The Bank is exposed to interest-rate risk primarily from the effect of interest-rate changes on its interest-earning assets and on its interest-bearing liabilities that finance these assets. To mitigate the risk of loss, the Bank has established policies and procedures, which include guidelines on the amount of exposure to interest-rate changes that it is willing to accept. In addition, the Bank monitors the risk to its interest income, net interest margin, and average maturity of its interest-earning assets and funding sources. The goal of the Bank’s interest-rate risk management strategies is not to eliminate interest-rate risk, but to manage it within appropriate limits.

The Bank enters into derivatives to manage the interest-rate risk exposure that is inherent in its otherwise unhedged assets and funding sources, to achieve the Bank’s risk management objectives, and to act as an intermediary between its members and counterparties. The Bank 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 Bank’s over-the-counter derivative transactions may either be (1) uncleared derivatives, which are executed bilaterally with a counterparty; or (2) cleared derivatives, which are cleared through a Futures Commission Merchant (clearing agent) with a Derivatives Clearing Organization (Clearinghouse). Once a derivatives transaction has been accepted for clearing by a Clearinghouse, the derivatives transaction is novated, and the executing counterparty is replaced with the Clearinghouse as the counterparty. The Bank is not a derivatives dealer and does not trade derivatives for short-term profit. For additional information on the Bank’s derivatives and hedging activities, see Note 17—Derivatives and Hedging Activities to the 2018 audited financial statements contained in the Bank’s Form 10-K.

Derivative Notional Amounts. The notional amount of derivatives serves as a factor in determining periodic interest payments or cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit and market risk; the overall risk is much smaller. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.

The following table presents the notional amount, fair value of derivative instruments, and total derivative 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.



	As of June 30, 2019							As of December 31, 2018
	Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives in hedging relationships:
Interest-rate swaps ⁽¹⁾	$	56,670	$	60	$	93		$	50,427	$	32	$	151
Derivatives not designated as hedging instruments:
Interest-rate swaps ⁽¹⁾	604		5		2			1,008		3		11
Interest-rate caps or floors	7,083		2		2			8,083		1		1
Total derivatives not designated as hedging instruments	7,687		7		4			9,091		4		12
Total derivatives before netting and collateral adjustments	$	64,357	67		97			$	59,518	36		163
Netting adjustments and cash collateral ⁽²⁾			301		(88		)			278		(146		)
Derivative assets and derivative liabilities			$	368	$	9				$	314	$	17

⁽²⁾Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty. Cash collateral posted and related accrued interest was $411 and $433 as of June 30, 2019 and December 31, 2018, respectively. Cash collateral received and related accrued interest was $22 and $9 as of June 30, 2019 and December 31, 2018, respectively.

Beginning on January 1, 2019, as a result of adopting new accounting guidance related to derivatives and hedging activities, changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges are recorded in net interest income in the same line as the earnings effect of the hedged item. Prior to January 1, 2019, for fair value hedges, any hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedge item) was recorded in noninterest income as net (losses) gains on derivatives and hedging activities.



	For the Three Months Ended June 30, 2019						For the Six Months Ended June 30, 2019
	Interest Income (Expense)						Interest Income (Expense)
	Advances			Consolidated Obligation Bonds			Advances			Consolidated Obligation Bonds
Total interest income (expense) recorded in the Statements of Income	$	659		$	(450	)	$	1,315		$	(916	)
Changes in fair value:
Hedged items	$	483		$	(80	)	$	758		$	(169	)
Derivatives	(487		)	79			(758		)	164
Net changes in fair value	(4		)	(1		)	—			(5		)
Net interest settlements on derivatives ^{(1) (2)}	13			(12		)	33			(30		)
Amortization/accretion of active hedging relationships	(6		)	—			(12		)	—
Other	1			—			1			—
Total net interest income effect from fair value hedging relationships	$	4		$	(13	)	$	22		$	(35	)



