written consent of his Spouse (unless the Board makes a written determination in accordance with the Code and the Regulations that no such consent is required), elect in writing (i) to receive his benefit in a single lump sum payment within the 90-day period ending on his annuity starting date (which is the first day of the first period for which an amount is paid as an annuity or any other form); and (ii) to waive the Preretirement Survivor Annuity within the period beginning on the first day of the Plan Year in which the Member attains age 35 and ending on the date of his death. Any election made pursuant to this Subparagraph (5) may be revoked by a Member, without spousal consent at any time within which such election could have been made. Such an election or revocation must be made in accordance with procedures developed by the Board and shall be notarized.

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Any consent by a Spouse obtained under this provision (or establishment that the consent of a Spouse may not be obtained) shall be effective only with respect to such Spouse. A consent that permits designations by the Member without any requirement of further consent by such Spouse must acknowledge that the Spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit where applicable, and that the Spouse voluntarily elects to relinquish either or both of such rights. No consent obtained under this provision shall be valid unless the Member has received the notice described in subparagraph (i) above.

Notwithstanding anything to the contrary, effective for Plan Years beginning after December 31, 1996, the 90-day period in which a Member may, with the written consent of his Spouse, elect in writing to receive his benefit in a single lump sum shall not end before the 30th day after the date on which explanations of the Qualified Joint and Survivor Annuity and Preretirement Survivor Annuity are provided. A Member may elect (with any applicable spousal consent) to waive any requirement that the written explanation be provided at least 30 days before the annuity starting date (or to waive the 30-day requirement under the preceding sentence) if the distribution commences more than seven days after such explanation is provided.

(6) Notwithstanding the preceding provisions of this Paragraph (B), any benefit of $500, subject to the limits of Article X, Section 4, or less shall be paid in a lump cash sum in full settlement of the Plan’s liability therefor; provided, however, that in the case of a married Member, no such lump sum payment shall be made after benefits have commenced without the consent of the Member and his Spouse or, if the Member has died, the Member’s Surviving Spouse. Furthermore, if the value of the benefit payable to a Member or his Surviving Spouse is greater than $500 and the Member has or had not reached his Normal Retirement Age, then to the extent required by law, unless the Member (and, if the Member is married and his benefit is to be paid in a form other than a Qualified Joint and Survivor Annuity, his Spouse, or, if the Member was married, his Surviving Spouse) consents in writing to an immediate distribution of such benefit, his benefit shall continue to be held in the Trust until a date following the earlier of (i) the date of the Board’s receipt of all required consents or (ii) the date the Member reaches his earliest possible Normal Retirement Age under the Plan (or would have reached such date had he lived), and thereafter shall be paid in accordance with this Paragraph (B).

(C) Upon such terms and conditions as the Board shall approve, all Members (regardless of whether their Accounts are active) shall be permitted to make rollover contributions to the Plan of amounts held on their behalf in:

(1) a qualified plan described in section 401(a) or 403(a) of the Code, (including after-tax contributions for direct rollovers);

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(2) an annuity contract described in section 403(b) of the Code, (excluding after-tax contributions);

(3) an eligible plan under section 457(b) of the Code which is maintained by a state, political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state; and

(4) an individual retirement account or annuity described in section 408(a) or 408(b) of the Code that is eligible to be rolled over and would otherwise be includible in gross income.

An Employer may, at its option, permit its Employees to make rollover contributions prior to the date as of which the Employees become eligible for membership in the Plan. All such amounts which are accepted by the Pentegra DC Plan Office shall be certified in form and substance satisfactory to the Pentegra DC Plan Office by the Member as consisting of all or a portion of an “eligible rollover distribution” or a “rollover contribution” within the meaning of Section 402(c)(4) or Section 408(d)(3), respectively, of the Code. A Member shall have a nonforfeitable vested interest in all such amounts credited to his Rollover Account.

(5) Notwithstanding anything in this paragraph (C) to the contrary, the Plan will accept a rollover contribution to a Roth 401(k) Account if it is a direct rollover from another Roth elective deferral account under an applicable retirement plan described in Section 402A(e)(1) of the Code, and only to the extent the rollover is permitted under the rules of Section 402(c) of the Code and the IRS Regulations issued thereunder. The Plan will accept a rollover contribution to a Roth 401(k) Account which is not a direct rollover only to the extent the rollover is permitted under applicable law.

(6) Upon such terms and conditions as the Board and the IRS shall approve, a Member shall be permitted to transfer amounts deferred and/or contributed on behalf of such Member to a nonqualified Plan maintained by his Employer to the Plan. Such transfer to the Plan from the Employer’s nonqualified deferred compensation Plan shall be made by the 15th day of the third month immediately following the Plan Year for which compensation was deferred by the Member. The transferred amounts shall be treated as contributions under Article III for such Plan Year and shall be categorized as 401(k) Elective Deferrals under Article III, Section 4 or as Employer Matching Contributions under Article III, Section 2, as applicable.

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Section 7. Limitations on Member Contributions and Matching Employer Contributions

(A) Notwithstanding any other provision of this Section 7, the actual contribution percentage for a Plan Year for Highly Compensated Employees shall, in accordance with the Code and IRS Regulations, satisfy either (i) or (ii) as follows:

(1) Prior Year Testing:

(a) the actual contribution percentage for a Plan Year for Members who are Highly Compensated Employees for the Plan Year shall not exceed the prior Plan Year’s actual contribution percentage for Members who were Non-highly Compensated Employees for the prior Plan Year multiplied by 1.25; or (b) the actual contribution percentage for Members who are Highly Compensated Employees for the Plan Year shall not exceed the prior year’s actual contribution percentage for Members who were Non-highly Compensated Employees for the prior Plan Year multiplied by 2, provided that the actual contribution percentage for Members who are Highly Compensated Employees does not exceed the “actual contribution percentage” for Members who were Non-highly Compensated Employees in the prior Plan Year by more than 2 percentage points.

For the first Plan Year this Plan permits any Member to make contributions under Article III, Section 1 (after-tax), provides for Employer matching contributions or both, and this is not a successor plan, for purposes of the foregoing tests, the prior Plan Year’s Non-highly Compensated Employees’ actual contribution percentage shall be 3 percent unless the Employer has elected to use the current Plan Year’s actual contribution percentage for these Members.

(ii) Current Year Testing:

If elected by the Employer, the actual contribution percentage tests in (a) and (b), above, will be applied by comparing the current Plan Year’s actual contribution percentage for Members who are Highly Compensated Employees for such Plan Year with the current Plan Year’s actual contribution percentage for Members who are Non-highly Compensated Employees for such year. Once made, this election can only be changed and the Prior Year Testing method applied if the Plan meets the requirements for changing to Prior Year Testing set forth in applicable IRS regulations.

For purposes of this Section 7, the “actual contribution percentage” for a Plan Year means, for a specified group of Employees, the average of the ratios (calculated separately for each Employee in such group) of (a) the sum of (i) Employer matching contributions credited to his Regular Account as described in Section 2 and Section 3, Formula (1) of this Article for the Plan Year, (ii) Member contributions credited to his Regular Account for the Plan Year, and (iii) in accordance with and to the extent permitted by the IRS Regulations, 401(k) Elective Deferrals credited to his 401(k) Account, to (b) the amount of the Member’s compensation (as defined in Section 414(s) of the Code) which, at the Employer’s election, shall include the compensation required to be reported under Section 6041 or 6051 of the Code (i.e., “W-2 compensation”) for the Plan Year or, alternatively, where specifically elected by the Employer, for only that part of the Plan Year during which the Member was eligible to participate in the Plan. The 401(k) Elective Deferrals referred to in (iii) above in this Paragraph (A) may be taken into account in determining the actual contribution percentage for a Plan Year if the actual deferral percentage test is satisfied prior to and following the exclusion of the 401(k) Elective Deferrals that are used to satisfy the actual contribution percentage test. An Employee’s actual contribution percentage shall be zero if no such contributions are made by him or on his behalf for such Plan Year. The actual contribution percentage taken into account under this Paragraph (A) for any Highly Compensated Employee who is eligible to make Member contributions or receive Employer matching contributions under two or more plans described in Section 401(a) of the Code or arrangements described in Section 401(k) of the Code that are maintained by the Employer shall be determined as if all such contributions were made under a single plan.

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(iii) Notwithstanding anything in this Section 7 to the contrary, and in accordance with IRS Regulation 1.401(m)-2(a)(5), no Employer matching contributions shall be taken into account in determining the actual contribution percentage for a Plan Year for a Non-highly Compensated Employee under the Plan to the extent such contributions exceed for such Non-highly Compensated Employee the greatest of (A) 5% of the Non-highly Compensated Employee’s compensation (as defined in Code Section 414(s)); (B) the Non-highly Compensated Employee’s 401(k) Elective Deferrals for the Plan Year; and (C) the product of (1) two times the Plan’s “representative matching rate” (within the meaning of IRS Regulation Section 1.401(m)-2(a)(5)(ii)) and (2) the Non-highly Compensated Employee’s 401(k) Elective Deferrals. The foregoing limitation on Employer matching contributions shall also apply to matching contributions with respect to a Non-highly Compensated Employee’s after-tax contributions or the total of a Non-highly Compensated Employee’s 401(k) Elective Deferrals and after-tax contributions.

(B) The Pentegra DC Plan Office shall determine as of the end of the Plan Year whether one of the actual contribution percentage tests specified in Paragraph (A) above is satisfied for such Plan Year. This determination shall be made after first determining the treatment of excess deferrals within the meaning of Section 402(g) of the Code under Article III, Section 4(I) and then determining the treatment of excess contributions under Article III, Section 4(F). In the event that neither of the actual contribution percentage tests is satisfied, the Pentegra DC Plan Office shall (i) refund the excess aggregate contributions to the extent attributable to Member after-tax contributions and vesting matching contributions for which the underlying Member after-tax contributions or 401(k) Elective Deferrals are not subject to correction under the actual deferral percentage or actual contribution percentage tests for such year (and any income related thereto) and (ii) forfeit the excess aggregate contributions to the extent attributable to non-vested Employer matching contributions and vested Employer matching contributions for which the underlying Member after-tax contributions or 401(k) Elective Deferrals are subject to correction under the actual deferral percentage or actual contribution percentage tests for such year (and any income related thereto) in the manner described in Paragraph (C) below. For purposes of this Section 7, “excess aggregate contributions” means, with respect to any Plan Year and with respect to any Member, the excess of the aggregate amount of contributions (and any earnings and losses allocable thereto) made as (a) Employer matching contributions to their Regular Accounts, (b) Member contributions to their Regular Accounts and (c) 401(k) Elective Deferrals by Members to their 401(k) Accounts (to the extent permitted by the IRS Regulations and if the Pentegra DC Plan Office elects to take into account such elective deferrals when calculating the actual contribution percentage) of Highly Compensated Members for such Plan Year, over the maximum amount of such contributions that could be made as Employer matching contributions to Regular Accounts, Member contributions to Regular Accounts and 401(k) Elective Deferrals by Members to 401(k) Accounts of such Members without violating the requirements of Paragraph (A) above.

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(C) To the extent excess aggregate contributions must be refunded or forfeited for a Plan Year, such excess amounts will be refunded (or, as applicable, forfeited) first to the Highly Compensated Employees with the largest Contribution Percentage Amounts (as defined below) taken into account in calculating the actual contribution percentage test for the year the excess arose and continuing in descending order until all the excess aggregate contributions are refunded (or, as applicable, forfeited). For purposes for the preceding sentence, the “largest amount” is determined after distribution of any excess aggregate contributions. For purposes of this paragraph, “Contribution Percentage Amounts” means the sum of Member after-tax contributions, Employer matching contributions, and Employer supplemental contributions under Formula (1) made under the Plan on behalf of the Member for the Plan Year. However, such Contribution Percentage Amounts shall not include Employer matching contributions that are forfeited either to correct excess aggregate contributions or because the contributions to which they relate are excess deferrals, excess contributions or excess aggregate contributions. The refund or forfeitures of such excess aggregate contributions shall be made with respect to such Highly Compensated Members to the extent practicable before the 15th day of the third month immediately following the Plan Year for which such excess aggregate contributions were made, but in no event later than the end of the Plan Year following such Plan Year or, in the case of the termination of the Plan in accordance with Article XII or termination of Employer participation in the Plan in accordance with Article XI, no later than the end of the twelve-month period immediately following the date of such termination.

(D) Notwithstanding anything in this Article III, Section 7 to the contrary, and in accordance with IRS Regulation Section 1.401(m)-2(b)(2)(iv), the income allocable to the excess aggregate contributions shall be equal to the allocable gain or loss for the Plan Year in question and, as applicable, for the “gap period” following the close of the Plan Year and ending on the date that is seven days preceding the distribution date. The Plan shall determine the allocable income in accordance with IRS Regulation Section 1.401(m)-2(b)(2)(iv)(C) or (D) or, in accordance with IRS Regulation Section 1.401(m)-2(b)(2)(iv)(B), any reasonable method for computing the income allocable to the excess aggregate contributions.

(E) Should an Employer’s matching formula fail to satisfy the applicable nondiscrimination requirements under the Code, the Employer shall be permitted to make additional matching contributions to the Regular account of Non-highly Compensated Employees (to be determined at the Employer’s discretion) and shall be contributed by the Employer by March 15th following the Plan Year in which matching contributions is discriminatory. Such matching contributions shall be added to the matching contributions for the immediately preceding Plan Year and shall be subject to this Section 7.

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Section 8. Profit Sharing Feature

(A) An Employer may, at its option, adopt a Profit Sharing Feature as described herein, subject to any other provisions of the Plan, where applicable. This Feature may be adopted either in lieu of, or in addition to, any other Plan Feature contained in this Article III, including the contributions described in Sections 1 through 4 of this Article. The Profit Sharing Feature is designed to provide the Employer a means by which to provide discretionary contributions on behalf of Employees eligible under the Plan.

Where investments provided for the contributions permitted under Article III, Sections 1 through 4 were subject to the Members’ investment directions among the Investment Funds, and the Profit Sharing Feature elected by the Employer requires that all account balances be invested in the Stable Value Fund or the Government Money Market Fund (subject to rules adopted by the Board), the accounts provided under Article III, Sections 1 through 4 will continue to be subject to the Members’ directions, pursuant to the provisions of Article IV.

(B) (1) Subject to the provisions of Article X, Section 1, an Employer may, but shall not be required to, contribute on behalf of each of its Members, on an annual (or at the election of the Employer, quarterly) basis for any Plan Year or fiscal year of the Employer (as the Employer shall elect), a discretionary amount not to exceed the maximum amount allowable as a deduction to the Employer under the provisions of Section 404 of the Code. Such Profit Sharing contribution must be received by the Pentegra DC Plan Office within the time prescribed by law, including extensions of time, for filing of the Employer’s federal income tax return following the close of the Contribution Determination Period on behalf of all those Members who were in its employ on the last working day of such Contribution Determination Period. For purposes of making the allocations described in this Subparagraph (B)(1), a Member who is on a Type 1 non-military Leave of Absence (as defined in Article I, Paragraph (23) and Article X, Section 8(B)(1)) or a Type 4 military Leave of Absence (as defined in Article I, Paragraph (23) and Article X, Section 8(B)(4)), shall, notwithstanding the provisions of this Paragraph, be treated as if he were a Member who was an Employee in Employment on the last day of such Contribution Determination Period.

(2) A Profit Sharing Account shall be established and maintained on behalf of each Member whose Employer has adopted the Profit Sharing Feature showing each Member’s interests in the Investment Funds or other investment vehicles attributable solely to such Profit Sharing contributions. The interest in each Investment Fund shall be represented by Units. These Units will be valued in accordance with Article V. Such account shall be known as the “Profit Sharing Account,” as defined under Article I, Paragraph (31) and shall be an account segregated from all other accounts maintained under the Plan with respect to such Member.

(C) (1) Contributions shall be allocated to each Member’s Profit Sharing Account for the Contribution Determination Period at the election of the Employer, in accordance with one of the options selected below: (i) in the same ratio as each Member’s Salary during such Contribution Determination Period bears to the total of such Salary of all Members, (ii) in the same ratio as each Member’s Salary for the portion of the Contribution Determination Period during which the Member satisfied the Employer’s eligibility requirement(s) bears to the total of such Salary of all Members or (iii) an Employer may integrate the Profit Sharing Feature with Social Security in accordance with the following provision.

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(a) If the annual (or quarterly, if applicable) contribution for any Contribution Determination Period (which period shall include, for the purposes of the following maximum Social Security integration levels provided under Subparagraphs (C)(1) and (2) for those Employers who have elected quarterly allocations of contributions, the four quarters of a Plan Year or fiscal year) is allocated based on a uniform percentage, such contribution shall be allocated to each Member who is employed by the Employer on the last day of such Contribution Determination Period in a uniform percentage (i) of each Member’s Salary during the Contribution Determination Period (the “Base Contribution Percentage”), plus a uniform percentage of each Member’s Salary for the Contribution Determination Period in excess of the Social Security Taxable Wage Base for such Contribution Determination Period (the “Excess Contribution Percentage”), or (ii) of each Member’s Salary for the portion of the Contribution Determination Period during which the Member satisfied the Employer’s eligibility requirement(s), if any, up to the Base Contribution Percentage for such Contribution Determination Period, plus a uniform percentage of each Member’s Salary for the portion of the Contribution Determination Period during which the Member satisfied the Employer’s eligibility requirement(s), equal to the Excess Contribution Percentage.

(b) If the annual (or quarterly, if applicable) contribution for any Contribution Determination Period (which period shall include, for the purposes of the following maximum Social Security integration levels provided under Subparagraphs (C)(1) and (2) for those Employers who have elected quarterly allocations of contributions, the four quarters of a Plan Year or fiscal year) is allocated based on a specified dollar amount, such contribution shall be allocated to each Member who is employed by the Employer on the last day of such Contribution Determination Period as follows:

(i) If the Plan is top heavy with respect to the Employer, (A) contributions will be allocated to each Member’s Account in the ratio that each Member’s Salary bears to the total of all Members’ Salary, but not in excess of 3% of such Member’s Salary; (B) any remaining contributions after the application of (A) will be allocated to each Member’s Account in the ratio of each Member’s Salary for the Plan Year in excess of the Integration Level (as defined in the applicable Employer resolution) bears to the sum of all Members’ Salary in excess of the Integration Level, but not in excess of 3% of such Member’s excess Salary; (C) any remaining contributions after the application of clauses (A) and (B) will be allocated to each Member’s Account in the ratio that the sum of each Member’s total Salary and Salary in excess of the Integration Level bears to the sum of all Members’ total Salary and Salary in excess of the Integration Level, but not in excess of the profit sharing Maximum Disparity Rate (as defined below); and (D) any remaining contributions after the application of clauses (A), (B) and (C) will be allocated to each Member’s Account in the ratio that each Member’s Salary bears to the total of all Members’ Salary. If the Plan is not top-heavy with respect to the Employer, or if the minimum top heavy contribution or benefit is provided under another plan, clauses (A) and (B) may be disregarded.

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(ii) The profit sharing Maximum Disparity Rate is equal to the lesser of (A) or (B), reduced by the percentage of Salary allocated under Paragraph (C)(1)(b)(i)(A) above,: (A) 5.7%; or (B) the applicable percentage determined as follows: (1) if the Integration Level is more than twenty percent (20%), but less than eighty percent (80%), of the Social Security Taxable Wage Base, the applicable percentage is 4.3%; (2) if the Integration Level is eighty percent (80%) or more of the Social Security Taxable Wage Base, the applicable percentage is 5.4%.

(2) The Excess Contribution Percentage described in Subparagraph (1) above may not exceed the lesser of (i) the Base Contribution Percentage, or (ii) the greater of (1) 5.7% or (2) the percentage equal to the portion of the Code Section 3111(a) tax imposed on employers under the Federal Insurance Contributions Act (as in effect as of the beginning of the Plan Year) which is attributable to old-age insurance. For purposes of this Subparagraph (2), “compensation” as defined in Section 414(s) of the Code shall be substituted for “Salary” in determining the Excess Contribution Percentage and the Base Contribution Percentage.

(3) The Employer may not adopt the Social Security integration options provided above if any other integrated defined contribution or defined benefit plan is maintained by the Employer during any Contribution Determination Period.

(4) No contributions by Members shall be made under the Profit Sharing Feature provided under this Section 8 of Article III.

(D) (1) Contributions under the Profit Sharing Feature shall be invested in accordance with the provisions and procedures of Article IV, except as otherwise provided in this Paragraph (D). At the Employer’s election, contributions on behalf of Members may be invested (i) entirely in the Stable Value Fund or the Government Money Market Fund, subject to Board-adopted rules, (ii) pursuant to the Member’s directions among the Investment Funds and other investment vehicles or (iii) entirely in a QDIA. If the Employer does not so elect, or until an effective direction is made by Members, all contributions made pursuant to this Article III, Section 8, shall be invested in a QDIA.

(2) A Member’s investment directions, if any, with respect to contributions made under the Profit Sharing Feature, shall be submitted in writing and shall be separate from the directions submitted with respect to all other contributions under the Plan.

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(3) Where an Employer previously elected to invest contributions pursuant to Article IV and subsequently elects to have all future contributions invested entirely in accordance with Subparagraph (D)(1) above, Units previously accumulated in the Investment Funds or other investment vehicles prior to such election will continue to be subject to the Members’ investment directions in accordance with Article IV. All future Employer contribution allocations made following the Employer’s election shall be allocated in accordance with Subparagraph (D)(1).

(E) (1) Except as otherwise provided under Article VII, Section 2, no amounts may be withdrawn from a Member’s Profit Sharing Account while still employed by the Employer, other than (i) amounts required to be distributed pursuant to the terms of a Qualified Domestic Relations Order, as defined in Article X, Section 6 of the Plan; or (ii) amounts withdrawn on account of mistake of fact, within one year after the payment of the contribution, as reviewed and approved by the Pentegra DC Plan Office.

(2) Subject to the provisions of Article VII of the Plan, upon receipt by the Plan of a notice of termination of Employment, a Member may request to withdraw any or all vested amounts in his Profit Sharing Account, including any amounts held in a Rollover Account for such Member, following the filing of a notice of withdrawal with the Pentegra DC Plan Office.

Section 9. Catch-up Contributions

All employees who are eligible to make elective deferrals under this Plan and who have attained age 50 before the close of the Plan Year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code. Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Sections 402(g) and 415 of the Code. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of section 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the making of such catch-up contributions. Catch-up contributions made pursuant to this Article III, Section 9 shall, at the Employer’s election, be eligible for matching contributions in accordance with Article III, Section 2.

Section 10. Automatic Enrollment

(A) An Employer may elect that 401(k) Elective Deferrals shall automatically be made to the Plan on behalf of a Member in lieu of Salary, unless a Member affirmatively elects: (1) that no such 401(k) Elective Deferrals shall be made to the Plan, or (2) in accordance with Article III, Section 1, the percentage of Salary, or specified dollar amount that shall be contributed to the Plan as a 401(k) Elective Deferrals.

(1) An Employer so electing shall also elect: (a) whether such 401(k) Elective Deferrals shall be pre-tax elective deferrals or Roth Elective Deferrals; and (b) the percentage of the Member’s Salary, or, as applicable, flat dollar amount, which shall be contributed to the Plan.

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(2) Notwithstanding anything in Article III, Section 10(A) to the contrary, an Employer may elect to limit the automatic enrollment feature to Employees who commence Employment on or after the date the automatic enrollment feature becomes effective with respect to the Employer, or to those Employees who have not yet commenced participation in the Plan, provided that such Employer election shall not apply if the Employer has elected to meet the requirements of (C) or (D) of this Article III, Section 10.

(3) The automatic contributions under this Section 10 shall cease to apply with respect to a Member if the Member affirmatively elects: (a) to have 401(k) Elective Deferrals made in a different amount or percentage of Salary, as applicable; or (b) not to have 401(k) Elective Deferrals made on his behalf.

(4) Automatic 401(k) Elective Deferrals will be invested in a QDIA, until a Member affirmatively indicates how such amounts shall be invested.

(B) An Employer who elects that 401(k) Elective Deferrals be automatically made under Article III, Section 10(A) may elect that such elective deferrals be made pursuant to either Paragraph (C) or (D) of this Article III, Section 10.

(C) Eligible Automatic Contribution Arrangement. In accordance with Section 414(w) of the Code and the IRS Regulations issued thereunder, an “eligible automatic contribution arrangement” shall provide as follows:

(1) The default level of a Member’s automatic 401(k) Elective Deferral shall be a uniform percentage of Salary elected by the Employer.

(2) If an Employer elects, with respect to all of its Employees or a specified group of its Employees, to allow Members to receive a distribution of automatic 401(k) Elective Deferrals subject to the terms of the Plan and applicable law, a Member, on whose behalf automatic 401(k) Elective Deferrals have been made, may elect to receive a distribution equal to the amount of the automatic 401(k) Elective Deferrals (as adjusted for attributable earnings or losses), provided such election is made within 90 days of the first automatic 401(k) Elective Deferral. Such distribution may be reduced by any generally applicable fees.

(a) An Employer matching contribution contributed in connection with an automatic 401(k) Elective Deferral shall be forfeited in the event a Member elects to withdraw his 401(k) Elective Deferrals under this Paragraph (C)(2). Such forfeited matching contribution shall be subject to Article VI, Section 2.

(3) The Employer shall provide each Member to whom this Paragraph (C) applies a notice which includes the following information: the level of 401(k) Elective Deferrals which will automatically be made if a Member does not make an affirmative election, the Member’s right to elect not to have 401(k) Elective Deferrals made on his behalf (or to elect to have contributions made in a different amount or percentage of Salary) and how 401(k) Elective Deferrals under this Paragraph (C) will be invested.

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(D) Qualified Automatic Contribution Arrangement. In accordance with Section 401(k)(13) of the Code and the IRS Regulations issued thereunder, a “qualified automatic contribution arrangement” shall provide as follows:

(1) Amount of Automatic Deferral. The Employer shall elect a default 401(k) Elective Deferral level which shall be a uniform percentage of Salary. The percentage that first applies to a Member shall apply until the end of the last day of the Plan Year following the Plan Year in which the initial default 401(k) Elective Deferral was made. An Employer shall also elect default 401(k) Elective Deferral levels for the following Plan Years, and such default levels shall increase by at least 1% in each of the next 3 successive Plan Years, unless the default 401(k) Elective Deferral satisfies the minimum default levels in (D)(1)(a).

(a) The minimum percentage an Employer may elect shall be 3% of Salary. Such minimum percentage shall increase by 1% in the each of the 3 successive Plan Years discussed above to a minimum percentage of no less than 6%.

(b) Notwithstanding anything herein to the contrary, the default 401(k) Elective deferral level shall not exceed 10% of Salary.

