Federal Home Loan Banks “can play a key role” in the health of small banks as a source of funding, according to a report released today by the Government Accountability Office. The agency also concluded that FHLBanks have improved coordination with federal banking agencies in times of stress.
The GAO was asked by the House Financial Services Committee to review the FHLBanks during times of stress. The agency examined FHLBank borrowing during the COVID-19 pandemic in 2020 and following the failures of Silicon Valley Bank and other institutions in 2023. It found that overall reliance on FHLBanks remained unchanged during those periods.
The GAO analysis also found FHLBank borrowing was associated with increases in real estate lending and a lower likelihood of being flagged as a problem bank, failing or closing voluntarily. The results were largely driven by banks with less than $10 billion in assets, which made up 97% of banks in the analysis.
“This has been the case despite concerns raised in some academic and other literature that FHLBank lending could exacerbate periods of financial stress — for example, by masking problems at troubled member banks or increasing resolution costs when a member bank fails,” GAO said.
The report also cited several examples of banking agencies increasing their lines of communication with FHLBanks following the 2023 bank failures. “Continued commitment to these coordination efforts will be important to ensure readiness for future financial stress, when member banks may need to reallocate collateral to access additional liquidity,” the report said.
