FHFA Should Maintain Focus on Liquidity that Funds Local Communities

FOR IMMEDIATE RELEASE
July 15, 2024 

ARLINGTON, VA —The Federal Housing Finance Agency (FHFA) should not make any changes to the Federal Home Loan Bank System that would undermine the ability of institutions to access essential funding, the National Association of State Credit Union Supervisors (NASCUS) and the Conference of State Bank Supervisors (CSBS) said in a joint comment letter today.

Federal Home Loan Bank (FHLB) liquidity enables credit unions and community banks fund loans to support home ownership and drive local economic development. By the closing of Q1 2024, more than $590 billion in FHLB advances supported credit union and bank lending. The letter stated that potential changes to the Federal Home Loan Bank System’s mission and a new incentive program outlined by the FHFA in a request for information could be harmful.

“Hundreds of state credit unions rely on the Federal Home Loan Bank System as a component of their contingent liquidity planning. The potential changes proposed by FHFA could unduly burden these credit unions and disrupt financial services for underserved communities,” commented NASCUS President and CEO Brian Knight. “We thank our colleagues at CSBS for working with us to ensure the concerns of state banking and credit union regulators are heard on this important issue.”

“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,” said CSBS President and CEO Brandon Milhorn. “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.”

Research featured at 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 annually. More importantly, Federal Home Loan Bank funding significantly empowers smaller institutions to compete against larger financial institutions, enabling these entities to provide more mortgage loans in their local markets. This increased competition leads to an annual increase in mortgage originations of $50 billion, highlighting the crucial role of the current structure in fostering a competitive market.

State supervisors have a vested interest in the future of the Federal Home Loan Bank System.  The liquidity the Federal Home Loan Banks provide supports financial stability and economic growth – top priorities for state supervisors. More than 90% of the state-chartered banks that state regulators supervise are Federal Home Loan Bank members, and state-chartered banks represent more than half of the FHLBank Systems’ member institutions.

A final copy of the submitted comment letter can be read here.