(2) An Employer who has elected to have 401(k) Elective Deferrals automatically be made under this Paragraph (D) shall be required to make contributions on behalf of Non-highly Compensated Employees. An Employer shall elect whether such contributions shall be made in accordance with (a) or (b) below.

(a) An Employer may elect to make a nonelective contribution equal to at least 3% of each eligible Non-highly Compensated Employee’s Salary.

(b) An Employer may elect to make a matching contribution to eligible employees equal to: (i) 100% of the 401(k) Elective Deferrals made under this Paragraph (D) that do not exceed 1% of the applicable Member’s Salary; and (ii) at least 50% of the 401(k) Elective Deferrals made under this Paragraph (D) exceeding 1%, but not exceeding 6%, of the Member’s Salary.

(c) Notwithstanding anything in Article VI to the contrary, all Employer contributions under this Paragraph (D) shall be fully vested after the Member completes two Years of Employment.

(d) Employer contributions under this Paragraph (D) may not be distributed earlier than separation from service, death, disability, an event described in Section 401(k)(10) of the Code, or the attainment of age 59¹/2.

(3) The Employer shall provide each Member to whom this Paragraph (D) applies a notice which includes the following information: the Member’s right to elect not to have 401(k) Elective Deferrals made on his behalf (or to elect to have contributions made in a different amount or percentage of Salary) and how 401(k) Elective Deferrals under this Paragraph (C) will be invested. Such notice shall also include such information as specified in Article III, Section 4(J)(3).

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(E) Timing of Notices. The Employer shall provide the notices required by Paragraphs (C) and (D) in accordance with the following timeframes. An initial notice shall be provided to newly eligible Members no more than 90 days before the Member is first eligible to make 401(k) Elective Deferrals under the Plan, but no later than the date he first becomes eligible. An annual notice shall be provided to Members within a reasonable time before the beginning of each Plan Year. Such annual notice shall be provided at least 30 days, but no earlier than 90 days, in advance of each subsequent Plan Year, or such other period as may be permitted by law.

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ARTICLE IV INVESTMENT OF CONTRIBUTIONS

Section 1. General

All contributions to the Plan shall, upon receipt by the Board, be delivered to the Trustee to be held in the Trust Fund and invested and distributed by the Trustee in accordance with the provisions of the Plan and Trust Agreement. The Trust Fund shall consist of certain investment funds (each an “Investment Fund”) or other investment vehicles as described in the Trust Agreements and as designated by the Board.

To the extent made available under the Plan, an Employer may elect to allow Members to direct the investment of their Accounts, pursuant to, and in accordance with, such rules and procedures as may be prescribed by the Employer or the Board, to a self directed brokerage account. Should a self directed brokerage account be made available under the Plan, the Board may elect to provide, to all Members who have terminated employment with their Employer, the option to direct the investment of their Account to a self directed brokerage account. Where an Employer or the Board elects to provide a self directed brokerage account under the Plan, the Trustee may invest amounts held by it in a self directed brokerage account maintained by Charles Schwab & Co., Inc. (or any other such entity which provides a self directed brokerage account) on behalf of Plan Members who elect to utilize such investment vehicle.

A Trustee may in its discretion invest any amounts held by it in any Investment Fund in any commingled or group trust fund described in Section 401(a) of the Code and exempt under Section 501(a) of the Code or in any common trust fund exempt under Section 584 of the Code, provided that such trust fund satisfies the requirements of this Plan applicable to such investment fund and that the Trustees serve as Trustee of such commingled, group or common trust fund. To the extent that the Investment Funds are at any time invested in any commingled, group or common trust fund, the declaration of trust or other instrument pertaining to such fund and any amendments thereto are hereby adopted as part of this Agreement and deemed to form a part of the Plan.

Except as provided in Article III, Section 8(D)(1), each Member shall direct in writing that his contributions (including 401(k) Elective Deferrals and rollover contributions, if any) and the contributions made by his Employer (including Profit Sharing contributions) on his behalf shall be invested (a) entirely in any single Investment Fund or other investment vehicle (subject to additional restrictions imposed by the Board), or (b) in any combination of Investment Funds or investment vehicles offered under the Plan, in multiples of 1% (subject to additional restrictions imposed by the Board). Until an effective direction is made by the Member, all such contributions shall be invested in a QDIA.

Any such investment direction shall be followed until changed. Subject to the provisions of the following paragraphs of this Section, one time each business day (or, as elected by the Employer, once per month, or once per quarter) a Member may change his investment direction as to future contributions and also as to the value of his accumulated amounts in the Investment Funds or other investment vehicles. Such directed change will become effective upon the Valuation Date coinciding with or next following the date which his notice was received and processed by the Pentegra DC Plan Office subject to the same conditions with respect to the amount to be transferred under this Section which are specified in the Plan procedures for determining the amount of payments made under Article VII, Section 1(A) of the Plan.

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Except as otherwise provided below, a Member may not direct a transfer of his accumulated units in the Stable Value Fund to the Government Money Market Fund. A Member may direct a transfer from any other Investment Fund to the Government Money Market Fund provided that, except as otherwise provided below, amounts previously transferred from the Stable Value Fund, to such Investment Fund remain in such funds for a period of three months prior to being transferred to the Government Money Market Fund.

Notwithstanding anything in this Article IV to the contrary, if a Member participates in the automatic enrollment feature provided in Article III, Section 10 (other than an automatic enrollment feature provided in Section 10(C) of Article III which shall always be invested in a Qualified Default Investment Alternative), and fails to make an effective investment direction with respect to such deferral contributions, such amounts shall be invested in a Qualified Default Investment Alternative.

Section 2. Qualified Default Investment Alternative

(A) The Accounts of a Member, who fails to provide affirmative instructions with respect to the investment of such Accounts, shall be invested in accordance with this Article IV, Section 2. For purposes of this Article IV, Section 2, the term “Member” shall include a Beneficiary.

(B) The Employer shall furnish the following materials to the Member:

(1) An initial notice shall be provided to the Member: (1) at least 30 days in advance of Membership eligibility, or least 30 days in advance of the date of any first investment in the QDIA on behalf of the Member, or (2) on or before the date of becoming a Member under Article II, Section 2, if the Member has an opportunity to make a withdrawal in accordance with Article III, Section 10(C).

(2) An annual notice shall be provided to the Member within a reasonable period of time of at least 30 days, but no earlier than 90 days, in advance of each subsequent Plan Year, or such other period as may be permitted by law.

(3) The notice provided under Paragraphs (B)(1) and (2) of this Article IV, Section 2 shall include : (a) a description of the circumstances under which assets in the Member’s Account may be invested on behalf of the Member in a QDIA; (b) an explanation of the Member’s right to direct the investments of his Accounts; (c) a description of the QDIA, including a description of the investment objectives, risk and return characteristics and fees and expenses attendant to the investment alternative; (d) a description of the right of the Members on whose behalf assets are invested in a QDIA to direct the investment of those assets to any other investment alternative under the Plan without financial penalty; and (e) an explanation of where Members can obtain investment information concerning the other investment alternatives available under the Plan. In addition, a notice required for a Member’s Account in connection with Article III, Section 10 shall also contain an explanation of the circumstances under which an elective deferral will be made for a Member, the percentage of such contribution and the right to elect not to have such contribution made on his or her behalf (or to elect to defer a different percentage).

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(4) Such information as relating to a Member’s investment in a QDIA as is required under U.S. Department of Labor Regulation Section 2550.404c-(5)(c)(4).

(C) A Member may transfer the investment of his Account to another investment alternative available under the Plan with a frequency consistent with that afforded to a Member who affirmatively elected to invest his Accounts in the QDIA. Notwithstanding anything herein to the contrary, a Member whose Accounts are invested in a QDIA pursuant to this Article IV, Section 2 shall be able to transfer the investment of his Accounts to another investment alternative no less frequently than once within any three-month period.

(D) Any fees or restrictions imposed in connection with a Member’s withdrawal of his investment from a QDIA shall satisfy the requirements of U.S. Department of Labor Regulation Section 2550.404c-(5)(c)(5).

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ARTICLE V MEMBERS’ ACCOUNTS, UNITS AND VALUATION

An Account shall be established and maintained for each Member showing his interests in the Investment Funds or other investment vehicles. The interest in each Investment Fund shall be represented by Units.

As of each Valuation Date, the value of a Unit in each Investment Fund shall be determined by dividing (a) the sum of the net assets at market value determined by the Trustee by (b) the total number of outstanding Units.

The number of additional Units to be credited to a Member’s interest in each Investment Fund, as of any Valuation Date, shall be determined by dividing (a) that portion of the aggregate contributions by and on behalf of the Member which was directed to be invested in such Investment Fund and received by the Board by (b) the Unit value of such Investment Fund.

The value of a Member’s Account may be determined as of any Valuation Date by multiplying the number of Units to his credit in each Investment Fund by the value of the Investment Fund Unit on such date and aggregating the results. If, and to the extent, a Member’s Account is invested pursuant to a self-directed brokerage account, the investments held in that account shall be valued by the brokerage firm maintaining such account in accordance with such procedures as may be determined by such brokerage firm.

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ARTICLE VI VESTING OF UNITS

Section 1. Vesting

(A) All amounts credited to a Member’s Account shall immediately and fully vest in him, except amounts with respect to which the Employer has elected to adopt a vesting schedule as provided in this Article.

(B) An Employer may adopt a different vesting schedule for its Members’ (i) Profit Sharing Accounts, (ii) Matching Amounts (including amounts contributed by the Employer under Article III, Section 3, Formula 1) and (iii) Basic Amounts and Supplemental Amounts (under Article III, Section 3, Formula 2).

(C) If an Employer elects to adopt an automatic enrollment program, as provided in Article III, Section 10(D), Employer contributions shall vest as specified in such Article III, Section 10(D).

(D) In accordance with Subsection (A) above, one or more of the following schedules may be elected by the Employer:

Schedule 1: Applicable Employer contributions (and related earnings) shall immediately and fully vest. If the eligibility requirement(s) selected by the Employer under Article II, Section 2(B), require(s) that an Employee complete a period of Employment which is longer than 12 consecutive months, this vesting Schedule 1 shall be automatically applicable.

Schedule 2: Applicable Employer contributions (and related earnings) shall become nonforfeitable and fully vested in accordance with the schedule set forth below:

Completed	Vested
Years of Employment	Percentage
Less than 2		0	%
2 but less than 3		20	%
3 but less than 4		40	%
4 but less than 5		60	%
5 but less than 6		80	%
6 or more		100	%

Schedule 3: Applicable Employer Contributions (and related earnings) shall become nonforfeitable and fully vested in accordance with the schedule set forth below:

Completed	Vested
Years of Employment	Percentage
Less than 5		0	%
5 or more		100	%

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Effective with respect to Employer contributions attributable to Employer basic, supplemental or profit sharing contributions made on or after January 1, 2007, this vesting schedule shall not be available for such contributions. Employer contributions, attributable to basic, supplemental or profit-sharing contributions, with respect to an Employer that had elected this Schedule 3 vesting schedule for such contributions, made on or after January 1, 2007, shall vest in accordance with Schedule 4.

Schedule 4: Applicable Employer Contributions (and related earnings) shall become nonforfeitable and fully vested in accordance with the schedule set forth below:

Completed	Vested
Years of Employment	Percentage
Less than 3		0	%
3 or more		100	%

Schedule 5: Applicable Employer Contributions (and related earnings) shall become nonforfeitable and fully vested in accordance with the schedule set forth below:

Completed	Vested
Years of Employment	Percentage
Less than 1		0	%
1 but less than 2		25	%
2 but less than 3		50	%
3 but less than 4		75	%
4 or more		100	%

Schedule 6: Applicable Employer Contributions (and related earnings) shall become nonforfeitable and fully vested in accordance with the schedule set forth by the Employer in accordance with applicable law.

Notwithstanding the vesting schedules above, a Member’s interest in his Account shall become 100% vested in the event that (i) the Member dies while in service with the Employer and the Plan has received notification of death, (ii) the Member has been approved for Disability, pursuant to the provisions of Article VII, Section 4, and the Plan has received notification of Disability, or (iii) the Member has attained Normal Retirement Age while in service with the Employer.

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(E) Vesting Election

(1) Except as otherwise provided in the next following paragraph, in the event that the Employer adopts the Plan as a successor plan to another defined contribution plan qualified under Section 401(a) and 501(a) of the Code, or in the event that the Employer changes or amends a vesting schedule adopted under this Article, any Member who was covered under such predecessor plan or the pre-amendment vesting schedule under the Plan, and who has completed at least 3 Years of Employment with such Employer, may elect to have the nonforfeitable percentage of the portion of his Account which is subject to such vesting schedule computed under such predecessor plan’s vesting provisions, or computed without regard to such change or amendment (a “Vesting Election”). Any Vesting Election shall be made by notifying the Pentegra DC Plan Office in writing within the election period hereinafter described. The election period shall begin on the date such amendment is adopted or the date such change is effective, or the date the Plan which serves as a successor plan is adopted or effective, as the case may be, and shall end no earlier than the latest of the following dates: (i) the date which is 60 days after the day such amendment is adopted; (ii) the date which is 60 days after the day such amendment or change becomes effective; (iii) the date which is 60 days after the day the Member is given written notice of such amendment or change by the Pentegra DC Plan Office; (iv) the date which is 60 days after the day the Plan is adopted by the Employer or becomes effective; or (v) the date which is 60 days after the day the Member is given written notice that the Plan has been designated as a successor plan. Any such election once made shall be irrevocable.

(2) To the extent permitted under the Code and Regulations, an Employer described in the foregoing paragraph may elect to treat all of its Members who are eligible to make a Vesting Election as having made such Vesting Election if the Vesting Schedule resulting from such an election is more favorable than the Vesting Schedule that would apply pursuant to the Plan amendment. Furthermore, subject to the requirements of the applicable Regulations, the Employer may elect to treat all its Members, who were employed by the Employer on or before the effective date of the change or amendment, as subject to the prior vesting schedule, provided such prior schedule is more favorable.

(F) An Employer may, at its option, fully vest any Employer contributions (as elected by the Employer) and related earnings allocated to Members’ Accounts whose employment terminated pursuant to a sale of a line of business, subsidiary, or a division, except that the Employer’s election shall be ineffective if it is determined that such election is discriminatory.

(G) Effective January 1, 2002, a Member’s accrued benefit derived from Employer matching contributions shall vest as provided by the Employer, except that the vesting schedule elected by the Employer for Employer matching contributions (and related earnings) credited to the Member’s Account on or after January 1, 2002 must be nonforfeitable and fully vested in accordance with the minimum vesting schedules under Section 411(a)(12) of the Code. If the Employer has elected a vesting schedule for Employer matching contributions which does not satisfy Section 411(a)(12) of the Code as of January 1, 2002, the Member’s vested interest in his Account attributable to Employer matching contributions made on or after January 1, 2002, shall not be less than the percentage determined in accordance with the following schedule:

Completed	Vested
Years of Employment	Percentage
Less than 2		0	%
2 but less than 3		20	%
3 but less than 4		40	%
4 but less than 5		60	%
5 but less than 6		80	%
6 or more		100	%

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Notwithstanding the schedule provided above, if, as of December 31, 2001, an Employer has elected a five (5) year cliff vesting schedule, under Schedule 3 above, for Employer matching contributions, the vested interest of each Member for Employer matching contributions (and related earnings) credited to the Member’s Account on or after January 1, 2002, shall not be less than the percentage determined in accordance with the following schedule:

Completed	Vested
Years of Employment	Percentage
Less than 3		0	%
3 or more		100	%

Section 2. Forfeitures

(A) If a Member who was partially vested in his Account on the date of his termination of Employment returns to Employment, his years of Employment prior to the Break in Service shall be included in determining future vesting and, if he returns before incurring 5 consecutive one-year Breaks in Service, any amounts forfeited from his Account shall be restored to his Account; provided, however, that if such a Member has received a distribution pursuant to Article VII, Section 3 or Article III, Section 8, his non-vested account Units shall not be restored unless he repays to the Plan the full amount distributed to him before the earlier of (i) 5 years after the first date on which the Member is subsequently reemployed by the Employer, or (ii) the close of the first period of 5 consecutive one-year Breaks in Service commencing after the withdrawal. The amounts restored to the Member’s Account will be valued on the Valuation Date coincident with or next following the later of (i) the date the Employee is rehired, or (ii) the date a new enrollment application is received by the Pentegra DC Plan Office and (iii) the date the Employee repays the full amount previously distributed to him that resulted in the forfeiture. If a Member terminates Employment without any vested interest in his Account, he shall (i) immediately be deemed to have received a total distribution of his Account and (ii) thereupon forfeit his entire Account; provided that if such Member returns to Employment before the number of consecutive one-year Breaks in Service equals or exceeds the greater of (i) 5, or (ii) the aggregate number of the Member’s Years of Service prior to such Break in Service, his Account shall be restored in the same manner as if such Member had been partially vested at the time of his termination of Employment and had his non-vested Account restored upon a return to employment, and his Years of Employment prior to incurring the first Break in Service shall be included in any subsequent determination of his vesting service. Notwithstanding anything herein to the contrary, in determining whether a Member has a vested interest in his Account derived from Employer contributions for purposes of Code Sections 410(a)(5)(D) and 411(a)(6)(D), the Member’s 401(k) Elective Deferrals shall be taken into account and treated as derived from Employer contributions.

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(B) Forfeited amounts, as described in the preceding Paragraph A, shall be made available to the Employer through a transfer from the Member’s Account to the Employer Hold Account, upon: (1) if the Member had a vested interest in his Account at his termination of Employment, the earlier of (i) the date as of which the Member receives a distribution of his entire vested interest in his Account or (ii) the date upon which the Member incurs 5 consecutive one-year Breaks in Service or (2) the date of the Member’s termination of Employment, if the Member then had no vested interest in his Account. Once so transferred, such amounts shall be used at the option of the Employer to (i) reduce administrative expenses (in accordance with Article IX, Section 2) for that Contribution Determination Period, (ii) offset any contribution to be made by such Employer for that Contribution Determination Period, or (iii) be allocated to all eligible Members at the end of such Contribution Determination Period in accordance with clause (ii) of the first sentence in Article III, Section 8(C)(1). The Employer Hold Account, referenced in this Paragraph (B), shall be maintained to receive, in addition to the forfeitures described above, (i) contributions in excess of the limitations contained in Section 415 of the Code, as described in Article X, Section 1(C),(ii) amounts, if any, forfeited pursuant to Sections 4 and 7 of Article III, and (iii) Employer contributions made in advance of the date allocable to Members.

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ARTICLE VII WITHDRAWAL PAYMENTS

Section 1. General

(A) All payments in respect of a Member’s Account shall be made in cash from the Trust Fund and in accordance with the provisions of this Article or Articles XI or XII or Article III, Section 4. The amount of payment will be determined in accordance with the value of the Member’s Account on the Valuation Date coinciding with or next following the date proper notice is filed with the Board, unless following such Valuation Date a decrease in the value of the Member’s investment in any of the Investment Funds or other Account investment occurs prior to the date the Member’s Account is paid in which case that part of the payment which is based on such investments shall equal the value of such increments determined as of the date of payment which date shall occur as soon as administratively practicable on or following the Valuation Date such proper notice is filed with the Board. If Units are redeemed to make a payment of benefits, the redemption date Unit value with respect to a Member’s investment in any Investment Fund shall equal the value of a Unit in such Investment Fund, as determined in accordance with the valuation method applicable to Unit investments in such Fund on the date the Member’s investment is redeemed.

Payments provided under this Section will be made in a lump sum as soon as practicable after such Valuation Date or date of redemption, as may be applicable, subject to any applicable restriction on redemption imposed on amounts invested in any of the available Investment Funds.

(B) At the election of the Employer, the Employer can suspend matching contributions to the Plan on behalf of a Member, during his uninterrupted period of Service with such Employer, who makes a withdrawal from his Regular Account for a period of 6 months after such withdrawal, except that (i) if the withdrawal does not exceed the amount of the Member’s contributions in his Regular Account plus earnings thereon, Employer contributions on his behalf may resume 3 months after such withdrawal, and (ii) if the withdrawal does not exceed the amount, if any, of the Member’s contributions in his Regular Account made prior to January 1, 1987 without earnings, then Employer contributions on his behalf shall not be affected by such withdrawal.

(C) Any partial withdrawal from a Member’s Regular Account or Rollover Account shall be in an amount of at least $1,000 or shall be for the full amount of either (a) the Member’s contributions made prior to January 1, 1987 without earnings or (b) the Member’s contributions plus earnings thereon. Any partial withdrawal shall be deemed to come first from the Member’s contributions made prior to January 1, 1987 without earnings referred to in (ii) above, second proportionately from the Member contributions made after December 31, 1986 plus earnings thereon, and finally from the balance of his Regular Account or Rollover Account.

(D) Any amounts paid under this Article may not be returned to the Plan.

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Section 2. Account Withdrawal While Employed

A Member may voluntarily withdraw his Account (other than his 401(k) Account, Safe Harbor CODA Account, Profit Sharing Account, or Profit Sharing Rollover Amounts, if any) while in Employment by filing a notice of withdrawal with the Pentegra DC Plan Office; provided, however, that in the event his Employer has elected to provide annuity options under Article VII, Section 3(B)(2) and a Member has elected an annuity form of payment, no withdrawals may be made from a married Member’s Account without the written consent of such Member’s Spouse (which consent shall be subject to the procedures set forth in Article III, Section 6(B)). Notwithstanding, the Employer may, at its option, provide that a Member be allowed to withdraw all or a portion of his Profit Sharing Account or Profit Sharing Rollover Amounts, if any. Only one in service withdrawal under this Section may be made in any Plan Year from each of the Member’s Regular Account and Rollover Account. This restriction shall not, however, apply to a withdrawal of a Member’s contributions made prior to January 1, 1987 without earnings, or a withdrawal under this Section in conjunction with a hardship withdrawal as defined under Article III, Section 4(H).

Notwithstanding the foregoing paragraph, a Member shall not withdraw any Matching, Basic, Profit Sharing, or Supplemental contributions made by his Employer under Article III, Section 2 or Section 3 and credited to his Regular Account unless (i) the Member has completed 60 months of participation in the Plan, (ii) the withdrawal occurs at least 24 months after such Matching, Basic, Profit Sharing, or Supplemental contributions were made by the Employer, (iii) the Member’s Employer terminates its participation in the Plan or (iv) the Member dies, is disabled, retires, terminates Employment or attains age 59¹/2. For purposes of the preceding requirements, if the Member’s Account includes amounts which have been transferred from a defined contribution plan established prior to the adoption of the Plan by the Member’s Employer, the period of time during which amounts were held on behalf of such Member and the periods of participation of such Member under such defined contribution plan shall be taken into account.

Section 3. Account Withdrawal Upon Termination of Employment or Employer Participation

(A) Except as provided in Article III, Sections 4 and 8, a Member who terminates Employment with a participating Employer, or whose Employer terminates its participation in the Plan under Article XI, may withdraw his Account at any time thereafter up to attainment of age 70¹/2 or, if elected by his Employer in accordance with the provisions of Article XI, Section 3, may transfer his Account, including all outstanding loan balances, to a qualified successor plan maintained by his Employer following the termination by the Employer of its participation under the Plan; provided, however, that the Member may not transfer outstanding loan balances unless such qualified successor plan provides participant loans. For purposes of this Section 3, a qualified successor plan is an employee benefit plan established or maintained by the Employer which (i) has received a favorable determination letter from the IRS stating that such plan satisfies the then current qualification and tax exemption requirements of the Code or with respect to which an opinion of counsel to the same effect, and in such form as may be satisfactory to the Pentegra DC Plan Office, (ii) has provided the Pentegra DC Plan Office with written certification by its appropriate fiduciaries that in the event of a transfer to such successor plan of the withdrawn assets, the successor plan shall be fully liable for the payment of all transferred benefits of the Members of such Employer (who consent to the transfer), and that the Plan shall not be liable for the payment of any part of such benefits, (iii) has provided each Member’s written consent to the transfer and his release of all claims against the Plan arising out of his membership therein, (iv) meets such other requirements of the IRS, other appropriate governmental authority or of the Board, which may apply, and (v) meets such other procedures as may be established by the Board from time to time.

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Any withdrawal under this Section requires that a notice of withdrawal be filed with the Pentegra DC Plan Office. If a Member does not file such notice, the value of his Account will be paid to him as soon as practicable after his attainment of age 70¹/2, but in no event shall payment commence later than April 1 of the calendar year following the calendar year in which the Member attains age 70 1/2, unless otherwise provided by Article VII, Section 3(C) or applicable law.

(B) (1 ) In lieu of any lump sum payment of his total Account, a Member who has terminated his Employment may elect in his notice of withdrawal to be paid in installments (no less frequently than annually), provided that a Member shall not be permitted to elect an installment period in excess of his remaining life expectancy (or the joint life expectancy of the Member and his designated beneficiary) and if a Member attempts such an election, he shall be deemed to have elected the installment period with the next lowest multiple within the Member’s remaining life expectancy, subject to the provisions of Article X, Section 4. The amount of each installment will be equal to the value of the Member’s Account, multiplied by a fraction, the numerator of which is one and the denominator of which is the number of remaining installments including the one then being paid, so that at the end of the installment period so elected, the total Account will be liquidated. The value of the Units will be determined in accordance with the Unit values on the Valuation Date on or next following the Pentegra DC Plan Office’s receipt of his notice of withdrawal and on each anniversary thereafter. Payment will be made as soon as practicable after each such Valuation Date, but in no event shall payment commence later than April 1 of the calendar year following the calendar year in which the Member attains age 70¹/2 subject to Paragraph (C) below. The election of installments hereunder may not be subsequently changed by the Member, except that upon written notice to the Pentegra DC Plan Office, the Member may withdraw the balance of the Units in his Account in a lump sum at any time.

(2) Annuity Option. An Employer may, at its option, elect to provide an annuity option in addition to the lump sum payment and installment payment options described in Section 1(A) and Subsection (B)(1) above. In the event an Employer elects to provide an annuity option, the following provisions shall apply:

Unmarried Members: Any unmarried Member who has terminated his Employment may elect, in lieu of any lump sum or installment payment of his total Account(s) under Section 1(A) or Subsection (B) above, to receive a benefit payable by purchase from an insurance company of a single premium contract providing for (i) a single life annuity for the life of the Member or (ii) an annuity for the life of the Member and, if the Member dies leaving a designated Beneficiary, a 50% survivor annuity for the life of such designated Beneficiary.

