FEDERAL HOUSING 

FINANCE BOARD

ANNUAL 

PERFORMANCE 

BUDGET 

FY2007 

September 13, 2006 
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TABLE OF CONTENTS

Page

MESSAGE FROM THE CHAIRMAN .......................................................... i

MISSION,VISION, AND VALUES .............................................................. 1

SUPERVISION OF THE FEDERAL HOME LOAN BANKS................................................ 2

MEANS AND STRATEGIES .................................................................. 9

PROGRAM EVALUATION................................................................... 11

PERFORMANCE MEASURES

GOAL 1: THE FEDERALHOME LOAN BANKSOPERATE SAFELY AND SOUNDLY....................... 12

GOAL 2: THE AFFORDABLE HOUSING AND COMMUNITY INVESTMENT PROGRAMS OF THE FEDERAL 

HOME LOAN BANKS OPERATE EFFECTIVELY AND EFFICIENTLY..................................... 13
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MESSAGE 

FROM THE 

CHAIRMAN

The Federal Housing Finance Board (Finance Board) has 

adopted a Strategic Plan for fiscal years 2007-2012. This 

Plan consolidates the three strategic goals from the 

previous strategic plan into two goals that drive the 

Finance Board’s activities and operations. These goals are: 

(1) the Federal Home Loan Banks (FHLBanks) operate 

safely and soundly; and (2) the affordable housing and 

community investment programs of the FHLBanks 

operate effectively and efficiently. In fiscal year 2007 

(FY2007), the Finance Board will achieve these goals by 

allocating substantial resources to carry out the safety 

and soundness and affordable housing and community 

investment examination and supervision programs. The 

Finance Board will emphasize the following: 

• Implementing a risk-based examination rating 

system. The Finance Board will consider the 

ratings in allocating the agency’s supervisory 

resources and identifying the specific corporate 

governance, financial condition and performance, 

credit, market, and operational risks presented by 

the business and operations of each FHLBank. 

• Enhancing the agency’s data systems and risk 

monitoring capabilities. 

• Expanding supervisory and policy guidance to the 

examination staff and the FHLBanks. 

• Initiating supervisory and regulatory actions to 

respond to developments in financial markets and 

FHLBank operations. 

• Enhancing the training and development 

program for Finance Board staff. 

This Performance Budget is the Finance Board’s blueprint 

for implementing the Strategic Plan for the coming fiscal 

year. It identifies specific performance goals and 

measures together with means and strategies that will 

allow the Finance Board to achieve the goals and 

outcomes articulated in its Strategic Plan. 

Ronald A. Rosenfeld 

Chairman 
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 FY2007 ANNUAL PERFORMANCE BUDGET

1

MISSION 

STATEMENT 

VISION 

VALUES

MISSION: The Finance Board’s mission is to ensure 

that the FHLBanks are safe and sound so they serve as a 

reliable source of liquidity and funding for the nation’s 

housing finance and community investment needs. 

VISION: To maintain the public’s trust, the Finance 

Board is dedicated to the highest professional standards of 

accountability and independence in carrying out its 

responsibilities for FHLBank supervision and oversight. 

VALUES: The core values underlying the Finance 

Board’s mission and vision and guiding its organizational 

decisions and actions are: 

• Independence. The Finance Board is the arm’slength regulator of the FHLBanks and the Office 

of Finance (OF). 

• Accountability. The Finance Board is a steward of 

the public’s trust and uses its resources efficiently 

and in the public interest. 

• Responsiveness. The Finance Board aligns its 

actions with its mission and responds promptly 

and effectively to emerging risks and 

opportunities in the financial system. 

• Integrity. The Finance Board discharges its 

responsibilities fairly and adheres to the highest 

standards of ethical conduct. 

• Excellence. The Finance Board strives for 

excellence in carrying out its responsibilities and 

recognizes the contributions of employees who. 

demonstrate the highest professional standards in 

their work. 
 FY2007 ANNUAL PERFORMANCE BUDGET

2

SUPERVISION

OF THE 

FHLBANKS

The primary duty of the Finance Board is to 

ensure that the FHLBanks and the OF operate 

in a financially safe and sound manner. The 

Finance Board also assesses the FHLBanks’ 

administration of their affordable housing and 

community investment programs. 

