The Federal Housing Finance Agency today finalized a rule amending the capital requirements for Federal Home Loan Banks so they can better respond to their members’ liquidity needs.
FHFA’s capital requirements limit FHLBank extensions of unsecured credit in their on- and off-balance sheet and derivative transactions. Currently, overnight federal funds are excluded from the more restrictive “general limit” on unsecured credit to a single counterparty and are limited only by the higher “overall limit.” The rule adds interest-bearing deposit accounts and other authorized overnight investments to that exclusion, “which may provide greater flexibility and improved cost to yield than overnight federal funds,” according to FHFA.
FHFA proposed the rule last year as part of an effort to “modernize” FHLBanks’ liquidity management. Based on public feedback, the final rule contains an exception for certain amounts in operations and custodial accounts that the proposed rule would have counted toward the intra-day unsecured credit limit, according to the agency. The rule also clarifies that the limits are focused on liquidity activities.
