Nature of Business Activity. The Bank is exposed to interest rate risk primarily from the effect of interest rate changes on its interest-earning assets and interest-bearing liabilities that finance these assets. The goal of the Bank's interest rate risk management strategy is not to eliminate interest rate risk but to manage it within appropriate limits. To mitigate the risk of loss, the Bank has established policies and procedures that include guidelines on the amount of exposure to interest rate changes it is willing to accept. In addition, the Bank monitors the risk to its interest income, net interest margin and average maturity of interest-earning assets and interest-bearing liabilities. For additional information on the Bank's derivative transactions, see Note 11 - Derivatives and Hedging Activities to the audited financial statements in the Bank's 2019 Form 10-K.

Derivative transactions may be executed either with a counterparty (referred to as uncleared derivatives) or cleared through a Futures Commission Merchant (i.e., clearing agent) with a Derivatives Clearing Organization (referred to as cleared derivatives). Once a derivative transaction has been accepted for clearing by a Derivative Clearing Organization (Clearing House), the executing counterparty is replaced with the Clearing House. The Bank is not a derivatives dealer and does not trade derivatives for short-term profit. The Bank transacts uncleared derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations.

Financial Statement Effect and Additional Financial Information. The following tables summarize the notional amount and fair value of derivative instruments and total derivatives assets and liabilities. Total derivative assets and liabilities include the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.


	September 30, 2020
(in thousands)	Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	19,000,868	$	5,978	$	3,124
Derivatives not designated as hedging instruments:
Interest rate swaps	$	1,926,488	$	430	$	2,102

Interest rate caps or floors	1,205,000		995		—
Mortgage delivery commitments	68,027		49		103
Total derivatives not designated as hedging instruments:	$	3,199,515	$	1,474	$	2,205
Total derivatives before netting and collateral adjustments	$	22,200,383	$	7,452	$	5,329
Netting adjustments and cash collateral (1)			153,534		(3,578)
Derivative assets and derivative liabilities as reported on the Statement of Condition			$	160,986	$	1,751


	December 31, 2019
(in thousands)	Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	34,572,128	$	14,079	$	4,148
Derivatives not designated as hedging instruments:
Interest rate swaps	$	10,413,906	$	1,676	$	4,642

Interest rate caps or floors	1,330,000		417		—
Mortgage delivery commitments	73,574		29		79
Total derivatives not designated as hedging instruments:	$	11,817,480	$	2,122	$	4,721
Total derivatives before netting and collateral adjustments	$	46,389,608	$	16,201	$	8,869
Netting adjustments and cash collateral (1)			124,050		(5,845)
Derivative assets and derivative liabilities as reported on the Statement of Condition			$	140,251	$	3,024

(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, cash collateral and related accrued interest held or placed with the same clearing agent and/or counterparties. Cash collateral posted and related accrued interest was $160.0 million and $138.1 million at September 30, 2020 and December 31, 2019, respectively. Cash collateral received was $2.9 million for September 30, 2020 and $8.2 million for December 31, 2019.

The following table presents, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Bank’s net interest income. Also included is the amortization of basis adjustments related to mortgage delivery commitments, which are characterized as derivatives, but are not designated in fair value hedge relationships.


(in thousands)	Gains/(Losses) on Derivative		Gains/ (Losses) on Hedged Item		Net Interest Settlements		Effect of Derivatives on Net Interest Income		Total Interest Income/ (Expense) Recorded in the Statement of Income
Three months ended September 30, 2020
Hedged item type:
Advances	$	124,582	$	(124,569)	$	(69,603)	$	(69,590)	$	95,201
AFS securities	9,402		(8,918)		(7,070)		(6,586)		31,996
Mortgage loans held for portfolio	—		(1,035)		—		(1,035)		35,932
Consolidated obligations – bonds	(21,443)		21,693		21,635		21,885		(80,579)
Total	$	112,541	$	(112,829)	$	(55,038)	$	(55,326)
Nine months ended September 30, 2020
Hedged item type:
Advances	$	(188,539)	$	188,424	$	(136,712)	$	(136,827)	$	548,953
AFS securities	(103,292)		100,135		(13,734)		(16,891)		138,565
Mortgage loans held for portfolio	—		(2,118)		—		(2,118)		121,561
Consolidated obligations – bonds	4,938		(4,287)		54,393		55,044		(462,006)
Total	$	(286,893)	$	282,154	$	(96,053)	$	(100,792)