Evaluating the performance, condition, and 

risk profile of each FHLBank through on-site 

examinations is the cornerstone of the Finance 

Board’s safety and soundness supervisory 

program. As part of each examination, the 

examiners: (1) assess the FHLBank’s 

management of the credit, market, and 

operational risks that arise from its business 

and operations; (2) evaluate the FHLBank’s 

financial condition and performance, capital 

adequacy, and corporate governance; (3) 

assess compliance with the rules and 

regulations of the Finance Board, and federal 

and state laws, and the policies and procedures 

of the FHLBank. Staff reviews the supervisory 

issues identified during the on-site examination 

at the next on-site examination or through other 

supervisory activities. 

The Offices of General Counsel and 

Management and the other divisions in the 

Office of Supervision support the work of the 

Supervision and Examination Division. 

Division staff uses quantitative methods and 

statistical, econometric, and financial models 

to estimate and evaluate the risks at each 

FHLBank, including changes in interest rates, 

interest rate spreads, and interest rate volatility. 

Staff also assesses the financial models used by 

the FHLBanks and the FHLBanks’ ability to 

respond to changing market and economic 

circumstances. 

The Finance Board also evaluates financial, 

housing, operational, and mortgage market 

developments that may affect the FHLBanks. 

Staff assesses the financial and economic 

analyses of conditions and trends and the effects 

of these upon the FHLBank System’s financial 

condition, risk profile, and performance. 
 FY2007 ANNUAL PERFORMANCE BUDGET

3

In 1989, Congress expanded the FHLBank 

System’s public policy mission by establishing the 

Affordable Housing Program (AHP) and a 

Community Investment Program (CIP) through 

which the FHLBanks provide funding to support 

the community and economic development 

activities of their members. In FY2007, the 

Finance Board will assess the effectiveness and 

efficiency of the FHLBanks’ AHP and other 

community investment programs. 

The Finance Board has prepared its FY2007 

Annual Performance Budget to link the agency’s 

strategic and performance goals to the costs of 

achieving those goals. As stated in the FY2007-

2012 Strategic Plan, the Finance Board has two 

strategic goals: 

● FHLBanks operate safely and soundly. 

● The affordable housing and community 

investment programs of the FHLBanks 

operate effectively and efficiently. 

To achieve these goals, the Finance Board 

identifies and resolves safety and soundness 

issues, promulgates regulations to enhance the 

safety and soundness of the FHLBanks, 

monitors the FHLBanks activities to serve the 

nation’s housing finance and community 

investment needs, and aligns the agency’s 

human capital and information technology 

initiatives to the Finance Board’s mission, 

goals, and outcomes. 

In the Finance Board’s FY2007 Annual 

Performance Budget, the agency allocates 

resources to existing and emerging risks to 

facilitate the agency’s ability to achieve their 

strategic goals. The resource allocation 

reflects the redefined strategic goals in the 

Finance Board’s FY2007-2012 Strategic Plan. 

The agency has allocated the preponderance of 

available resources -- in both full-time 

equivalents and budgeted dollars to Strategic 

Goal 1, which reflects the primary duty of the 

Finance Board. 

STRATEGIC GOAL 1 

FHLBANKS OPERATE SAFELY AND SOUNDLY

FY2007 

Summary 

FY2005 

Actual 

FY2006 

Projected Request 

Change from 

FY2006 

Program FTE 82.7 90.7 94.7 4.0 

Infrastructure & Support FTE 23.6 20.1 22.5 2.4 

Total FTE 106.3 110.8 117.2 6.4 

 

Program Expenses ($M) $20.3 $20.2 $23.7 $3.5 

Infrastructure & Support Expenses $ 5.8 $ 4.5 $5.6 $1.1 

Total Budget $26.1 $24.7 $29.3 $4.6 

On-Site Examinations. The Finance Board’s 

FY2007 operating budget includes $29.3 million 

to perform the FHLBanks’ safety and soundness 

supervisory program. To fulfill their housing 

finance mission, the FHLBanks offer advances, 

purchased mortgage programs, and other services. 

