Standards & Poor's has revised its outlook on the Chicago, Indianapolis, and Seattle Federal Home Loan Banks from Stable to Negative because of interest rate risk concerns about their secondary-market programs."The higher balance of fixed-rate mortgage loans in the earnings asset mix, combined with sizable investments in fixed-rate MBS, has elevated the interest rate risk exposure to a level that is not commensurate with a bank's current 'AAA' long-term counterparty credit ratings," S&P said. The change in outlook puts S&P in a position to downgrade any of the three banks if they start to have problems managing their mortgage investments in a rising interest rate environment. "We really have to see how they manage through this interest rate cycle," said S&P analyst Jonathan Ukeiley. Chicago FHLBank president Alex Pollock said he understands S&P's interest rate concerns, but that his bank's secondary-market program is performing very well. "We plan to continue on our very successful strategic course," he said. Mr. Pollock also noted that the triple-A rating of FHLBank bonds and discount notes is not affected by S&P's latest action. The rating agency can be found online at http://www.standardandpoors.com.

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