Senate Committee on Banking, Housing, and Urban Affairs Chairman Sherrod Brown (D-OH) supports a review of failed bank Federal Home Loan Bank (FHLBank) System advances.
Brown recently forwarded correspondence to FHFA Director Sandra Thompson regarding the FHLBank System’s role in advances made to Silvergate, Silicon Valley Bank, and Signature Bank leading up to the banks’ failures.
Within the correspondence, Brown requests the FHFA include an analysis of the events around the bank failures in the agency’s report on the FHLBank System.
“As you prepare your final report on the FHLBank System, I ask that you include a detailed review of the FHLBank System’s role in providing liquidity in the months and days leading up to recent bank failures and whether all actions were consistent with safety and soundness, financial stability, and the system’s mission,” Brown wrote. “Following the recent failures of three banks, the System provided record levels of advances in response to member demand during a period of market stress. But the System’s ability to provide liquidity to members at all times raises concerns that members may attempt to draw on the System when they are experiencing financial instability or insolvency.”
According to Brown, in the months leading up to the failures of Silvergate, Silicon Valley Bank, and Signature Bank, each financial institution significantly increased its borrowings from its FHLBank.
“The FHLBank System was created to provide liquidity to sound institutions to facilitate lending,” Brown concluded. “It was not structured to be a lender of last resort – or of next-to-last resort – for struggling institutions. If FHLBank members attempt to use the System as a financial backstop, it could have unintended consequences for the FHLBank System and for our broader financial System.”