Federal Home Loan Banks are a vital liquidity source for their member institutions and have been since the FHLB system was established, and the importance of that role has been highlighted in recent days with the system raising historic levels of funds in the capital markets to respond to heavy advance demand following the closures of Silicon Valley Bank and Signature Bank, the American Bankers Association and 51 state and territorial banking associations said this week in a joint letter to the Federal Housing Finance Agency.
FHFA has been conducting a review of the FHLB system. In their letter, the associations weighed in on several topics raised by the agency, including FHLBs’ mission and their role in providing affordable housing. Among other things, the groups acknowledged that numerous entities now exist that compete with FHLB members in housing and community development, but they pushed back on suggestions the system should be opened up to these actors.
“Allowing entities with vastly different regulation, collateral and oversight into the FHLBank System risks destabilizing it and putting existing members’ capital at risk, with potential negative cascading effects throughout the financial system and U.S. economy,” the associations said. If there is a demonstrated need to provide those entities a liquidity source, then Congress should create a separate system with the same level of safeguards that have kept the FHLB system financially viable and fiscally stable, they added.
The association also pushed back on suggestions to limit access to the system based on the size of a bank. “Such a restriction would gravely undermine the FHLBanks’ mission to provide reliable liquidity to their member institutions to support housing finance and community investment,” they said. In addition, they urged that FHLB members be included in any discussions on increased or additional mandates for affordable housing and community development.
