The Federal Housing Finance Agency today issued its long-expected report on the comprehensive review of the Federal Home Loan Banks, culminating a process that began last year in conjunction with the 100th anniversary of the FHLB system. Among other things, the agency said it will update the mission statement of the system to reflect the primary goals of providing stable liquidity to FHLB members and supporting housing and community development.
Regarding FHLB membership, the agency noted that authority lies with Congress, but if lawmakers decide to allow entities currently not allowed under existing law—such as nonbank mortgage companies—they should be held to the same requirements as most current members. At the same time, the FHFA said that it will consider harmonizing the manner in which membership eligibility requirements are applied to the different membership types. Of particular concern to the American Bankers Association, FHFA indicated that it will propose a rule to impose an ongoing 10% mortgage asset test on “some members.” This would be a significant and costly change to the existing borrowing structure that has served the system well, according to the association.
The report recommends several steps to better position FHLBs to perform their liquidity mission. They include enhancing the ability of FHLBs to maintain interest-bearing deposits with commercial banks to manage intra-day liquidity requests, as well as limiting the potential for an increase in debt issuance costs for all members following a large liquidity request from a single member.
The FHFA also said it will expand FHLBs’ housing and community development focus by, among other things, requiring FHLBs to establish mission-oriented collateral programs and improve their engagement with mission-oriented members, such as community development financial institutions. The report also indicates that FHFA will develop improved metrics and thresholds to oversee FHLBs and will incorporate mission performance in the supervisory rating and evaluation processes.
Finally, the report includes recommendations for changes that can only be made by Congress. Among them is a proposed doubling of the statutory minimum for the FHLBs’ affordable housing programs. The agency is recommending that lawmakers amend the Bank Act to authorize all CDFI and credit union members with assets below the statutory cap to pledge community financial institution collateral to secure FHLB advances. It also recommends that Congress provide more flexibility on who can serve on FHLB boards.
Nichols: Report showcases essential role of FHLB system
ABA commends the FHFA for recognizing the essential role of the FHLB system, which is a valuable partner for banks of all sizes in meeting the needs of their communities, ABA President and CEO Rob Nichols said. Nichols added that while ABA is still reviewing the report, the document makes clear that the agency understands the system’s important dual mission to serve as both a source of liquidity for member banks and as an avenue for members to advance affordable housing and community development.
“The report also notes that the FHFA plans further rulemaking and other actions, some of which raise concern,” Nichols said. “We look forward to discussing the report and its recommendations with the FHFA, member banks and other stakeholders to ensure the Federal Home Loan Bank System will continue to play its important role going forward.”