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Married Members: Except as otherwise provided below, (i) any married Member who has terminated his Employment and who elected an annuity form of payment shall receive a benefit payable by purchase from an insurance company of a single premium contract providing for a Qualified Joint and Survivor Annuity, as defined under Section 6(B)(1) of Article III, unless the Member’s spouse executed a valid waiver of the Qualified Joint and Survivor Annuity and (ii) the Surviving Spouse of any married Member who dies prior to the date payment of his benefit commences and who elected to receive an annuity form of payment shall be entitled to a Preretirement Survivor Annuity, as defined under Section 6(B)(4) of Article III, unless the Member’s spouse executed a valid waiver of the Preretirement Survivor Annuity.

(C) Unless the Member elects otherwise, distribution of benefits will begin no later than the 60th day after the latest of the close of the Plan Year in which (i) the Member attains age 65; (ii) occurs the 10th anniversary of the year in which the Member commenced participation in the Plan; or (iii) the Member terminates Employment with an Employer. Notwithstanding the foregoing, the failure of a Member and Spouse to consent to a distribution while a benefit is immediately distributable shall be deemed to be an election to defer commencement of payment of any benefit.

Effective as of January 1, 1997, and subject to Section 6 of this Article, payment of a Member’s Account shall not commence later than April 1 of the calendar year following the later of (i) the calendar year in which the Member attains age 70¹/2 or (ii) the calendar year in which the Member retires; provided however, if the Member is a 5 percent owner (as described in Section 416(i) of the Code), at any time during the Plan Year ending with or within the calendar year in which the Employee attains age 70¹/2, any benefit payable to such Member shall commence no later than April 1 of the calendar year following the calendar year in which the Member attains age 70¹/2. Such benefit shall be paid, in accordance with the Regulations, over a period not extending beyond the life expectancy of such Member (or the joint life expectancy of the Member and his designated Beneficiary). For purposes of this Section, life expectancy of a Member and/or a Member’s spouse may at the election of the Member be recalculated annually in accordance with the Regulations. The election, once made, shall be irrevocable. If the Member does not make an election prior to the time that distributions are required to commence, then life expectancies shall not be recalculated. If a Member dies after distribution of his interest has begun, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Member’s death. In addition, to the extent any payments from the Member’s Account would be made after the Member’s death, such payments shall be made in accordance with Section 401(a)(9) of the Code and the IRS Regulations thereunder (including the minimum distribution incidental benefit requirements).

Except as provided in Article VII, Section 6, with respect to distributions under the Plan made on or after November 1, 2001, for calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of section 401(a)(9) of the Internal Revenue Code in accordance with the regulations under section 401(a)(9) that were proposed on January 17, 2001 (the 2001 Proposed Regulations), notwithstanding any provision of the Plan to the contrary. If the total amount of the 2001 required minimum distributions made to a participant prior to November 1, 2001 are equal to or greater than the amount of required minimum distributions determined under the 2001 Proposed Regulations, then no additional distributions are required for such participant for 2001 on or after such date. If the total amount of required minimum distributions made to a participant prior to November 1, 2001 for 2001 are less than the amount determined under the 2001 Proposed Regulations, then the amount of required minimum distributions for 2001 on or after such date will be determined so that the total amount of required minimum distributions for 2001 is the amount determined under the 2001 proposed Regulations. This amendment shall continue in effect until the last calendar year beginning before the effective date of the final regulations under section 401(a)(9) or such other date as may be published by the Internal Revenue Service.

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(D) Solely to the extent required under applicable law and regulations, and notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this Subsection (D), a Distributee may elect, at the time and in the manner prescribed by the Board, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. Notwithstanding anything herein to the contrary, a Distributee who is a non-spousal Beneficiary shall only make an Eligible Rollover Distribution to an Eligible Retirement Pan if such Direct Rollover is accomplished through a direct trustee to trustee rollover.

For purposes of this Subsection (D), the following terms shall have the following meanings:

(1) Eligible Rollover Distribution: Solely to the extent required under applicable law and regulations, an Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).

A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

(2) Eligible Retirement Plan: An Eligible Retirement Plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to a Surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity.

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An Eligible Rollover Distribution excludes hardship withdrawals as defined in Section 401(k)(2)(B)(i)(IV) of the Code which are attributable to Member’s 401(k) deferrals under Treasury Regulation Section 1.401(k)-1(d)(2)(ii).

An Eligible Retirement Plan shall also mean an annuity contract described in section 403(b) of the Code and an eligible plan under section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan.

Notwithstanding anything herein to the contrary with respect to Distributees who are non-spousal Beneficiaries, only an individual retirement plan under Sections 408(a) or (b) of the Code shall constitute an Eligible Retirement Plan.

(3) Distributee: A Distributee includes an employee or former employee and effective January 1, 2002, Distributee shall also include the Member’s Surviving Spouse. In addition, the employee’s or former employee’s Surviving Spouse and the employee’s or former employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse.

A Distributee shall also include a non-spousal Beneficiary.

(4) Direct Rollover: A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.

(5) Roth Elective Deferral Direct Rollover: Notwithstanding anything in this Paragraph (D) to the contrary, a Direct Rollover of a distribution from a Roth 401(k) Account under the Plan will only be made to another Roth elective deferral account under an applicable retirement plan described in Section 402A(e)(1) or to a Roth IRA described in Section 408A of the Code, and only to the extent the rollover is permitted under the rules of Section 402(c) of the Code.

(a) The Plan will not provide for a Direct Rollover (including an automatic rollover) for distributions from a Member’s Roth 401(k) Account if the amount of the distributions that are Eligible Rollover Distributions are reasonably expected to total less than $200 during a year. In addition, any distribution from a Member’s Roth 401(k) Account is not taken into account in determining whether distributions from a Member’s other Accounts are reasonably expected to total less than $200 during a year. However, Eligible Rollover Distributions from a Member’s Roth 401(k) Account are taken into account in determining whether the total amount of the Member’s account balances under the Plan exceeds $500 for purposes of mandatory distributions from the Plan.

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(b) The provisions of the Plan that allow a Member to elect a Direct Rollover of only a portion of an Eligible Rollover Distribution, but only if the amount rolled over is at least $500, is applied by treating any amount distributed from the Member’s Roth 401(k) Account as a separate distribution from any amount distributed from the Member’s other accounts in the Plan, even if the amounts are distributed at the same time.

(E) Effective for distributions after December 31, 2001, a Member’s elective deferrals and earnings attributable to these contributions may be distributed on account of severance from employment. However, such a distribution shall be subject to the other provisions of the Plan regarding distributions, other than provisions that require a separation from service before such amounts may be distributed.

Section 4. Account Withdrawal Upon Member’s Disability

(A) A Member who is separated from Employment by reason of a disability which is expected to last in excess of 12 consecutive months and who is either (i) eligible for, or is receiving, disability insurance benefits under the Federal Social Security Act, (ii) approved for disability under the provisions of the Pentegra Defined Benefit Plan for Financial Institutions, formerly known as the Financial Institutions Retirement Fund (a defined benefit pension plan through which federally insured financial institutions and organizations serving them may cooperate in providing for the retirement of their employees), or (iii) approved for disability under the provisions of any other benefit program or policy maintained by his Employer, which policy or program is applied on a uniform and nondiscriminatory basis to all Employees of such Employer, shall be deemed to be disabled for all purposes under the Plan.

(B) The Pentegra DC Plan Office shall determine whether a Member is disabled in accordance with the terms of Paragraph (A) above; provided, however, approval of Disability is conditioned upon notice to the Pentegra DC Plan Office of such Member’s Disability by the Employer within 13 months of the Member’s separation from Employment. The notice of Disability shall include a certification that the Member meets one or more of the criteria listed in Paragraph (A) above.

(C) Upon an Employer’s filing a written notice of Disability, a Member may withdraw his total Account balance under the Plan (including his Rollover Account and/or total Profit Sharing Account balance, if any) and have such amounts paid to him in accordance with Article VII, Section 3. In lieu of such lump sum payment, the Member may elect in his notice of withdrawal to (i) defer receipt of some or all of his vested Account until April 1 of the calendar year following the calendar year in which the Member attains 70¹/2, (ii) elect installment payments, as described in Section 3(B) of this Article and Article III, Section 8(E)(2), or (iii) make periodic withdrawals not more frequently than once per year pursuant to the provisions of Article VII, Section 1; provided, however, if a disabled Member becomes reemployed subsequent to withdrawal of some or all of his Account balance, such Member may not repay to the Plan any such withdrawn amounts.

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Section 5. Member’s Death

(A) Subject to Section 3(B)(2) above, if a married Member dies, his Spouse, as Beneficiary, will receive a death benefit equal to the value of the Member’s Account determined on the Valuation Date on or next following the Board’s receipt of notice that such Member died; provided, however, that if such Member’s Spouse had consented in writing to the designation of a different Beneficiary, the Member’s Account will be paid to such designated Beneficiary. Such nonspousal designation may be revoked by the Member without spousal consent at any time prior to the Member’s death. If a Member is not married at the time of his death, his Account will be paid to his designated Beneficiary.

(B) Subject to Section 3(B)(2) above, a Member may elect that upon his death, his Beneficiary, pursuant to Paragraph (A) above, may receive, in lieu of any lump sum payment, payment in 5 annual installments (10 if the Spouse is the Beneficiary, provided that the Spouse’s remaining life expectancy is at least 10 years) whereby the value of 1/5th of such Member’s Units (or 1/10th in the case of a spousal Beneficiary, provided that the Spouse’s remaining life expectancy is at least 10 years) in each Investment Fund will be determined in accordance with the Unit values on the Valuation Date on or next following the Board’s receipt of notice of the Member’s death and on each anniversary of such Valuation Date. Payment will be made as soon as practicable after each Valuation Date until the Member’s Account is exhausted. Such election may be filed at any time with the Board prior to the Member’s death and may not be changed or revoked after such Member’s death. If such an election is not in effect at the time of the Member’s death, his Beneficiary (including any spousal Beneficiary) may elect to make withdrawals in accordance with this Article, provided that any balance remaining in the deceased Member’s Account be withdrawn (i) on or before the December 31 of the calendar year which contains the 5th anniversary, or (ii) in periodic payments over such longer life-expectancy period as shall be allowed by Section 401(a)(9) of the Code and the IRS regulations issued thereunder. Notwithstanding the foregoing provisions of this Paragraph (B), payment of a Member’s Account shall commence not later than the December 31 of the calendar year immediately following the calendar year in which the Member died or, in the event such Beneficiary is the Member’s Surviving Spouse, on or before the December 31 of the calendar year in which such Member would have attained age 70¹/2, if later (or, in either case, on any later date prescribed by the IRS Regulations). If, upon the Spouse’s or Beneficiary’s death, there is still a balance in the Account, the value of the remaining Units will be paid in a lump sum to such Spouse’s or Beneficiary’s estate. Notwithstanding anything in this Subsection (B) to the contrary, if a Member dies after distribution of his or her interest has begun, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Member’s death. In addition, to the extent any payments from a Member’s Account would be made after a Member’s death, such payments shall be made in accordance with Section 401(a)(9) of the Code and the IRS Regulations thereunder (including the minimum distribution incidental benefit requirements).

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Section 6. Minimum Distribution Requirements

(A) General Rules.

(1) Effective Date. The provisions of this Section 6 will apply for purposes of determining required minimum distributions commencing as of November 1, 2002 and thereafter.

(2) Precedence. The requirements of this Section 6 will take precedence over any inconsistent provisions of the Plan.

(3) Requirements of Treasury Regulations Incorporated. All distributions required under this Plan will be determined in accordance with Treasury Regulations under Section 401(a)(9) of the Code, and the minimum distribution incidental death benefit requirement of Section 401(a)(9)(G) of the Code.

(4) Limits on Distributions Periods. As of the fist distribution calendar year, distributions to a Member, if not made in a single sum, may only be made over the following periods:

(a) the life of the Member,

(b) the joint lives of the Member and a designated Beneficiary,

(c) a period certain not extending beyond the life expectancy of the Member, or

(d) a period certain not extending beyond the joint life and last survivor expectancy of the Member and a designated Beneficiary.

(B) Time and Manner of Distribution.

(1) Required Beginning Date. The Member’s entire interest will be distributed, or begin to be distributed, to the member no later than the Member’s Required Beginning Date (as defined below).

(2) Death of Participant Before Distributions Begin. If the Member dies before distributions begin, the Member’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(a) If the Member’s Surviving Spouse is the Member’s sole designated Beneficiary, then, except as provided in the adoption agreement, distributions to the Surviving Spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Member died, or by December 31 of the calendar year in which the member would have attained age 70 1/2, if later.

(b) If the Member’s Surviving Spouse is not the Member’s sole designated Beneficiary, then, except as provided in the adoption agreement, distributions to the designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Member died.

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(c) If there is no designated Beneficiary as of September 30 of the year following the year of the member’s death, the Member’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Member’s death.

(d) If the Member’s Surviving Spouse is the Member’s sole designated Beneficiary and the surviving spouse dies after the Member but before distributions to the Surviving Spouse begin, this Section 6(B)(2), other than Section 6(B)(2)(a), will apply as if the Surviving Spouse were the Member.

For purposes of this Section 6(B)(2) and Section 6(D), unless Section 6(B)(2)(d) applies, distributions are considered to begin on the Member’s Required Beginning Date. If Section 6(B)(2)(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 6(B)(2)(a). If distributions under an annuity purchased from an insurance company irrevocably commence to the Member before the member’s Required Beginning Date (or to the Member’s Surviving Spouse before the date distributions are required to begin to the surviving spouse under Section 6(B)(2)(a)), the date distributions are considered to begin is the date distributions actually commence.

(3) Forms of Distribution. Unless the Member’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Beginning Date, as of the first distribution calendar year distributions will be made in accordance with Sections 6.3 and 6.4 of this Article. If the Member’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury Regulations.

(C) Required Minimum Distributions During Participant’s Lifetime.

(1) Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the Member’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(a) the quotient obtained by dividing the Member’s account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9, Q&A-2, of the Treasury Regulations, using the Member’s age as of the Member’s birthday in the distribution calendar year; or

(b) if the Member’s sole designated Beneficiary for the distribution calendar year is the Member’s Spouse, the quotient obtained by dividing the Member’s account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9, Q&A-3 of the Treasury Regulations, using the Member’s and Spouse’s attained ages as of the Member’s and Spouse’s birthdays in the distribution calendar year.

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(2) Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this section 6(C) of Article VII beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Member’s date of death.

(D) Required Minimum Distributions After Member’s Death.

(1) Death On or After Date Distributions Begin.

(a) Member Survived by Designated Beneficiary. If the Member dies on or after the date distributions begin and there is a designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Member’s death is the quotient obtained by dividing the Member’s account balance by the longer of the remaining life expectancy of the Member or the remaining life expectancy of the Member’s designated Beneficiary, determined as follows:

(i) The Member’s remaining life expectancy is calculated using the age of the Member in the year of death, reduced by one for each subsequent year.

(ii) If the Member’s Surviving Spouse is the Member’s sole designated Beneficiary, the remaining life expectancy of the Surviving Spouse is calculated for each distribution calendar year after the year of the Member’s death using the Surviving Spouse’s age as of the Spouse’s birthday in that year. For distribution calendar years after the year of the Surviving Spouse’s death, the remaining life expectancy of the Surviving Spouse is calculated using the age of the Surviving Spouse as of the Spouse’s birthday in the calendar year of the Spouse’s death, reduced by one for each subsequent calendar year.

(iii) If the Member’s Surviving Spouse is not the Member’s sole designated Beneficiary, the designated Beneficiary’s remaining life expectancy is calculated using the age of the Beneficiary in the year following the year of the Member’s death, reduced by one for each subsequent year.

(b) No Designated Beneficiary. If the Member dies on or after the date distributions begin and there is no designated Beneficiary as of September 30 of the year after the year of the Member’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Member’s death is the quotient obtained by dividing the Member’s account balance by the Member’s remaining life expectancy calculated using the age of the Member in the year of death, reduced by one for each subsequent year.

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(2) Death Before Date Distributions Begin.

(a) Participant Survived by Designated Beneficiary. Except as provided in the adoption agreement, if the Member dies before the date distributions begin and there is a designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Member’s death is the quotient obtained by dividing the Member’s account balance by the remaining life expectancy of the Member’s designated Beneficiary, determined as provided in section 6(D)(1) of Article VII.

(b) No Designated Beneficiary. If the Member dies before the date distributions begin and there is no designated Beneficiary as of September 30 of the year following the year of the Member’s death, distribution of the Member’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Member’s death.

(c) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Member dies before the date distributions begin, the Member’s surviving spouse is the Member’s sole designated Beneficiary, and the Surviving Spouse dies before distributions are required to begin to the Surviving Spouse under section 6(B)(2)(a) of Article VII, this section 6(D)(2) of Article VII will apply as if the Surviving Spouse were the Member.

(E) Definitions.

(1) Designated Beneficiary. The individual who is designated by the Member (or the Member’s Surviving Spouse) as the Beneficiary of the Member’s interest under the Plan and who is the designated Beneficiary under Section 401(a)(9) of Code and Section 1.401(a)(9)-4 of the Treasury Regulations.

(2) Distribution Calendar Year. A calendar year for which a minimum distribution is required. For distributions beginning before the Member’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Member’s Required Beginning Date. For distributions beginning after the Member’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under section 6(B)(2) of Article VII. The required minimum distribution for the Member’s first distribution calendar year will be made on or before the Member’s Required Beginning Date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Member’s Required Beginning Date occurs, will be made on or before December 31 of that distribution calendar year.

(3) Life Expectancy. Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9, Q&A-1 of the Treasury Regulations.

(4) Member’s Account Balance. The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

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(5) Required Beginning Date. The required beginning date of a Member is April 1 of the calendar year following the later of the calendar year in which the Member attains age 70¹/2 or the calendar year in which the participant retires, except that the benefit distributions to a 5% owner must commence by April 1 of the calendar year following the calendar year in which the Member attains age 70¹/2.

(6) 5% owner. A Member is treated as a 5% owner for purposes of this Section 5 if such Member is a 5% owner as defined in Section 416 of the Code at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 ¹/2. Once distributions have begun to a 5% owner under this Section 5 they must continue to be distributed, even if the Member ceases to be a 5% owner in a subsequent year.

(F) TEFRA Section 242(b)(2) Elections.

(1) Notwithstanding the other requirements of this Section 6 of Article VII, distribution on behalf of any Employee, including a 5% owner who has made a designation under section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (a “section 242(b)(2) election”) may be made in accordance with all of the following requirements (regardless of when such distribution commences):

(a) The distribution by the Plan is one which would not have disqualified such Plan under section 401(a)(9) of the Code as in effect prior to amendment by the Deficit Reduction Act of 1984.

(b) The distribution is in accordance with a method of distribution designated by the Member whose interest in the Plan is being distributed or, if the Member is deceased, by a Beneficiary of such Member.

(c) Such designation was in writing, was signed by the Member or the Beneficiary, and was made before January 1, 1984.

(d) The Member had accrued a benefit under the Plan as of December 31, 1983.

(e) The method of distribution designated by the Member or the Beneficiary specifies the time at which distributions will commence, the period over which distributions will be made, and in the case of any distribution upon the Member’s death, the Beneficiaries of the Member listed in order of priority.

(2) A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Member.

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(3) For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Member, or the Beneficiary, to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in Sections 6(F)(1)(a) and 6(F)(1)(e) of Article VII.

(4) If a designation is revoked, any subsequent distribution must satisfy the requirements of Section 401(a)(9) of the Code and the Treasury Regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Plan must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Section 401(a)(9) of the Code and the Treasury Regulations thereunder, but for the section 242(b)(2) election. For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life).

(5) In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Treasury Regulations Section 1.401(a)(9)-8, Q&A-14 and Q&A-15, shall apply.

(G) Transition Rules.

(1) Required minimum distributions before November 1, 2002 were made pursuant to Article VII, Sections 3(C) and 6(G)(2) through 6(G)(3) below, as applicable.

(2) 2000 and Before. Required minimum distributions for calendar years after 1984 and before 2001 were made in accordance with Section 401(a)(9) and the proposed Treasury Regulations thereunder published in the Federal Register on July 27, 1987 (the “1987 Proposed Regulations”).

(3) 2001 and 2002 . Required minimum distributions for calendar years 2001 and 2002 (made on or after November 1, 2001 and on or before October 31, 2002) were made in accordance with Section 401(a)(9) and the Treasury Regulations thereunder that were proposed on January 17, 2001.

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ARTICLE VIII LOAN PROGRAM

Section 1. General

An Employer may, at its option, make available this loan program for any Member (and, if applicable under Section 8 of this Article, any Beneficiary), subject to applicable law. In the event amounts are transferred to the Plan from a retirement plan subject to Section 401(a)(11) of the Code, no loans may be made from a married Member’s Account without the written consent of such Member’s Spouse which shall be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be secured by any portion of such Member’s Account. The consent must be in writing, must acknowledge the effect of the loan, and must be notarized. Such consent shall thereafter be binding with respect to the consenting Spouse or any subsequent Spouse with respect to that loan. In the event an Employer elects the loan program under this Article VIII, loans shall be available from the Rollover Accounts of any Employees of the Employer who have not yet become Members.

Section 2. Loan Application

(A) Subject to the restrictions described in Paragraph (B) of this Section, a Member in Employment may borrow from his Account by filing an application with the Pentegra DC Plan Office. Such application (hereinafter referred to as a “completed application”) shall (i) specify the terms pursuant to which the loan is requested to be made and (ii) provide such information and documentation as the Board shall require, including a note, duly executed by the Member, granting a security interest of an amount not greater than 50% of his vested Account, to secure the loan. With respect to such Member, the completed application shall authorize the repayment of the loan through payroll deductions. Such loan will become effective upon the Valuation Date coinciding with or next following the date on which his completed application and other required documents were received by the Pentegra DC Plan Office, subject to the same conditions with respect to the amount to be transferred under this Section which are specified in the Plan procedures for determining the amount of payments made under Article VII, Section 1(A) of the Plan.

(B) The Board shall establish standards in accordance with the Code and ERISA which shall be uniformly applicable to all Members eligible to borrow from their interests in the Trust Fund similarly situated and shall govern the approval or disapproval of completed applications. The terms for each loan shall be set solely in accordance with such standards.

(C) In accordance with the Board’s established standards, each completed application shall be reviewed and approved or disapproved as soon as practicable after the receipt thereof, and the applying Member shall be promptly notified of such approval or disapproval. Notwithstanding the foregoing, the review of a completed application, or payment of the proceeds of an approved loan, may be deferred if the proceeds of the loan would otherwise be paid during the period commencing on December 1 and ending on the following January 31.

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(D) Subject to Paragraph (C) of this Section and Paragraph (C) of Section 6 of this Article VIII, upon approval of a completed application, payment of the loan to the Member shall be made from the Investment Fund(s) in the same proportion that the designated portion of the Member’s Account is invested at the time of the loan, and the relevant portion of the Member’s interest in such Investment Fund(s) shall be cancelled and shall be transferred in cash to the Member. The Pentegra DC Plan Office shall maintain sufficient records regarding such amounts to permit an accurate crediting of repayments of the loan.

Section 3. Permitted Loan Amount

The amount of each loan may not be less than $1,000 nor more than the maximum amount as described below. The maximum amount available for loan under the Plan (when added to the outstanding balance of all other loans from the Plan to the borrowing Member) shall not exceed the lesser of: (a) $50,000 reduced by the excess (if any) of (i) the highest outstanding loan balance attributable to the Account of the Member requesting the loan from the Plan during the one year period ending on the day preceding the date of the loan, over (ii) the outstanding balance of all other loans from the Plan to the Member on the date of the loan, or (b) 50 percent of the value of the Member’s vested Account based on the latest available information on the date on which the Pentegra DC Plan Office receives the completed application for the loan and other required documents. In determining the maximum amount that a Member may borrow, all vested assets of his Account, will be taken into consideration, provided that, where the Employer has not elected to make a Member’s entire Account available for loans or where a Member’s Account contains investments in a brokerage account which shall not be available for loans, in no event shall the amount of the loan exceed the value of such vested portion of the Member’s Account from which loans are permissible.

Section 4. Source of Funds for Loan

The amount of the loan will be deducted from the Member’s Account in the Investment Funds in accordance with Section 2(D) of this Article and the Plan procedures for determining the amount of payments made under Article VII, Section 1(A). An Employer may elect to not make loans available to Members from a Member’s Regular Account, 401(k) Account, Safe Harbor CODA Account, Profit Sharing Account (including Profit Sharing Rollover amounts), and/or Rollover Account from which the loan shall be allocable based upon the Member’s designation. Any portion of a Member’s Account which is invested in a brokerage account shall not be available for loans. The account from which the Member first chooses to borrow must be exhausted before the Member can borrow any amount from the other account. A loan will first be allocable (to the extent the Employer permits Members to take loans from one or more of the Members’ Accounts) out of the amounts which are the least accessible to the Member unless elected otherwise.

Section 5. Conditions of Loan

(A) Each loan to a Member under the Plan shall be repaid in level amounts through regular payroll deductions after the effective date of the loan, and continuing thereafter with each payroll. Notwithstanding the foregoing sentence, at the election of the Employer, a loan may be repaid in level monthly payments or on a payroll period basis, provided that the Employer applies such election uniformly to all Members. Except as otherwise required by the Code and the IRS Regulations, each loan shall have a repayment period of not less than 12 months and not in excess of 60 months except that, if the purpose of the loan is the purchase of a primary residence, not more than 180 months. After the first 3 monthly payments of the loan have been satisfied, the Member may pay the outstanding loan balance (including accrued interest from the due date).

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(B) The rate of interest for the term of the loan will be established as of the loan date, and will be the Barron’s Prime Rate (base rate) plus 1% as published on the last Saturday of the preceding month, or such other rate as may be required by applicable law and determined by reference to the prevailing interest rate charged by commercial lenders under similar circumstances. The applicable rate would then be in effect through the last business day of the month.

(C) Repayment of all loans under the Plan shall be secured by 50% of the Member’s vested interest in his Account determined as of the origination of such loan.

(D) Only one loan may be made to a Member in the Plan Year from his Account (excluding the Member’s Rollover Account), except that a second loan may be made from the Member’s Rollover Account, if any, in such Plan Year, unless the Employer does not permit loans to be made from the Member’s Rollover Account.

(E) There shall be a reasonable origination fee and/or an annual administration fee assessed to the Member’s Account for each loan made to a Member or Beneficiary.

Section 6. Crediting of Repayment

(A) Upon lending any amount to a Member, the Board shall establish and maintain a loan receivable account with respect to, and for the term of, the loan. The allocations described in this Section shall be made from the loan receivable account.

(B) Upon receipt of each monthly or payroll period installment payment and the crediting thereof to the Member’s loan receivable account, there shall be allocated to the Member’s Account in the Investment Funds in accordance with his most recent investment instruction the principal portion of the installment payment plus that portion of the interest equal to the rate determined in Section 5(B) of this Article.