These activities result in the FHLBanks assuming 

market, credit, and operational risks. The 

FHLBanks must evaluate and manage these 

varied and complex risks in accordance with 

their condition and earnings. The Finance 

Board’s supervisory program evaluates and 

monitors whether the risk management 

processes at each FHLBank effectively reflect 

and control the level of risk undertaken by it. 
 FY2007 ANNUAL PERFORMANCE BUDGET

4

During FY2007, the Finance Board’s supervisory 

program will focus on programs, activities, and 

operations with the highest risk to the safety and 

soundness to the FHLBanks. The following 

processes are central to the Finance Board’s 

application of a risk-based supervisory approach: 

(1) identification of the market, credit, and 

operational risks; (2) use of common methods of 

evaluation to measure these risks; and (3) 

determination of whether the policies, systems, 

and processes employed by each FHLBank and 

the OF enable its board of directors and senior 

management to manage existing and prospective 

levels of risk. 

At the conclusion of an on-site examination, 

Finance Board examination staff discusses their 

findings with the FHLBank’s senior management. 

The agency uses reason and moral suasion to 

influence the practices of the FHLBanks. When 

those methods are unsuccessful or concerns are raised 

to a level of significance, the Finance Board may use 

formal and/or informal enforcement actions to correct 

practices, conditions, or violations of law and/or 

regulations. When Finance Board examination staff 

identifies significant supervisory or compliance 

issues, including violations of laws or regulations, 

the Finance Board may enter into supervisory 

agreements with the FHLBank. 

In FY2006, the Finance Board included a 

conclusion in each Report of Examination 

summarizing the FHLBank’s overall condition and 

performance. In FY2007, the Finance Board plans 

to implement the FHLBank Risk Rating System 

(FHLBRS). Under the FHLBRS, each FHLBank 

and the OF is assigned a composite rating based 

on evaluations of five key components: corporate 

governance, market risk, credit risk, operational 

risk, and financial condition and performance. 

The agency will incorporate the assessment of the 

AHP and community investment programs into the 

corporate governance and operational risk 

components. The composite rating of the OF will 

be based on an evaluation of its corporate 

governance and operational risk because of the 

nature of its functional responsibilities. 

Off-Site FHLBank Monitoring and Analysis. 

Finance Board analysts review FHLBank 

activities, financial condition, fiscal and operating 

performance; regulatory compliance; and 

assess market developments that may affect 

the FHLBank System. These analysts also 

work closely with the examination staff to 

establish the scope of examination of the 

FHLBanks and review the financial condition 

and performance of the FHLBanks at the onsite examinations. Finance Board analysts 

also prepare analytical papers on conditions 

and trends and the effects of these upon the 

FHLBank System’s condition, profitability, 

and stability. 

Risk Measurement and Modeling. Staff uses 

quantitative methods and financial models to 

provide analytic support to the examination 

function in the area of market risk 

measurement and modeling. The Finance 

Board assesses the FHLBanks’ risk models 

and their output, including market value and 

market value sensitivity, and monitors most 

closely the FHLBanks with the greatest 

interest-rate sensitivity and/or financial 

modeling deficiencies. 

Staff supplements the on-site risk modeling 

assessments with an off-site risk monitoring 

program consisting of analysis of quarterly 

data and risk exposure reports prepared by the 

FHLBanks using their own risk modeling 

systems. The reports include measures of the 

sensitivity of the FHLBanks’ market value of 

equity to parallel interest rate shocks, 

including the effects of duration and 

convexity. Finance Board staff also reviews 

proposed changes to the market risk models 

that FHLBanks use to calculate risk based 

capital requirements. 

In FY2006, the Finance Board developed a 

tool comprised of a group of instruments that 

are representative of the financial risk and 

return characteristics of a specific FHLBank. 

