Presentation to Bank members at meetings

This presentation contains forward-looking statements which are

based upon our current expectations and speak only as of the date

hereof. These statements may use forward-looking terms, such as

“anticipates,”

“believes,”

“expects,”

“could,”

“plans,”

“estimates,”

“may,”

“should,”

“will,”

or their negatives or other variations on these

terms. We caution that, by their nature, forward-looking statements

involve risk or uncertainty, that actual results could differ materially

from those expressed or implied in these forward-looking

statements, and that actual events 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, instability in the credit and debt markets,

economic conditions (including effects on, among other things,

mortgage-backed securities), changes in mortgage interest rates

and prepayment speeds on mortgage assets, our ability to

successfully transition to a new business model and the risk factors set

forth in our periodic filings with the Securities and Exchange

Commission, which are available on our website at www.fhlbc.com. In

addition, certain information included here speaks only as of the

particular date or dates included in this presentation, and the

information in the presentation may have become out of date. We do

not undertake an obligation, and disclaim any duty, to update any of the

information in this presentation.

The data and valuations provided in

this

presentation

are for information purposes only and are provided as

an accommodation and without charge. This presentation

is not

intended to constitute legal, investment,

or financial advice or the

rendering of legal,

consulting, or other professional services of any kind.

“Mortgage Partnership Finance,”

“MPF,”

and “MPF Xtra”

are registered

trademarks of the Federal Home Loan Bank of Chicago.

FHLBC Goals

•

Provide our funding advantage and other essential

products and services to our members;

•

Generate consistent, profitable results;

•

Stabilize our capital base through a capital stock

conversion;

•

Grow retained earnings;

•

Simplify our business model and operations; and

•

Restore an appropriate dividend and full liquidity

to our stock.

Remediation: A simpler FHLBC

•

Where We’ve Been:

Restructured the balance sheet

Completed the asset replacement strategy

Completed implementation of core operating

systems to provide platform for process

reengineering

Submitted Capital Plan and Market Risk

Framework to Federal Housing Finance

Agency (FHFA)

Remediation: The Results

•

A balance sheet that’s getting simpler

•

Improvement in net interest margin

•

Streamlined/re-engineered processes

•

Over time, positioning the Bank to achieve our

goals of consistent profitability, reduced

interest rate risk, lower/more consistent

hedging costs, reduced operating expenses,

resumption of a dividend, and full liquidity for

our stock

Transformation: Member Focus

•

Where We’re Going:

We continue our transformation from a business

model focused on the acquisition of individual

mortgage loans to one focused on advances

The challenge of becoming an advances bank

when advance volumes are declining

Transformation: Member Focus

•

We will be a reflection of member needs,

market conditions, and economy

•

Focus on:

–

Maximizing utilization of FHLB Chicago by all

members

–

Adding new members, including insurance

companies and credit unions

Transformation: Member Focus

•

Our scale will match your needs/your

utilization of the Bank

•

remain

committed

operating

the

MPF

Program and to expanding the suite of MPF

Xtra

products for our members

•

We plan to convert our capital stock as

expeditiously as possible after approval from

the FHFA

Impact of Housing Reform Legislation

•

Grouping the FHLBanks with Fannie and

Freddie in discussions of implied guarantee

could impact:

Cost of funds

Availability of liquidity to members

Ownership structure

Public Policy Discussions

•

In coming discussions, your support is

important

•

The FHLBanks are working with your trade

associations in developing discussion points

for the coming debate

•

We will need your help and support

FHLBC Members Placed Into Receivership

# Institutions

2009

YTD as of 5/14/2010

•

Total credit outstanding $1.0 billion

•

All institutions were fully collateralized

•

No credit losses to date

Selected Balance Sheet Items –

Assets

Q1 2009 vs. Q1 2010

$ in millions

3/31/2010

3/31/2009

Difference

ASSETS

Advances

$21,291

$31,197

($9,906)

MPF Loans Held in Portfolio, net

22,678

29,825

(7,147)

Long-term Investments

24,696

16,017

8,679

Total Housing/Mission

- Related Assets

68,665

77,039

(8,374)

