EXHIBIT 10.16 FEDERAL HOME LOAN BANK OF CHICAGO 2017 BOARD OF DIRECTORS COMPENSATION POLICY

Section 1261.21 of the Rules and Regulations of the Federal Housing Finance Agency requires the Board of Directors to adopt a written policy to provide for the payment of reasonable compensation to Bank Directors for the performance of their duties as members of the Board of Directors. Pursuant to that regulation, this 2017 Board of Directors' Compensation Policy ("Policy") sets forth the activities and functions for which attendance is necessary and appropriate and may be compensated, and sets forth the methodology for determining the amount of compensation to be paid. This Policy shall be reviewed annually by the Human Resources & Compensation Committee.

The goal of the Policy is to appropriately compensate the Directors for actual attendance and participation at the meetings of the Board of Directors and the committees of the Board and also for work performed on behalf of the Board of Directors and the Bank apart from such meetings.

The compensation provided in this Policy was determined after a review of comparative compensation studies by third parties with expertise in the compensation of Directors (McLagan ”Directors Compensation Analysis” May 2015) and the compensation paid to Directors of other Federal Home Loan Banks in 2016.

Members of the Board will have the following maximum annual fees, as further calculated pursuant to this Policy.

In order to compensate Directors for their time while serving as Directors outside of scheduled Committee and Board meetings, Directors shall be paid a quarterly retainer, at the end of each quarter. The retainer shall compensate Directors for their time preparing for meetings, attending Bank-sponsored member meetings and events, attending Community Investment Advisory Council meetings, attending FHLB System meetings, Board training sessions, and other activities outside of normal, scheduled Committee and Board meetings. The amount of the quarterly retainer varies depending on the responsibilities of the Director as set forth below:

In the event that a Director leaves the Board in the middle of a quarter, the quarterly retainer payment would be prorated based on the number of days the Director served on the Board during the quarter divided by the total number of days in the quarter.

In order to compensate Directors for their time while serving as Directors, each Director who attends a scheduled in-person meeting of the full Board of Directors or of a Committee on which the Director serves (including participating by telephone) and each Director on the Audit Committee who attends a telephonic meeting of the Committee related to approval of Bank Securities and Exchange Commission filings shall be paid a Board Meeting Attendance Fee. The amount of the Board Meeting Attendance Fee varies depending on the role served at the meeting.

Board Meeting Attendance Fees shall be calculated for each Director as follows:

An “attendance fee opportunity” means a day on the 2017 Board Schedule where the full Board of Directors and/or a Committee on which the Director serves is scheduled to meet in person. In addition, an “attendance fee opportunity” means a scheduled telephonic meeting of the Audit Committee related to approval of Bank Securities and Exchange Commission filings. On a day where more than one meeting occurs, only one Board Meeting Attendance Fee shall be paid.

No additional meeting fees will be paid to any Director for their participation in any other special meetings or events on behalf of the Board of Directors or the Bank, unless such participation results in a Director being absent for a Board or Committee meeting, in which case a meeting fee will be paid.

The Corporate Secretary may round up or down small dollar amounts for administrative convenience.

A Director may elect to defer compensation paid under this Policy in accordance with the Federal Home Loan Bank of Chicago Board of Directors Deferred Compensation Plan, effective September 1, 2013.

Each Director will be reimbursed for necessary and reasonable travel, subsistence and other related expenses incurred in connection with the performance of their official duties (including telephonic meetings or in-person meetings called at the request of the Federal Housing Finance Agency or other FHLB System body) as are payable to senior officers of the Bank under the Bank’s Employee Reimbursement Policy.

Directors are authorized to purchase upgrades for air travel from economy to business class or economy plus only. This does not include upgrades to first class. Air travel upgrades shall not exceed $100 per flight.

Pursuant to IRS tax code, certain Director expenses paid for by the Bank that do not qualify as a business-related expense will be recorded as other income and reported on a Director’s 1099 tax form for the appropriate reporting period.

Each Director is responsible for all expenses incurred in conjunction with spousal travel.

The following performance criteria shall be considered in assessing a Director’s performance:

Each Director shall fulfill his or her responsibilities by regularly and consistently attending meetings of the Board of Directors and any assigned committees. The Board's attendance standard shall be to attend in person or by telephone at least 75% of the total scheduled meetings of the Board and assigned committees, measured annually.

The Human Resources & Compensation Committee of the Board of Directors shall withhold the fourth quarter retainer payment to any Director who does not fulfill his or her responsibilities by failing to meet the majority of the performance criteria set forth above or by failing to attend 75% of the meetings of the Board of Directors and any assigned committees.

The Human Resources & Compensation Committee may designate a Director’s absence for a good cause from a scheduled meeting as an “excused absence.” An “excused absence” shall be recorded as a Director in attendance for the 75% attendance standard but such Director shall not be paid a meeting fee. Examples of what may be an “excused absence” include a medical condition of the Director or their immediate family or an unexpected business conflict pertaining to the Directors’ primary business.

This Policy shall be in compliance with Section 7(i) of the Federal Home Loan Bank Act (12 U.S.C. §1427(i)), as amended, and any regulations issued by the Federal Housing Finance Agency, including 12 C.F.R. Part 1261.

This 2017 Board of Directors Compensation Policy is effective as of January 1, 2017.

APPROVED BY THE BOARD

OF DIRECTORS

Dated: October 27, 2016

/s/ Laura M. Turnquest                

Its Corporate Secretary