Combining a select number of instruments 

allows the Finance Board to analyze the 

impact of market changes, the exposure to 

potential interest rate changes, the reliability 

of the FHLBank’s internal reporting, the 

FHLBank’s risk management decisions, the 

FHLBank’s new business strategies and 

policies, and the FHLBank’s earnings 
 FY2007 ANNUAL PERFORMANCE BUDGET

5

capacity. At present, this tool can be used to 

evaluate two FHLBanks. In addition, the tool will 

be expanded to include at least three additional 

FHLBanks in FY2007. This tool may be 

expanded in FY2007 to estimate the dollar 

exposure associated with different levels and types 

of risk and the earnings derived from different 

instruments, strategies, and risk levels of each 

FHLBank. 

Quality Assurance. In FY 2006, the agency 

performed quality assurance reviews of 

examinations on a limited ad hoc basis. In 

FY2007, the Finance Board plans to formalize its 

quality assurance program. The quality assurance 

program will evaluate all aspects of supervisory 

operations and will facilitate the agency’s efficient 

and effective operations from safety and 

soundness, housing finance mission, and 

community investment perspectives. 

Regulations. In FY2007, the Finance Board will 

continue to reassess and refine the agency’s 

regulatory infrastructure. Several rules were 

issued for public comment in FY2006 which 

streamline and reorganize requirements for the 

AHP, enhance corporate governance by 

establishing qualifications for elected members of 

the FHLBank boards of directors, and strengthen 

the capital structure of the FHLBanks by requiring 

a minimum level of retained earnings and 

restricting the amount of excess stock capitalizing 

an FHLBank. Final rules were issued on the first 

two matters in FY2006, and the agency anticipates 

issuing final rules on the remaining matters in 

FY2007. 

New Business Activities. When an FHLBank 

determines that it wants to engage in a new 

business activity, it must provide notification to 

the Finance Board, which then has 60 days to 

respond before the FHLBank can engage in this 

activity. In its review of a new business notice, 

the Finance Board will assess whether the 

proposed activity is legal, identify the risks 

associated with the activity, and evaluate the 

ability of the FHLBank to manage those risks. 

The Finance Board will approve an activity it 

deems appropriate for the FHLBank. The Finance 

Board reviews implementation of an approved 

new business activity as part of the on-site 

examination. In order to allow an FHLBank 

to respond in a timely manner to emerging 

needs or requests by its members, in FY2007, 

the Finance Board is committed to assessing 

complete new business activity requests within 

45 days (on average). 

Capital Structure Plans. In December 2000, 

the Finance Board adopted a regulation that 

requires the FHLBanks to establish a new risk 

based capital structure. The new capital 

structure establishes minimum capital 

standards and requires the FHLBanks to set 

the minimum amount of FHLBank stock that 

members must hold. In 2002, the Finance 

Board approved the capital structure plans 

submitted by the FHLBanks and to date, 11 of 

the 12 FHLBanks have implemented their 

plans. 

Finance Board approval is required for 

amendments to an FHLBank’s capital 

structure plan. In order to allow an FHLBank 

to respond in a timely manner to emerging 

needs, in FY2007, the Finance Board is 

committed to assessing complete requests to 

amend a capital plan within 45 days (on 

average). 

Combined FHLBank System Financial 

Statements. Each FHLBank is now subject to 

the Securities Exchange Act of 1934 periodic 

disclosure requirements, which include the 

periodic preparation and filing of public 

disclosures relating to an institution’s financial 

condition, results of operations, trends, or 

uncertainties affecting its business, and 

management’s assessment of its business and 

financial condition, including supporting 

financial information and certifications. The 

OF prepares the combined financial statements 

for the entire FHLBank System in accordance 

with 12 C.F.R. § 985.6(b). The Finance Board 

assesses whether the combined financial 

statements comply with the agency’s 

regulations and policies. 

Data Collection and Management. The 

Finance Board continues to enhance the 

agency’s data management and information 

systems. In FY2006, the agency adopted its 
 FY2007 ANNUAL PERFORMANCE BUDGET

6

Data Reporting Manual (DRM). In FY2007, the 

agency will continue to collect data in accordance 

with the data requirements outlined in the DRM. 