Other Investments

15,622

5,055

10,567

Other Assets

1,782

1,656

126

Total Assets

86,069

83,750

2,319

Selected

Balance

Sheet

Items

–

Liabilities

Capital

Q1 2009 vs. Q1 2010

$ in millions

3/31/2010

3/31/2009

Difference

LIABILITIES

Total Deposits

$830

$1,352

($522)

CO's, DN's, Repos

78,813

77,362

1,451

Subordinated Notes

1,000

Mandatorily Redeemable Capital Stock

470

409

Other Liabilities

2,413

2,175

238

Total Liabilities

83,526

82,298

1,228

CAPITAL

Capital Stock

2,332

2,355

(23)

Retained Earnings

709

734

(25)

Accumulated OCI

(498)

(1,637)

1,139

Total Capital

2,543

1,452

1,091

Total Liabilities and Capital

86,069

83,750

2,319

Regulatory Capital Requirements

The Bank continues to be in compliance with

all required capital ratios.

$3.802 billion in regulatory capital stock plus

designated amount of subordinated notes at

March 31, 2010; (required minimum of $3.600

billion).

Actual at

3/31/2010

Minimum Regulatory

Capital Ratio Required

5.24%

4.76%

$ in millions

Selected Income Statement Items

*Includes gain/loss on OTTI, hedging, & debt transfers

**Excludes MPF Program, FHFA, & Office of Finance expenses

FY 2009

FY 2008

Difference

Net Interest Income

570

199

371

OTTI Charges, net

(437)

(292)

(145)

NII Including Adjustments*

(28)

Operating Expenses**

(114)

(113)

(1)

REFCO Payments

AHP Assessment

Net Income

(65)

(119)

$ in millions

Selected Income Statement Items

*Includes gain/loss on OTTI, hedging, & debt transfers

**Excludes MPF Program, FHFA, & Office of Finance expenses

First

Quarter

2010

First

Quarter

2009

Difference

Net Interest Income

136

141

(5)

OTTI Charges, net

(44)

(86)

NII Including Adjustments*

(22)

Operating Expenses**

(24)

(25)

REFCO Payments

(1)

AHP Assessment

Net Income

(39)

Other-Than-Temporary Impairment (OTTI)

Impact on YTD Net Income

$ in millions

Net Income has improved significantly.

1Q 2010

FY 2009

FY 2008

Net Income (Loss)

(65)

(119)

OTTI Credit Loss

437

Impact on Assessments

(13)

(106)

Net Income (Loss) Excluding OTTI

266

(66)

Other-than-Temporary Impairment

As of March 31, 2010

$ in millions

* Accumulated Other Comprehensive Income

Credit

Losses

losses

due

cash

shortfalls

the

underlying

securities

Non-Credit

Losses

losses

that

primarily

result

from

current

market

conditions

net

accretion

FY 08

$53

$233

FY 09

437

745

1Q 10

(67)

$534

$911

Credit Losses

Non-Credit Losses

Change in AOCI*

Profitability –

Spread to Index

-12.55%

-11.76%

1.17%

-2.79%

-5.65%

10.49%

-17.07%

2.14%

-0.13%

-20.00%

-16.00%

-12.00%

-8.00%

-4.00%

0.00%

4.00%

8.00%

12.00%

16.00%

20.00%

2008

2009

2010

Conclusions

•

Both Advances and MPF loans are declining, but

for very different reasons.

•

Net spread has increased strongly and is now

consistently in desirable range.

•

Future OTTI credit loss levels are uncertain and

are strongly linked to home sales, home price

appreciation/depreciation, and employment.

Levels over the last two quarters have shown

declining credit charges and rising securities

prices.