	For the Three Months Ended June 30, 2018 ⁽¹⁾												For the Six Months Ended June 30, 2018 ⁽¹⁾
	Interest Income (Expense)									Noninterest Income			Interest Income (Expense)									Noninterest Income
	Advances			Consolidated Obligation Bonds			Consolidated Obligation Discount Notes			Net gains (losses) on derivatives and hedging activities			Advances			Consolidated Obligation Bonds			Consolidated Obligation Discount Notes			Net gains (losses) on derivatives and hedging activities
Interest-rate contracts:
Derivatives	$	(1	)	$	(15	)	$	(1	)	$	89		$	(34	)	$	(11	)	$	(2	)	$	295
Hedged items ⁽²⁾	—			—			—			(74		)	—			—			—			(261		)
Net (losses) gains on fair value hedging relationships	$	(1	)	$	(15	)	$	(1	)	$	15		$	(34	)	$	(11	)	$	(2	)	$	34



	As of June 30, 2019
Line Item in Statement of Conditions of Hedged Item	Amortized Cost of Hedged Asset or Liability ⁽¹⁾		Basis Adjustments for Active Hedging Relationships Included in Amortized Cost		Basis Adjustments for Discontinued Hedging Relationships included in Amortized Cost			Cumulative Amount of Fair Value Hedging Basis Adjustments
Advances	$	31,457	$	801	$	14		$	815
Consolidated obligations:
Bonds	25,139		29		(1		)	28

The following table presents net losses (gains) related to derivatives and hedging activities recorded in noninterest income on the Statements of Income. For fair value hedging relationships, the portion of net gains (losses) representing hedge ineffectiveness are recorded in noninterest income (loss) for periods prior to January 1, 2019.



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Derivatives and hedged items in fair value hedging relationships:
Interest-rate swaps	N/A ⁽¹⁾			$	15		N/A ⁽¹⁾			$	34
Derivatives not designated as hedging instruments:
Interest-rate swaps	$	(3	)	1			$	(4	)	4
Interest-rate caps or floors	1			(1		)	—			—
Net interest settlements	—			—			—			(1		)
Total net (losses) gains related to derivatives not designated as hedging instruments	(2		)	—			(4		)	3
Price alignment amount ⁽²⁾	—			(1		)	—			(1		)
Net (losses) gains on derivatives and hedging activities	$	(2	)	$	14		$	(4	)	$	36

The Bank is subject to credit risk to its derivative transactions due to the risk of nonperformance by counterparties and manages this 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.

For uncleared derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The Bank requires collateral agreements with collateral delivery thresholds on all uncleared derivatives. Additionally, collateral related to derivatives with member institutions includes collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.

Certain of the Bank’s uncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by a nationally recognized statistical rating organization (NRSRO), the Bank may be required to deliver additional collateral on uncleared derivative instruments in net liability positions. The aggregate fair value of all uncleared derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest) as of June 30, 2019 was $8, for which the Bank was not required to post collateral as of June 30, 2019. If the Bank’s credit ratings had been lowered from its current rating to the next lower rating, the Bank would have been required to deliver $3 of collateral at fair value to its uncleared derivative counterparties as of June 30, 2019.

For cleared derivatives, the Clearinghouse is the Bank’s counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin, and the clearing agent notifies the Bank. The Bank currently utilizes the following two Clearinghouses for all cleared derivative transactions: LCH Ltd. and CME Clearing. Because the Bank is required to post initial and variation margin through the clearing agent to the Clearinghouse, it exposes the Bank to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. 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. 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 Clearinghouse or the Bank’s clearing agent, or both. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.



	As of June 30, 2019						As of December 31, 2018
	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
Gross recognized amount:
Uncleared derivatives	$	56		$	95		$	35		$	128
Cleared derivatives	11			2			1			35
Total gross recognized amount	67			97			36			163
Gross amounts of netting adjustments and cash collateral:
Uncleared derivatives	(49		)	(86		)	(33		)	(111		)
Cleared derivatives	350			(2		)	311			(35		)
Total gross amounts of netting adjustments and cash collateral	301			(88		)	278			(146		)
Net amounts after netting adjustments and cash collateral:
Uncleared derivatives	7			9			2			17
Cleared derivatives	361			—			312			—
Total net amounts after netting adjustments and cash collateral	368			9			314			17
Non-cash collateral received or pledged not offset-cannot be sold or repledged: ⁽¹⁾
Uncleared derivatives	4			—			—			—
Cleared derivatives	—			—			—			—
Total cannot be sold or repledged ⁽¹⁾	4			—			—			—
Net unsecured amounts: ⁽¹⁾
Uncleared derivatives	3			9			2			17
Cleared derivatives	361			—			312			—
Total net unsecured amount ⁽¹⁾	$	364		$	9		$	314		$	17