President's Report

August 31, 2006

At the Bank

Advances Increase to $68.8 Billion

For the month of July, advances averaged $68.8 billion, up $3.4 billion from June. We closed the books on July 31 at $69.8 billion. The increase in advance demand was in short-term fixed rate and floating rate advances. We expect some of the short-term advances will not be renewed and balances will gradually decline.

Also for the month of July, reflecting the increase in advance use, total assets of the Bank were $92.7 billion. This is an increase of $2.5 billion from June. Additional details of the Bank’s performance for the first half of the year can be found in the Federal Home Loan Bank’s Form 10 Q for the second quarter 2006 filed with the SEC at

A primary objective of the Home Loan Bank is to maintain a high level of value for our members. Through our competitive pricing, innovative products, exceptional service, and a reasonable dividend, we look forward to providing sustained, strong performance and good value for your investment in the Home Loan Bank.

Our Performance Affects Compensation

Periodically the trade press will run articles on compensation. Early in August, the American Banker ran an article on the salaries of the 12 presidents of the $1 trillion Home Loan Bank System. While the article noted an increase in the salaries, it did not discuss the relationship between performance and reward nor possible lack thereof if performance is not up to par. I would like to provide some facts about compensation at the Federal Home Loan Bank of New York. First, compensation for all Bank employees can and has decreased when the Bank does not perform well. In 2003, the Bank and its stockholders took a loss on investments. As a result, my compensation as well as that of all the Home Loan Bank’s officers was impacted. For that year, incentive compensation and bonuses were eliminated and senior executives received no increase in their base salaries. Second, compensation for most employees of the Home Loan Bank has a significant “at risk” portion tied directly to the Bank’s financial performance. For the senior managers, approximately 30% of their compensation is directly determined by the Bank’s financial performance.

Home Loan Banks are complicated and large financial institutions competing with Wall Street firms to serve our members’ funding and liquidity needs. The demands and expectations of a variety of stakeholders are greater than ever. The Home Loan Bank of New York is operated by a small group of professionals -- many drawn from Wall Street -- dedicated to providing our members a fair return on their investment while at the same time operating the Bank at a low-risk profile.

All of us are interested in controlling costs. But we understand that the talent we require to operate an SEC-registered bank in today’s environment is costly. Our people work hard to produce good results. We can only attract and retain such talent if we pay for it.

The Second Round 2006 AHP Application Window Is Open

The Home Loan Bank’s second Affordable Housing Program (AHP) offering for 2006 is open. AHP provides grants to assist financial institutions in supporting the creation and preservation of housing for lower-income families and individuals. AHP can also assist members with meeting their CRA goals. The Home Loan Bank of New York funds its AHP with ten percent of its annual profits and manages the program within regulatory requirements established by the Federal Housing Finance Board. Approximately $11.8 million in competitive AHP funds will be available during this round. (The maximum amount of AHP subsidy that can be requested is limited to ten percent of the total offering.) All applications must be received at our office no later than 5:00 p.m. on October 2, 2006.

Only stockholder institutions of the Home Loan Bank, our members, are allowed to submit applications, and only applications marked “Second Round 2006” will be considered. For more information, please call Joseph Gallo, Vice President for Community Investment, at 212 441 6851.

In Washington

FDIC Considers Changes to Institutions’ Premiums -- Considers Including Advances

On July 11, 2006, the FDIC published a proposed regulation to create a new risk-based deposit insurance assessment system. The proposal was issued in accordance with the Federal Deposit Federal Insurance Reform Act of 2005 to, among other things, solicit comments on whether advances should be defined as “volatile liabilities” and therefore should be included in a new assessment scheme.

An objective review of advances can come to only one conclusion: advances are not volatile liabilities. They have pre-defined, predictable terms and, unlike deposits, do not evaporate due to circumstances beyond the control of the FHLBank member, such as special, short-term promotions in particular markets or the existence of higher returns to depositors on alternative assets. It would be illogical and unfair to include FHLBank advances within the definition of volatile liabilities given the stability of the FHLBanks, the reliable availability of advances as a source of wholesale funding, and the beneficial and predictable effect of such funding on members’ business plans.

Discouraging borrowing from FHLBanks would be counterproductive to reducing the risk of failure of FDIC-insured institutions and could increase that risk. Borrowers frequently use FHLBank advances for liquidity purposes and to manage interest-rate risk as well as to fund loan growth. Curtailing the use of FHLBank advances would force institutions to look to alternative, often more costly, wholesale funding sources that are considerably more volatile -- reducing member profitability and increasing liquidity risk.

Penalizing FHLBank members for using advances would: (1) limit their use of a valuable liquidity source; (2) make them less competitive; and (3) limit the availability of credit in the communities they serve -- all for no justifiable reason.

It is important for the 12 Home Loan Banks, the 8,200 member lenders, and the national and state trade groups to weigh in on this issue. The Federal Home Loan Bank of New York already has; on August 17, Home Loan Bank Chairman George Engelke commented on the proposal through the enclosed letter.

If you have not already done so, I urge you to write to the FDIC against the proposal to define advances as volatile liabilities. September 22 is the deadline for comments. Should you have any questions, please contact your calling officer.


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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