(in thousands)	Gains/(Losses) on Derivative		Gains/ (Losses) on Hedged Item		Net Interest Settlements		Effect of Derivatives on Net Interest Income		Total Interest Income/ (Expense) Recorded in the Statement of Income
Three months ended September 30, 2019
Hedged item type:
Advances	$	(34,790)	$	34,652	$	8,521	$	8,383	$	478,477
AFS securities	(30,639)		29,136		2,918		1,415		71,884
Mortgage loans held for portfolio	—		(755)		—		(755)		42,452
Consolidated obligations – bonds	15,163		(15,402)		(12,098)		(12,337)		(413,901)
Total	$	(50,266)	$	47,631	$	(659)	$	(3,294)
Nine months ended September 30, 2019
Hedged item type:
Advances	$	(347,838)	$	347,605	$	51,693	$	51,460	$	1,508,189
AFS securities	(102,668)		98,539		1,534		(2,595)		201,198
Mortgage loans held for portfolio	—		(2,320)		—		(2,320)		126,922
Consolidated obligations – bonds	162,570		(164,114)		(63,985)		(65,529)		(1,259,974)
	$	(287,936)	$	279,710	$	(10,758)	$	(18,984)


(in thousands)	September 30, 2020
Hedged item type	Carrying Amount of Hedged Assets/Liabilities (1)		Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Assets/Liabilities		Fair Value Hedging Adjustments for Discontinued Hedging Relationships		Cumulative Amount of Fair Value Hedging Adjustments
Advances	$	12,964,844	$	361,223	$	(25)	$	361,198
AFS securities	1,509,667		149,180		1,182		150,362
Consolidated obligations – bonds	5,060,725		37,015		318		37,333


(in thousands)	December 31, 2019
Hedged item type	Carrying Amount of Hedged Assets/Liabilities (1)		Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Assets/Liabilities		Fair Value Hedging Adjustments for Discontinued Hedging Relationships		Cumulative Amount of Fair Value Hedging Adjustments
Advances	$	16,724,094	$	172,779	$	(9)	$	172,770
AFS securities	1,391,938		48,946		1,281		50,227
Consolidated obligations – bonds	16,715,492		32,886		160		33,046


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2020		2019		2020		2019
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps	$	4,588	$	(15,873)	$	(92,864)	$	(49,797)

Interest rate caps or floors	(57)		(1,129)		578		(1,933)
Net interest settlements	(1,726)		(676)		(8,891)		(3,642)
To Be Announced (TBA)	—		(21)		38		(21)
Mortgage delivery commitments	772		(11)		3,138		17
Other	(1)		10		148		25
Total net gains (losses) related to derivatives not designated as hedging instruments	$	3,576	$	(17,700)	$	(97,853)	$	(55,351)
Other - price alignment amount on cleared derivatives (1)	13		303		168		150
Net gains (losses) on derivatives and hedging activities	$	3,589	$	(17,397)	$	(97,685)	$	(55,201)

Managing Credit Risk on Derivatives. The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative transactions. The Bank manages counterparty credit risk through credit analysis, collateral requirements, and adherence to the requirements set forth in its policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations.

Generally, the Bank is subject to certain ISDA agreements for uncleared derivatives that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank's credit rating and the net liability position exceeds the relevant threshold. If the Bank’s credit rating were to be lowered by a major credit rating agency, the Bank would be required to deliver additional collateral on uncleared derivative instruments in net liability positions, unless the collateral delivery threshold is set to zero. The aggregate fair value of all uncleared derivative instruments with credit-risk related contingent features that require the Bank to deliver additional collateral due to a credit downgrade and were in a net liability position (before cash collateral and related accrued interest) at September 30, 2020 was $1.3 million. The Bank had no collateral posted against this position and even if the Bank’s credit rating had been lowered one notch (i.e., from its current rating to the next lower rating), the Bank would not have been required to deliver additional collateral to its derivative counterparties at September 30, 2020.

