The US regulator in charge of overseeing the Federal Home Loan Banks claimed in research released on Tuesday that the institution’s mission and structural reforms are long overdue.
Serving the Public Interest
In the report, both the Federal Reserve, which serves as the primary emergency lender for banks and the Federal Housing Finance Agency emphasized the importance of greater demarcation between their respective objectives. Congress formed FHL banks in 1932 to provide banks with liquidity for the construction of affordable housing and other forms of economic development, according to the agency.
The FHL banks were reviewed by the agency for a full year, and the report released on Tuesday was the product of that review. This suggested that the FHL banks had shifted.
“For complex and varied reasons, there has been a decreased focus on housing-related activities by many institutions that are members of the FHLBank System,” wrote the report’s authors. “These changes, taken together, highlight the need for (agency) to clarify the mission of the System so the FHLBanks are held accountable for serving their public purpose.”
Regional Bank Financing
Eleven regional financial institutions with government charters, known as FHL Banks, raise capital to make low-cost loans to their members. They have evolved over time into a preferred last resort for liquidity before banks in need turn to the Federal Reserve. They are a critical source of capital for regional banks.
The agency also said that if Congress allowed it more authority, it might cut the number of FHL banks in the system to as few as eight.
The FHL bank system’s chief responded to the charges on Tuesday, saying that any adjustments would be gradual and that the businesses’ main priority would be to continue servicing members.
According to Ryan Donovan, president of the Council of Federal Home Loan Banks, “the overwhelming sentiment from the (agency’s) review was that stakeholders want more, not less, from the FHLBank system.”