The Finance Board will establish policies and 

procedures to govern the release of data the 

Finance Board receives from the FHLBanks and 

the distribution of sensitive information to the 

FHLBanks over the internet. 

The Call Report System (CRS.net) provides an 

integrated framework through which the Finance 

Board gathers financial and other information 

from and about the FHLBanks. Specifically, 

CRS.net captures the FHLBanks’ call report 

information as well as certain instrument level 

data used by the FHLBanks to run their financial 

models. In FY2006, staff redesigned CRS.net and 

the agency expects to fully implement the system 

by the third quarter of FY2007. 

In FY2007, the Finance Board will evaluate 

membership information to combine all data the 

FHLBanks report into an integrated data 

repository with appropriate Bank reporting 

interfaces. A new membership database also will 

eliminate duplicate data collected in different 

databases. New features include automating data 

integrity checks and allowing all users to query the 

data. 

The FHLBanks provide Acquired Member Assets 

(AMA) summary reports on a quarterly basis and 

loan specific AMA data on a semi-annual basis. 

In FY2006, staff converted the AMA database 

from a flat table format to a relational database. In 

FY2007, the Finance Board will redesign the 

Quarterly AMA Report to capture all necessary 

information in a single table and modify the data 

reported semi-annually by the FHLBanks. 

Supervisory Guidance. In FY2006, the Finance 

Board adopted a substantially revised and updated 

safety and soundness examination manual. In 

FY2007, the agency will update this manual to 

incorporate feedback from examiners using the 

manual in FY2006. 

In FY2007, the Finance Board will continue to 

develop and issue supervisory guidance to the 

FHLBanks through advisory bulletins and 

regulatory interpretations. Staff will provide 

timely guidance that incorporates effective 

best practices in response to emerging risks, 

the evolving activities and operations of the 

FHLBanks, developments in the financial 

markets, and new supervisory issues. In 

recent months, the agency issued advisory 

bulletins concerning disclosure of unpublished 

information, model documentation and 

validation; and AHP and Resolution Funding 

Corporation contributions. 
 FY2007 ANNUAL PERFORMANCE BUDGET

7

STRATEGIC GOAL 2 

AFFORDABLE HOUSING AND COMMUNITY INVESTMENT PROGRAMS OF THE 

FHLBANKS OPERATE EFFECTIVELY AND EFFICIENTLY. 

FY 2007 

Summary 

FY 2005 

Actual 

FY 2006 

Projected Request 

Change from 

FY2006 

Program FTE 19.2 21.0 21.3 0.3 

Infrastructure & Support FTE 5.4 4.7 5.0 0.3 

Total FTE 24.6 25.7 26.3 0.6 

 

Program Expenses $4.7 $4.7 $5.3 0.6 

Infrastructure & Support Expenses $1.3 $1.0 $1.3 0.3 

Total Budget $6.0 $5.7 $6.6 0.9 

On-Site Examinations. The Finance Board’s 

FY2007 operating budget includes $6.6 million 

to perform the AHP and community investment 

supervisory program. The Finance Board will 

conduct on-site reviews of the Affordable 

Housing Program (AHP), Community 

Investment Programs (CIP), and other 

Community Investment Cash Advance (CICA) 

programs of each FHLBank. Examiners review 

policies, procedures, and controls that address 

board of directors and management oversight, 

the subsidy award process, uses of funds, and 

recipient eligibility. 

During the on-site examination, staff will test a 

sample of AHP projects for compliance with the 

Finance Board’s regulations. Staff will review 

the FHLBank’s CIP for compliance with 

statutory and regulatory requirements, including 

eligibility of advances, pricing methodology 

employed, and application of policies and 

procedures to verify members’ appropriate use 

of advances. Staff also will review the 

FHLBank’s other CICA programs for 

compliance with regulatory requirements, 

including documentation of compliance with 

targeting requirements and application of 

policies and procedures to verify members’ 

appropriate use of funds. 