(C) The unpaid balance owed by a Member on a loan under the Plan shall not reduce the amount credited to his Account. However, from the time of payment of the proceeds of the loan to the Member, such Account shall be deemed invested, to the extent of such unpaid balance, in such loan until the complete repayment thereof or distribution from such Account. Any loan repayment shall first be deemed allocable to a Member’s Regular Account contributions, then earnings on such Member’s Regular Account contributions and finally Employer contributions plus earnings. Notwithstanding the preceding sentence, any loan repayment of amounts derived from a Member’s 401(k) Account, Regular Account and Rollover Account shall be applied to such accounts on a proportionate basis that reflects the allocable portion of those Member accounts deemed invested in the loan.

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Section 7. Cessation of Payments on Loan

(A) If a Member, while employed, fails to make a monthly or payroll period installment payment when due, as specified in the completed application, subject to applicable law, he will be deemed to have received a distribution of the outstanding balance of the loan. If such default occurs after the first 3 monthly payments of the loan have been satisfied, the Member may pay the outstanding balance, including accrued interest from the due date, by the last day of the calendar quarter following the calendar quarter which contains the due date of the last monthly installment payment, in which case no such distribution will be deemed to have occurred. Subject to applicable law, notwithstanding the foregoing, a Member that borrows amounts from his 401(k) Account may not cease to make monthly installment payments while employed and receiving a Salary from the Employer.

(B) Except as otherwise provided under Section 8 below, upon a Member’s termination of Employment, death or Disability, or the termination of his Employer’s participation in the Plan, no further monthly installment payments may be made. Unless the outstanding balance, including accrued interest from the due date, is paid by the last day of the calendar quarter following the calendar quarter of the date of such occurrence, the Member will be deemed to have received a distribution of the outstanding balance of the loan including accrued interest from the due date. This Subsection (B) shall also apply to a Member (i) whose Employer terminates its participation in the Plan without establishing or maintaining a qualified successor plan (as defined in Article VII, Section 3) to which the Member’s Account could be transferred, (ii) who elects not to transfer the total accumulated balance of his Account to such qualified successor plan, as provided under Article VII, Section 3(A), where the Employer has satisfied all conditions and requirements to permit such transfer, or (iii) who fails to transfer outstanding loan balances as provided under Article VII, Section 3(A)(2).

Section 8. Loans to Former Members and Beneficiaries

Notwithstanding any other provisions of this Article VIII, a Member who terminates Employment for any reason or whose Employer terminates participation in the Plan (a “Terminated Member”) shall be permitted to continue making scheduled repayments with respect to any loan balance outstanding at the time he becomes a Terminated Member and any Terminated Member (or Beneficiary) shall be permitted to borrow from his Account if his Employer (or the Employer of the Member with respect to whom he is a Beneficiary) permitted loans under the Plan at the time he became a Terminated Member (or became entitled to benefits as a Beneficiary). If any individual who continues to make repayments or who borrows from his Account pursuant to this Section 8 fails to make a monthly installment payment by the end of the calendar quarter following the calendar quarter of the scheduled payment date, he will be deemed to have received a distribution of the outstanding balance of the loan.

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ARTICLE IX ADMINISTRATION OF PLAN

Section 1. Board of Directors

(A) The general administration of the Plan and the general responsibility for carrying out the provisions of the Plan shall be placed in a Board of Directors who must be Members of the Plan. The President of the Plan shall be the chief administrative officer of the Plan, a member ex officio of the Board and, for purposes of ERISA, the “plan administrator.” The Board shall constitute the “named fiduciary” for purposes of ERISA. The Board may adopt, and amend from time to time, by-laws not inconsistent with the Trust and the Plan and shall have such duties and exercise such powers as are provided in the Plan, Trust Agreement and by-laws. The number of Directors, their method of election and their terms of office shall be governed by such by-laws. The Board shall hold an annual meeting each year and may hold additional meetings from time to time.

(B) The Board members shall serve without compensation, but shall be reimbursed for any reasonable expenses incurred in their capacities as Board members. Neither the Plan Administrator, nor any Board member, officer or employee of the Plan shall be personally liable by virtue of any contract or other instrument executed by him or on his behalf in such capacity nor for any mistake of judgment made in good faith. Each Employer, by its participation in the Plan, agrees that each member of the Board and officer and employee of the Plan shall be indemnified by the Employer for any liability, in excess of that which is covered by insurance, arising out of any act or omission to act in connection with the Plan, except for fraud or willful misconduct. The obligation to pay any such expense shall be allocated among the Employers by the Board in such manner as the Board deems equitable.

(C) The Board shall elect from its membership a chairman and a vice chairman of the Board, and shall elect such other officers of the Plan as the Board deems desirable. The Board may appoint committees and shall arrange for such legal, accounting, investment advisory or management, administrative and other services as it deems appropriate to carry out the Plan, and may act in reliance upon the advice and actions of the persons or firms providing such services. The Board may delegate to any committee, officer, employee or agent the authority to perform any act pertaining to the Plan or the administration thereof. No Employer shall under any circumstances or for any purpose be deemed an agent of the Board. The Board shall cause to be maintained proper accounts and accounting procedures and shall submit an Annual Report on the operations of the Plan to each Employer for the information of its members. The Board may adopt by-laws governing the conduct of its affairs and may amend such by-laws from time to time.

(D) The Board shall have the exclusive right to interpret the Plan and to determine any question arising under or in connection with the administration of the Plan. Its decision or action in respect thereof shall be conclusive and binding upon all persons having an interest in the Trust or under the Plan. The Board shall have no duty to see that contributions received by the Trustee under the Plan comply with the provisions of the Plan, nor any duty to enforce payment of any contributions under the Plan.

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(E) (1 ) All claims for benefits under the Plan shall be submitted in writing to, and within a reasonable period of time decided by, the President of the Plan. If the claim is wholly or partially denied, written notice of the denial shall be furnished within 90 days after receipt of the claim; provided that, if special circumstances require an extension of time for processing the claim, an additional 90 days from the end of the initial period shall be allowed for processing the claim, in which event the claimant shall be furnished with a written notice of the extension prior to the termination of the initial 90-day period indicating the special circumstances requiring an extension. The written notice denying the claim shall set forth the reasons for the denial, including specific reference to pertinent provisions of the Plan on which the denial is based, a description of any additional information necessary to perfect the claim and information regarding review of the claim and its denial.

(2) A claimant may review all pertinent documents and may request a review by the Board of a decision denying the claim. Such a request shall be made in writing and filed with the Board within 60 days after delivery to the claimant of written notice of the decision. Such written request for review shall contain all additional information which the claimant wishes the Board to consider. The Board may hold a hearing or conduct an independent investigation, and the decision on review shall be made as soon as possible after the Board’s receipt of the request for review. Written notice of the decision on review shall be furnished to the claimant within 60 days after receipt by the Board of a request for review, unless special circumstances require an extension of time for processing, in which event an additional 60 days shall be allowed for review and the claimant shall be so notified in writing. Written notice of the decision on review shall include specific reasons for the decision. For all purposes under the Plan, such decision on claims (where no review is requested) and decision on review (where review is requested) shall be final, binding and conclusive on all interested persons as to participation and benefits eligibility, the amount of benefits and as to any other matter of fact or interpretation relating to the Plan.

Section 2. Trust Agreement

(A) The Board shall enter into one or more Trust Agreements with a Trustee or Trustees selected by the Board. The Trust established under any such agreement shall be a part of the Plan and shall provide that all funds received by the Trustee as contributions under the Plan and the income therefrom (other than such part as is necessary to pay the expenses and charges referred to in Paragraph (B) of this Section) shall be held in the Trust Fund for the exclusive benefit of the Members or their Beneficiaries, and managed, invested and reinvested and distributed by the Trustee in accordance with the Plan. Sums received for investment may be invested (i) wholly or partly through the medium of any common, collective or commingled trust fund maintained by a bank or other financial institution and which is qualified under Sections 401(a) and 501(a) of the Code and constitutes a part of the Plan, or (ii) wholly or partly through the medium of a group annuity or other type of contract issued by an insurance company and constituting a part of the Plan, and utilizing, under any such contract, general, commingled or individual investment accounts. Subject to the provisions of Article XII, the Board may from time to time and without the consent of any Employer, Member or Beneficiary (a) amend the Trust Agreement or any such insurance contract in such manner as the Board may deem necessary or desirable to carry out the Plan, (b) remove the Trustee and designate a successor Trustee upon such removal or upon the resignation of the Trustee, and (c) provide for an alternate funding agency under the Plan. The Trustee shall make payments under the Plan only to the extent, in the amounts, in the manner, at the time, and to the persons as shall from time to time be set forth and designated in written authorizations from the Board.

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(B) The Trustee shall from time to time charge against and pay out of the Trust Fund taxes of any and all kinds whatsoever which are levied or assessed upon or become payable in respect of such Fund, the income or any property forming a part thereof, or any security transaction pertaining thereto. To the extent not paid by the Employers, the Trustee shall also charge against and pay out of the Trust Fund other expenses incurred by the Trustee in the performance of its duties under the Trust, the expenses incurred by the Board in the performance of its duties under the Plan (including reasonable compensation for agents and cost of services rendered in respect of the Plan), such compensation of the Trustee as may be agreed upon from time to time between the Board and the Trustee, and all other proper charges and disbursements of the Trustee or the Board.

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ARTICLE X MISCELLANEOUS PROVISIONS

Section 1. General Limitations

(A) In order that the Plan be maintained as a qualified plan and trust under the Code, contributions in respect of a Member shall be subject to the limitations set forth in this Section, notwithstanding any other provision of the Plan. The contributions in respect of a Member to which this Section is applicable are his own contributions and his Employer’s contributions.

For purposes of this Section 1, a Member’s contributions shall be determined without regard to any rollover contributions (as defined by Section 401(a)(5) of the Code). For purposes of this Section 1, a Member’s compensation shall be a Member’s Form W-2 compensation (within the meaning of IRS Regulation Section 1.415(c)-2(d)(4)).

(B) Annual additions to a Member’s Account (including his 401(k) Account, Regular Accounts and his Profit Sharing Account) and to any other defined contribution plan maintained by the Member’s Employer in respect of any Plan Year may not exceed the limitations set forth in Section 415 of the Code, which are incorporated by reference. For these purposes, “annual additions” shall have the meaning set forth in Section 415(c)(2) of the Code, as modified elsewhere in the Code and the Regulations, and the limitation year shall mean the Plan Year unless any other twelve consecutive month period is designated pursuant to a written resolution adopted by the Employer and approved by the Board.

Effective for limitation years beginning after December 31, 2001, except to the extent permitted under Article III, Section 9 of the Plan and Section 414(v) of the Code, if applicable, the annual additions that may be contributed or allocated to a Member’s Account under the Plan for any limitation year shall not exceed the lesser of:

(i) $40,000, as adjusted for increases in the cost-of-living under section 415(d) of the Code, or

(ii) 100 percent of the Member’s compensation, within the meaning of section 415(c)(3) of the Code, for the limitation year.

(C) In the event that, due to forfeitures, reasonable error in estimating a Member’s compensation, or other limited facts and circumstances, total contributions to a Member’s Account are found to exceed the limitations of this Section, the Board shall cause contributions made under Article III, Section 1 in excess of such limitations to be refunded to the affected Member, with earnings thereon, and shall take appropriate steps to reduce, if necessary, the Employer contributions made with respect to those returned contributions. Such refunds shall not be deemed to be withdrawals, loans, or distributions from the Plan. If a Member’s annual contributions exceed the limitations contained in Paragraph (B) of this Section after the Member’s Article III, Section 1 contributions, with earnings thereon, if any, have been refunded to such Member, the Profit Sharing contribution to be allocated to any Member in respect of any Contribution Determination Period (including allocations as provided in this Paragraph) shall instead be allocated to or for the benefit of all other Members who are

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Employees in Employment as of the last day of the Contribution Determination Period as determined under Article III, Section 8(c) and allocated in the same proportion that each such Member’s Salary for such Contribution Determination Period bears to the total Salary for such Contribution Determination Period of all such Members or, the Board may, at the election of the Employer, utilize such excess to reduce the contributions which would otherwise be made for the succeeding Contribution Determination Period by the Employer. If, with respect to any Contribution Determination Period, there is an excess Profit Sharing contribution, and such excess cannot be fully allocated in accordance with the preceding sentence because of the limitations prescribed in Paragraph (B) of this Section, the amount of such excess which cannot be so allocated shall be allocated to the Employer Hold Account and made available to the Employer pursuant to the terms of Article VI, Section 2(B)(2) except that any such excess contribution may not be applied to reduce administrative expenses (in accordance with Article IX, Section 2). The Board, in accordance with Paragraph (D) of this Section, shall take whatever additional action may be necessary to assure that contributions to Members’ Accounts meet the requirements of this Section.

(D) In addition to the steps set forth in Paragraph (C) above, the Board may from time to time adjust or modify the maximum limitations applicable to contributions made in respect of a Member under this Section 1 as may be required or permitted by the Code or ERISA prior to or following the date that allocation of any such contributions commence and shall take appropriate action to real locate the annual contributions which would otherwise have been made but for the application of this Section.

(E) Membership in the Plan shall not give any Employee the right to be retained in the Employment of his Employer and shall not affect the right of the Employer to discharge any Employee.

(F) Each Member, Spouse and Beneficiary assumes all risk in connection with any decrease in the market value of the assets of the Trust Fund. Neither the Board nor the Trustee guarantees that upon withdrawal the value of a Member’s Account, his Profit Sharing Account, and/or his Rollover Account will be equal to or greater than the amount of the Member’s own deferrals or contributions, or those credited on his behalf in which the Member has a vested interest, under the Plan.

(G) The establishment, maintenance or crediting of a Member’s Account pursuant to the Plan shall not vest in such Member any right, title or interest in the Trust Fund except at the times and upon the terms and conditions and to the extent expressly set forth in the Plan and the Trust Agreement.

(H) The Trust Fund shall be the sole source of payments under the Plan and the Employer and the Board assume no liability or responsibility for such payments, and each Member, Spouse or Beneficiary who shall claim the right to any payment under the Plan shall be entitled to look only to the Trust Fund for such payment. All contributions to the Trust Fund shall be deemed to have been made in the State of New York.

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Section 2. Top Heavy Provisions

In respect of any Employer, the Plan will be considered a Top Heavy Plan for any Plan Year if it is determined to be a Top Heavy Plan as of the last day of the preceding Plan Year.

The provisions of this Section 2 shall apply and supersede all other provisions in the Plan during each Plan Year with respect to which the Plan, with regard to such Employer, is determined to be a Top Heavy Plan.

(A) For purposes of this Section 2, the following terms shall have the meanings set forth below:

(1) “Affiliate” shall mean any entity affiliated with any Employer within the meaning of Section 414(b), 414(c) or 414(m) of the Code, or pursuant to the IRS Regulations under Section 414(o) of the Code, except that for purposes of applying the provisions hereof with respect to the limitation on contributions, Section 415(h) of the Code shall apply.

(2) “Aggregation Group” shall mean the group composed of each qualified retirement plan of the Employer or an Affiliate in which a Key Employee is a member and each other qualified retirement plan of the Employer or an Affiliate which enables a plan of the Employer or an Affiliate in which a Key Employee is a member to satisfy Sections 401(a)(4) or 410 of the Code. In addition, the Board may choose to treat any other qualified retirement plan as a member of the Aggregation Group if such Aggregation Group will continue to satisfy Sections 401(a)(4) and 410 of the Code with such plan being taken into account.

(3) “Key Employee” shall mean a “Key Employee” as defined in Sections 416(i)(1) and (5) of the Code and the IRS Regulations. For purposes of Section 416 of the Code and for purposes of determining who is a Key Employee, an Employer which is not a corporation may have “officers” only for Plan Years beginning after December 31, 1985. For purposes of determining who is a Key Employee pursuant to this Subparagraph (3), compensation shall have the meaning prescribed in Section 414(s) of the Code or, to the extent required by the Code or the IRS Regulations, Section 1.415-2(d) of the IRS Regulations.

(4) “Non Key Employee” shall mean a “Non Key Employee” as defined in Section 416(i)(2) of the Code and the IRS Regulations thereunder.

(5) “Top Heavy Plan” shall mean a “Top Heavy Plan” as defined in Section 416(g) of the Code and the IRS Regulations thereunder.

(6) “Determination Date” shall mean the last day of the preceding Plan Year or, in the case of the first Plan Year, the last day of such Plan Year.

(7) “Top Heavy Ratio” is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the applicable Determination Date (including any part of any account balance distributed in the five-year period ending on the Determination Date), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the five-year period ending on the Determination Date), both computed in accordance with Section 416 of the Code and the IRS Regulations thereunder.

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(B) Subject to the provisions of Paragraph (D) below, for each Plan Year that the Plan is a Top Heavy Plan, the Employer’s contribution allocable to each Employee (other than a Key Employee) who has satisfied the eligibility requirement(s) of Article II, Section 2, and who is in service at the end of the Plan Year shall not be less than the lesser of (i) 3% of such eligible Employee’s compensation (as defined in Section 414(s) of the Code or, to the extent required by the Code or the IRS Regulations, Section 1.415-2(d) of the Regulations), provided that for any Plan Year beginning on or after January 1, 1994 no more than $150,000 (adjusted for cost of living to the extent permitted by the Code and the IRS Regulations) shall be taken into account), or (ii) the percentage at which Employer contributions for such Plan Year are made and allocated on behalf of the Key Employee for whom such percentage is the highest. For the purpose of determining the appropriate percentage under clause (ii), all defined contribution plans required to be included in an Aggregation Group shall be treated as one plan. Clause (ii) shall not apply if the Plan is required to be included in an Aggregation Group which enables a defined benefit plan also required to be included in said Aggregation Group to satisfy Sections 401(a)(4) or 410 of the Code. Contributions attributable to salary reduction that are made to a Key Employee’s 401(k) Account and Roth 401(k) Account shall be taken into account in determining the minimum required contribution under this Subsection (B).

(C) If the Plan is a Top Heavy Plan for any Plan Year, and (i) the Employer has elected a vesting schedule under Article VI for an employer contribution type which does not satisfy the minimum Top Heavy vesting requirements or (ii) if the Employer has not elected a vesting schedule for an employer contribution type, the vested interest of each Member, who is credited with at least one Hour of Employment on or after the Plan becomes a Top Heavy Plan, for each employer contribution type in his Account described in clause (i) or (ii) above, shall not be less than the percentage determined in accordance with the following schedule:

Completed	Vested
Years of Employment	Percentage
Less than 2		0	%
2 but less than 3		20	%
3 but less than 4		40	%
4 but less than 5		60	%
5 but less than 6		80	%
6 or more		100	%

Notwithstanding the schedule provided above, if the Plan is a Top Heavy Plan for any Plan Year and if an Employer has elected a cliff vesting schedule for an employer contribution type described in clause (i) or (ii) above, the vested interest of each Member, who is credited with at least one Hour of Employment on or after the Plan becomes a Top Heavy Plan, for such employer contribution type in his Account, shall not be less than the percentage determined in accordance with the following schedule:

Completed	Vested
Years of Employment	Percentage
Less than 3		0	%
3 or more		100	%

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(D) The Board shall, to the maximum extent permitted by the Code and in accordance with the IRS Regulations, apply the provisions of this Section 2 by taking into account the benefits payable and the contributions made under the Pentegra Defined Benefit Plan for Financial Institutions or any other qualified plan maintained by an Employer, to prevent inappropriate omissions or required duplication of minimum contributions.

(E) Effective for Plan Years beginning after December 31, 2001, for purposes of determining whether the Plan is a top-heavy plan under Section 416(g) of the Code, and whether the Plan satisfies the minimum benefits requirements of Section 416(c) of the Code for such years, the following provisions shall apply:

(1) “Key Employee” shall mean any Employee or former Employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the Employer having annual compensation greater than $130,000 (as adjusted under section 416(i)(1) of the Code for plan years beginning after December 31, 2002), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of section 415(c)(3) of the Code. The determination of who is a Key Employee will be made in accordance with section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

(2) The present value of accrued benefits and the amounts of account balances of an Employee as of the determination date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “5-year period” for “1-year period.”

The accrued benefits accounts of any individual who has not performed services for the employer during the 1-year period ending on the determination date shall not be taken into account.

(3) Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of section 416(c)(2) of the Code and the Plan. The preceding sentence shall apply with respect to matching contributions under the Plan, or any other plan maintained by the Employer, to the maximum extent permitted by the Code and in accordance with the IRS Regulations. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of section 401(m) of the Code.

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The employer may elect to provide that the minimum benefit requirement shall be met in another plan (including another plan that consists solely of a cash or deferred arrangement which meets the requirements of section 401(k)(12) of the Code and matching contributions with respect to which the requirements of section 401(m)(11) of the Code are met).

Section 3. Information and Communications

Each Employer, Member, Spouse and Beneficiary shall be required to furnish the Board with such information and data as may be considered necessary by the Board. All notices, instructions and other communications with respect to the Plan shall be in such form as is prescribed from time to time by the Board, shall be mailed by first class mail or delivered personally, and shall be deemed to have been duly given and delivered only upon actual receipt thereof by the Board. All information and data submitted by an Employer or a Member, including a Member’s birth date, marital status, salary and circumstances of his employment and termination thereof, may be accepted and relied upon by the Board. All communications from the Board or the Trustee to an Employer, Member, Spouse or Beneficiary shall be deemed to have been duly given if mailed by first class mail to the address of such person as last shown on the records of the Plan.

Section 4. Small Account Balances

Notwithstanding the foregoing provisions of the Plan, and except as provided in Article III, Section 6(B)(6), if the value of all of a Member’s Account under the Plan (including a Profit Sharing Account and a Rollover Account, if any), when aggregated is equal to or exceeds $500, then no Account will be distributed without the consent of the Member prior to age 65 (at the earliest).

Section 5. Amounts Payable to Incompetents, Minors or Estates

If the Board shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due him or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may be paid to his Spouse, relative or any other person deemed by the Board to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Trust Fund therefor.

Section 6. Non-alienation of Amounts Payable

Except insofar as may otherwise be required by applicable law, or Article VIII, or pursuant to the terms of a Qualified Domestic Relations Order, no amount payable under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any attempt to so alienate shall be void; nor shall the Trust Fund in any manner be liable for or subject to the debts or liabilities of any person entitled to any such amount payable; and further, if for any reason any amount payable under the Plan would not devolve upon such person entitled thereto,

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then the Board, in its discretion, may terminate his interest and hold or apply such amount for the benefit of such person or his dependents as it may deem proper. For the purposes of the Plan, a “Qualified Domestic Relations Order” means any judgment, decree or order (including approval of a property settlement agreement) which has been determined by the Board in accordance with procedures established under the Plan, to constitute a Qualified Domestic Relations Order within the meaning of Section 414(p)(1) of the Code. No amounts may be withdrawn under Article VII and Article III, Section 8, and no loans granted under Article VIII, if the Pentegra DC Plan Office has received a document which may be determined following its receipt to be a Qualified Domestic Relations Order prior to completion of review of such order by the Office within the time period prescribed for such review by the IRS Regulations.

Section 7. Unclaimed Amounts Payable

If the Board cannot ascertain the whereabouts of any person to whom an amount is payable under the Plan, and if, after 5 years from the date such payment is due, a notice of such payment due is mailed to the address of such person, as last shown on the records of the Plan, and within 3 months after such mailing such person has not filed with the Board written claim therefor, the Board may direct in accordance with ERISA that the payment (including the amount allocable to the Member’s contributions) be cancelled, and used in abatement of the Plan’s administrative expenses, provided that appropriate provision is made for recrediting the payment if such person subsequently makes a claim therefor.

Section 8. Leaves of Absence

(A) Contribution allocations and vesting service continue to the extent provided in Paragraphs (B)(1), (2), (3) or (4), below, during any approved Leave of Absence, provided that the Employer notifies the Plan of its intention to grant to a specific Employee or Member, pursuant to the Employer’s policy which is uniformly applicable to all its Employees under similar circumstances, one of the Leaves of Absence described in Paragraph (B) below, and agrees to notify the Plan at the conclusion of such leave.

(B) For purposes of the Plan there are only four types of approved Leaves of Absence:

(1) Non-military leave granted to a Member for a period not in excess of one year during which service is recognized for vesting purposes and the Member is entitled to share in any supplemental contributions under Article III, Section 3 or forfeitures under Article VI, Section 2, if any, on a pro rata basis, determined by the Salary earned during the Plan Year or Contribution Determination Period; or

(2) Non-military leave or layoff granted to a Member for a period not in excess of one year during which service is recognized for vesting purposes, but the Member is not entitled to share in any contributions or forfeitures as defined under (1) above, if any, during the period of the leave; or

(3) To the extent not otherwise required by applicable law, military or other governmental service leave granted to a Member from which he returns directly to the service of the Employer. Under this leave, a Member may not share in any contributions or forfeitures as defined under (1) above, if any, during the period of the leave, but vesting service will continue to accrue; or

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(4) To the extent not otherwise required by applicable law, a military leave granted at the option of the Employer to a Member who is subject to military service pursuant to an involuntary call-up in the Reserves of the U.S. Armed Services from which he returns to the service of the Employer within 90 days of his discharge from such military service. Under this leave, a Member is entitled to share in any contributions or forfeitures as defined under (1) above, if any, and vesting service will continue to accrue. Notwithstanding any provision of the Plan to the contrary, if a Member has one or more loans outstanding at the time of this leave, repayments on such loan(s) may be suspended, if the Member so elects, until such time as the Member returns to the service of the Employer or the end of the leave, if earlier.

The determination of who is a Highly Compensated Employee will be made in accordance with Section 414(q) of the Code and the IRS Regulations thereunder.

(C) Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contribution allocations and vesting service with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. Loan repayments will be suspended under this Plan as permitted under Section 414(u)(4) of the Code during such period of qualified military service.

Section 9. Return of Contributions to Employer

(A) In the case of a contribution that is made by an Employer by reason of a mistake of fact, such Employer may request the return to it of such contribution within one year after the payment of the contribution, provided such refund is made within one year after the payment of the contribution.

(B) In the case of a contribution made by an Employer or a contribution otherwise deemed to be an Employer contribution under the Code, such contribution shall be conditioned upon the deductibility of the contribution by the Employer under Section 404 of the Code. To the extent the deduction for such contribution is disallowed, in accordance with IRS Regulations, the Employer may request the return to it of such contribution within one year after the disallowance of the deduction.

Section 10. Controlling Law

The Plan and all rights thereunder shall be governed by and construed in accordance with the laws of the State of New York (without regard to the principles of the conflicts of laws thereof) and ERISA.

