President's Report

Second Quarter 2018

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José R. González


In June, the Federal Home Loan Bank of New York issued Strength in Our Cooperative, our 2017 Annual Report to members. The report captures numerous achievements the FHLBNY delivered in 2017, not only for our members, but also for the communities we serve. There truly is strength in our cooperative. We saw this strength in 2017, in which we posted record and near-record results across the board. We see it today, as the FHLBNY continues to perform at high levels. And we expect to see it going forward, as we further strengthen our partnerships with our members and support their ability to meet the needs of their communities.


Our strong cooperative and membership presently operate in an equally strong economy. We are currently in a historically lengthy economic expansion, marked by full employment, lower taxes, increasing deregulation and a more normalized rate environment. Our members are positioned to thrive in this environment, experiencing strong demand for loans and other financial services. But, as we move forward, we must remain aware of factors that have the potential to challenge this momentum. This is especially evident in factors that can impact your liquidity position, such as outflow of core deposits.



José R. González
President and Chief Executive Officer




historical yield curve chart
Data source: Bloomberg 2018.

The current U.S. Treasury Curve continues to flatten. In fact, the difference between the 1-year and 10-year Treasury was just 48 basis points on July 17, 2018, compared to almost 200 basis points at year-end 2014. Spread compression has become exacerbated as the U.S. Treasury continues to issue substantially more T-Bills to fund the deficit, driving up the short-end of the curve and increasing short-term wholesale funding costs. Elevated short-term wholesale funding costs coupled with heightened loan demand and greater capital levels due to tax reform is leading members to become more aggressive in retail deposit gathering with many offering extremely competitive CD rates as of late. As in past years, some members have been rolling their advances short to fend off net interest margin compression. However, we are also seeing members increasingly taking advantage of the flat yield curve by layering in term funding to stabilize funding costs as we continue to confront a “hawkish” Federal Reserve rate posture. Although some concern remains that aggressive rate hikes could potentially lead to another recession, economic indicators point to a strong economy and some feel that the probability of a recession in the near-term is relatively low.

Read further about how the FHLBNY can be your strategic partner, providing stable, low-cost funding, as well as information and funding solutions, that, when utilized, can help contribute to your solid financial performance.

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Positioning your organization with the appropriate level of strategic and contingent liquidity is imperative. When was the last time your institution conducted a liquidity assessment? This exercise involves stress testing your current liquidity base and determining worst case scenarios where significant funding would be needed, or where your interest rate risk position would be substantially compromised. In this regard, obtaining the greatest possible level of borrowing potential ahead of a problem is crucial to mitigating risk and sustaining growth.

Consider the following five questions to see how you can leverage your FHLBNY membership to assist with liquidity planning to help sustain growth, maintain strong bottom-line earnings and mitigate risk.

1. Do you have sufficient collateral pledged to the FHLBNY?

Considering the intense and evolving environment we operate in, it is important to keep your “foot on the gas” and not forgo asset and income growth because of a lack of liquidity. Examine your balance sheet to see if there are opportunities to pledge additional collateral, and reach out to us if you would like assistance in this regard.

2. Are you booking loans or growing securities that can be pledged to the FHLBNY?

Take a look at your balance sheet composition to ensure your institution is positioned to sustain a trajectory growth and withstand significant liquidity pressure. You may want to grow and maintain assets that are qualified to pledge as collateral to the FHLBNY so you can have the available funding to capitalize on other opportunities should they arise. We often see members lacking liquidity and limiting their asset growth because their lending model and security portfolio strategy has too strong a focus on assets that are illiquid and cannot be pledged to the FHLBNY.

3. What is your level of on-balance sheet liquidity?

Regulators are increasingly looking for a heightened level of on-balance sheet liquidity, in the form of cash and readily marketable securities. FHLBNY funding can enable you to structure a profitable securities portfolio while mitigating risks. If you accept municipal or public unit deposits, using our Municipal Letters of Credit (MULOC) product can enable you to utilize whole loan mortgage collateral instead of encumbering security collateral when securing those deposits. The MULOC is state-approved, cost effective and widely used across our membership base.


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Since our last edition, four members joined our cooperative:
  • Inner Lakes Federal Credit Union
  • Cumberland Mutual Fire Insurance Company
  • Security Mutual Life Insurance Co. of NY
  • Utica Mutual Insurance Company


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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.

Related Links

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