Member Credit Profile

•

The current credit cycle began in August 2007

•

Credit quality within the membership seems to have

stabilized at the end of Q1 2010

•

For the first time since the start of the cycle, more

members’

call report data indicated improving rather

than declining condition

To date, 27 members have been resolved, all in

2009-2010

2008

and

2009,

members

Bank!

joined

the

Collateral in a Cooperative

•

Ongoing efforts to maximize collateral

availability for members

•

Ongoing efforts to monitor collateral quality

•

We want to make it easier to use the Bank

•

We want to continue to support members in

tough economy

Commercial Real Estate Update

•

Commercial Real Estate (CRE) was approved in

late 2009

•

Several members have gone through the CRE

process

CRE-specific field review (at no charge to the

member)

Valuation of the collateral

About 5 to 6 weeks end-to-end

Commercial Real Estate Update

•

Not the best time in the market to roll out CRE as a

collateral class

•

A number of restrictions prevented members from

fully accessing CRE:

Eligibility guidelines

Listing requirement

Trade-off time/eligibility/collateral loan value

Risk rating (not available to risk-rated 5 members)

•

We learned a lot about CRE in the process of

implementation…and something about CFI

collateral, too

CFI Collateral

•

In the CRE field review process, we discovered that

Community Financial Institution (CFI) collateral was

underutilized by members as a collateral class

10% asset cap

Listing required

•

Less than $1 billion of CFI collateral is currently

being pledged

•

Over $20 billion CFI collateral resides on member

balance sheets

CFI Collateral

•

CFIs

are defined as institutions with less than

$1.029 billion in average total assets for

2007 -

2009

•

93%

of our members are CFIs

•

60% of members have over 30% of their assets in

CFI collateral

Mark-to-Market (MTM) Update

•

Last year we reported that we would be marking

collateral to market

•

Collateral loan value would be a function of MTM

•

Listed collateral would be submitted to outside

valuation service

Mark-to-Market Update

•

Assigning the proper value to members on blanket

lien has been subject to ongoing discussion

•

Member impact a critical consideration

•

Must be fair

•

Notice of change in valuation must be sufficient for

members to adjust

Mark-to-Market Update

•

Full implementation of MTM late 2010/2011

•

We are acting on portfolio valuations of some members

submitting data that are required to list

Reducing collateral loan value in cases where the

valuations do not support the standard haircuts

•

As always, our credit actions are designed to protect

collective member capital

•

No credit losses have been taken related to the

member resolutions thus far

Collateral Systems Update

•

Last year we informed you of our intention to move

the QCR to an entirely web-based platform

•

Budget and resource constraints have postponed

that enhancement until 2011

•

However, we have made some changes to the

QCR to make it easier for members to upload the

data to the Bank

•

Also, we have provided additional personnel

resources to assist members with their QCR and

Collateral Listing

•

are

happy

come

your

location

help!

Member Activity -

Advances

•

Member advance balances continue to decline

•

From

peak

$38.1

billion

2008,

advances stand at $21.3 billion on 3/31/10

Members continue to receive customer deposits

Members continue to reduce balance sheets

Members are not adding assets quickly

•

Some members are beginning to fund longer term

Long-term advance rates are attractive,

approaching historic lows

Member Activity -

Letters of Credit

•

Letters of Credit continue to be popular with the

membership

LOC volumes have stabilized at $1.1 billion (at

3/31/09) after rapidly increasing from their 2008

levels during the crisis

The mix of LOCs has shifted from primarily

public unit deposit (PUD) LOCs to standby LOCs

Business insurance providers like the product

Member Activity -

MPF Xtra

•

MPF Xtra

volumes have surpassed

$3.7 billion

•

We recently improved our pricing to the

membership and saw a commensurate

increase in member activity

•

As expected, the credit performance of the

loans has been excellent

Member Activity –

Community Investment

•

Applications available soon for 2010

Affordable Housing Program grants (deadline

September 1, 2010)

•

FHLBanks celebrating 20 years of AHP

•

National Housing Conference will honor

FHLBanks as “Housing Person of the Year”

next month

Post-

July 24, 2008 Stock Redemptions

•

Recall that, since July 24, 2008, the Bank has been

allowed to redeem activity-based capital stock

purchased in excess of a member’s capital stock

floor

•

This program is working nicely and was a welcome

relief to the membership

Post-

July 24, 2008 Stock Redemptions

•

Through March 31, 2010, approximately:

$225 million in activity-based capital stock has

been purchased to support additional advances

(more than 100 members)

$112 million has been redeemed

•

The FHLB structure works

Summary

•

We are focused on partnering with members,

regardless of the state of the economy

•

We want to ensure members are maximizing their

membership through credit availability and product

usage

•

We are actively monitoring credit and collateral

quality

•

We are striving to improve collateral availability and

processes

•

Your access is our business

Update On Economic Conditions

•

Historic times require historic actions, and the

actions from Federal Reserve and U.S. Treasury

helped stabilize the crisis and laid the groundwork

for economic growth.

