Commitments and Contingencies

The following table presents the Bank's various off-balance sheet commitments which are described in detail below.



(in thousands)	September 30, 2012						December 31, 2011
Notional amount	Expire Within One Year		Expire After One Year		Total		Total
Standby letters of credit outstanding ⁽¹⁾	$	6,577,252	$	122,657	$	6,699,909	$	6,702,082
Commitments to fund additional advances and BOB loans	988,575		10,000		998,575		553,134
Commitments to fund or purchase mortgage loans	28,813		—		28,813		13,984
Unsettled consolidated obligation bonds, at par ⁽²⁾	5,130,000		—		5,130,000		55,000

Notes:

⁽¹⁾Includes approved requests to issue future standby letters of credit of $148.2 million and $126.3 million at September 30, 2012 and December 31, 2011, respectively.

⁽²⁾Includes $5.1 billion and $55.0 million of consolidated obligation bonds which were hedged with associated interest rate swaps at September 30, 2012 and December 31, 2011, respectively.

Commitments to Extend Credit on Standby Letters of Credit, Additional Advances and BOB Loans. Standby letters of credit are issued on behalf of members for a fee. A standby letter of credit is a financing arrangement between the Bank and its member. If the Bank is required to make payment for a beneficiary’s draw, these amounts are withdrawn from the member’s Demand Deposit Account (DDA). Any remaining amounts not covered by the withdrawal from the member’s DDA are converted into a collateralized advance. The original terms of these standby letters of credit, including related commitments, range from less than one month to 5.0 years, including a final expiration in 2017. Commitments that legally bind and unconditionally obligate the Bank for additional advances, including BOB loans, may be outstanding for periods of up to two years.

Unearned fees related to standby letters of credit are recorded in other liabilities and had a balance of $1.7 million and $0.8 million as of September 30, 2012 and December 31, 2011, respectively. The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of the member. The Bank has established parameters for the review, assessment, monitoring and measurement of credit risk related to these standby letters of credit.

Based on management’s credit analyses, collateral requirements, and adherence to the requirements set forth in Bank policy and Finance Agency regulations, the Bank has not recorded any additional liability on these commitments and standby letters of credit. Excluding BOB, commitments and standby letters of credit are collateralized at the time of issuance. The Bank records a liability with respect to BOB commitments, which is reflected in other liabilities on the Statement of Condition.

The Bank does not have any legally binding or unconditional unused lines of credit for advances at September 30, 2012 and December 31, 2011. However, within the Bank's Open RepoPlus advance product, there were conditional lines of credit outstanding at September 30, 2012 and December 31, 2011 of $6.6 billion and $7.3 billion, respectively.

Commitments to Fund or Purchase Mortgage Loans. Commitments that unconditionally obligate the Bank to purchase mortgage loans under the MPF program totaled $28.8 million and $14.0 million at September 30, 2012 and December 31, 2011, respectively. Delivery commitments are generally for periods not to exceed 45 days. Such commitments are recorded as derivatives.

Pledged Collateral. The Bank generally executes derivatives with major banks and broker-dealers and generally enters into bilateral collateral agreements. As of September 30, 2012, the Bank had pledged total collateral of $759.4 million, including cash of $430.6 million and securities that cannot be sold or repledged with a fair value of $328.8 million, to certain of its derivative counterparties. As of December 31, 2011, the Bank had pledged total collateral of $886.7 million, including cash of $542.0 million and securities that cannot be sold or repledged with a fair value of $344.7 million to certain of its derivative counterparties. As previously noted, the Bank’s ISDA Master Agreements typically require segregation of the Bank’s collateral posted with the counterparty. The Bank reported $328.8 million and $344.7 million of the collateral as trading securities as of September 30, 2012 and December 31, 2011, respectively. In view of recent and expected continuing developments in the derivatives market, including OTC derivatives, the Bank may manage this risk differently in the future.

Legal Proceedings. The Bank is subject to legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on its financial condition or results of operations.

During the third quarter of 2011, the Bank and the management of the Lehman bankruptcy estate entered into a termination agreement concluding on the stipulated amount of the Bank’s claim on the Lehman estate. The Bank sold the stipulated claim resulting in a gain of approximately $1.9 million which was recognized in the third quarter of 2011.

Notes 7, 10, 11, 12, and 13 also discuss other commitments and contingencies.