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We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.
The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.
These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.
When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?
Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.
Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.
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Thursday, July 17, 2008
Federal Home Loan Bank of New York Declares a Second Quarter Dividend of 6.50%
Comtex
NEW YORK, July 17, 2008 /PRNewswire via COMTEX/ ----The following dividend and unaudited results statement is being issued by the Federal Home Loan Bank of New York:
I am pleased to report that our Board of Directors has approved the dividend rate for the second quarter of 2008 of 6.50% (annualized). The New York Home Loan Bank's dividend rate for the first quarter of 2008 was 7.80%. The dollar amount of the second quarter dividend will be approximately $79 million. The cash dividend will be distributed to member financial institutions on July 31, 2008.
The FHLBNY's retained earnings as of July 31, 2008, after the dividend payment, will be approximately $341 million. Using published numbers for the quarter ended March 31, 2008, the Federal Home Loan Banks had just under $3.8 billion in retained earnings. New York's share was 11.4% of that total, up from 11.3% at the end of 2007. As the third largest Federal Home Loan Bank, New York's retained earnings were the third highest dollar amount and the third highest as a percent of total assets. The dividend reflects the New York Home Loan Bank's low-risk profile and conservative investment strategy.
Future dividend rates may be significantly different from the current rate as a result of a number of factors including the effects of derivatives accounting (SFAS 133), overall interest rates, demand for our products, and our ability to achieve targeted returns on our investments.
Second Quarter 2008 Balance-Sheet Highlights
Total assets were $118.1 billion on June 30, 2008 compared to $108.5 billion at the March 31, 2008. Advances increased to $90.8 billion, compared to $85.9 billion on March 31, 2008, and represented 77% of total assets.
The Federal Home Loan Banks were created by Congress to supply reliable, low-cost funding to community member lenders in all business cycles. The sustained increase in advances demonstrates the important role we play as we help community member lenders serve their neighborhoods regardless of the economic environment.
For the six months ended June 30, 2008, the Home Loan Bank had net income of
$174.2 million, representing a 23% increase in net income as compared to the $141.9 million for the first half of 2007.
Investments and short-term money-market instruments rose to $25.4 billion at
June 30, 2008, up from $20.5 billion on March 31, 2008. Mortgage assets were at $1.46 billion at June 30, 2008, about the same as the end of the first quarter, and represented less than 1.3% of total assets. Capital rose to $5.3 billion on June 30, 2008, compared to $4.8 billion on March 31, 2008.
Sincerely,
Alfred A. DelliBovi
President
CONTACT: Eric Amig at 212-441-6807, eric.amig@fhlbny.com
SOURCE Federal Home Loan Bank of New York
http://www.fhlbny.com
Copyright (C) 2008 PR Newswire. All rights reserved
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