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ARTICLE XI TERMINATION OF EMPLOYER PARTICIPATION

Section 1. Termination by Employer

Any Employer may terminate its participation in the Plan by giving the Board written notice specifying a termination date which shall be a Valuation Date at least 60 days subsequent to the date such notice is received by the Board.

Section 2. Termination by Board

The Board may terminate any Employer’s participation, as of a termination date specified by the Board, if the Board determines that the Employer has failed to make proper contributions or to comply with any other provision of the Plan or any applicable rulings or Regulations under the Code, within 15 days after notice and demand by the Board. Except as provided under Article III, Section 3, upon complete discontinuance of an Employer’s contributions, its participation shall automatically terminate, and its termination date shall be a Valuation Date specified by the Board which is within 3 months subsequent to the last day through which the Employer’s contributions to the Trust Fund were paid.

Section 3. Termination Distribution

If an Employer’s participation is terminated, the Board shall promptly notify the IRS and such other appropriate governmental authority as applicable law may require. Neither the Employer not its Employees shall make any further contributions under the Plan after the termination date, except that the Employer shall remit to the Board an amount equal to the product of (i) $60 multiplied by (ii) the number of the Employer’s Members and Employees with a balance in their Accounts as of the termination date, to defray the cost of implementing its termination. If the Employer elects to permit transfers to a qualified successor plan in accordance with Article VII, Section 3, for which Pentegra Services, Inc., will provide services, the Board may waive the withdrawal fees provided for in this Section 3. Except as Article III, Section 4 may provide, each Employee may thereafter withdraw the current value of his Accounts in accordance with Article VII. Subject to the provisions of Article XII, Paragraph (D), an Employer whose participation has been terminated pursuant to this Article may transfer assets under its prior Plan to a qualified successor plan, provided such plan satisfies the requirements contained in Article VII, Section 3 and the transfer is otherwise in accordance with the procedures of such Section.

Upon the termination of participation under the Plan of an Employee’s or Member’s Employer, any rights of the Employee or Member to make contributions, rollovers or transfers to the Plan shall cease.

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ARTICLE XII AMENDMENT OR TERMINATION OF THE PLAN AND TRUST

(A) The Board shall have the right to amend or terminate the Plan or Trust Agreement at any time in whole or in part, for any reason, and without the consent of any Employer, Member or Beneficiary, and each Employer by its adoption of the Plan and Trust shall be deemed to have delegated this authority to the Board. No amendment, however, shall impair such rights of payment as the Member or his Beneficiary would have had, if such amendment had not been made, with respect to contributions made by him or on his behalf prior to such amendment, except to the extent that such amendment is, in the opinion of the Board, necessary or desirable to qualify or maintain the Plan and the Trust as a plan and trust meeting the requirements of Sections 401(a) and 501(a) of the Code as now in effect or hereafter amended, or any other applicable section of the Code now or hereafter in force from time to time; and no amendment shall make it possible for any part of the Trust Fund (other than such part as may be necessary to pay the expenses and charges referred to in Article IX) to be used for purposes other than for the exclusive benefit of Members or their Beneficiaries.

(B) In the event of termination of the Plan by the Board or upon a complete discontinuance of contributions under the Plan, the Units credited to each Member’s Account as of the date of such termination or complete discontinuance of contributions shall be fully vested in the Member, and the Trustee shall upon direction of the Board liquidate the assets of the Trust Fund with such promptness as the Trustee deems prudent. When such liquidation has been completed and after provision for all expenses and charges referred to in Article IX, and proportionate adjustment of all Plan Accounts to reflect such expenses, the Trustee shall pay to each person who was a Member on such termination date (or in the event of his death on or after such date, to his Spouse or Beneficiary) a lump sum equal to the amount, if any, then credited to his Account after such liquidation and provision for expenses and charges.

(C) Notwithstanding any termination of the Plan by the Board, the Board shall remain in existence and all the provisions of the Plan shall remain in force which are necessary for the execution of the Plan and the distribution of the Trust Fund assets in accordance with this Article.

(D) No assets of the Plan shall in any event be merged, consolidated with, or transferred to any other plan unless each Member affected thereby would, if such plan then terminated immediately after such event, receive thereunder a benefit which is equal to or greater than the benefit to which he would have been entitled if the Plan had terminated immediately before such event.

(E) In the event that any governmental authority or the Board determines that a partial termination (within the meaning of ERISA) of the Plan has occurred as to any Employer, then the Units credited to the Account of each Member who is affected thereby shall be fully vested in such Member and the provisions of Article XI and this Article XII, which in the opinion of the Board are necessary for the execution of the Plan and the allocation and distribution of assets of the Plan, shall apply.

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TRUSTS ESTABLISHED UNDER THE PLAN

Assets of the Plan are held in trust under Trust Agreements with Bank of New York, pursuant to Article IX, Section 2 of the Plan. Any Employer or Member may obtain a copy of these Trust Agreements from the office of the Plan.

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EX-10.08

Exhibit 10.08

THE FEDERAL HOME LOAN BANK
OF NEW YORK

BENEFIT EQUALIZATION PLAN

Effective as of
January 1, 1988

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BENEFIT EQUALIZATION PLAN
INTRODUCTION

The adoption of this Benefit Equalization Plan has been authorized by the Board of Directors of The Federal Home Loan Bank of New York (the “Bank”) solely for the purpose of providing benefits to certain employees of the Bank which would have been payable under the Regulations governing the Comprehensive Retirement Program of the Financial Institutions Retirement Fund, as they may be from time to time amended and as adopted by the Bank, but for the limitations placed on benefits for such employees by Sections 401(a)(17) and 415 of the Internal Revenue Code of 1954, as amended from time to time, or any successor thereto (“IRC”).

This Plan is intended to constitute an unfunded “excess benefit plan” as defined in Section 3(36) of the Employee Retirement Income Security Act of 1974 and to provide certain other supplemental benefits for employees whose compensation exceeds the limit contained in IRC Section 401(a)(17). All benefits payable under this Plan shall be paid solely out of the general assets of the Bank. No benefits under this Plan shall be payable by the Financial Institutions Retirement Fund or from its assets.

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Article 1. Definitions

When used in the Plan, the following terms shall have the following meanings:

1.01 “Actuary” means the independent consulting actuary retained by the Bank to assist the Committee in its administration of the Plan.

1.02 “Bank” means The Federal Home Loan Bank of New York and each subsidiary or affiliated company thereof which participates in the Plan.

1.03 “Beneficiary” means the beneficiary or beneficiaries designated in accordance with Article 5 of the Plan to receive the benefit, if any, payable upon the death of a member of the Plan.

1.04 “Board of Directors” means the Board of Directors of the Bank.

1.05 “Committee” means the Administrative Committee appointed by the Board of Directors to administer the Plan.

1.06 “Effective Date” means January 1, 1988.

1.07 “Fund” means the Financial Institutions Retirement Fund, a qualified and tax-exempt pension plan and trust under Sections 401(a) and 501(a) of the IRC.

1.08 “IRC” means the Internal Revenue Code of 1954, as amended from time to time, or any successor thereto.

1.09 “Member” means any person included in the membership of the Plan as provided in Article 2.

1.10 “Plan” means The Federal Home Loan Bank of New York Benefit Equalization Plan, as set forth herein and as amended from time to time.

1.11 “Regulations” means the Regulations governing the Comprehensive Retirement Program of the Fund as from time to time amended, and as adopted by the Bank.

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Article 2. Membership

2.01 Each employee of the Bank who is included in the membership of the Fund shall become a member of the Plan on the earliest date on which he, or his beneficiary, would have been entitled to receive a benefit under Section 3.01 of the Plan had he become a retirant of the Fund, or died in active service, on such date.

2.02 If, on the date that payment of a member’s benefit from the Fund commences, the member is not entitled under Section 3.01 below to receive a benefit under the Plan, his membership in the Plan shall terminate on such date.

2.03 A benefit shall be payable under the Plan to or on account of a member only upon the member’s retirement, death or other termination of employment with the Bank.

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Article 3. Amount and Payment of Benefits

3.01 The amount, if any, of the annual benefit payable to or on account of a member pursuant to the Plan shall equal the excess of (i) over (ii), as determined by the Committee, where:

(i) is the annual benefit (as calculated by the Fund on the basis of the form of payment elected under the Regulations by the member) that would otherwise be payable to or on account of the member by the Fund under the Regulations if the provisions of the Regulations were administered without regard to the limitations imposed by Sections 401(a)(17) and 415 of the IRC; and

(ii) is the annual benefit (as calculated by the Fund on the basis of the form of payment elected under the Regulations by the member) that is payable to or on account of the member by the Fund under the Regulations after giving effect to any reduction of such benefit required by regulation limitations imposed by Sections 401(a)(17) and 415 of the IRC.

For purposes of this Section 3.01, “annual benefit” includes any “Active Service Death Benefit,” “Retirement Adjustment Payment,” “Annual Increment” and “Single Purchase Fixed Percentage Adjustment” which the Bank elected to provide its employees under the Regulations.

3.02 Unless the member elects an optional form of payment under the Plan pursuant to Section 3.03 below, the annual benefit, if any, payable to or on account of a member under Section 3.01 above, shall be converted by the Actuary and shall be payable to or on account of the member in the “Regular Form” of payment, utilizing for that purpose the same actuarial factors and assumptions then used by the Fund to determine actuarial equivalence under the Regulations. For purposes of the Plan the “Regular Form” of payment means an annual benefit payable for the member’s lifetime and the death benefit described in Section 3.04 below.

3.03(a) A member may, with the consent of the Committee, elect in writing to have the annual benefit, if any, payable to or on account of a member under Section 3.02 above, converted by the Actuary to any optional form of payment then permitted under the Regulations except that no benefit under the Plan may be paid in the form of a lump sum settlement. The Actuary shall utilize for the purpose of that conversion the same actuarial factors and assumptions then used by the Fund to determine actuarial equivalence under the Regulations.

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(b) If a member who had elected an optional form of payment under this Section 3.03 dies after the date his benefit payments under the Plan had commenced, the only death benefit, if any, payable under the Plan in respect of said member shall be the amount, if any, payable under the optional form of payment which the member had elected under the Plan. If a member who had elected an optional form of payment under this Section 3.03 dies before the date his benefit payments under the Plan commence, his election of an optional form of benefit shall be inoperative.

(c) An election of an optional form of payment under this Section 3.03 may be made only on a form prescribed by the Committee and filed by the member with the Committee prior to the commencement of payment of his benefit under Section 4.02 below.

3.04 Upon the death of a member who had not elected an optional form of payment under Section 3.03 above, a death benefit shall be paid to the member’s beneficiary in a lump sum equal to the excess, if any, of (i) over (ii), where

(i)	is an amount equal to 12 times the annual benefit, if any, payable under Section 3.02 above, and
(ii)	is the sum of the benefit payments, if any, which the member had received under the Plan.

3.05 If a member to whom an annual benefit is payable under the Plan dies before commencement of the payment of his benefit, the death benefit payable under Section 3.02 shall be payable to the member’s beneficiary as if the payment of the member’s benefit had commenced on the first day of the month in which his death occurred.

3.06 If a member is restored to employment with the Bank after payment of his benefit under the Plan has commenced, all payments under the Plan shall thereupon be discontinued. Upon the member’s subsequent retirement or termination of employment with the Bank, his benefit under the Plan shall be recomputed in accordance with Sections 3.01 and 3.02, but shall be reduced by the equivalent value of the amount of any benefit paid by the Plan in respect of his previous retirement or termination of employment, and such reduced benefit shall be paid to such member in accordance with the provisions of the Plan. For purposes of this Section 3.06, the equivalent value of the benefit paid in respect of a member’s previous retirement or termination of employment shall be determined by the Actuary utilizing for that purpose the same actuarial factors and assumptions then used by the Fund to determine actuarial equivalence under the Regulations.

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Article 4. Source and Method of Payments

4.01 All payments of benefits under the Plan shall be paid from, and shall only be a general claim upon, the general assets of the Bank, notwithstanding that the Bank, in its discretion, may establish a bookkeeping reserve or a grantor trust (as such term is used in Sections 671 through 677 of the IRC) to reflect or to aid it in meeting its obligations under the Plan with respect to any member or prospective member or beneficiary. No benefit whatever provided by the Plan shall be payable from the assets of the Fund. No member shall have any right, title or interest whatever in or to any investments which the Bank may make or any specific assets which the Bank may reserve to aid it in meeting its obligations under the Plan.

4.02 All annual benefits under the Plan shall be paid in monthly installments commencing on the first day of the month next following the member’s retirement date under the Regulations, except that no benefit shall be paid prior to the date benefits under the Plan can be definitely determined by the Committee.

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Article 5. Designation of Beneficiaries

5.01 Each member of the Plan may file with the Committee a written designation of one or more persons as the beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon his death. A member may, from time to time, revoke or change his beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the member’s death, and in no event shall it be effective as of a date prior to such receipt.

5.02 If no such beneficiary designation is in effect at the time of a member’s death, or if no designated beneficiary survives the member, or if, in the opinion of the Committee, such designation conflicts with applicable law, the member’s estate shall be deemed to have been designated his beneficiary and shall be paid the amount, if any, payable under the Plan upon the member’s death. If the Committee is in doubt as to the right of any person to receive such amount, the Committee may retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Committee may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Bank therefor.

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Article 6. Administration of the Plan

6.01 The Board of Directors has delegated to the Benefits Equalization Plan Committee, subject to those powers which the Board has reserved as described in Article 7 below, general authority over and responsibility for the administration and interpretation of the Plan. The Committee shall have full power and authority to interpret and construe the Plan, to make all determinations considered necessary or advisable for the administration of the Plan and any trust referred to in Article 4 above, and the calculation of the amount of benefits payable thereunder, and to review claims for benefits under the Plan. The Committee’s interpretations and constructions of the Plan and its decisions or actions thereunder shall be binding and conclusive on all persons for all purposes.

6.02 If the Committee deems it advisable, it shall arrange for the engagement of the Actuary, and legal counsel and certified public accountants (who may be counsel or accountants for the Bank), and other consultants, and make use of agents and clerical or other personnel, for purposes of the Plan. The Committee may rely upon the written opinions of such Actuary, counsel, accountants and consultants, and upon any information supplied by the Fund for purposes of Section 3.01 of the Plan, and delegate to any agent or to any subcommittee or Committee member its authority to perform any act hereunder, including without limitations those matters involving the exercise of discretion; provided, however, that such delegation shall be subject to revocation at any time at the discretion of the Committee. The Committee shall report to the Board of Directors, or to a committee designated by the Board, at such intervals as shall be specified by the Board or such designated committee, with regard to the matters for which it is responsible under the Plan.

6.03 The Committee shall consist of at least three individuals, each of whom shall be appointed by, shall remain in office at the will of, and may be removed, with or without cause, by the Board of Directors. Any Committee member may resign at any time. No Committee member shall be entitled to act on or decide any matters relating solely to such member or any of his rights or benefits under the Plan. The Committee member shall not receive any special compensation for serving in such capacity but shall be reimbursed for any reasonable expenses incurred in connection therewith. No bond or other security need be required of the Committee or any member thereof in any jurisdiction.

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6.04 The Committee shall elect or designate its own Chairman, establish its own procedures and the time and place for its meetings and provide for the keeping of minutes of all meetings. Any action of the Committee may be taken upon the affirmative vote of a majority of the members at a meeting or, at the direction of its Chairman, without a meeting by mail or telephone, provided that all of the Committee members are informed in writing of the vote.

6.05 All claims for benefits under the Plan shall be submitted in writing to the Chairman of the Committee. Written notice of the decision on each such claim shall be furnished with reasonable promptness to the member or his beneficiary (the “claimant”). The claimant may request a review by the Committee of any decision denying the claim in whole or in part. Such request shall be made in writing and filed with the Committee within 30 days of such denial. A request for review shall contain all additional information which the claimant wishes the Committee to consider. The Committee may hold any hearing or conduct any independent investigation which it deems desirable to render its decision and the decision on review shall be made as soon as feasible after the Committee’s receipt of the request for review. Written notice of the decision on review shall be furnished to the claimant. For all purposes under the Plan, such decisions on claims (where no review is requested) and decisions on review (where review is requested) shall be final, binding and conclusive on all interested persons as to all matters relating to the Plan.

6.06 All expenses incurred by the Committee in its administration of the Plan shall be paid by the Bank.

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Article 7. Amendment and Termination

The Board of Directors may amend, suspend or terminate, in whole or in part, the Plan without the consent of the Committee, any member, beneficiary or other person, except that no amendment, suspension or termination shall retroactively impair or otherwise adversely affect the rights of any member, beneficiary or other person to benefits under the Plan which have accrued prior to the date of such action, as determined by the Committee in its sole discretion. The Committee may adopt any amendment or take any other action which may be necessary or appropriate to facilitate the administration, management and interpretation of the Plan or to conform the Plan thereto, provided any such amendment or action does not have a material effect on the then currently estimated cost to the Bank of maintaining the Plan.

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Article 8. General Provisions

8.01 The Plan shall be binding upon and inure to the benefit of the Bank and its successors and assigns and the members, and the successors, assigns, designees and estates of the members. The Plan shall also be binding upon and inure to the benefit of any successor organization succeeding to substantially all of the assets and business of the Bank, but nothing in the Plan shall preclude the Bank from merging or consolidating into or with, or transferring all or substantially all of its assets to, another organization which assumes the Plan and all obligations of the Bank hereunder. The Bank agrees that it will make appropriate provision for the preservation of members’ rights under the Plan in any agreement or plan which it may enter into to effect any merger, consolidation, reorganization or transfer of assets. Upon such a merger, consolidation, reorganization, or transfer of assets and assumption of Plan obligations of the Bank, the term “Bank” shall refer to such other organization and the Plan shall continue in full force and effect.

8.02 Neither the Plan nor any action taken thereunder shall be construed as giving to a member the right to be retained in the employ of the Bank or as affecting the right of the Bank to dismiss any member from its employ.

8.03 The Bank shall withhold or cause to be withheld from all benefits payable under the Plan all federal, state, local or other taxes required by applicable law to be withheld with respect to such payments.

8.04 No right or interest of a member under the Plan may be assigned, sold, encumbered, transferred or otherwise disposed of and any attempted disposition of such right or interest shall be null and void.

8.05 If the Committee shall find that any person to whom any amount is or was payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment, or any part thereof, due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Committee is so inclined, be paid to such person’s spouse, child or other relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability of the Plan and the Bank therefor.

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8.06 To the extent that any person acquires a right to receive payments from the Bank under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Bank.

8.07 All elections, designations, requests, notices, instructions, and other communications from a member, beneficiary or other person to the Committee required or permitted under the Plan shall be in such form as is prescribed from time to time by the Committee and shall be mailed by first- class mail or delivered to such location as shall be specified by the Committee and shall be deemed to have been given and delivered only upon actual receipt thereof at such location.

8.08 The benefits payable under the Plan shall be in addition to all other benefits provided for employees of the Bank and shall not be deemed salary or other compensation by the Bank for the purpose of computing benefits to which he may be entitled under any other plan or arrangement of the Bank.

8.09 No Committee member shall be personally liable by reason of any instrument executed by him or on his behalf, or action taken by him, in his capacity as a Committee member nor for any mistake of judgment made in good faith. The Bank shall indemnify and hold harmless the Fund and each Committee member and each employee, officer or director of the Bank or the Fund, to whom any duty, power, function or action in respect of the Plan may be delegated or assigned, or from whom any information is requested for Plan purposes, against any cost or expense (including fees of legal counsel) and liability (including any sum paid in settlement of a claim or legal action with the approval of the Bank) arising out of anything done or omitted to be done in connection with the Plan, unless arising out of such person’s fraud or bad faith.

8.10 As used in the Plan, the masculine gender shall be deemed to refer to the feminine, and the singular person shall be deemed to refer to the plural, wherever appropriate.

8.11 The captions preceding the sections of the Plan have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provisions of the Plan.

8.12 The Plan shall be construed according to the laws of the State of New York in effect from time to time.

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This Benefit Equalization Plan has been duly adopted this 18th, day of June, 1987, to be effective as of 1st day of January, 1988.

The Federal Home Loan Bank of New York
By:	/s/ Brian Dittenhafer
	President

Attest:

/s/ Leslie Bogen Secretary

(Seal)

Thursday, June 19, 2003.max

AMENDMENT NO. 1
TO THE FEDERAL HOME LOAN BANK OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, is hereby amended effective January 1, 1995 in the following respects:

1. The section titled “Introduction” that immediately precedes Article 1 of the Plan is amended and restated to read in its entirety as follows:

INTRODUCTION

The purpose of this Benefit Equalization Plan is to provide to certain employees of the Bank the benefits which would have been payable under the Comprehensive Retirement Program of the Financial Institutions Retirement Fund, and benefits equivalent to the matching contributions, regular account contributions (after-tax) and 401(k) account contributions (pre-tax) which would have been available under the Financial Institutions Thrift Plan, but for the limitations placed on benefits and contributions for such employees by Sections 401(a)(17), 401(k)(3)(A)(ii), 401(m), 402(g) and 415 of the Internal Revenue Code of 1986.

The Plan is unfunded and all benefits payable under this Plan shall be paid solely out of the general assets of the Bank. No benefits under this Plan shall be payable by the Financial Institutions Retirement Fund or its assets or by the Financial Institutions Thrift Plan or its assets.

2. Section 1.07 is deleted, and all references in the Plan to the term “Fund” are changed to “Retirement Fund.”

3. Section 1.08 is redesignated as Section 1.07, and the reference therein to “1954” is changed to “1986.”

4. A new Section 1.08 is added which reads in its entirety as follows:

1.08 “IRC Limitations” mean the cap on compensation taken into account by a plan under IRC Section 401(a)(17), the limitations on 401(k) contributions necessary to meet the average deferral percentage (“ADP”) test under IRC Section 401(k)(3)(A)(ii), the limitations on employee and matching contributions necessary to meet the average contribution percentage (“ACP”) test under IRC Section 401(m), the dollar limitations on elective deferrals under IRC Section 402(g), and the overall limitations on contributions and benefits imposed on qualified plans by IRC Section 415, as such provisions may be amended from time to time, and any similar successor provisions of federal tax law.

5. Section 1.11 is deleted, and all references in the Plan to the term “Regulations” are changed to “Retirement Fund.”

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6. New Sections 1.11 and 1.12 are added which read in their entirety as follows:

1.11 “Retirement Fund” means the Comprehensive Retirement Program of the Financial Institutions Retirement Fund, a qualified and tax-exempt defined benefit pension plan and trust under Sections 401(a) and 501(a) of the IRC, and the governing Regulations thereof, as adopted by the Bank.

1.12 “Thrift Plan” means the Financial Institutions Thrift Plan, a qualified and tax-exempt defined contribution plan and trust under Sections 401(a) and 501(a) of the IRC, as adopted by the Bank.

7. Section 2.03 is redesignated as Section 2.04, and a new Section 2.03 is added which reads in its entirety as follows:

2.03 Each employee of the Bank who is included in the membership of the Thrift Plan shall become a member of the Plan on the earliest date on or after January 1, 1995 on which he is credited with an elective contribution addition or makeup contribution addition under Section 4.01 or 4.02 of the Plan.

8. A new Section 2.05 is added which reads in its entirety as follows:

2.05 Notwithstanding any other provision of this Plan to the contrary, the Committee, in its sole and absolute discretion, shall exclude from Plan participation any employee who is not one of a select group of management and highly compensated employees (within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended).

9. The title of Article 3 is changed to “Amount and Payment of Pension Benefits.”

10. Clauses (i) and (ii) of Section 3.01 are amended and restated to read in their entirety as follows:

(i) is the annual pension benefit (as calculated by the Retirement Fund on the basis of the form of payment elected under it by the member) that would otherwise be payable to or on account of the member by the Retirement Fund if its provisions were administered without regard to the IRC Limitations and on the basis of salary unreduced by the amount of any elective contributions under Article IV of this Plan; and

(ii) is the annual pension benefit (as calculated by the Retirement Fund on the basis of the form of payment elected under it by the member) that is payable to or on account of the member by the Retirement Fund after giving effect to any reduction of such benefit required by the IRC Limitations and on the basis of salary reduced by the amount of any elective contributions under Article IV of this Plan.

11. A new Section 3.07 is added which reads in its entirety as follows:

3.07 Notwithstanding any other provision of this Plan, if on the date payment under the Plan would otherwise commence the lump sum settlement value of a member’s benefit determined by the Actuary does not exceed $3,500, then that member’s benefit shall automatically be paid in the form of a lump sum settlement.

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2

12. Articles 4, 5, 6, 7 and 8 are redesignated as Articles 5, 6, 7, 8 and 9, respectively, the Section numbers within each such redesignated Article are correspondingly changed (e.g., Section 4.01 becomes Section 5.01), any and all cross-references in the Plan to such revised Article and Section numbers are changed, as appropriate, and a new Article 4 is added which reads in its entirety as follows:

ARTICLE IV. AMOUNT AND PAYMENT OF THRIFT BENEFITS

4.01 For each calendar year after 1994, if the employee’s 401(k) account contributions and/or regular account contributions under the Thrift Plan for such year have reached the maximum permitted by the IRC Limitations as determined by the Committee, and if the employee’s compensation for that calendar year is expected to exceed the dollar limitation set forth in IRC Section 401(a)(17) (as indexed), and if the employee elects to reduce his compensation for the current calendar year by delivering a written election to the Committee, prior to the commencement of such calendar year, on such form as the Committee may designate, then such employee shall be credited with an elective contribution addition under this Plan equal to the renuation in his compensation made in accordance with such election; provided, however, that the sum of all such elective contribution additions for an employee with respect to any single calendar year shall not be greater than the excess of (i) over (ii), where

(i) is an amount equal to 15% of his compensation (as defined by the Thrift Plan if its provisions were administered without regard to the IRC Limitations); and

(ii) is an amount equal to his regular account and 401(k) account contributions actually made under the Thrift Plan for the calendar year after giving effect to any limitation or reduction on elective contributions required by the IRC Limitations.

If the reduction in an employee’s compensation under such election is determined to exceed the maximum allowable elective contribution additions for such year, the excess and any related earnings credited under Section 4.03 shall be paid to such employee within the first two and one-half months of the succeeding calendar year.

4.02 For each calendar year after 1994, if a portion of an employee’s regular account contribution or 401(k) account contribution to the Thrift Plan for the preceding year is returned to an employee after the end of such preceding year on account of the IRC Limitations, and if the employee’s compensation for that calendar year is expected to exceed the dollar limitation set forth in IRC Section 401(a)(17) (as indexed), and if the employee elects to reduce his compensation for the current year by an amount up to the sum of Thrift Plan contributions and related earnings returned to him for the preceding year by delivering a written election to the Committee prior to the commencement of such calendar year on such form as the Committee may designate, then such employee shall be credited with a makeup contribution addition under this Plan equal to the reduction in his compensation made in accordance with such election.