The Finance Board generally resolves concerns 

identified during its examination of the AHP, 

CIP, and other CICA programs through 

discussions with FHLBank management and 

boards of directors. On a regular basis, the 

agency will monitor the FHLBank’s progress in 

resolving such concerns and will confirm that 

the issues have been corrected. 

Where warranted, the Finance Board can require 

an FHLBank to take additional remedial action 

such as suspending or debarring a member, 

project sponsor, or project owner from 

participation in the program. In the case of an 

FHLBank’s CIP and other CICA programs, the 

Finance Board may require an FHLBank to 

reclassify advances not adhering to applicable 

statutory and regulatory requirements. 

Supervisory Policy. In FY2007, the agency will 

clarify its policies and regulations in response to 

inquiries from the FHLBanks, sponsors, and 

members and create reports that summarize the 

projects funded through the FHLBanks AHP, 

CIP, and CICA programs on an annual and ad 

hoc basis. The agency also will continue its 

outreach efforts to potential beneficiaries of 

FHLBank affordable housing and community 

investment programs. 
 FY2007 ANNUAL PERFORMANCE BUDGET

8

Supervisory Guidance. It is anticipated that the 

Board of Directors will approve a final rule in 

late FY2006. The proposed effective date is 

January 1, 2007. The final rule, if issued, would 

remove overly prescriptive requirements, clarify 

certain operational requirements, and otherwise 

streamlined and reorganize the existing AHP 

regulation. 

In FY2006, the agency began to develop the 

Affordable Housing and Community Investment 

Program Examination Manual. The manual will 

reflect the agency’s risk-focused approach to onsite reviews of the AHP, CIP, and CICA 

programs of each FHLBank. The agency will 

complete the manual and related work programs 

in FY2007. 

Community Support Programs. Finance Board 

regulations implementing a provision of the 

Bank Act require members to submit community 

support statements approximately once every 

two years. In FY2007, the Finance Board will 

review community support statements of 

approximately one-half of FHLBank members. 

The Finance Board will also consider whether 

revisions to its existing Community Support 

Regulation are warranted and take actions 

accordingly. 

Data Collection and Management. The 

agency’s AHP data collection system has serious 

limitations. In response, the agency adopted a 

new AHP data collection system, which was 

incorporated into the agency’s data reporting 

manual in FY2006. After extensive consultation 

with technical and program staff at the 

FHLBanks, the agency has improved the 

accuracy of the data in the existing AHP 

database, and established the data collection 

requirements for the new AHP databases. In 

FY2007, the Finance Board will collect data in 

the new AHP Competitive Program database, as 

well as the Aggregate AHP and Aggregate 

CICA CRS databases. The Finance Board will 

begin to collect data for the AHP Set-Aside 

Program and CICA Member-Level Projects in 

FY2008. 
 FY2007 ANNUAL PERFORMANCE BUDGET

9

MEANS AND 

STRATEGIES

To carry out its mission, the Finance Board has one 

principal program – supervision of the FHLBanks. 

Examinations are the cornerstone of the Finance Board’s 

supervisory program. The Finance Board monitors the 

performance, condition, and risk profile of each 

FHLBank through on-site examinations and other 

supervisory activities. In addition, the Finance Board 

assesses the effectiveness of FHLBanks’ affordable 

housing and community investment programs through 

examinations and other supervisory activities. The 

Offices of General Counsel and Management support 

the Office of Supervision in carrying out the Finance 

Board’s supervisory program. 

Means and strategies determine the processes, skills, 

technologies, and resources that the Finance Board will 

use to achieve its strategic goals. These have a direct 

effect on the agency’s overall efficiency and 

effectiveness. The following means and strategies are 

used: 

LEVERAGE RESOURCES TO MAXIMIZE 

SUPERVISORY OVERSIGHT AND 

REGULATORY ACTIVITIES. 

Finance Board staff has expertise in many disciplines 

including, accounting, capital markets, community and 

economic development, financial analysis, financial 

modeling, information technology, law, lending, and 

risk management. An Examiner-In-Charge (EIC) is 

assigned to each FHLBank and draws on the knowledge 

and skills of other examiners and agency staff in 

conducting supervisory activities. 

