Capital Stock and Mandatorily Redeemable Capital Stock

6 Months Ended

Jun. 30, 2011

Capital Stock and Mandatorily Redeemable Capital Stock [Abstract]

Capital Stock and Mandatorily Redeemable Capital Stock

Note 11. Capital Stock and Mandatorily Redeemable Capital Stock.

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. A member’s 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’s Capital Plan 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. Members can redeem Class B stock by giving five years notice. The Bank’s capital plan does not provide for the issuance of Class A capital stock.

The FHLBNY is subject to risk-based capital rules. Specifically, the FHLBNY is subject to three capital requirements under its capital 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 an amount of permanent capital greater than what is required by the risk-based capital requirements. In addition, the FHLBNY is required to maintain at least a 4.0% total capital-to-asset ratio and at least a 5.0% 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 for all periods presented. The FHLBNY met the “adequately capitalized” classification, which is the highest rating, under the capital rule. However, the Finance Agency has discretion to reclassify an FHLBank and to modify or add to the corrective action requirements for a particular capital classification.

Risk-based capital — The following table summarizes the Bank’s risk-based capital ratios (dollars in thousands):

	June 30, 2011						December 31, 2010
	Required4			Actual			Required4			Actual
Regulatory capital requirements:
Risk-based capital1, (a)	$	478,830		$	5,437,048		$	538,917		$	5,304,272
Total capital-to-asset ratio		4.00	%		5.54	%		4.00	%		5.30	%
Total capital2	$	3,933,690		$	5,443,397		$	4,008,483		$	5,310,032
Leverage ratio		5.00	%		8.30	%		5.00	%		7.95	%
Leverage capital3	$	4,917,113		$	8,161,921		$	5,010,604		$	7,962,168

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	Required “Total capital” is 4.0% of total assets. Actual “Total capital” is Actual “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 Actual “Risk-based capital” times 1.5 plus allowance for loan losses.
4	Required minimum.
(a)	Under regulatory guidelines issued by the Federal Housing Finance Agency (“FHFA”), the Bank’s regulator, concurrently with the rating action on August 8, 2011 by S&P lowering the rating of long-term securities issued by the U.S. government, federal agencies, and other entities, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, from AAA to AA+. With regard to this action, consistent with guidance provided by the banking regulators with respect to capital rules, the FHFA provides the following guidance for the Federal Home Loan Banks: the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. Government, government agencies, and government-sponsored entities do not change for purposes of calculating risk-based capital.

Mandatorily redeemable capital stock

Generally, the FHLBNY’s capital stock is redeemable at the option of either the member or the FHLBNY subject to certain conditions, including the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.

In accordance with the accounting guidance for certain financial instruments with characteristics of both liabilities and equity, the FHLBNY generally 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.

Anticipated redemptions ¹ of mandatorily redeemable capital stock were as follows (in thousands):

	June 30, 2011		December 31, 2010
Redemption less than one year	$	37,414	$	27,875
Redemption from one year to less than three years		4,509		17,019
Redemption from three years to less than five years		8		2,035
Redemption after five years or greater		16,290		16,290
Total	$	58,221	$	63,219

¹ Anticipated redemptions assume the Bank will follow its current practice of daily redemption of capital in excess of the amount required to support advances.

Voluntary and involuntary withdrawal and changes in membership — Changes in membership due to mergers were not significant in any periods in this report. When a member is acquired by a non-member, the FHLBNY reclassifies stock of the member to a liability on the day the member’s charter is dissolved. Under existing practice, the FHLBNY repurchases B2 capital stock held by former members if such stock is considered “excess” and is no longer required to support outstanding advances. B2 membership stock held by former members is reviewed and repurchased annually.

The following table provides withdrawals and changes in membership:

	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
Voluntary Termination/Notices Pending and outstanding		1		1		1		1
Involuntary Termination*		—		3		1		5
Non-member due to merger		1		—		1		—

^* The board of directors of FHLBank may terminate the membership of any institution that: (1) fails to comply with any requirement of the FHLBank Act, any regulation adopted by the Finance Agency, or any requirement of the Bank’s capital plan; (2) becomes insolvent or otherwise subject to the appointment of a conservator, receiver, or other legal custodian under federal or state law; or (3) would jeopardize the safety or soundness of the FHLBank if it were to remain a member.

The following table provides roll-forward information with respect to changes in mandatorily redeemable capital stock liabilities (in thousands):

	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Beginning balance	$	59,126		$	105,192		$	63,219		$	126,294
Capital stock subject to mandatory redemption reclassified from equity		3,250			28,856			3,349			30,266
Redemption of mandatorily redeemable capital stock 1		(4,155	)		(64,479	)		(8,347	)		(86,991	)
Ending balance	$	58,221		$	69,569		$	58,221		$	69,569
Accrued interest payable	$	659		$	1,035		$	659		$	1,035

¹ Redemption includes repayment of excess stock. (The annualized accrual rates were 4.50% for June 30, 2011 and 4.25% for June 30, 2010.)