FOR IMMEDIATE RELEASE

Contact:

Corporate Communications
Federal Home Loan Bank of Dallas
www.fhlb.com
(214) 441-8445

Federal Home Loan Banks of Dallas and Chicago Continue Merger Discussions

DALLAS, TEXAS, September  26, 2007– The Federal Home Loan Bank of Dallas (Bank) announced in August that the Bank is engaged in preliminary discussions to evaluate the benefits and feasibility of combining its business operations with the Federal Home Loan Bank of Chicago.

Today, the Federal Home Loan Bank of Chicago filed a Form 8-K with the Securities and Exchange Commission (SEC) announcing that it has received a draft consent cease and desist order from the Federal Home Loan Banks’ regulator, the Federal Housing Finance Board, which addresses the Chicago Bank’s redemption of stock and payment of dividends.  The Chicago Bank reported in such SEC filing that it is currently in discussions with the regulator regarding this matter.

The Boards and management of the Federal Home Loan Banks of Dallas and Chicago have been engaged in detailed discussions and extensive due diligence regarding various business, regulatory, financial, operational, accounting, and governance issues related to a possible merger of the two Federal Home Loan Banks.  The Bank’s focus has been and continues to be on identifying whether and under what structure a combination of the two Banks would produce advantageous results and improved value for our members and the affordable housing needs of their communities.  The Bank intends to continue with these preliminary discussions regarding a potential merger, although it is too soon to speculate as to whether these discussions will culminate in a transaction.

“We are focused on preserving and enhancing the value proposition for our members and continue to believe that there are strategic benefits to continuing our discussions with the Chicago Bank.  Our understanding of the current regulatory issues facing the Chicago Bank does not necessarily diminish the potential opportunities this transaction could create for members of both institutions by creating a strong foundation to maintain the value of our members’ investment– providing ready access to favorably priced products and services, and strengthening the franchise of the Federal Home Loan Bank System,” said Terry Smith, Federal Home Loan Bank of Dallas President and Chief Executive Officer.

The Federal Home Loan Bank of Dallas is one of 12 district banks in the FHLBank System created by Congress in 1932.  The Bank, with total assets of $52.0 billion as of June 30, 2007, is a member-owned cooperative that supports housing and community development by providing competitively priced loans and other credit products to more than 900 members and associated institutions in Arkansas, Louisiana, Mississippi, New Mexico and Texas. For more information, visit the Bank’s website at www.fhlb.com.

This news release 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,” “would,” “will,” or their negatives or other variations on these terms. Forward-looking statements by their nature involve risk or uncertainty that could effect the extent to which a particular objective, projection, estimate, or prediction is realized and actual financial performance could differ materially from that expressed or implied in these forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the risks that it will not be feasible for the Banks to combine their business operations, or, if feasible, that the Banks will not agree on acceptable terms for such a combination, and if such agreement is reached, the Banks may not be able to obtain regulatory approval of the proposed combination. The Banks assume no obligation to update any forward-looking statements made in this release.

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