Recent actions by the Federal Housing Finance Agency suggest it is seeking to reduce the Federal Home Loan Banks’ role as a key liquidity source for banks and may be ignoring the will of Congress in the process, the American Bankers Association and 52 state bankers associations wrote in a letter to the agency.
In their letter, the associations noted that the FHLBank of New York recently issued significant updates to its Credit Risk Management Framework to align the document with the recommendations in the FHFA’s centennial review of the FHLBank system, which was released last year. Those updates may restrict individual FHLBank members’ access to funding, especially during times of financial stress, they said. There is concern that similar changes may soon be required of all 11 FHLBanks.
“While we recognize the FHFA’s role as the regulator of the FHLBanks and the appropriateness of requiring review and updates of credit rating frameworks, we have significant concerns about FHFA’s imposition of new standards, without sufficient consultation and input from the banking industry, banking regulators and other interested parties,” the associations said. “Additionally, we are concerned about the confusion that has resulted from this process, leaving affected banks unable to fully understand the metrics being applied to them or the rationale for reduced borrowing capacity.”
The associations also noted the FHFA recently issued a request for input on efforts to shift FHLBanks’ mission away from liquidity toward more affordable housing efforts. However, such a shift runs counter to the Competitive Equality Banking Act, or CEBA, which recognizes the FHLBanks as a “lender of last resort.”
“Taken together, the language of the report, the mission [request for input], and the apparent required changes to the credit framework, suggest that the FHFA is seeking to reduce the FHLBanks’ role as a key liquidity source, and may be ignoring the will of Congress as reflected in CEBA in the process,” the associations said.
