Member Advantage

Fourth Quarter 2017

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José R. González


In 2017, the Federal Home Loan Bank of New York reached several significant milestones. In the spring, we moved into our new headquarters – an office space that fosters enhanced collaboration, communication and innovation and positions us to better serve our members. Over the summer, we reached a new all-time high for advances – reflective of our ability to meet increased member demand in the current operating environment.

In December we awarded our second-highest amount of Affordable Housing Program grant dollars – $36.9 million to help create or preserve nearly 2,900 affordable homes. And throughout the year, our performance remained strong, with our cooperative achieving near-record results for the year. In total, 2017 was an exemplary year for the FHLBNY.


But for all these milestones, no one event, action or achievement defined the year for our cooperative. Instead, 2017 was defined by the constant themes in all of these milestones: the stability and reliability of the FHLBNY. This is the hallmark of our cooperative. Our stability and reliability not only drove our performance in 2017, but positions us to continue to achieve success in 2018, together with our members.

The environment in which we operated in 2017 presented challenges, opportunities and uncertainties. And yet our cooperative and our members thrived. The year ahead will present its own challenges, but just as our members remain stable partners for your customers and communities, so too shall will remain your trusted partner. In the following pages, we offer strategies and suggestions for how you can best partner with the FHLBNY in the New Year to ensure that 2018 is another strong year for our membership. As we enter 2018, I am certain that our stable and trusted partnership will continue to benefit our institutions, our customers and the communities we all support. I thank you for your business, and look forward to building on our momentum in 2018.


José R. González
President and Chief Executive Officer




The interest rate environment was challenging for our members in 2017 as short-term rates rose with only modest changes to long-term rates, leading to a flatter yield curve and additional pressure on net interest margins (NIMs). Looking at the following Historical Treasury Yield Curve chart, you can see that the current curve is significantly flatter when compared to 2016 and previous years, and is poised to potentially be even flatter in 2018.

Historical US Treasury yield curve
Data source: Bloomberg 2017.

On the positive side, our members generally experienced solid loan demand in 2017. Additionally, members in general were able to maintain good profitability in 2017, largely due to “holding the line” on their deposits rates. However, achieving deposit growth commensurate with asset growth still has its challenges. Considering the potential of an even flatter yield curve in the New Year, and mounting consumer pressure to raise deposit rates, 2018 could potentially be a challenging year.

There has been persistent pressure on the long-end of the curve. Looking back over the past several years, the benchmark 10-Year Treasury has been trading within a tight band, hitting a five-year low of 1.37% in mid-July of 2016, then climbing to a recent high of 2.61% in mid-March of 2017 and reverting to the current level of 2.41% as of December 31, 2017. The average yield on the 10-Year Treasury for 2017 was 2.33%, or just 21 basis points over the average of the previous five years. Some members are optimistic that the curve will steepen upon the economy improving and as the Fed starts to unwind their balance sheet. Others are concerned that rising short-term rates could potentially lead to a yield-curve inversion should long-term rates remain relatively static.

10 Year Treasury Fed Funds
Data source: Bloomberg 2017.



Members may wish to keep in mind the potential economic benefit of the FHLBNY’s dividend, which, depending on the advance term, can substantially lower the “all-in“ borrowing cost of an advance. The FHLBNY has an activity-based capital stock requirement equal to 4.5% of its outstanding advances. The performance of our capital stock has been historically strong, and has benefitted members by offsetting or lowering the “all-in” cost of the advance.

For example, if your institution borrows a one- week advance for $1 million at 1.56%, with a capital stock requirement of $45,000 (with a dividend yield assumption of 6.00%), the net income from the activity-based stock purchase would effectively reduce the interest expense of this trade by $38.32, or effectively lowering the “all-in” rate to 1.38% — or approximately 18 basis points less than the coupon rate.

As illustrated in the example below, the economic impact of our activity-based capital stock can be determined by comparing an alternative investment yield to that of our dividend. Assuming you can receive an alternative short-term investment yield equivalent to the cost of the advance (1.56% in this case), the positive spread created by the yield of our stock dividend effectively lowers the overall cost of the transaction, and quite substantially in the shorter tenors. For longer-term advances the dividend would impact the borrowing cost to a lesser degree; however, a significant benefit would remain making the “all-in” borrowing cost lower than the regular posted rate.

All in borrowing rate


Capital Plan Revisions
The FHLBNY’s Capital Plan is continuously evaluated to protect the cooperative. A 17% reduction in the Membership Stock Purchase Requirement (MSPR) went into effect on August 1, 2017. Now the capital that members are required to hold as owners of the cooperative is the greater of $1000 or 12.5 basis points of Mortgage-related Assets (previously 15 basis points).

Collateral & “Haircuts”
The “haircut” for pledging Private Label CMBS as collateral was recently decreased from 21% down to 15%, increasing the lendable value for these assets. Pledged collateral is marked-to-market, and a “haircut” is applied to arrive at a member’s borrowing potential. 
As a reminder, 1st and 2nd lien home equity line of credit loans are eligible to be pledged as collateral, in addition to eligible whole-loan mortgage collateral and securities.

2018 Fee Schedules & Overnight Advance Transactions
All Credit, Collateral and Correspondent Services Fees will remain the same for 2018. The FHLBNY’s Fee schedules can be accessed by signing on to 1Linksm (our internet banking portal) and clicking on the 'Manuals and Guides'. And did you know that when you request an Overnight Advance by calling the Member Services Desk you receive the same low rate as processing this transaction on 1Link?

1Linksm | 1LinkSKsm Upgrade
The signing process for 1Link transactions will be updated during the first quarter of 2018 to further enhance the security and sustainability of our portal. The update will impact the signing process for 1Link Wires, Book Transfers and Advance transactions. Be on the lookout for instructions regarding the upgrade in the coming weeks. 




Since our last edition, three members joined the FHLBNY cooperative:
» Hudson River Community Credit Union
» Stratford Insurance Company
» Tudor Insurance Company


The FHLBNY looks forward to connecting with our members and business associates in person at the following upcoming events. Please visit the Upcoming Events section on our website.



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