Fair Value

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value [Text Block]

Fair Value

Fair value amounts are determined by the Bank using available market information and reflect the Bank’s best judgment of appropriate valuation methods. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). The fair value hierarchy requires an entity to maximize the use of significant observable inputs and minimize the use of significant unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability.

The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:

• Level 1 Inputs. Quoted prices (unadjusted) for identical assets or liabilities in an active market that the Bank can access on the measurement date. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

• Level 2 Inputs. Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals and implied volatilities), and (iv) market-corroborated inputs.

• Level 3 Inputs. Unobservable inputs for the asset or liability.

The Bank reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. These reclassifications would be reported as transfers in/out as of the beginning of the quarter in which the changes occur. The Bank had no transfers of assets or liabilities between fair value levels during the years ended December 31, 2019, 2018, or 2017.

The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments at December 31, 2019 (dollars in millions). The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, and certain other assets at fair value on a recurring basis, and on occasion certain mortgage loans held for portfolio on a non-recurring basis. The Bank records all other financial assets and liabilities at amortized cost. The fair values do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.

				Fair Value
Financial Instruments	Carrying Value			Level 1			Level 2			Level 3		Netting Adjustment and Cash Collateral1		Total
Assets
Cash and due from banks	$	1,029		$	1,029		$	—		$	—	$	—	$	1,029
Interest-bearing deposits	1			—			1			—		—		1
Securities purchased under agreements to resell	13,950			—			13,950			—		—		13,950
Federal funds sold	4,605			—			4,605			—		—		4,605
Trading securities	888			—			888			—		—		888
Available-for-sale securities	16,651			—			16,651			—		—		16,651
Held-to-maturity securities	2,370			—			2,432			7		—		2,439
Advances	80,360			—			80,576			—		—		80,576
Mortgage loans held for portfolio, net	9,334			—			9,458			52		—		9,510
Accrued interest receivable	195			—			195			—		—		195
Derivative assets, net	102			—			39			—		63		102
Other assets	34			34			—			—		—		34
Liabilities
Deposits	(1,112		)	—			(1,112		)	—		—		(1,112		)
Consolidated obligations
Discount notes	(29,531		)	—			(29,532		)	—		—		(29,532		)
Bonds	(91,553		)	—			(92,002		)	—		—		(92,002		)
Total consolidated obligations	(121,084		)	—			(121,534		)	—		—		(121,534		)
Mandatorily redeemable capital stock	(206		)	(206		)	—			—		—		(206		)
Accrued interest payable	(252		)	—			(252		)	—		—		(252		)
Derivative liabilities, net	(1		)	—			(202		)	—		201		(1		)

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank’s financial instruments at December 31, 2018 (dollars in millions):

				Fair Value
Financial Instruments	Carrying Value			Level 1			Level 2			Level 3		Netting Adjustments and Cash Collateral1			Total
Assets
Cash and due from banks	$	119		$	119		$	—		$	—	$	—		$	119
Interest-bearing deposits	1			—			1			—		—			1
Securities purchased under agreements to resell	4,700			—			4,700			—		—			4,700
Federal funds sold	4,150			—			4,150			—		—			4,150
Trading securities	915			—			915			—		—			915
Available-for-sale securities	19,019			—			19,019			—		—			19,019
Held-to-maturity securities	2,992			—			3,011			10		—			3,021
Advances	106,323			—			106,317			—		—			106,317
Mortgage loans held for portfolio, net	7,835			—			7,749			57		—			7,806
Accrued interest receivable	290			—			290			—		—			290
Derivative assets, net	58			—			104			—		(46		)	58
Other assets	27			27			—			—		—			27
Liabilities
Deposits	(1,070		)	—			(1,070		)	—		—			(1,070		)
Borrowing from other FHLBanks	(500		)	—			(500		)	—		—			(500		)
Consolidated obligations
Discount notes	(42,879		)	—			(42,870		)	—		—			(42,870		)
Bonds	(93,772		)	—			(93,828		)	—		—			(93,828		)
Total consolidated obligations	(136,651		)	—			(136,698		)	—		—			(136,698		)
Mandatorily redeemable capital stock	(255		)	(255		)	—			—		—			(255		)
Accrued interest payable	(268		)	—			(268		)	—		—			(268		)
Derivative liabilities, net	(9		)	—			(139		)	—		130			(9		)

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

SUMMARY OF VALUATION TECHNIQUES AND PRIMARY INPUTS

The valuation techniques and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or non-recurring basis on the Statements of Condition are outlined below.