•

The U.S. economy is experiencing improving

trends, and the consensus is that prospects for

sustainable economic growth are increasing.

•

Many analysts believe that the U.S. economy

seems well-prepared to deal with the global risk

concerns developing in Europe.

However, risks do remain.

Update On Economic Conditions

•

Positives:

GDP growth

Worker productivity levels

Rebounding manufacturing sector

Improving corporate profits (especially

financials)

Consumer spending

Employment

Expiration of temporary Federal Reserve

facilities

•

PDCF

–

Primary dealers obtain funds against

collateral

–

Start: 03/08 End: 02/10

•

ABCP

–

Banks borrow from the Fed to

purchase ABCP

–

Start: 09/08 End: 02/10

•

TSLF

–

Primary dealers obtain Treasurys

against collateral

–

Start: 03/08 End: 02/10

•

MMIFF

–

Fed buys CP and CDs

–

Start: 10/08 End:10/09

Expiration of Federal Reserve Liquidity Facilities

•

CPFF

–

Fed buys CP from Tier 1 issuers

–

Start: 10/08 End: 02/10

•

TALF

–

Fed leveraged TARP money to provide

loans against ABS

–

Start: 11/08 End: 03/10

•

TAF

–

Loan facility for short term funding

–

Start: 12/08 End: 03/10

•

TLGP

–

FDIC guarantees new issuance by

financial companies.

–

Start: 10/08 End: 10/09

Source: Federal Reserve Board of Governors, U.S. Treasury, FDIC

Impact On FHLBC Members

•

The U.S. Treasury yield curve remains near its

steepest level in history

•

The Federal Reserve has intentionally

implemented this strategy by anchoring the

Fed

Funds

rate

0.00%

0.25%

and

committing to hold rates at low levels for an

“extended period.”

•

Result = improved net interest margins

Impact On FHLBC Members

•

FHLBC is helping our members with advance

restructurings.

•

Some members are taking advantage of the

current environment by prepaying higher-cost

advances and refinancing into lower-cost, term

advances, helping increase net interest margins.

•

We work with our members on different

structures, calculate the advance prepayment

fee, apply the appropriate discount, and execute

the new advances.

Impact On FHLBC Members

•

What about the accounting?

In certain cases, members have worked with

advisors to achieve favorable accounting

treatment by amortizing the prepay fee over the

life of the new advance.

•

Examples:

Putables

Fixed-rate

Floating-rate

Putables & floating-rates

Floating-rates with

caps

Impact On FHLBC Members

•

We have the tools and resources available to help

you manage your balance sheets in these difficult

markets:

Scenario analysis

Product discussions

Discussions regarding developments in the

financial markets

Where Do We Stand?

•

Sovereign debt concerns have increased risk

concerns in the financial markets.

•

Will there be another credit crisis?

•

Federal Reserve rate hike expectations have been

pushed back to next year.

Summary

•

U.S. economic conditions have improved and

prospects for the future remain positive.

•

Employment is the key economic component.

•

Members are utilizing the steep yield curve to enhance

their balance sheets using FHLBC products.

•

The sovereign debt crisis has increased risk concerns,

helping to support the currently artificially low interest

rates environment.

FHLBC Member Services

•

FHLBC Weekly Market Update

–

Conferenceplus.com

–

[Contact information]

–

Every Thursday afternoon at 3 p.m.

–

Discuss financial market developments as they relate to

member balance sheets

–

Funding strategies

•

Member Transaction Desk (877) 230-1610