Banks to Congress: Don’t Mess with the FHLB System


As policymakers inch slowly toward reforming the housing finance system, the Federal Home Loan Banks and their allies have a simple message to Congress: leave the system alone.

Home Loan Bank representatives and community bankers urged lawmakers Wednesday to leave the Home Loan Banks out of any overhaul, arguing they have weathered the financial crisis well and are a key source of liquidity for financial institutions.

“In a time when so many of our institutions are in need of repair, we have a system that works,” said Lee Gibson, chairman of the Federal Home Loan Bank of Dallas. “It’s a structure that must not be changed.”

So far the administration has declined to offer a concrete proposal for the future of the housing government-sponsored enterprises, but it has suggested the Home Loan Banks should at least be addressed as part of a revamp.

Options range from placing restrictions on the types of lending that Home Loan Banks may support to forcing a consolidation of the 12 regional banks. Some have also called to restrict membership to small institutions and restricting investments in risky assets.

At a House hearing former GSE regulator and congressman Bruce Morrison floated the idea of requiring the FHLBs to pay for an explicit government guarantee on their debt. (See related story on this website.)

During the session some lawmakers suggested changes were necessary. “Do we need 12 Federal Home Loan Banks?” asked Rep. Randy Neugebauer, R-Texas, who chairs the House Financial Services oversight subcommittee.

Some bankers have acknowledged that consolidation within the system would save money, but believe there is still a benefit to having regional banks.

“The Federal Home Loan Bank of Des Moines has a different customer base, and they have different needs, than the Federal Home Loan Bank of Atlanta,” said Timothy Zimmerman, president of Standard Bank in Monroeville, Penn.

Daily Briefing | Wednesday, October 12, 2011

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