Trading and AFS Investment Securities. The Bank’s valuation technique incorporates prices from multiple designated third-party pricing vendors, when available. The pricing vendors generally use various proprietary models to price investment securities. The inputs to those models are derived from various sources including, but not limited to, benchmark securities and yields, reported trades, dealer estimates, issuer spreads, bids, offers, and other market-related data. Since many investment securities do not trade on a daily basis, the pricing vendors use available information, as applicable, such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to determine the prices for individual securities. Each pricing vendor has an established process in place to challenge investment valuations, which facilitates resolution of questionable prices identified by the Bank. Annually, the Bank conducts reviews its pricing vendors to confirm and further augment its understanding of the vendors’ pricing processes, methodologies, and control procedures for investment securities.

The Bank’s valuation technique for estimating the fair values of its investment securities first requires the establishment of a median price for each security. All prices that are within a specified tolerance threshold of the median price are included in the cluster of prices that are averaged to compute a default price. All prices that are outside the threshold (outliers) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price rather than the default price. Alternatively, if the analysis confirms that an outlier (or outliers) is (are) in fact not representative of fair value and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security. In limited instances, when no prices are available from the designated pricing services, the Bank obtains prices from dealers.

As of December 31, 2019 and 2018, multiple prices were received for the majority of the Bank’s trading and AFS investment securities. Based on the Bank’s review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices, the Bank believes its final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and further, that the fair value measurements are classified appropriately in the fair value hierarchy.

Impaired Mortgage Loans Held for Portfolio. The fair value of impaired mortgage loans held for portfolio is estimated by obtaining property values from an external pricing vendor. This vendor utilizes multiple pricing models that generally factor in market observable inputs, including actual sales transactions and home price indices. The Bank applies an adjustment to these values to capture certain limitations in the estimation process and takes into consideration estimated selling costs and expected PMI proceeds. In limited instances, the Bank may estimate the fair value of an impaired mortgage loan by calculating the present value of expected future cash flows discounted at the loan’s effective interest rate.  

Derivative Assets and Liabilities and the Related Hedged Items. The fair value of derivatives is generally estimated using standard valuation techniques such as discounted cash flow analyses and comparisons to similar instruments, and includes variation margin payments for daily settled contracts. In limited instances, fair value estimates for interest-rate related derivatives may be obtained using an external pricing model that utilizes observable market data. The Bank is subject to credit risk in derivatives transactions due to the potential nonperformance of its derivatives counterparties. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments is posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. To mitigate credit risk on uncleared derivatives, the Bank enters into master netting agreements with its counterparties as well as collateral agreements that have collateral delivery thresholds. The Bank has evaluated the potential for the fair value of its derivatives to be affected by counterparty credit risk and its own credit risk and has determined that no adjustments were significant to the overall fair value measurements.

The fair values of the Bank’s derivative assets and derivative liabilities include accrued interest receivable/payable and related cash collateral. The estimated fair values of the accrued interest receivable/payable and cash collateral approximate their carrying values due to their short-term nature. The fair values of derivatives are netted by clearing agent and/or counterparty if the netting requirements are met. If these netted amounts result in a receivable to the Bank, they are classified as an asset and, if classified as a payable to the clearing agent or counterparty, they are classified as a liability.

The Bank’s discounted cash flow model utilizes market-observable inputs (inputs that are actively quoted and can be validated to external sources). The Bank uses the following inputs for measuring the fair value of interest-related derivatives:

• Discount rate assumption. The Bank utilizes the Federal Funds OIS curve. 

• Forward interest rate assumption. The Bank utilizes the LIBOR swap curve.

• Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

For forward settlement agreements (TBAs), the Bank utilizes TBA securities prices that are determined by coupon class and expected term until settlement. For mortgage loan purchase commitments, the Bank utilizes TBA securities prices adjusted for factors such as credit risk and servicing spreads.