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3

4.03 For each elective contribution addition credited to an employee under Section 4.01, such employee shall also be credited with a matching contribution addition under this Plan equal to the matching contribution, if any, that would be credited under the Thrift Plan with respect to such amount if contributed to the Thrift Plan, determined as if the provisions of the Thrift Plan were administered without regard to the IRC Limitations and determined after taking into account the employee’s actual regular and 401(k) contributions to and actual matching contributions under the Thrift Plan. For each makeup contribution addition credited to an employee under Section 4.02, such employee shall also be credited with a matching contribution addition under this Plan equal to the matching contribution, if any, that was lost under the Thrift Plan with respect to the contributions returned for the preceding calendar year.

4.04 The Committee shall maintain a thrift benefit account on the books and records of the Bank for each employee who is a member by reason of amounts credited under Section 4.01 or 4.02. The elective contribution additions, makeup contribution additions and matching contribution additions of a member under Sections 4.01, 4.02 and 4.03 shall be credited to the member’s thrift benefit account as soon as practical after the date that the compensation reduced under Section 4.01 and/or 4.02 would otherwise have been paid to such member. In addition, the thrift benefit account of a member shall be credited from time to time with interest at a rate substantially equivalent to the net rate of return earned on the member’s account in the Thrift Plan, or at such other rate or rates or in such amount as may be determined by the Committee in its discretion.

4.05 The balance credited to a member’s thrift benefit account shall be paid to him in a lump sum payment as soon as reasonably practicable after his retirement or other termination of employment with the Bank.

4.06 If a member dies prior to receiving the balance credited to his thrift benefit account under Section 4.05 above, the balance in his thrift benefit account shall be paid to his Beneficiary in a lump sum payment as soon as reasonably practicable after his death.

13. Except as revised as specifically stated above, the terms and provisions of the Plan are hereby ratified and affirmed.

This Amendment No. 1 to the Plan has been duly adopted by the Bank this 22nd day of December, 1994, to be effective as of January 1, 1995.

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Secretary

(Seal)

Thursday, June 19, 2003.max

4

AMENDMENT NO. 2 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended effective January 1, 1995 by Amendment No. 1 thereto, is hereby further amended effective January 1, 1996 in the following respects:

1. Section 3.01 is amended and restated in its entirety to read as follows:

3.01 The amount, if any, of the annual benefit payable to or on account of a member pursuant to the Plan shall equal (i) minus (ii) minus (iii), but not less than zero, as determined by the Committee, where:

(i) is the annual benefit (as calculated by the Fund on the basis of the form of payment elected under the Regulations by the member) that would otherwise be payable to or on account of the member by the Fund under the Regulations if the provisions of the Regulations were administered without regard to the limitations imposed by Section 401(a)(17) and 415 of the IRC; and

(ii) is the annual benefit (as calculated by the Fund on the basis of the form of payment elected under the Regulations by the member) that is payable to or on account of the member by the Fund under the Regulations after giving effect to any reduction of such benefit required by the limitations imposed by Sections 401(a)(17) and 415 of the IRC; and

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(iii) is the value of any applicable life insurance policy as described in Section 3.08.

For purposes of this Section 3.01, “annual benefit” includes any “Active service Death Benefit,” “Retirement Adjustment Payment,” “Annual Increment” and “Single Purchase Fixed Percentage Adjustment” which the Bank elected to provide its employees under the Regulations.

2. Section 3.03(a) is amended and restated in its entirety to read as follows:

3.03(a) A member may, with the consent of the Committee, elect in writing to have the annual benefit, if any, payable to or on account of a member under Section 3.02 above, converted by the Actuary to any optional form of payment then permitted under the Regulations, except that no benefits under the Plan may be paid in the form of a lump sum settlement unless the member irrevocably elects the lump sum option in writing no later than December 31 of the calendar year immediately preceding the calendar year in which the member’s benefit becomes distributable. The Actuary shall utilize for the purpose of that conversion the same actuarial factors and assumptions then used by the Fund to determine actuarial equivalence under the Regulations.

3. A new Section 3.08 is added which reads in its entirety as follows:

3.08 The amount referred to in clause (iii) of Section 3.01 is the annual benefit that is the actuarial equivalent of the annuity that would be purchasable by the cash surrender value of the policy in excess of the cumulative net premiums (total premiums less (a) term insurance costs charged to the member and (b) key person term insurance costs) paid by the Bank. All determinations under this Section 3.08 shall be made by the Actuary as of the date benefits are to be paid or commenced utilizing the same actuarial factors and assumptions then used by the Fund to determine actuarial equivalence under the Regulations.

4. Except as revised as specifically stated above, the terms and provisions of the Plan are hereby ratified and affirmed.

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- 2 -

This Amendment No. 2 to the Plan has been duly adopted by the Bank this 21^st day of December, 1995, to be effective as of January 1, 1996.

THE FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Secretary

(Seal)

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- 3 -

AMENDMENT NO. 3 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended effective January 1, 1995 by Amendment No. 1 thereto, and effective January 1, 1996 by Amendment No. 2 thereto in the following respects:

1. Section 3.08 is amended to read in its entirety as follows:

3.08 The life insurance policies referred to in clause (iii) of Section 3.01 are any policies subject to a Split Dollar Agreement between the Bank and the member. The amount referred to in clause (iii) of Section 3.01 is the annual benefit that is the actuarial equivalent of the annuity that would be purchasable by the portion of the cash value of any such policy allocable to the member under the applicable Split Dollar Agreement. All determinations under this Section 3.08 shall be made by the Actuary as of the date benefits are to be paid or commenced utilizing the same actuarial factors and assumptions then used by the Fund to determine actuarial equivalence under the Regulations.

2. Section 3.05 is amended by adding the following at the end thereof:

; provided, however, that in calculating such death benefit, the offset described in clause (iii) of Section 3.01 shall be disregarded and instead such lump sum death benefit shall instead be offset by the death benefits payable in respect of such member under all such applicable life insurance policies.

3. Except as revised as specifically stated above, the terms and provisions of the Plan are hereby ratified and affirmed.

This Amendment No. 3 to the Plan has been duly adopted by the Bank this 17th day of November, 1998, to be effective as of December 21, 1995.

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Secretary

(Seal)

Thursday, June 19, 2003.max

AMENDMENT NO. 4 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended by Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto, is hereby amended effective October 19, 2000 in the following respects:

1. Section 4.01 is amended by deleting the reference in clause (i) thereof to “15%” and substituting in lieu thereof a reference to “19%.”

2. Except as revised as specifically stated above, the terms and provisions of the Plan are hereby ratified and affirmed.

This Amendment No. 4 to the Plan has been duly adopted by the Bank this 19th day of October, 2000, to be effective as of [October 19, 2000].

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Corporate Secretary

(Seal)

Thursday, June 19, 2003.max

AMENDMENT NO. 5 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended by Amendment No. 1, Amendment No. 2, Amendment No. 3 and Amendment No. 4 thereto, is hereby amended effective January 1, 2002 in the following respect:

1. Subparagraph (ii) of the first paragraph of Section 4.01 is amended to read as follows:

(ii) is an amount equal to his regular account, 401(k) account and additional elective deferral (as defined in IRC Section 414(v)) contributions actually made under the Thrift Plan for the calendar year after giving effect to any limitation or reduction on elective contributions required by the IRC Limitations.

2. Except as revised as specifically stated above, the terms and provisions of the Plan are hereby ratified and confirmed.

This Amendment No. 5 to the Plan has been duly adopted by the Bank this 21st day of March 2002, to be effective as of January 1, 2002.

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Corporate Secretary

Thursday, June 19, 2003.max

AMENDMENT NO. 6 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended by Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4 and Amendment No. 5 thereto, is hereby amended effective January 1, 2003 in the following respect:

1. Section 3.01 is amended to read as follows:

3.01 The amount, if any, of the annual benefit payable to or on account of a Member pursuant to the Plan shall equal (i) minus (ii), but not less than zero, as determined by the Committee, where:

(i) is the annual benefit (as calculated by the Retirement Fund on the basis of the form of payment elected under the Retirement Fund by the Member) that would otherwise be payable to or on account of the Member by the Retirement Fund under the Retirement Fund if the provisions of the Retirement Fund were administered without regard to the limitations imposed by Section 401(a)(17) and 415 of the IRC; and

(ii) is the annual benefit (as calculated by the Retirement Fund on the basis of the form of payment elected under the Retirement Fund by the Member) that is payable to or on account of the Member by the Retirement Fund under the Retirement Fund after giving effect to any reduction of such benefit required by the limitations imposed by Sections 401(a)(17) and 415 of the IRC;

For purposes of this Section 3.01, “annual benefit” includes any “Active Service Death Benefit,” “Retirement Adjustment Payment,” “Annual Increment” and “Single Purchase Fixed Percentage Adjustment” which the Bank elected to provide its employees under the Retirement Fund.

2. Section 3.05 is amended to read as follows:

3.05 If a Member to whom an annual benefit is payable under the Plan dies before commencement of the payment of his or her benefit, the death benefit payable under Section 3.02 shall be payable to the Member’s beneficiary as if the payment of the Member’s benefit had commenced on the first day of the month in which his or her death occurred; provided, however, that in calculating such death benefit, such lump sum death benefit shall be offset by the death benefits payable in respect of such Member under any and all life insurance policies maintained by the Bank at its sole cost and expense on behalf of the Member.

3. Section 3.08 is deleted in its entirety.

4. Except as revised as specifically stated above, the terms and provisions of the Plan are hereby ratified and confirmed.

Monday, August 04, 2003.max

This Amendment No. 6 to the Plan has been duly adopted by the Bank this       day of December, 2002, to be effective as of January 1, 2003.

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Corporate Secretary

Monday, August 04, 2003.max

AMENDMENT NO. 7 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended by Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5 and Amendment No. 6 thereto, is hereby amended, effective October 16, 2003, in the following respects:

1. Section 1.02 is amended to read as follows:

1.02 “Bank” means the Federal Home Loan Bank of New York and each subsidiary or affiliated company thereof which participates in the Plan.

2. Section 2.05 is amended to read as follows:

2.05 Notwithstanding any other provision of this Plan to the contrary, the Committee, in its sole and absolute discretion, shall exclude from Plan participation any employee who is not one of a select group of management and highly compensated employees (within the meaning of those terms as used in Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended).

3. Articles 1 through 6, inclusive, Section 7.05, Article 8 and Sections 9.01, 9.02, 9.04 and 9.07 are amended by changing the words “member,” “member’s” and “members” to “Member,” “Member’s” and “Members,” respectively, wherever the same appear therein.

4. Article IV is redesignated Article 4, and Article 4, as so redesignated, is amended by changing “employee,” “employee’s” and “an employee” to “Member,” “Member’s” and “a Member,” respectively, wherever the same appear therein.

5. Except as revised as specifically stated above, the terms and provisions of the Plan are hereby ratified and confirmed.

This Amendment No. 7 to the Plan has been duly adopted by the Bank this 16^th day of October, 2003, to be effective as of October 16, 2003.

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Corporate Secretary

AMENDMENT NO. 8 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended by Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5, Amendment No. 6 and Amendment No. 7 thereto, is hereby amended, effective on and as of the date of adoption hereof, in the following respect:

Article 4 of the Plan is amended by inserting the following as Section 4.07 thereof:

Section 4.07 A Member who shall have been credited with an elective contribution addition under Section 4.01 of the Plan shall be entitled to elect to have the balance credited to the Member’s Thrift Benefit Account paid to him in such other form, or at such date or dates, other than a lump sum payment payable as soon as reasonably practicable after his retirement or other termination of employment with the Bank as provided in Section 4.05 of the Plan; provided, that such election shall be made in writing delivered to the Bank on or before December 31, 2007, and shall be effective only with respect to amounts payable under the provisions of Section 4.05 of the Plan on or after January 1, 2008, and not prior thereto.

This Amendment No. 8 to the Plan has been duly adopted by the Bank this 18^th day of October, 2007, to be effective on and as of the date of adoption hereof.

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Corporate Secretary

AMENDMENT NO. 9 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended by Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5, Amendment No. 6, Amendment No. 7 and Amendment No. 8 thereto, is hereby amended, effective January 1, 2008, in the following respects:

1. Section 1.05 is amended to read as follows:

1.05 “Committee” means the Benefit Equalization Plan Committee appointed by the Board of Directors pursuant to Section 7.01 to administer the Plan.

2. Section 1.06 is deleted, and Sections 1.07, 1.08, 1.09 and 1.10 are hereby redesignated as Sections 1.06, 1.07, 1.08 and 1.09, respectively.

3. Section 1.10 is adopted as follows:

1.10 “Retirement” means and refers to the Separation from Service of a Member under circumstances entitling the Member to a benefit from and under the terms of the Retirement Fund.

4. Sections 1.11 and 1.12 are amended to read as follows:

1.11 “Retirement Fund” means the Pentegra Defined Benefit Plan for Financial Institutions, a qualified and tax-exempt defined benefit pension plan and trust under IRC Sections 401(a) and 501(a), and the governing Retirement Fund thereof, as adopted by the Bank.

1.12 “Retirement Plan Component” means and refers to the provisions of Article 3, which is and shall be deemed to be a separate plan within the Federal Home Loan Bank of New York Benefit Equalization Plan.

5. Sections 1.13, 1.14 and 1.15 are adopted as follows:

1.13 “Separation from Service “ has the meaning set forth in Section 1.409A-1(h) of the Regulations promulgated under IRC Section 409A.

1.14 “Thrift Plan Component” means and refers to the provisions of Article 4, which is and shall be deemed to be a separate plan within the Federal Home Loan Bank of New York Benefit Equalization Plan.

1.15 “Thrift Plan” means the Pentegra Defined Contribution Plan for Financial Institutions, a qualified and tax exempt defined contribution plan and trust under IRC Sections 401 (a) and 501 (a), as adopted by the Bank.

6. Article 2 is amended to read as follows:

Article 2. Membership

2.01 Each employee of the Bank who is included in the membership of the Retirement Fund shall become a Member of the Plan and of the Retirement Plan Component of the Plan on the later of (i) the date on which the Committee shall determine, in its sole and absolute discretion, that he or she is entitled to membership in the Plan and (ii) the earliest date on which a benefit under the Retirement Fund is limited by IRC Section 401(a)(17) or 415. If, on the date that payment of a Member’s benefit from the Retirement Fund commences, the Member is not entitled to receive a benefit under Article 3.01 of the Plan, his membership in the Retirement Component of the Plan shall terminate on such date.

2.02 Each employee of the Bank who is included in the membership of the Thrift Plan shall become a Member of the Plan and of the Thrift Plan Component of the Plan on the later of (i) the date on which the Committee shall determine, in its sole and absolute discretion, that he or she is entitled to membership in the Plan and (ii) the earliest date on which he or she is credited with an elective contribution addition or makeup contribution addition under Section 4.01 or 4.02 of the Plan.

2.03 Notwithstanding any other provision of this Plan to the contrary, the Committee, in its sole and absolute discretion, shall exclude from membership and participation in the Plan any employee who is not one of a select group of management and highly compensated employees, or who does not meet such criteria and requirements for membership in the Plan as the Committee shall fix and determine.

7. Article 3 is amended to read as follows:

Article 3. Amount and Payment of Pension Benefits

3.01 The amount, if any, of the annual benefit payable to or on account of a Member pursuant to the Retirement Plan Component of the Plan shall equal (i) minus (ii), but not less than zero, as determined by the Committee, where:

(i) is the annual benefit (as calculated by the Retirement Fund on the basis of the form of payment elected under the Retirement Fund by the Member) that would otherwise be payable to or on account of the Member by the Retirement Fund under the Retirement Fund if the provisions of the Retirement Fund were administered without regard to the limitations imposed by Sections 401 (a)(17) and 415 of the IRC; and

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(ii) is the annual benefit (as calculated by the Retirement Fund on the basis of the form of payment elected under the Retirement Fund by the Member) that is payable to or on account of the Member by the Retirement Fund under the Retirement Fund after giving effect to any reduction of such benefit required by the limitations imposed by Sections 401 (a)( 17) and 415 of the IRC.

For purposes of this Section 3.01, “annual benefit” includes any “Active Service Death Benefit,” “Retirement Adjustment Payment,” “Annual Increment” and “Single Purchase Fixed Percentage Adjustment” which the Bank has elected to provide its employees under the Retirement Fund and shall be in the form of a life annuity within the meaning of Section 1.409A-2(b)(2)(ii) of the Regulations promulgated under IRC Section 409A.

3.02 Unless the Member elects an optional form of payment under this Article 3 pursuant to Section 3.03 of the Plan, the annual benefit, if any, payable to or on account of a Member under Section 3.01 of the Plan shall be converted by the Actuary and shall be payable to or on account of the Member in the “Regular Form” of payment, utilizing for that purpose the same actuarial factors and assumptions then used by the Retirement Fund to determine actuarial equivalence under the Retirement Fund. For purposes of the Plan, the “Regular Form” of payment means an annual benefit payable for the Member’s lifetime and the death benefit described in Section 3.04 of the Plan.

3.03 (a) A Member may, with the prior written consent of the Committee, elect in writing to have the annual benefit, if any, payable to or on account of a Member under Section 3.02 of the Plan converted by the Actuary to any optional form of payment then permitted under the Retirement Fund that is a life annuity within the meaning of Section 1.409A-2(b)(2)(ii) of the Regulations promulgated under IRC Section 409A other than the “Regular Form” of payment. The Actuary shall utilize for the purpose of that conversion the same actuarial factors and assumptions then used by the Retirement Fund to determine actuarial equivalence under the Retirement Fund.

(b) If a Member who had elected an optional form of payment under this Section 3.03 dies after the date his benefit payments under the Plan had commenced, the only death benefit, if any, payable under the Plan in respect of said Member shall be the amount, if any, payable under the optional form of payment which the Member had elected under the Plan. If a Member who had elected an optional form of payment under this Section 3.03 dies before the date his benefit payments under the Plan commence, his election of an optional form of benefit shall be inoperative.

(c) An election of an optional form of payment under this Section 3.03 may be made only on a form prescribed by the Committee and filed by the Member with the Committee prior to the commencement of payment of his benefit under Section 5.02 of the Plan.

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3.04 Upon the death of a Member who had not elected an optional form of payment under Section 3.03 of the Plan, a death benefit shall be paid to the Member’s beneficiary in a lump sum equal to the excess, if any, of (i) over (ii), where:

(i) is an amount equal to twelve (12) times the annual benefit, if any, payable under Section 3.02 of the Plan; and

(ii) is the sum of the benefit payments, if any, which the Member had received under this Article 3.

3.05 If a Member to whom an annual benefit is payable under this Article 3 dies before commencement of the payment of his benefit, the death benefit payable under Section 3.02 of the Plan shall be payable to the Member’s beneficiary as if the payment of the Member’s benefit had commenced on the first day of the month in which his death occurred.

3.06 If a Member is restored to employment with the Bank after payment of his benefit under this Article 3 has commenced, all payments under the Plan shall thereupon be discontinued. Upon the Member’s subsequent Separation from Service with the Bank, his benefit under the Plan shall be recomputed in accordance with Sections 3.01 and 3.02 of the Plan, but shall be reduced by the equivalent value of the amount of any benefit paid by the Plan in respect of his previous Separation from Service, and such reduced benefit shall be paid to such Member in accordance with the provisions of the Plan. For purposes of this Section 3.06, the equivalent value of the benefit paid in respect of a Member’s previous retirement or termination of employment shall be determined by the Actuary utilizing for that purpose the same actuarial factors and assumptions then used by the Retirement Fund to determine actuarial equivalence under the Retirement Fund.

3.07 The annual benefit, if any, payable to or on account of a Member under this Article 3 shall commence to be paid no earlier than (i) the Member’s Separation from Service, (ii) the date the Member becomes disabled, within the meaning of IRC Section 409A(a)(2)(c), or (iii) the Member’s death, and the time or schedule of payments shall not be accelerated except as provided in Regulations promulgated pursuant to IRC Section 409A, nor shall any payment of benefits be deferred to a date other than the date fixed for such payment. Such annual benefit shall be paid in monthly installments commencing on the first day of the month next following the Member’s Separation from Service constituting the Member’s Retirement under the Retirement Fund, except that no benefits shall be paid prior to the date such annual benefit can be definitely determined by the Committee.

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8. Article 4 is amended to read as follows:

Article 4. Amount and Payment of Thrift Benefits

4.01 For each calendar year after 2007, if the Member’s 401(k) account contributions and/or regular account contributions under the Thrift Plan for such year have reached the maximum permitted by the IRC Limitations as determined by the Committee, and if the Member’s compensation for that calendar year is expected to exceed the dollar limitation set forth in IRC Section 401(a)(17) (as indexed), and if the Member elects to reduce his compensation for such calendar year by delivering to the Committee, prior to the commencement of such calendar year, a written election on such form as the Committee may designate, which election shall become irrevocable on the last day of the calendar year preceding such calendar year, then such Member shall be credited with an elective contribution addition under this Plan equal to the reduction in his compensation made in accordance with such election; provided, however, that the sum of all such elective contribution additions for a Member with respect to any single calendar year shall not be greater than the excess of (i) over (ii), where

(i) is an amount equal to 19% of his compensation (as defined by the Thrift Plan if its provisions were administered without regard to the IRC Limitations); and

(ii) is an amount equal to his regular account, 401(k) account and additional elective deferral (as defined in IRC Section 414(v)) contributions actually made under the Thrift Plan for the calendar year after giving effect to any limitation or reduction on elective contributions required by the IRC Limitations.

If the reduction in a Member’s compensation under such election is determined to exceed the maximum allowable elective contribution additions for such calendar year, such excess and any related earnings credited under Section 4.03 of the Plan shall be paid to such Member within the first two and one half months of the succeeding calendar year.

4.02 For each calendar year after 2007, if a portion of an Member’s regular account contribution or 401(k) account contribution to the Thrift Plan for the preceding calendar year is returned to a Member after the end of such preceding calendar year on account of the IRC Limitations, and if the Member’s compensation for such calendar year is expected to exceed the dollar limitation set forth in IRC Section 401(a)(17) (as indexed), and if the Member elects to reduce his compensation for such calendar year by an amount up to the sum of Thrift Plan contributions and related earnings returned to him for the preceding year by delivering a written election to the Committee prior to the commencement of such calendar year on such form as the Committee may designate, then such Member shall be credited with a makeup contribution addition under this Article 4 equal to the reduction in his compensation made in accordance with such election.

4.03 For each elective contribution addition credited to a Member under Section 4.01 of the Plan, such Member shall also be credited with a matching contribution addition under this Article 4 equal to the matching contribution, if any, that would be credited under the Thrift Plan with respect to such amount if contributed to the Thrift Plan, determined as if the provisions of the Thrift Plan were administered without regard to the IRC Limitations and determined after taking into account the Member’s actual regular and 401(k) contributions to and actual matching contributions under the Thrift Plan. For each makeup contribution addition credited to a Member under Section 4.02, of the Plan such Member shall also be credited with a matching contribution addition under this Article 4 equal to the matching contribution, if any, that was lost under the Thrift Plan with respect to the contributions returned for the preceding calendar year.

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4.04 The Committee shall maintain a thrift benefit account on the books and records of the Bank for each Member who is a Member by reason of amounts credited under Section 4.01 or 4.02 of the Plan. The elective contribution additions, makeup contribution additions and matching contribution additions of a Member under Sections 4.01, 4.02 and 4.03 of the Plan shall be credited to the Member’s thrift benefit account as soon as practicable after the date that the compensation reduced under Section 4.01 and/or 4.02 of the Plan would otherwise have been paid to such Member. In addition, the thrift benefit account of a Member shall be credited from time to time with interest at a rate substantially equivalent to the net rate of return earned on the Member’s account in the Thrift Plan, or at such other rate or rates or in such amount as may be determined by the Committee in its sole and absolute discretion.

4.05 The balance credited to a Member’s thrift benefit account shall be paid to him in a lump sum payment as soon as reasonably practicable after his Separation from Service with the Bank, or at such other date or dates and in such other form as the Member shall have elected in writing to the Bank on or before December 31, 2007, or, in the case of a Member who shall first elect to reduce his compensation pursuant to Section 4.01 of the Plan subsequent to December 31, 2007, at the time the Member first so elects to reduce his compensation, subject to the provisions of Section 4.07 of the Plan.

4.06 If a Member dies prior to receiving the balance credited to his thrift benefit account under Section 4.05 of the Plan, the balance in his thrift benefit account at the time of the Member’s death shall be paid to his Beneficiary in a lump sum payment as soon as reasonably practicable after his death.

4.07 A Member (or the beneficiary of a Member) who shall have been credited with an elective contribution addition under Section 4.01 of the Plan shall be deemed entitled to a benefit under this Article 4 at such time as the Member (or his beneficiary) shall be determined to be due to a benefit payable by the Thrift Plan; provided, that the benefit under this Article 4 shall be paid at the time or times and in the form in which such benefit is payable pursuant to Section 4.05 of the Plan and shall commence to be paid no earlier than (i) the Member’s Separation from Service, (ii) the date the Member becomes disabled, within the meaning of IRC Section 409A(a)(2)(c), or (iii) the Member’s death, and the time or schedule of payments provided in Section 4.05 of the Plan shall not be accelerated except as provided in Regulations promulgated pursuant to IRC Section 409A, nor shall any payment of benefits be deferred to a date other than the date fixed for such payment.

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9. Article 5 is amended to read as follows:

Article 5. Source and Method of Payments

All payments of benefits under the Plan, whether arising under Article 3 with respect to the Retirement Plan Component of the Plan or under Article 4 with respect to the Thrift Plan Component of the Plan, shall be paid from, and shall only be a general claim upon, the general assets of the Bank, notwithstanding that the Bank, in its discretion, may establish a bookkeeping reserve or a grantor trust (as such term is used in IRC Sections 611 through 677) to reflect or to aid it in meeting its obligations under the Plan with respect to any Member or prospective Member or beneficiary. No benefit whatever provided by the Plan shall be payable from the assets of the Retirement Fund or the Thrift Plan. No Member shall have any right, title or interest whatever in or to any investments which the Bank may make or any specific assets which the Bank may reserve to aid it in meeting its obligations under the Plan.

