Banks' liquidity sources threatened by plans to limit home loan borrowing

I couldn't get to the article, but the FHFA does not want to be embarrassed by bad press.  It doesn't want to read about banks that failed that had FHLB advances.  It would like the individual FHLBs to do deeper credit analyses of members and cut off those that are in degraded condition.  This, of course, could be a death sentence for some members.  The FHFA would like problem banks to be handed off to the Federal Reserve.  There is no ready mechanism for this to happen smoothly.

FHLBs are well-collateralized and they do increase their levels of protection in the event of a member having credit challenges, the net effect of which is an FHLB has never lost money on an advance.  In the event of a bank like Silvergate, the system worked as intended, and the advances given allowed Silvergate to wind itself down in an orderly fashion.  Unfortunately, this does not fit the FHFA's chosen narrative very well.

In addition, the FHFA wants to make sure there is a tighter housing nexus to use of the FHLBs' services.  However, the Federal Home Loan Bank Act provides for more than just housing support-it also provides for liquidity, community development, etc..

If you want to read more (that is somewhat tangential), the two comment letters I submitted as part of the review process are available on-line at https://www.fhfa.gov//AboutUs/Contact/Pages/input-submission-detail.aspx?RFIId=1688 and https://www.fhfa.gov/AboutUs/Contact/Pages/input-submission-detail.aspx?RFIId=2344 .

--David--

David Loundy

Chairman of the Board of Directors

Devon Bank

773-423-2463 (Phone)

773-973-5647 (Fax)

http://www.DevonBank.com/ 

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