IDENTIFY EMERGING RISKS AND TRENDS. 

Supervising the FHLBanks is a dynamic activity. The 

EIC, in consultation with other agency staff, identifies 

key risks, including market, credit, and operational risks 

at an FHLBank, and develops a supervisory strategy. 

The supervisory strategy allocates resources to risk areas 

for an individual FHLBank. 
 FY2007 ANNUAL PERFORMANCE BUDGET

10

APPLY TECHNOLOGY TO ENHANCE THE 

FINANCE BOARD’S EFFECTIVENESS. 

The Finance Board uses quantitative methods and 

financial models to provide analytic support to the 

examination function. The agency assesses the market 

value and market value sensitivity of the FHLBanks 

and monitors most closely the FHLBanks with the 

greatest interest rate sensitivity. 

SUSTAIN AND IMPROVE ORGANIZATIONAL 

EXCELLENCE. 

The Finance Board achieves organizational excellence 

through recruitment and retention of highly skilled 

staff and continual development of staff’s skills and 

knowledge. In recent years, the agency has 

established a performance-based pay system, increased 

staffing levels, and enhanced employee benefits. The 

Finance Board is committed to enhancing the 

performance, skills, and industry knowledge of its 

managers and staff through training and conference 

participation. 
 FY2007 ANNUAL PERFORMANCE BUDGET

11

PROGRAM 

EVALUTION 

 The Finance Board’s supervisory program 

focuses on the FHLBanks’ programs, activities, 

and operations with the highest risk to the 

safety and soundness of the FHLBanks and 

their ability to achieve their housing finance 

mission. There is no evidence to suggest that 

the supervisory program would be more 

efficient or effective under an alternative 

approach. 

The program is designed to provide flexibility 

so the agency can promptly address emerging 

issues. The examiner-in-charge of each 

FHLBank annually develops a supervisory 

strategy that identifies the level and complexity 

of the market, credit, and operational risks 

associated with an individual FHLBank’s 

programs, activities, and operations. The 

Finance Board allocates its resources to focus 

on these risks and the identified weaknesses, 

trends, and emerging issues. 

The Finance Board’s Strategic Plan for 

FY2007-2012 describes the agency’s mission 

and defines the vision, strategic outcomes, 

annual performance goals, and means and 

strategies the agency will use to accomplish its 

strategic goals. The FY2007 Annual 

Performance Budget aligns resources and links 

the agency’s supervisory program to its 

strategic goals. In particular, the FY2007 

Annual Performance Budget sets performance 

measures to accomplish the strategic goals and 

desired outcomes. 

The Finance Board’s planning, budgeting, and 

performance management process sets the 

strategic direction, determines planned 

activities and resources, measures and monitors 

performance throughout the year, and performs 

an annual performance assessment. These 

components reflect a continuous cycle of 

performance management centered on 

outcomes. The agency uses annual 

performance assessments to analyze 

performance and improve effectiveness and 

efficiency. 
 FY2007 ANNUAL PERFORMANCE BUDGET

12

PERFORMANCE 

MEASURES

GOAL 1: 

FHLBanks operate safely and soundly. 

STRATEGIC OUTCOMES: 

FHLBanks effectively identify and 

manage risk. 

FHLBanks remain adequately capitalized 

and are able to raise funds in the capital 

markets. 

GOAL 1: FHLBANKS OPERATE SAFELY AND SOUNDLY. 

PERFORMANCE MEASURES

FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 

Principal examination findings are addressed to the satisfaction of the Finance Board prior to the next 

examination. 

Target: 100% 

Actual: 

New Metric 

Supervisory or compliance issues resulting in supervisory agreements are corrected by the FHLBanks 

within required timeframes. 

Target: 100% 

Actual: 

New Metric 

Finance Board completes assessment of new business activity and capital plan amendment requests 

within an average of 45 days of receipt of a complete proposal. 

