The U.S. regulator in charge of monitoring the Federal Home Loan Banks stated in a study on Tuesday that a mission and structural reform of the institution is long overdue.
Serving For Public Purpose
The Federal Reserve, which serves as the main emergency lender for banks, and the Federal Housing Finance Agency both stressed in the study that there needs to be a greater differentiation between their respective missions. According to the agency, Congress established FHL banks in 1932 to give banks liquidity for the construction of affordable homes and other forms of economic development.
The agency reviewed the FHL banks for a full year, and Tuesday’s report was the result of that review. That meant the FHL banks had changed.
“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,” said the report. “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.”
Funding For Regional Banks
Source: Mirror
Eleven regional financial institutions with government charters, known as FHL Banks, raise capital to provide members with low-cost loans. They have developed over time into a favored last option for cash before banks in need go to the Federal Reserve itself. They are an essential source of funding for regional banks.
The agency also proposed that it might reduce the number of FHL banks in the system to as few as eight, provided that Congress granted it greater authority.
The chief of the FHL bank system responded to the allegations on Tuesday by stating that any changes would be a gradual process and that the companies’ main priority would be making sure they could keep serving members.
According to Ryan Donovan, head of the Council of Federal Home Loan Banks, “the overwhelming sentiment from (agency’s) review was that stakeholders want more, not less, from the FHLBank system.”