10. Section 7.01 is amended to read as follows:

7.01 The Board of Directors has delegated to the Benefit Equalization Plan Committee, subject to those powers which the Board has reserved as described in Article 8 of the Plan, general authority over and responsibility for the administration and interpretation of the Plan. The Committee shall have full power and authority to interpret and construe the Plan, and to make all determinations considered necessary or advisable for the administration of the Plan and any trust referred to in Article 5 of the Plan, and the calculation of the amount of benefits payable thereunder, and to review claims for benefits under the Plan. The Committee’s interpretations and constructions of the Plan and its decisions or actions thereunder shall be binding and conclusive on all persons for all purposes.

11. Section 7.02 is amended by inserting “to” preceding the words “all accountants,” by changing “Section 3.01” to “Article 3” and by changing “limitations” to “limitation.”

This Amendment No. 9 to the Plan has been adopted by the Bank this 18^th day of October, 2007, to be effective as of January 1, 2008.

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Corporate Secretary

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AMENDMENT NO. 10 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended by Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5, Amendment No. 6, Amendment No. 7, Amendment No. 8, and Amendment No. 9 thereto, is hereby amended, effective October 16, 2008, in the following respect:

Article 4 of the Plan is amended by inserting the following as Section 4.08 thereof:

4.08 A Member who shall have been credited with an elective contribution addition under Section 4.01 of the Plan shall be entitled to elect to have the balance credited to the Member’s Thrift Benefit Account paid to him in such other form, or at such date or dates, other than a lump sum payment payable as soon as reasonably practicable after his retirement or other termination of employment with the Bank as provided in Section 4.05 of the Plan; provided, that such election shall be made in writing delivered to the Bank or before December 31, 2008, and shall be effective only with respect to amounts payable under the provisions of Section 4.05 of the Plan on or after January 1, 2009, and not prior thereto.

This Amendment No. 10 to the Plan has been duly adopted by the Bank this 16^th day of October, 2008, to be effective on and as of the date of adoption hereof.

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Corporate Secretary

AMENDMENT NO. 11 TO THE
FEDERAL HOME LOAN BANK
OF NEW YORK
BENEFIT EQUALIZATION PLAN

The Federal Home Loan Bank of New York Benefit Equalization Plan (the “Plan”), as adopted by the Federal Home Loan Bank of New York (the “Bank”) as of June 18, 1987, to be effective as of January 1, 1988, and as previously amended by Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5, Amendment No. 6, Amendment No. 7, Amendment No. 8, Amendment No. 9, and Amendment No. 10 thereto, is hereby amended, effective January 1, 2009, in the following respects:

1. Section 3.03(a) is amended by inserting following the words “the Regular Form of payment” the words “and that is actuarially equivalent to the “Regular Form” of payment.”

2.	The first sentence of Section 3.06 is amended to read as follows: “If a Member is restored to employment by the Bank after payment of his benefit under this Article 3 has commenced, all payments under this Article 3 shall, to the extent permitted by law, thereupon be discontinued.”
3.	Clause (ii) of Section 4.01 is amended to read as follows:
	“(ii) is an amount equal to the maximum amount of regular account, 401(k) account and additional elective deferral (as defined in IRC Section 414(v)) contributions the Member could make under the Thrift Plan for the calendar year after giving effect to any limitation or reduction on elective contributions required by the IRC Limitations”.

4.	Section 4.05 is amended by changing “December 31, 2007,” wherever the same shall appear therein, to “December 31, 2008.”
5.	Section 4.08 is deleted.

6. Article 5 is amended by inserting following the word “beneficiary” in the first sentence thereof a semicolon, followed by the words “provided, that no contributions to such a grantor trust shall be made by the Bank during any “restricted period,” as such term is defined in IRC Section 409A(b)(3)(B).”

This Amendment No. 11 to the Plan has been duly adopted by the Bank this 16^th day of October, 2008, to be effective as of January 1, 2009.

FEDERAL HOME LOAN BANK OF NEW YORK
By:	/s/ Alfred A. DelliBovi
	President

Attest:

/s/ Barbara Sperrazza Corporate Secretary

EX-10.09

Exhibit 10.09

THE FEDERAL HOME LOAN BANK

OF NEW YORK

NONQUALIFIED PROFIT SHARING PLAN

TABLE OF CONTENTS

ARTICLE	PAGE
I DEFINITIONS		2
II MEMBERSHIP		4
III AMOUNT AND PAYMENT OF BENEFITS		5
IV AMOUNT AND METHOD OF PAYMENT		9
V DESIGNATION OF BENEFICIARIES		10
VI ADMINISTRATION OF PLAN		11
VII AMENDMENT AND TERMINATION		13
VIII GENERAL PROVISIONS		14

THE FEDERAL HOME LOAN BANK OF NEW YORK
NONQUALIFIED PROFIT SHARING PLAN

This Plan is adopted by the Federal Home Loan Bank of New York (the “Bank”) in order to provide additional benefits to certain employees of the Bank who are ineligible for certain benefits under the Pentegra Defined Benefit Plan for Financial Institutions, a qualified defined benefit pension plan, as adopted by the Bank. This Plan is unfunded, and all benefits payable under the Plan shall be paid solely out of the general assets of the Bank.

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Article I. Definitions

When used in the Plan, the following terms shall have the following meanings:

1.01 “Bank” means the Federal Home Loan Bank of New York and each subsidiary or affiliated company thereof which participate in the Plan.

1.02 “Bank Service” has the same meaning as is given to “Service” under the Retirement Plan, except that such term shall include only the Member’s “Service” (as defined by the Retirement Plan) as an employee of the Bank and shall exclude any and all “Service” with any other employer that may be credited to the Member under the Retirement Plan.

1.03 “Benefit Equalization Plan” means the Federal Home Loan Bank of New York Benefit Equalization Plan as adopted by the Bank as of June 18, 1987, to be effective as of January 1, 1988, as the same has heretofore been and may hereafter be amended.

1.04 “Nonqualified Plan Committee” means the Benefit Equalization Plan Committee appointed by the Board of Directors pursuant to Section 6.01 to administer the Plan.

1.05 “Board of Directors” or “Board” means the Board of Directors of the Bank.

1.06 “Compensation Committee” means the Compensation and Human Resources Committee of the Board of Directors.

1.07 “Effective Date” means July 1, 2008.

1.08 “IRC” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

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1.09 “Member” means any person included in the membership of the Plan as provided in Article 2.

1.10 “Plan” means the Federal Home Loan Bank of New York Nonqualified Profit Sharing Plan, as set forth herein and as amended from time to time.

1.11 “Profit Sharing Benefit” means and refers to the benefit determined pursuant to Article III.

1.12 “Profit Sharing Benefit Account” means and refers to the account maintained for each Member pursuant to Section 3.02.

1.13 “Retirement Plan” means the Pentegra Defined Benefit Plan for Financial Institutions, a qualified and tax-exempt defined benefit pension plan and trust under IRC Sections 401(a) and 501(a), as adopted by the Bank.

1.14 “Separation from Service” has the meaning set forth in Section 1.408A-1(h) of the Regulations promulgated under IRC Section 409A.

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Article II. Membership

2.01 Each employee of the Bank who is included in the membership of the Retirement Plan and derives his benefit thereunder in whole or in part under the amended terms and conditions of the Retirement Plan, as amended effective July 1, 2008, shall become a Member of the Plan on the latest of (i) the date on which he shall have attained five (5) years of Bank Service, (ii) the date on which he shall have become a Member of the Retirement Plan Component of the Benefit Equalization Plan, and (iii) the Effective Date.

2.02 Notwithstanding any other provision of this Plan to the contrary, the Nonqualified Plan Committee, in its sole and absolute discretion, shall exclude from membership and participation in the Plan any employee who is not one of a select group of management and highly compensated employees, or who does not meet such criteria and requirements for membership in the Plan as the Nonqualified Plan Committee shall fix and determine.

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Article III. Amount and Payment of Benefits

3.01 For the calendar year 2008 and for each calendar year thereafter, the Members of the Plan during such calendar year shall be credited with a Profit Sharing Benefit under the Plan in such aggregate amount, if any, as the Compensation Committee shall determine in accordance with Section 3.02, based upon the evaluation by the Compensation Committee of the Bank’s performance of certain Bank-wide performance goals used in the Bank’s Incentive Compensation Plan for such calendar year established by the Board of Directors, or by such Committee as the Board of Directors shall designate for that purpose, or such other performance criteria as may be established by the Board of Directors or such Committee as the Board of Directors shall designate for that purpose, for such calendar year, which determination shall be made by the Compensation Committee as soon as practicable after the end of such calendar year.

3.02 The amount of the Profit Sharing Benefit with which a Member is credited for any calendar year in accordance with Section 3.01 shall be determined as follows:

(a) If the Board of Directors, or such Committee as the Board of Directors shall designate, in its sole and absolute discretion, determines that the Bank has achieved the threshold limits of performance of the criteria established for such calendar year pursuant to Section 3.01, the amount of the Profit Sharing Benefit with which each Member of the Plan who is such a Member at the commencement of such calendar year shall be credited for such calendar year shall be equal to eight percent (8%) of the Member’s Salary for such calendar year.

(b) If the Board of Directors, or such Committee as the Board of Directors shall designate, in its sole and absolute discretion, determines that the Bank has not achieved the threshold level of performance of such criteria established for such calendar year, no Member shall be credited with any Profit Sharing Benefit for such calendar year.

(c) Notwithstanding any provision of paragraph (a) or (b) of this Section 3.02 above, the Compensation Committee may credit such higher or lower amount of Profit Sharing Benefit for any calendar year as it may determine, in its sole and absolute discretion, is appropriate in light of all relevant facts and circumstances.

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3.03 The Bank shall maintain a Profit Sharing Benefit Account on the books and records of the Bank for each Member and shall credit to such Profit Sharing Benefit Account all Profit Sharing Benefits with which such Member shall be credited, pursuant to Section 3.02, as soon as practicable following the determination of the amount of such Profit Sharing Benefits by the Compensation Committee in accordance with the provisions of Sections 3.01 and 3.02.

3.04 A Member shall not be entitled to a Profit Sharing Benefit under this Article III for any calendar year unless, on the date the determination referred to in Section 3.02(a) is made by the Compensation Committee, (i) he is an employee of the Bank and (ii) he is eligible to be a Member under the provisions of Section 2.01; provided, that a Member whose employment during any calendar year shall have ceased prior to the last day of such calendar year by reason of his death during such calendar year shall be entitled to have credited to his Profit Sharing Benefit Account the Profit Sharing Benefit that would have been credited to his Profit Sharing Benefit Account for such calendar year but for his death.

3.05 There shall be credited to the Profit Sharing Benefit Account of each Member from time to time notional interest at such rate or rates or in such amount or amounts as may be determined by the Nonqualified Plan Committee in its sole and absolute discretion.

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3.06 The right of any Member to receive all or any part of the amount credited to his Profit Sharing Benefit Account shall be subject to the following vesting rules:

(a) Each Member shall have a vested and nonforfeitable right to the balance in his Profit Sharing Benefit Account upon the earliest to occur of (i) his completion of five (5) years of Bank Service, (ii) his attainment of his Normal Retirement Date, (iii) his attainment of his Disability Retirement Date, or (iv) his death, in each case while he is an employee of the Bank. If a Member has any Separation from Service with the Bank prior to the earliest to occur of such dates, neither he nor any other person claiming in his right shall be entitled to any benefits under the Plan.

(b) As used in the Plan, (i) “Salary” means the Member’s base salary for such calendar year including any elective contribution the Member may make under Article 4 of the Benefit Equalization Plan with respect to such calendar year and any award of benefits under the Bank’s Incentive Compensation Plan made with respect to such calendar year; provided, that a Member’s Salary for the calendar year 2008 shall be deemed to be equal to fifty percent (50%) of his Salary for such calendar year as determined without regard to this clause (b), and (ii) the terms “Normal Retirement Date” and “Disability Retirement Date” shall have the same meanings as are given to them, respectively, under the Retirement Plan.

7

3.07 The balance credited to the Profit Sharing Benefit Account of a Member who has met the vesting rules in Section 3.06 shall be paid to him in a lump sum payment as soon as reasonably practicable following his Separation from Service with the Bank, or at such other date or dates or in such other form as the Member shall have elected in writing on a form prescribed by the Nonqualified Plan Committee which is filed by the Member with the Nonqualified Plan Committee within thirty (30) days following (i) the Effective Date, in the case of a Member who is such on the Effective Date, or (ii) in the case of a Member who becomes such after the Effective Date, the date on which he becomes a Member; provided, that such balance credited to the Profit Sharing Benefits Account of a Member shall in no event be payable earlier than the earliest of (i) the Member’s Separation from Service with the Bank, (ii) the date of the Member’s death or (iii) the date the Member becomes disabled, within the meaning of IRC Section 409A(a)(2)(c), and that the time or schedule of payments of the balance credited to the Profit Sharing Benefit Account of a Member shall not be accelerated, except as provided in Regulations promulgated pursuant to IRC Section 409A, nor shall any payment of benefits under the Plan be deferred to a date other than the date fixed for such payment in this Article III; provided, that a Member may, by a subsequent election, as defined in § 1.409A-2(b)(1) of the Regulations promulgated pursuant to IRC Section 409A, delay the time or change the form of a payment of all or any part of the balance credited to the Member’s Profit Sharing Benefit Account if, and only if, such subsequent election meets all of the following requirements: (i) such election shall not be made less than twelve (12) months prior to the date of the first scheduled payment of the balance credited to the Member’s Profit Sharing Benefit Account; (ii) such election shall not take effect until at least twelve (12) months after the date on which the election is made; (iii) the payment with respect to which such election is made shall be deferred for a period of not less than five (5) years from the date such payment would otherwise have been made; and (iv) such election shall comply with any and all other requirements of such Regulations applicable thereto. If a Member dies while an employee of the Bank prior to receiving the balance credited to his Profit Sharing Benefit Account, the balance in his Profit Sharing Benefit Account at the date of the Member’s death shall be paid in a lump sum payment as soon as reasonably practicable following the Member’s death in accordance with the provisions of Article V.

8

Article IV. Source and Method of Payments

All payments of benefits under the Plan, shall be paid from, and shall only be a general claim upon, the general assets of the Bank, notwithstanding that the Bank, in its discretion, may establish a bookkeeping reserve or a grantor trust (as such term is used in IRC Sections 611 through 677) to reflect or to aid it in meeting its obligations under the Plan with respect to any Member or prospective Member or beneficiary. No benefit whatever provided by the Plan shall be payable from the assets of the Retirement Fund or the Thrift Plan. No Member shall have any right, title or interest whatever in or to any investments which the Bank may make or any specific assets which the Bank may reserve to aid it in meeting its obligations under the Plan.

9

Article V. Designation of Beneficiaries

5.01 Each Member of the Plan may file with the Nonqualified Plan Committee a written designation of one or more person as the beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon his death. A Member may, from time to time, revoke or change his beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Nonqualified Plan Committee. The last such written designation received by the Nonqualified Plan Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Nonqualified Plan Committee prior to the Member’s death, and in no even shall it be effective as of a date prior to such receipt.

5.02 If no such beneficiary designation is in effect at the time of the Member’s death, or if no designated beneficiary survives the Member, or if, in the opinion of the Nonqualified Plan Committee, such designation conflicts with applicable law, the Member’s estate shall be deemed to have been designated as his beneficiary and shall be paid the amount, if any, payable under the Plan upon the Member’s death. If the Nonqualified Plan Committee is in doubt as to the right of any person to receive such amount, the Committee may retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Nonqualified Plan Committee may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Bank therefor.

10

Article VI. Administration of Plan

6.01 The Board of Directors has delegated to the Nonqualified Plan Committee, subject to those powers which the Board has reserved to itself or to the Compensation Committee as described in Article III of the Plan, general authority over and responsibility for the administration and interpretation of the Plan. The Nonqualified Plan Committee shall have full power and authority to interpret and construe the Plan, to make all determinations considered necessary or advisable for the administration of the Plan and any trust referred to in Article V of the Plan and the calculation of the amount of benefits payable under the Plan, and to review claims for benefits under the Plan. The Nonqualified Plan Committee’s interpretations and constructions of the Plan and its decisions or actions thereunder shall be binding and conclusive on all persons for all purposes, except to the extent of the powers which the Board has reserved to itself or to the Compensation Committee referred to in the first sentence of this Section 6.01.

6.02 If the Nonqualified Plan Committee deems it advisable, it shall arrange for the engagement of legal counsel and certified public accountants (who may be counsel to or accountants for the Bank) and other consultants, and make use of agents and clerical or other personnel, for purposes of the Plan. The Nonqualified Plan Committee may rely upon the written opinions of such counsel, accountants, and consultants, and upon any information supplied by the Retirement Plan for purposes of Article III of the Plan, and delegate to any agent or to any subcommittee or Nonqualified Plan Committee member its authority to perform any act hereunder, including, without limitation, those matters involving the exercise of discretion; provided, however, that such delegation shall be subject to revocation at any time at the discretion of the Nonqualified Plan Committee. The Nonqualified Plan Committee shall report to the Compensation Committee, or to a committee designated by the Board, at such intervals as shall be specified by the Compensation Committee or such designated committee, with regard to the matters for which it is responsible under the Plan.

11

6.03 All claims for benefits under the Plan shall be submitted in writing to the Nonqualified Plan Committee. Written notice of the decision on each such claim shall be furnished with reasonable promptness to the Member or his beneficiary (the “claimant”). The claimant may request a review by the Nonqualified Plan Committee of any decision denying the claim in whole or in part. Such request shall be made in writing and filed with the Nonqualified Plan Committee within 30 days of such denial. A request for review shall contain all additional information which the claimant wishes the Nonqualified Plan Committee to consider. The Nonqualified Plan Committee may hold any hearing or conduct any independent investigation which it deems desirable to render its decision and the decision on review shall be made as soon as feasible after the Nonqualified Plan Committee’s receipt of the request for review. Written notice of the decision shall be furnished to the claimant. For all purposes under the Plan, such decisions on claims (where no review is requested) and decisions on review (where review is requested) shall be final, binding, and conclusive on all interested persons as to all matters relating to the Plan.

6.04 All expenses incurred by the Nonqualified Plan Committee in its administration of the Plan shall be paid by the Bank.

12

Article VII. Amendment and Termination

The Board of Directors may amend, suspend, or terminate, in whole or in part, the Plan without the consent of the Nonqualified Plan Committee or any Member, beneficiary or other person, except that no amendment, suspension or termination shall retroactively impair or otherwise adversely affect the rights of any Member, beneficiary or other person to benefits under the Plan which have vested prior to the date of such action, as determined by the Nonqualified Plan Committee in its sole discretion. The Nonqualified Plan Committee may adopt any amendment or take any other action which may be necessary or appropriate to facilitate the administration, management and interpretation of the Plan or to conform the Plan thereto, provided any such amendment or action does not have a material effect on the then currently estimated cost to the Bank of maintaining the Plan.

13

Article VIII. General Provisions

8.01 The Plan shall be binding upon and inure to the benefit of the Bank, and its successors and assigns, and the Members, and their successors, assigns, designees and estates. The Plan shall also be binding upon and inure to the benefit of any successor organization succeeding to substantially all of the assets and business of the Bank, but nothing in the Plan shall preclude the Bank from merging or consolidating into or with, or transferring all or substantially all of its assets to, another organization which assumes the Plan and all obligations of the Bank hereunder. The Bank agrees that it will make appropriate provision for the preservation of Members’ rights under the Plan in any agreement or plan which it may enter into effect any merger, reorganization or transfer of assets and assumption of Plan obligations of the Bank, the term “Bank” shall refer to such other organization and the Plan shall continue in full force and effect.

8.02 Neither the Plan nor any action taken thereunder shall be construed as giving to a Member the right to be retained in the employ of the Bank or as affecting the right of the Bank to dismiss any Member from its employ.

8.03 The Bank shall withhold or cause to be withheld from all benefits payable under the Plan in all federal, state, local and other taxes required by applicable law be withheld with respect to such payments.

8.04 No right or interest of a Member under the Plan may be assigned, sold, encumbered, transferred or otherwise disposed of and any attempted disposition of such right or interest shall be null and void.

8.05 If the Nonqualified Plan Committee shall find that any person to whom any amount is or was payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment, or any part thereof, due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Nonqualified Plan Committee is so inclined, be paid to such person’s spouse, child or other relative, an institution maintaining or having custody of such person, or any other person deemed by the Nonqualified Plan Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability of the Plan and the Bank therefor.

14

8.06 To the extent that any person acquires a right to receive payments from the Bank under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Bank.

8.07 All elections, designations, requests, notices, instructions and other communications from a Member, beneficiary or other person to the Committee required or permitted under the Plan shall be in such form as is prescribed from time to time by the Nonqualified Plan Committee and shall be mailed by first-class mail or delivered to such location as shall be specified by the Nonqualified Plan Committee and shall be deemed to have been given and delivered only upon actual receipt thereof at such location.

8.08 The benefits payable under the Plan shall be in addition to all other benefits provided for employees of the Bank and shall not be deemed salary or other compensation by the Bank for the purpose of computing benefits to which he may be entitled under any other plan or arrangement of the Bank.

8.09 No Nonqualified Plan Committee member shall be personally liable by reason of, any instrument executed by him or on his behalf, or action taken by him, in his capacity as a Nonqualified Plan Committee member nor for any mistake of judgment made in good faith. The Bank shall indemnify and hold harmless the Retirement Plan and each Nonqualified Plan Committee member and each employee, officer or director of the Bank or the Retirement Plan, to whom any duty, power, function or action in respect of the Plan may be delegated or assigned, or from whom any information is requested for Plan purposes, against any cost or expense (including fees of legal counsel) and liability (including any sum paid in settlement of a claim or legal action with the approval of the Bank) arising out of anything done or omitted to be done in connection with the Plan, unless arising out of such person’s fraud or bad faith.

15

8.10 As used in the Plan, the masculine gender shall be deemed to refer to the feminine, and the singular person shall be deemed to refer to the plural, wherever appropriate.

8.11 The captions preceding the sections of the Plan have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provisions of the Plan.

8.12 The Plan shall be construed according to the laws of the State of New York in effect from time to time.

16

EX-10.10

Exhibit 10.10

THE FEDERAL HOME LOAN BANK

OF NEW YORK

NONQUALIFIED DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS

ARTICLE	PAGE
I DEFINITIONS		2
II MEMBERSHIP		4
III ELECTION TO DEFER PAYMENT OF COMPENSATION AND PAYMENT OF DEFERRED COMPENSATION		5
IV SOURCE AND METHOD OF PAYMENT		7
V DESIGNATION OF BENEFICIARIES		8
VI ADMINISTRATION OF PLAN		9
VII AMENDMENT AND TERMINATION		11
VIII GENERAL PROVISIONS		12

THE FEDERAL HOME LOAN BANK OF NEW YORK
NONQUALIFIED DEFERRED COMPENSATION PLAN

This Plan is adopted by the Federal Home Loan Bank of New York (the “Bank”) in order to provide benefits to directors and certain management or highly compensated employees of the Bank through the ability to defer the receipt of compensation from the Bank. This Plan is unfunded, and all benefits payable under the Plan shall be paid solely out of the general assets of the Bank.

1

Article I. Definitions

When used in the Plan, the following terms shall have the following meanings:

1.01 “Bank” means the Federal Home Loan Bank of New York and each subsidiary or affiliated company thereof which participate in the Plan.

1.02 “Board of Directors” or “Board” means the Board of Directors of the Bank.

1.03 “Business Day” means and refers to a day on which commercial banks are open for business in the State of New York.

1.04 “Compensation” means and includes any salary or other compensation payable by the Bank to a Member other than Nonqualified Deferred Compensation.

1.05 “Compensation Deferral Account” means and refers to the account maintained for each Member pursuant to Section 3.02.

1.06 “Compensation Deferral Election Date” means the last Business Day in the calendar year 2008 and any calendar year thereafter during which the Plan is in effect.

1.07 “Effective Date” means January 1, 2009.

1.08 “Director” means and includes any person who has been elected or appointed and is serving on the Board of Directors as a Director of the Bank.

1.09 “IRC” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

1.10 “Member” means any person included in the membership of the Plan as provided in Article 2.

2

1.11 “Nonqualified Deferred Compensation” shall have the same meaning as it has in IRC Section 409A and the Regulations promulgated thereunder.

1.12 “Officer” means and includes any employee of the Bank elected or appointed by the Board of Directors to hold an office of the rank of Assistant Vice President or above and is serving in such office.

1.13 “Plan” means the Federal Home Loan Bank of New York Nonqualified Deferred Compensation Plan, as set forth herein and as amended from time to time.

1.14 “Plan Administrator” means the Director of Human Resources of the Bank.

1.15 “Separation from Service” has the meaning set forth in Section 1.409A-1(h) of the Regulations promulgated under IRC Section 409A.

3

Article II. Membership

2.01 Each Director of the Bank shall be eligible to become a Member of the Plan on the later of (i) the date on which he shall have been elected or appointed as a Director of the Bank and (ii) the Effective Date.

2.02 Each employee of the Bank who is an Officer of the Bank shall be eligible to become a Member of the Plan on the later of (i) the date on which he shall have been elected or appointed by the Board of Directors as an Officer of the Bank and (ii) the Effective Date.

2.03 The membership of any Director or Officer shall terminate on the later of (i) the date on which he shall cease to be serving as a Director or Officer of the Bank and (ii) the termination of the Plan. The termination of membership in the Plan shall not, by itself, affect the rights of the Member by reason of any election made by the Member as provided in Section 3.01 prior to the termination of membership of such Member.

4

Article III. Election to Defer Payment of Compensation and

Payment of Deferred Compensation

3.01 On or before the Compensation Deferral Election Date in the calendar year next preceding the calendar year 2009 and each calendar year thereafter, each Member of the Plan shall be entitled to elect to defer the payment by the Bank and receipt by such Member of Compensation which otherwise would be payable to such Member for services performed by such Member for the Bank during the calendar year next following the calendar year in which such Compensation Deferral Election Date occurs to such date or dates and in such form of payment as such Member shall designate and elect on a form provided by the Plan Administrator. Such election shall be deemed to have been timely made and shall be effective when such election form shall have been signed by the Member and shall have been received by the Plan Administrator or such person as shall be designated by the Plan Administrator for such purpose, provided such receipt shall occur on or before the close of business of the Bank on the last Business Day of the calendar year next preceding the calendar year in which such services are to be performed by the Member and to which such election relates.

3.02 Compensation deferred by a Member of the Plan for any calendar year pursuant to a timely election made as provided in Section 3.01 shall be credited on the books and records of the Bank to a Compensation Deferral Account for such Member as soon as practicable following the date on which such Compensation would have been paid to such Member but for the election made by such Member pursuant to Section 3.01 to defer the payment and receipt of such Compensation. If such Member shall have elected, with respect to one or more calendar years for which the payment and receipt of Compensation is deferred, a date or dates or form of payment different from the date or dates or form of payment elected by the Member with respect to Compensation deferred with respect to other calendar years, separate subaccounts of the Compensation Deferral Account shall be maintained for such Member with respect to Compensation deferred from calendar years for which different dates or forms of payment have been elected by such Member.