Target: 100% 

Actual: 

New Metric 

The first two performance measures gauge the 

agency’s ability to monitor and supervise an 

FHLBank as it takes corrective actions in 

response to supervisory or compliance issues 

identified through the Finance Board’s 

supervisory program. Principal examination 

findings are required to be addressed to the 

Finance Board’s satisfaction prior to the start of 

the next annual examination. At a minimum, the 

FHLBank must have developed an action plan to 

correct the issues identified in the findings prior 

to the start of the next annual examination. 

Thereafter, the agency will monitor the 

FHLBank’s progress in implementing the action 

plan through follow-up reviews and the 

subsequent annual on-site examinations. 

Where warranted, the Finance Board may enter 

into a supervisory agreement with an FHLBank 

and its board of directors. Supervisory 

agreements signed or revised after October 1, 

2006 will include specific action plans and 

timeframes to remedy deficiencies. The second 

performance measure gauges the success of these 

agreements, namely that supervisory or 

compliance issues addressed in supervisory 

agreements are corrected by the FHLBanks 

within required timeframes. 
 FY2007 ANNUAL PERFORMANCE BUDGET

13

The third performance measure gauges the 

efficiency and responsiveness of the Finance 

Board in addressing requests from the 

FHLBanks. Finance Board regulations require 

the agency to assess a new business activity 

notice within 60 days after the notice is deemed 

complete. While not specified in its regulations, 

the Finance Board’s practice has been to assess 

capital plan amendments within 60 days once 

the amendment request has been deemed 

complete. In FY2007, the Finance Board has set 

a performance measure to reduce its response 

time for both of these requests by 25 percent to 

an average of 45 days. This is a new metric, and, 

as such, it applies to FHLBank requests received 

on or after October 1, 2006. 

PERFORMANCE 

MEASURE

GOAL 2: 

The Affordable Housing and Community 

Investment Programs of the FHLBanks 

operate effectively and efficiently.

STRATEGIC OUTCOME: 

FHLBanks foster the development of 

owner-occupied and affordable rental 

housing for eligible very-low, low- and 

moderate-income households. 

GOAL 2: THE AFFORDABLE HOUSING AND COMMUNITY INVESTMENT 

PROGRAMS OF THE FHLBANKS OPERATE EFFECTIVELY AND EFFICIENTLY. 

PERFORMANCE MEASURE

FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 

Timing of Subsidy Use: Affordable housing funds are distributed as approved in the AHP application. 

Target: 100% 

Actual: 

New Metric 

The AHP subsidizes the cost of owner-occupied 

housing for individuals and families with 

incomes at or below 80 percent of the area 

median income, and rental housing in which at 

least 20 percent of the units are reserved for 

households with incomes at or below 50 percent 

of area median income. The subsidy may be in 

the form of a grant or subsidized interest rate for 

an advance. AHP funds are available through 

competitive application programs as well as 

through set-aside programs. 

In the competitive program, members submit 

applications on behalf of one or more sponsors 

of eligible housing projects. Projects must meet 

certain eligibility requirements and score 

successfully in order to obtain funding. 

Typically, the AHP is used to fill the gap in 

financing between the sponsor’s equity and any 

private and/or public sector financing. 

However, AHP funds often are the first money 

sponsors seek to obtain, or the funds that must 

be received before other lenders will disburse 

their funds. 
 FY2007 ANNUAL PERFORMANCE BUDGET

14

The regulations require that the AHP subsidy 

must be likely to be drawn down by the project 

or used by the project to procure other financing 

commitments within 12 months of the date of 

approval of the application for the AHP subsidy. 

The Finance Board developed the above 

performance measure to determine whether the 

FHLBanks’ application procedures result in 

AHP projects that comply with the commitments 

made in the sponsor’s application. These 

commitments must comply with regulatory 

requirements. As a part of each examination as 

well as through off-site monitoring, the Finance 

Board will review compliance with this 

requirement as well as the FHLBank’s policies 

and practices in determining when to de-obligate 

AHP funds awarded to projects that have not 

had measurable progress over several periods. 

This is a new metric, and, as such, it applies to 

AHP applications approved on after October 1, 

2006.