For the related hedged items, the fair value is estimated using a discounted cash flow analyses which typically considers the following inputs:

• Discount rate assumption. The Bank utilizes the designated benchmark interest rate curve. 

• Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

Other Assets. These represent grantor trust assets, which are carried at estimated fair value based on quoted market prices as of the last business day of the reporting period.

Subjectivity of Estimates. Estimates of the fair value of financial assets and liabilities using the methods previously described are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. The use of different assumptions could have a material effect on the fair value estimates.

FAIR VALUE ON A RECURRING BASIS

The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value on the Statements of Condition at December 31, 2019 (dollars in millions):

Recurring Fair Value Measurements	Level 1		Level 2			Level 3		Netting Adjustments and Cash Collateral1		Total
Assets
Trading securities
Other U.S. obligations	$	—	$	150		$	—	$	—	$	150
GSE and Tennessee Valley Authority obligations	—		60			—		—		60
Other non-MBS	—		259			—		—		259
GSE multifamily MBS	—		419			—		—		419
Total trading securities	—		888			—		—		888
Available-for-sale securities
Other U.S. obligations	—		2,127			—		—		2,127
GSE and Tennessee Valley Authority obligations	—		1,060			—		—		1,060
State or local housing agency obligations	—		756			—		—		756
Other non-MBS	—		285			—		—		285
U.S. obligations single-family MBS	—		4,059			—		—		4,059
GSE single-family MBS	—		649			—		—		649
GSE multifamily MBS	—		7,715			—		—		7,715
Total available-for-sale securities	—		16,651			—		—		16,651
Derivative assets, net
Interest-rate related	—		39			—		63		102
Other assets	34		—			—		—		34
Total recurring assets at fair value	$	34	$	17,578		$	—	$	63	$	17,675
Liabilities
Derivative liabilities, net
Interest-rate related	—		(202		)	—		201		(1		)
Total recurring liabilities at fair value	$	—	$	(202	)	$	—	$	201	$	(1	)

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

The following table summarizes, for each hierarchy level, the Bank’s assets and liabilities that are measured at fair value on the Statements of Condition at December 31, 2018 (dollars in millions):

Recurring Fair Value Measurements	Level 1		Level 2			Level 3		Netting Adjustments and Cash Collateral1			Total
Assets
Trading securities
Other U.S. obligations	$	—	$	159		$	—	$	—		$	159
GSE and Tennessee Valley Authority obligations	—		57			—		—			57
Other non-MBS	—		266			—		—			266
GSE multifamily MBS	—		433			—		—			433
Total trading securities	—		915			—		—			915
Available-for-sale securities
Other U.S. obligations	—		2,602			—		—			2,602
GSE and Tennessee Valley Authority obligations	—		1,038			—		—			1,038
State or local housing agency obligations	—		814			—		—			814
Other non-MBS	—		275			—		—			275
U.S. obligations single-family MBS	—		4,483			—		—			4,483
GSE single-family MBS	—		796			—		—			796
GSE multifamily MBS	—		9,011			—		—			9,011
Total available-for-sale securities	—		19,019			—		—			19,019
Derivative assets, net
Interest-rate related	—		103			—		(46		)	57
Mortgage loan purchase agreements	—		1			—		—			1
Total derivative assets, net	—		104			—		(46		)	58
Other assets	27		—			—		—			27
Total recurring assets at fair value	$	27	$	20,038		$	—	$	(46	)	$	20,019
Liabilities
Derivative liabilities, net
Interest-rate related	—		(139		)	—		130			(9		)
Total recurring liabilities at fair value	$	—	$	(139	)	$	—	$	130		$	(9	)

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

FAIR VALUE ON A NON-RECURRING BASIS

The Bank measures certain impaired mortgage loans held for portfolio at level 3 fair value on a non-recurring basis. These assets are subject to fair value adjustments in certain circumstances. At December 31, 2019 and 2018, impaired mortgage loans held for portfolio recorded at fair value as a result of a non-recurring change in fair value were $2 million and $1 million. These fair values were as of the date the fair value adjustment was recorded during the years ended December 31, 2019 and 2018.