5

3.03 The balance credited to the Compensation Deferral Account of a Member shall be paid to such Member at such date or dates or in such form as the Member shall have made a timely election in writing pursuant to Section 3.01; provided, that no part of such balance credited to the Compensation Deferral Account of a Member shall be payable earlier than the earliest of (i) the Member’s Separation from Service with the Bank, (ii) the date of the Member’s death, or (iii) the date the Member becomes disabled within the meaning of IRC Section 409A(a)(2)(c), and that the time or schedule of payments of the balance credited to the Compensation Deferral Account of a Member shall not be accelerated, except as provided in Regulations promulgated pursuant to IRC Section 409A, nor shall any payment of benefits under the Plan be deferred to a date other than the date fixed for such payment in such timely election; provided, that a Member may, by a subsequent election, as defined in Section 1.409A-2(b)(1) of the Regulations promulgated pursuant to IRC Section 409A, delay the time or change the form of a payment of all or any part of the balance credited to the Member’s thrift benefit account if, and only if, such subsequent election meets all of the following requirements: (i) such election shall not be made less than twelve (12) months prior to the date of the first scheduled payment of the balance credited to the Member’s thrift benefit account; (ii) such election shall not take effect until at least twelve (12) months after the date on which the election is made; (iii) the payment with respect to which such election is made shall be deferred for a period of not less than five (5) years from the date such payment would otherwise have been made; and (iv) such election shall comply with any and all other requirements of such Regulations applicable thereto.

3.04 The balance credited to the Compensation Deferral Account of each Member from time to time (and each subaccount, if any, thereof) shall be determined by the Plan Administrator by taking into account interest, gains, and losses realized or incurred by such Compensation Deferral Account (or subaccount thereof) to the date of determination and payment thereof based upon the investment of such balance in such investments as such Member shall designate, from time to time, in such manner as the Plan Administrator shall direct, from among investment alternatives provided by the Plan Administrator.

6

Article IV. Source and Method of Payment

All payments of benefits under the Plan shall be paid from, and shall only be a general claim upon, the general assets of the Bank, notwithstanding that the Bank, in its discretion, may establish a bookkeeping reserve or a grantor trust (as such term is used in IRC Sections 611 through 677) to reflect or to aid it in meeting its obligations under the Plan with respect to any Member or the beneficiary of a Member. No Member shall have any right, title, or interest whatever in or to any investments which the Bank may make or any specific assets which the Bank may reserve to aid it in meeting its obligations under the Plan.

7

Article V. Designation of Beneficiaries

5.01 Each Member of the Plan may file with the Plan Administrator a written designation of one or more persons as the beneficiary or beneficiaries of such Member who shall be entitled to receive the amount, if any, payable under the Plan to such Member following his death. A Member may, from time to time, without the consent of any prior beneficiary, revoke or change the beneficiary designation made by such Member by filing a new designation of beneficiary with the Plan Administrator. The last such written designation received by the Plan Administrator shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Plan Administrator prior to the Member’s death, and in no event shall it be effective as of a date prior to such receipt.

5.02 If no such beneficiary designation is in effect at the time of the Member’s death, or if no designated beneficiary survives the Member, or if, in the opinion of the Plan Administrator, such designation conflicts with applicable law, the Member’s estate shall be deemed to have been designated as his beneficiary and shall be paid the amount, if any, payable under the Plan upon the Member’s death. If the Plan Administrator is in doubt as to the right of any person to receive such amount, the Committee may retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Plan Administrator may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Bank therefor.

8

Article VI. Administration of Plan

6.01 The Board of Directors has delegated to the Plan Administrator, subject to those powers, if any, which the Board has reserved to itself, general authority over and responsibility for the administration and interpretation of the Plan. The Plan Administrator shall have full power and authority to interpret and construe the Plan, to make all determinations considered necessary or advisable for the administration of the Plan and any trust referred to in Article V of the Plan and the calculation of the amount of Deferred Compensation and interest payable under the Plan, and to review claims for benefits under the Plan. The interpretations and constructions of the Plan by the Plan Administrator and his decisions or actions thereunder shall be binding and conclusive on all persons for all purposes, except to the extent of the powers, if any, which the Board has reserved to itself.

6.02 If the Plan Administrator deems it advisable, it shall arrange for the engagement of legal counsel and certified public accountants (who may be counsel to or accountants for the Bank) and other consultants, and make use of agents and clerical or other personnel, for purposes of the Plan. The Plan Administrator may rely upon the written opinions of such counsel, accountants, and consultants, and upon any information supplied by the Retirement Plan for purposes of Article III of the Plan, and delegate to any agent or to any subcommittee or Plan Administrator member its authority to perform any act hereunder, including, without limitation, those matters involving the exercise of discretion; provided, however, that such delegation shall be subject to revocation at any time at the discretion of the Plan Administrator. The Plan Administrator shall report to the Board, or to a committee designated by the Board, at such intervals as shall be specified by the Board or such designated committee, with regard to the matters for which he is responsible under the Plan.

9

6.03 All claims for payments under the Plan shall be submitted in writing to the Plan Administrator. Written notice of the decision on each such claim shall be furnished with reasonable promptness to the Member or the Member’s beneficiary (the “claimant”). The claimant may request a review by the Plan Administrator of any decision denying the claim in whole or in part. Such request shall be made in writing and filed with the Plan Administrator within thirty (30) days following such denial. A request for review shall contain all additional information which the claimant wishes the Plan Administrator to consider. The Plan Administrator may hold any hearing or conduct any independent investigation which he deems desirable to render its decision, and the decision on review shall be made as soon as practicable after the Plan Administrator’s receipt of the request for review. Written notice of the decision shall be furnished to the claimant. For all purposes under the Plan, such decisions on claims (where no review is requested) and decisions on review (where review is requested) shall be final, binding, and conclusive on all interested persons as to all matters relating to the Plan.

6.04 All expenses incurred by the Plan Administrator in its administration of the Plan shall be paid by the Bank.

10

Article VII. Amendment and Termination

The Board of Directors may amend, suspend, or terminate the Plan, in whole or in part, without the consent of the Plan Administrator or any Member, beneficiary, or other person, except that no amendment, suspension, or termination shall retroactively impair or otherwise adversely affect the rights of any Member, beneficiary, or other person under the Plan which shall have accrued prior to the date of such action, as determined by the Plan Administrator in his sole discretion. The Plan Administrator may adopt any amendment or take any other action which the Plan Administrator may deem necessary or appropriate to facilitate the administration, management, and interpretation of the Plan or to conform the Plan thereto, provided any such amendment or action does not have a material effect on the then-currently estimated cost to the Bank of maintaining the Plan.

11

Article VIII. General Provisions

8.01 The Plan shall be binding upon and inure to the benefit of the Bank, and its successors and assigns, and the Members, and their successors, assigns, designees, and estates. The Plan shall also be binding upon and inure to the benefit of any successor organization succeeding to substantially all of the assets and business of the Bank, but nothing in the Plan shall preclude the Bank from merging or consolidating into or with, or transferring all or substantially all of its assets to, another organization which assumes the Plan and all obligations of the Bank hereunder. The Bank agrees that it will make appropriate provision for the preservation of Members’ rights under the Plan in any agreement or plan which it may enter into effect any merger, reorganization or transfer of assets and assumption of Plan obligations of the Bank, that the term “Bank” shall refer to such other organization, and that the Plan shall continue in full force and effect until terminated pursuant to Article VII.

8.02 Neither the Plan nor any action taken thereunder shall be construed as giving to any Member the right to be retained in the employ of the Bank or as affecting the right of the Bank to dismiss any Member from its employ.

8.03 The Bank shall withhold or cause to be withheld from all amounts payable under the Plan any and all federal, state, local, and other taxes required by applicable law to be withheld with respect to such payments.

8.04 No right or interest of a Member under the Plan may be assigned, sold, encumbered, transferred, or otherwise disposed of, and any attempted disposition of such right or interest shall be null and void.

8.05 If the Plan Administrator shall find that any person to whom any amount is or was payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment, or any part thereof, due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Plan Administrator is so inclined, be paid to such person’s spouse, child, or other relative, an institution maintaining or having custody of such person, or any other person deemed by the Plan Administrator to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability of the Plan and the Bank therefor.

12

8.06 To the extent that any person acquires a right to receive payments from the Bank under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Bank.

8.07 All elections, designations, requests, notices, instructions, and other communications from a Member, beneficiary, or other person to the Plan Administrator required or permitted under the Plan shall be in such form as is prescribed from time to time by the Plan Administrator and shall be mailed by first-class mail (except in the case of elections made pursuant to Section 3.01) or delivered to such location as shall be specified by the Plan Administrator and shall be deemed to have been given and delivered only upon actual receipt thereof at such location.

8.08 The Plan Administrator shall not be personally liable by reason of any instrument executed by him or on his behalf, or action taken by him, in his capacity as Plan Administrator, nor for any mistake of judgment made in good faith. The Bank shall indemnify and hold harmless each Plan Administrator and each employee, officer, or director of the Bank to whom any duty, power, function, or action in respect of the Plan may be delegated or assigned, or from whom any information is requested for Plan purposes, against any cost or expense (including fees of legal counsel) and liability (including any sum paid in settlement of a claim or legal action with the approval of the Bank) arising out of anything done or omitted to be done in connection with the Plan, unless arising out of such person’s fraud or bad faith.

8.09 As used in the Plan, the masculine gender shall be deemed to refer to the feminine, and the singular person shall be deemed to refer to the plural, wherever appropriate.

8.10 The captions preceding the sections of the Plan have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provisions of the Plan.

8.11 The Plan shall be construed according to the laws of the State of New York in effect from time to time.

13

EX-10.11

Exhibit 10.11

Compensatory Arrangements for Named Executive Officers

The Bank is an “at will” employer and does not provide written employment agreements to any of its employees. However, employees, including Named Executive Officers (or “NEOs”), receive (a) cash compensation (i.e., (i) base salary, and, for exempt employees, (ii) “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., Qualified Defined Benefit Plan; Qualified Defined Contribution Plan; Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (“BEP”); Nonqualified Defined Contribution Portion of the BEP; Nonqualified Profit Sharing Plan; and, effective January 1, 2009, a Nonqualified Deferred Compensation Plan); and (c) health and welfare programs and other benefits. Other benefits, which are available to all regular employees, include medical, dental, vision care, life, business travel accident, and short and long term disability insurance, flexible spending accounts, an employee assistance program, educational development assistance, voluntary life insurance, long term care insurance, fitness club reimbursement and severance pay. An additional benefit offered to all officers, age 40 or greater, or who are at Vice President rank or above, is a physical examination every 18 months.

The annual base salaries for the Named Executive Officers are as follows (whole dollars):

	2008		2009
Alfred A. DelliBovi	$	615,634	$	649,494
Patrick A. Morgan		305,411		319,154
Peter S. Leung		405,066		423,294
Paul B. Héroux		288,019		300,980
Craig E. Reynolds		282,613		295,331

More information about compensation arrangements can be found in Item 11 of the Annual Report on Form 10-K.

EX-12.01

Exhibit 12.01 Computation of Ratio of Earnings to Fixed Charges

Earnings to Fixed Charges

	Years ended December 31,
(Dollars in thousands)	2008		2007		2006		2005		2004
Earnings:
Income before assessments	$	353,608	$	441,085	$	388,525	$	312,467	$	221,543
Fixed Charges		3,365,381		4,277,118		3,935,129		2,727,073		1,659,480
Total Earnings	$	3,718,989	$	4,718,203	$	4,323,654	$	3,039,540	$	1,881,023
Fixed Charges:
Interest Expense	$	3,364,381	$	4,276,118	$	3,934,129	$	2,726,073	$	1,658,480
Estimated interest component of other expenses		1,000		1,000		1,000		1,000		1,000
Total Fixed Charges	$	3,365,381	$	4,277,118	$	3,935,129	$	2,727,073	$	1,659,480
Ratio of Earnings to Fixed Charges		1.11		1.10		1.10		1.11		1.13

EX-31.01

Exhibit 31.01

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for the President and Chief Executive Officer

I, Alfred A. DelliBovi, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Federal Home Loan Bank of New York
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 27, 2009

/s/ Alfred A. DelliBovi Alfred A. DelliBovi

President and Chief Executive Officer

(Principal Executive Officer)

Federal Home Loan Bank of New York

EX-31.02

Exhibit 31.02

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

for the Senior Vice President and Chief Financial Officer

I, Patrick A. Morgan, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Federal Home Loan Bank of New York
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 27, 2009

/s/ Patrick A. Morgan Patrick A. Morgan
Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

Federal Home Loan Bank of New York

EX-32.01

Exhibit 32.01

Certification by the President and Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of FEDERAL HOME LOAN BANK OF NEW YORK (the “Company”) on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission (the “Report”), I, Alfred DelliBovi, President and Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: March 27, 2009

/s/ Alfred A. DelliBovi  

Alfred A. DelliBovi 

President and Chief Executive Officer (Principal Executive Officer) 

EX-32.02

Exhibit 32.02

Certification by the President and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of FEDERAL HOME LOAN BANK OF NEW YORK (the “Company”) on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission (the “Report”), I, Patrick A. Morgan, Senior Vice President and Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2)	the information contained in the Report fairly presents, in all materials respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: March 27, 2009

/s/ Patrick A. Morgan  

Patrick A. Morgan 

Senior Vice President and Chief Financial Officer
(Principal Financial Officer) 

EX-99.01

Exhibit 99.01

Audit Committee Report

In accordance with its written charter adopted by the Board of Directors, the Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing, and financial reporting practices of the Bank.

The Audit Committee of the Federal Home Loan Bank of New York (“FHLBNY”) for 2008 is currently composed of eight Directors, three of whom were appointed to the Board by the Federal Housing Finance Board and five of whom were elected to the Board by the members of the FHLBNY. The Audit Committee had ten meetings during 2008 and during these meetings the Audit Committee met separately with the Chief Audit Officer and the independent registered public accounting firm.

Management has the primary responsibility for the preparation and integrity of the FHLBNY’s financial statements, accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. FHLBNY’s independent registered public accounting firm, PricewaterhouseCoopers LLP, is responsible for performing an independent audit of the financial statements and expressing an opinion on the conformity of those financial statements with generally accepted accounting principles.

The Audit Committee oversees the FHLBNY’s financial reporting process; reviews the programs and policies of the FHLBNY designed to ensure compliance with applicable laws, regulations and policies and monitors the results of these compliance efforts; and advises and assists the Board of Directors in fulfilling its oversight responsibilities relating to risk management, internal controls, the accounting policies and financial reporting and disclosure practices of the FHLBNY, and the independent registered public accounting firm of the FHLBNY.

The Audit Committee has reviewed and discussed the 2008 audited financial statements with management and the independent registered public accounting firm. The Audit Committee has reviewed and discussed with the independent registered public accounting firm all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards (“SAS”) No. 61, as amended, “Communication with Audit Committees” and SAS No. 90, “Audit Committee Communications” and with and without management present, discussed and reviewed the results of the independent registered public accounting firm’s audit of the financial statements. The Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and has discussed the independent public registered accounting firms independence with them.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the FHLBNY’s audited financial statements be included in the FHLBNY’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, for filing with the SEC.

FHLBNY AUDIT COMMITTEE MEMBERS

2008	2009
Carl A. Florio, Chairman (January only)	Anne E. Estabrook, Chairman
Michael M. Horn, Chairman	Katherine J. Liseno, Vice Chairman
Anne E. Estabrook	Joseph R. Ficalora
Joseph R. Ficalora	Jay M. Ford
Jay M. Ford	José R. González
José R. González	Michael M. Horn
Katherine J. Liseno	Joseph J. Melone
Joseph J. Melone	John M. Scarchilli
John M. Scarchilli

EX-99.02

Exhibit 99.02

FEDERAL HOME LOAN BANK OF NEW YORK
AUDIT COMMITTEE CHARTER

I. INTRODUCTION

The charter of the Federal Home Loan Bank of New York’s (“Bank”) Audit Committee (“Committee”) has been adopted and approved by the Bank’s Board of Directors (“Board”) and is intended to comply with applicable laws, rules and regulations of the Federal Housing Finance Board (“FHFB”) and the Securities and Exchange Commission (“SEC”). The Committee has committed to adopt to the extent possible those best practices that pertain to audit committees of public companies and which are relevant to the Bank, taking into account the cooperative structure of the Bank and the congressionally mandated and regulatory requirements applicable to the Bank.

II. PURPOSE OF THE AUDIT COMMITTEE

The purpose of the Committee shall be to assist the Board in fulfilling its oversight responsibility relating to:

• The integrity of the Bank’s financial statements and financial reporting process and systems of internal accounting and financial controls.

• The Bank’s compliance with applicable laws and regulations.

• The establishment, maintenance, and performance of the internal audit function.

• The annual independent audit of the Bank’s financial statements.

• The independence, qualifications, and performance of the Bank’s Independent Registered Public Accounting Firm.

It is not the duty of the Committee to plan or conduct audits of the financial statements as these are the responsibilities of the Independent Registered Public Accounting Firm. It is also not the duty of the Committee to determine that the Bank’s financial statements and disclosures are complete and accurate and in accordance with generally accepted accounting principles (“GAAP”) as these are the responsibilities of management.

III. AUTHORITY

The responsibility of the Committee is limited to matters upon which the Board of Directors has the authority to make a final determination. The Committee shall have the authority to establish other rules and operating procedures in order to fulfill its obligations under this Charter.

The Committee shall utilize resources to conduct or authorize investigations into any matters within their duties and responsibilities. This includes retaining, and obtaining advice from, independent counsel, accountants, and other advisers, as it determines necessary to carry out its duties.

The Bank shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the Independent Registered Public Accounting Firm and any counsel, accountants or other advisers retained by the Committee.

At its discretion, the Committee shall have direct access to the Independent Registered Public Accounting Firm, Chief Financial Officer, Chief Audit Officer (“CAO”) and upon request, any other officer or employee of the Bank. The Committee shall maintain an open and unrestricted communication channel with all Bank personnel, including internal and external auditors.

IV. DUTIES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE

The Committee’s responsibilities will be discharged through reviews of audit reports, activities and discussions with internal and external auditors and Bank management.

To fulfill its duties and responsibilities the Committee shall:

A. Oversight of Financial Reporting

• Timely obtain and review reports delivered from the Independent Registered Public Accounting Firm.

• Review the Bank’s financial statements and the Independent Registered Public Accounting Firm’s opinion rendered with respect to the financial statements including the nature and extent of any significant changes in accounting principles or the application therein.

• Review and discuss the annual audited financial statements with management, the internal auditors and the Independent Registered Public Accounting Firm, including the Bank’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” prior to announcement, publication or filing, and obtain explanations from management for any significant variances from the prior periods. Recommend to the Board that the audited financial statements be included in the Bank’s SEC Form 10-K.

• Discuss with the Independent Registered Public Accounting Firm the requirements of Statement of Auditing Standards 61 regarding communications with audit committees and 89 and 90 pertaining to uncorrected misstatements and the quality of the Bank’s accounting principles and underlying estimates in the financial statements.

• Review and discuss with the Independent Registered Public Accounting Firm and management representatives, Bank quarterly financial information provided for the Federal Home Loan Bank System’s combined financial reports, and the Bank’s SEC Form 10-Q. The review will include a discussion of any significant changes to the Bank’s accounting principles and standards, significant changes to laws and regulations, and any concerns the Independent Registered Public Accounting Firm may have with management’s accounting methods, estimates and/or financial statement disclosure.

• Meet periodically with the Bank’s management, internal audit staff, and the Independent Registered Public Accounting Firm in respect of any audit report by the Independent Registered Public Accounting Firm to discuss significant accounting and reporting principles, practices and procedures applied by the Bank in preparing its financial statements. This includes alternative treatments of financial information within GAAP and developments and issues with respect to reserves.

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B. With Regard to Internal Audit

• Select, evaluate the performance, determine the compensation and, where appropriate, approve the removal of the CAO. Approve the Incentive Compensation Plan and award for the internal audit employees.

• Provide that the CAO report directly to the Committee on substantive matters and be ultimately accountable to the Committee and the Bank’s Board.

• Provide that the CAO have unrestricted access to the Committee without the need for any prior management knowledge and approval.

• Review significant issues arising from Internal Audit that is reported to the Committee by the CAO.

• Provide an independent, direct channel of communication between the Bank’s Board and the CAO.

• Discuss with management, internal audit staff, and the Independent Registered Public Accounting Firm the internal audit function activities, the adequacy, and scope of the internal audit plan, budget and staffing and any recommended changes in the planned scope of the internal audit function.

• Review and approve the internal audit annual budget.

• Review and approve the Internal Audit Charter on an annual basis.

• Review and approve the internal audit annual plan.

C. With Regard to Independent Registered Public Accounting Firm

• Review with the Independent Registered Public Accounting Firm and approve, prior to the beginning of the audit, the scope of the audit plan and, all engagement fees, and terms.

• Make recommendations to the Bank’s Board of Directors regarding the appointment, compensation, renewal or termination of the Independent Registered Public Accounting Firm. The Independent Registered Public Accounting Firm shall report directly to the Committee.

• Pre-approve all audit and non-audit services performed by the Bank’s Independent Registered Public Accounting Firm and not engage the Independent Registered Public Accounting Firm to perform the specific non-audit services proscribed by law or regulation. The Committee may delegate pre-approval authority to a member of the Committee; however, any decisions made by the designated member must be presented to the full Committee at the next scheduled Committee meeting.

• The Committee shall require the Independent Registered Public Accounting Firm to rotate the lead audit partner, and the partner responsible for reviewing the audit at least every five years.

• Resolve any disagreements between management and the Independent Registered Public Accounting Firm regarding financial reporting.

• Review the performance of the Independent Registered Public Accounting Firm.

• Provide that the Independent Registered Public Accounting Firm have unrestricted access to the Committee without the need for any prior management knowledge and approval.

• Provide an independent, direct channel of communication between the Board and the Independent Registered Public Accounting Firm.

• Establish policies for the hiring of employees or former employees of the Independent Registered Public Accounting Firm.

• Obtain annually a formal written statement from the Independent Registered Public Accounting Firm regarding their independence for consistency with Independence Standards Board Standard 1.

• Obtain and review annually a report by the Independent Registered Public Accounting Firm, describing i) the auditors internal quality control procedures, ii) any material issues raised by the auditor’s most recent internal quality control review or by its most recent peer review or raised within the preceding five years by any investigation or inquiry by governmental or professional authorities of an independent audit carried out by the firm and any steps taken to deal with such issues, and (iii) in order to assess the auditor’s independence, all relationships between the Independent Registered Public Accounting Firm and the Bank.

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D. With Regard to Senior Management

• Direct senior management to maintain the reliability and integrity of the accounting policies and financial reporting and disclosure practices of the Bank.

• Ensure that senior management has established and is maintaining an adequate internal control system in the Bank.

E. With Regard to Audit Committee Processes

a) Committee Charter

• Adopt a formal written Committee Charter. Annually assess the adequacy of and amend, where appropriate, the Committee Charter. Re-adopt and re-approve no less often than every three years. Recommend the Board to approve the Committee Charter and any amendments, as appropriate.

b) Financial Reporting and Governance

• Ensure policies are in place that are reasonably designed to achieve disclosure and transparency regarding the Bank’s true financial performance and governance practices.

c) Internal Control

• Review on an annual basis the adequacy of internal controls, resolution of identified material weaknesses and reportable conditions including the prevention or detection of management override or compromise of the internal control system and ensure that appropriate corrective actions are instituted.

• Review the policies and procedures established by senior management designed to ensure compliance with applicable laws and regulations and monitor the results of these compliance efforts.

• Establish procedures for the receipt, retention, and treatment of complaints received by the Bank regarding accounting, internal accounting controls, or auditing matters; and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

d) Committee Report

• Prepare a written Committee report as required by the applicable rules of the FHFB and SEC to be included in the Bank’s Annual proxy statement.

e) Strategic Business Plans

• Review the policies and procedures established by senior management to assess and monitor implementation of the Bank’s strategic business plan and the operating goals and objectives contained therein.

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f) Risk Management

• Review and discuss with management the Bank’s major financial risk exposures and the steps taken by management to monitor and control such exposures.

g) Performance Evaluation

• Conduct a self-evaluation of the Committee’s performance of its responsibilities and provide a report to the Board.

h) Code of Business Conduct and Ethics

• The Committee shall review, on an annual basis, the Bank’s Code of Business Conduct and Ethics and shall provide input regarding the Code of Business Conduct and Ethics to the Compensation and Human Resource Committee.

V. AUDIT COMMITTEE STRUCTURE

The Committee shall consist of at least five directors of the Board. The Committee shall include a balance of representatives from Community Financial Institutions and other members and will also include a balance of appointive and elective directors. In order to provide continuity and experience, Committee members shall serve staggered terms.

VI. MEMBERSHIP REQUIREMENTS

All members of the Committee shall be independent¹ as determined in accordance with applicable rules. Each member shall be financially literate as this qualification is interpreted by the Board in its business judgment, or shall become financially literate within a reasonable period of time after appointment to the Committee. At least one member must have extensive accounting or related financial management experience. The Committee will comply with the Sarbanes Oxley Act of 2002 under Section 407 regarding rules for “Disclosure of Audit Committee Financial Expert” for filing periodic reports with the SEC.

Subject to the foregoing, the members of the Committee shall be appointed and replaced by the Board, and one Committee member shall be designated as the Chairman.

The only compensation a Committee member may receive from the Bank shall be compensation determined by the Board in compliance with applicable rules.

VII. AUDIT COMMITTEE MEETINGS

The Committee shall keep written minutes and other relevant records of each Committee meeting. The minutes shall be approved by the Committee and then reviewed and approved by the Board. The CAO will compile this documentation and shall act as Secretary to the Committee. Following each of its meetings, the Chairman of the Committee shall report to the Board regarding the activities of the Committee.

The Committee shall meet at least four times annually.

The Committee shall meet separately, from time to time, by itself, with management, the Independent Registered Public Accounting Firm, and/or the CAO.

Date: June 19, 2008

¹ To be considered independent, a director must not have a disqualifying relationship with the Bank or its management that would interfere with the exercise of that director’s independent judgment. This includes being employed by the Bank in the current year or any of the past five years, receiving any compensation (other than for service as a Board director), or serving as a consultant, advisor, promoter, underwriter, or legal counsel of or to the Bank in the past five years. An immediate family member who is, or has been in any of the past five years, employed by the Bank as an executive officer also disqualifies a Committee member from being independent.

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