President's Report

May 31, 2005

At the Bank

FHLBNY to Redeem Capital Stock on a Daily Basis Starting June 1, 2005

Since 2004, the Home Loan Bank has been redeeming excess capital stock on a weekly basis. However, because of the implementation of SFAS 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, and because of an expected interpretation by the Securities and Exchange Commission (“SEC”) on what constitutes “mandatorily redeemable stock,” excess Home Loan Bank stock will now be redeemed on a daily basis beginning on June 1, 2005. The CFOs of all our members were notified of this change via a May 16, 2005, letter from Senior Vice President James Gilmore, Head of the Marketing and Sales Group.

By way of background, in implementing SFAS 150, the Home Loan Bank has begun to reclassify mandatorily redeemable capital stock as debt, and the dividend on such stock is reported as interest expense. At this time, the Home Loan Bank considers stock as mandatorily redeemable once a member delivers a written redemption request, or provides a notice of intent to withdraw from membership, or attains non-member status by merger or acquisition, charter termination of involuntary termination from membership.

As the Home Loan Bank prepares for registration with the SEC, management understands that the SEC has interpreted the definition of “mandatorily redeemable stock” to include stock that becomes excess when a member pays down maturing advances, because the Home Loan Bank has established a pattern of periodic excess stock redemption. This means that the SEC may require daily reclassification of any excess stock as debt.

After considering these factors, Home Loan Bank management has determined that the best way to deal with this issue is to begin daily redemption of all excess capital stock. By redeeming stock on the day that it becomes excess, there will be no need to reclassify the excess stock as debt. Of course, daily redemption of excess stock will further enhance the Home Loan Bank's dividend potential. Member lenders having any questions should feel free to contact either Jim Gilmore at 212-441-6812 or a Calling Officer at 212-441-6701.

Advances Averaged $62.6 Billion

In April, advances averaged $62.6 billion, down $700 million from March. Month-end advances totaled $64.3 billion due to a strong surge of business during the last two weeks of the month. Convertible Special Advance offerings were well received, and members also increased their short-term fixed rate and repo advances.

In Washington

House Financial Services Committee Approves New Regulator for
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks

On May 25, 2005, the House Financial Services Committee approved, by a vote of 65 to 5, H.R.1461, the Federal Housing Finance Reform Act of 2005. The vote was won by a strong margin, which likely indicates that the measure will proceed to the House Floor for consideration this summer. This measure does treat the Home Loan Banks quite fairly. It would establish a new, independent GSE regulator for the Housing Government Sponsored Enterprises that meets the six policy points enumerated in my March report to our members.

Below is a brief summary of the bill as passed by the House Financial Services Committee.

The Regulator

The Federal Housing Finance Agency -- The bill establishes the Federal Housing Finance Agency (“Agency’) as an independent body. The Agency is to be administered by a Director, who is appointed for a five-year term by the President, with the advice and consent of the Senate. The Agency will also have three Deputy Directors. One will be in charge of FHLBank regulation, one for Fannie Mae and Freddie Mac regulation, and the third for “Housing.”

Assessments -- The Agency will assess the Enterprises and the FHLBanks to pay for its expenses and to establish a working capital fund.

Home Loan Bank Governance

Bank Boards -- The management of each Bank is vested in a 13 member board, or a board of a different number as determined by the Director of the new Federal Housing Finance Agency.

Member Directors -- A majority of the board must be composed of “member directors.”

Independent Directors -- At least one-third of the board must be independent Directors who are residents of the District in which the Bank is located. Independent Directors may not be officers or directors of any member institution or officers of FHLBanks, and they must be “bona fide” residents of the District in which the Bank is located. Independent Directors are to be selected by election by a plurality of the votes of the members of the Bank at large.

Public Interest Directors -- At least two of the independent Directors are to be representatives of the “public interest.” These Directors are to be chosen from organizations with more than a two-year history of representing consumer or community interests in banking services, credit needs, housing, or financial consumer protections.

Term of Office -- The term of office for each Director is changed from three years to four years, but the terms of Directors first elected after the effective date of this Act are to be staggered so that approximately one quarter of the of the terms will expire each year.

I am also pleased to report that Representatives from New Jersey and New York who sit on the Committee showed deep interest and concern with the impact that new legislation could have on our District and our members. We worked closely with our Delegation, and we are fortunate to be represented by such outstanding legislators.

The 11 members of Congress who sit on this Committee from the Second Home Loan Bank District are Scott Garrett (R-NJ) from New Jersey and from New York: Sue W. Kelly (R-NY), Vice Chair of the full Committee and Subcommittee Chair on Oversight and Investigations; Gary L. Ackerman (D-NY); Joseph Crowley (D-NY); Vito J. Fossella, Jr. (R-NY); Steve Israel (D-NY); Peter T. King (R-NY), Subcommittee Chair on Domestic and International Monetary Policy, Trade, and Technology; Carolyn B. Maloney (D-NY) Ranking Member on Domestic and International Monetary Policy, Trade, and Technology; Carolyn McCarthy (D NY); Gregory W. Meeks (D NY); and Nydia M. Velazquez (D-NY).

There are a few technical amendments that we would like to see included in the bill, and we are working with our Members of Congress to get them included. We also continue to work with Senator Corzine and Senator Schumer, both members of the Senate Banking, Housing, and Urban Affairs Committee, as that Committee prepares to consider S.190, the Federal Housing Enterprise Regulatory Reform Act of 2005 in the near future.

The Home Loan Bank plays an integral role in helping our member lenders serve the financing needs of the residents and businesses in our District. Access to the Home Loan Bank’s advance products helps you, our members, serve a wide range of borrowers and offer a variety of attractive loan products. We are profoundly grateful for the opportunity to serve you.


Alfred A. DelliBovi
President & CEO

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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as “projected,” “expects,” “may,” or their negatives or other variations of these terms. The Bank cautions that, by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, regulatory and accounting rule adjustments or requirements, changes in interest rates, changes in projected business volumes, changes in prepayment speeds on mortgage assets, the cost of our funding, changes in our membership profile, the withdrawal of one or more large members, competitive pressures, shifts in demand for our products, and general economic conditions. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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