Cleared Derivatives. For cleared derivatives, Derivative Clearing Organizations (Clearing Houses) are the Bank's counterparties. The Clearing House notifies the clearing agent of the required initial and variation margin. The requirement that the Bank post initial margin and exchange variation margin settlement payments through the clearing agent, which notifies the Bank on behalf of the Clearing Houses, exposes the Bank to institutional credit risk in the event that the clearing agent or the Clearing Houses fail to meet their respective obligations. The use of cleared derivatives is intended to mitigate credit risk exposure through the use of a central counterparty instead of individual counterparties. Collateral postings and variation margin settlement payments are made daily, through a clearing agent, for changes in the value of cleared derivatives. Initial margin is the amount calculated based on anticipated exposure to future changes in the value of a swap and protects the Clearing Houses from market risk in the event of default by one of their respective clearing agents. Variation margin is paid daily to settle the exposure arising from changes in the market value of the position. The Bank uses CME Clearing as the Clearing House for all cleared derivative transactions. Variation margin payments are characterized as settled to market, rather than collateral. Initial margin is considered collateralized to market.

Based on credit analyses and collateral requirements, the Bank does not anticipate credit losses related to its derivative agreements. See Note 9 - Estimated Fair Values for discussion regarding the Bank's fair value methodology for derivative assets and liabilities, including an evaluation of the potential for the fair value of these instruments to be affected by counterparty credit risk.

For cleared derivatives, the Clearing House determines initial margin requirements and generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including but not limited to credit rating downgrades. The Bank was not required by its clearing agents to post additional initial margin at September 30, 2020.

Offsetting of Derivative Assets and Derivative Liabilities. When it has met the netting requirements, the Bank presents derivative instruments, related cash collateral received or pledged, and associated accrued interest on a net basis by clearing agent and/or by counterparty. The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default including a bankruptcy, insolvency or similar proceeding involving the Clearing Houses or the Bank’s clearing agent, or both. Based on this analysis, the Bank nets derivative fair values on all of its transactions through a particular clearing agent with a particular Clearing House (including settled variation margin) into one net asset or net liability exposure. Initial margin posted to the clearing house is presented as a derivative asset.

The following tables present separately the fair value of derivative instruments meeting or not meeting netting requirements. Gross recognized amounts do not include the related collateral received from or pledged to counterparties. Net amounts reflect the adjustments of collateral received from or pledged to counterparties.


	Derivative Assets
(in thousands)	September 30, 2020		December 31, 2019
Derivative instruments meeting netting requirements:
Gross recognized amount:
Uncleared derivatives	$	4,306	$	8,743
Cleared derivatives	3,097		7,429
Total gross recognized amount	7,403		16,172
Gross amounts of netting adjustments and cash collateral
Uncleared derivatives	(3,793)		(7,631)
Cleared derivatives	157,327		131,681
Total gross amounts of netting adjustments and cash collateral	153,534		124,050
Net amounts after netting adjustments and cash collateral
Uncleared derivatives	513		1,112
Cleared derivatives	160,424		139,110
Total net amounts after netting adjustments and cash collateral	160,937		140,222
Derivative instruments not meeting netting requirements: (1)
Uncleared derivatives	49		29
Cleared derivatives	—		—
Total derivative instruments not meeting netting requirements:	49		29
Total derivative assets:
Uncleared derivatives	562		1,141
Cleared derivatives	160,424		139,110
Total derivative assets as reported in the Statement of Condition	160,986		140,251









Net unsecured amount:
Uncleared derivatives	562		1,141
Cleared derivatives	160,424		139,110
Total net unsecured amount	$	160,986	$	140,251


	Derivative Liabilities
(in thousands)	September 30, 2020		December 31, 2019
Derivative instruments meeting netting requirements:
Gross recognized amount:
Uncleared derivatives	$	4,778	$	7,135
Cleared derivatives	448		1,655
Total gross recognized amount	5,226		8,790
Gross amounts of netting adjustments and cash collateral
Uncleared derivatives	(3,130)		(4,190)
Cleared derivatives	(448)		(1,655)
Total gross amounts of netting adjustments and cash collateral	(3,578)		(5,845)
Net amounts after netting adjustments and cash collateral
Uncleared derivatives	1,648		2,945
Cleared derivatives	—		—
Total net amounts after netting adjustments and cash collateral	1,648		2,945
Derivative instruments not meeting netting requirements: (1)
Uncleared derivatives	103		79
Cleared derivatives	—		—
Total derivative instruments not meeting netting requirements:	103		79
Total derivative liabilities
Uncleared derivatives	1,751		3,024
Cleared derivatives	—		—
Total derivative liabilities as reported in the Statement of Condition	1,751		3,024











Net unsecured amount:
Uncleared derivatives	1,751		3,024
Cleared derivatives	—		—
Total net unsecured amount	$	1,751	$	3,024