The Conference of State Bank Supervisors (CSBS) and the National Association of State Credit Union Supervisors (NASCUS) are urging the Federal Housing Finance Agency (FHFA) not to make any changes to the Federal Home Loan Bank System that would hurt the ability of institutions to access funding.
In a letter to FHFA officials, the groups said potential changes to the Federal Home Loan Bank System’s mission plus a new incentive program outlined by the FHFA could harm access to funding.
It added that Federal Home Loan Bank liquidity helps community banks and credit unions fund loans that support home ownership and drive local economic development. At the end of the first quarter, more than $590 billion in Federal Home Loan Bank advances supported bank and credit union lending.
“The Federal Home Loan Bank System provides critical, reliable liquidity to state-chartered banks and credit unions, including in times of economic stress, so they can fund loans that support their local communities,” CSBS President and CEO Brandon Milhorn said. “Liquidity policy changes made without coordination, or with inadequate consideration for the timing of such changes, could undermine financial stability, particularly as financial institutions continue to face a higher rate environment and economic headwinds.”
The Community Banking Research Conference estimates that Federal Home Loan Bank funding increases mortgage originations by $130 billion and lowers mortgage interest payments by $13 billion every year. Additionally, Federal Home Loan Bank funding empowers smaller institutions to compete against larger financial institutions. This increased competition leads to an annual increase in mortgage originations of $50 billion.
The groups said that more than 90 percent of the state-chartered banks that state regulators supervise are Federal Home Loan Bank members. Further, they point out that state-chartered banks represent more than half of the FHLBank Systems’ member institutions.