FHFA proposes updates to FHLBank liquidity rules

The Federal Housing Finance Agency issued a proposed rule that would amend its regulation of Federal Home Loan Bank unsecured credit limits.

Details: The FHFA’s proposal would:

  • Modify limits on the FHLBanks’ extensions of unsecured credit in their on- and off-balance sheet and derivative transactions.
  • Add interest-bearing deposit accounts and other authorized overnight investments to an overnight federal funds exclusion from restrictions on unsecured credit.
  • Clarify terms for the FHLBanks to determine limits on unsecured credit to counterparties.

Impact: FHFA said the proposed rule would allow the FHLBanks to better manage and respond to the intraday liquidity needs of their members.

Background: The proposed rule follows last week’s FHFA’s advisory bulletin to the FHLBanks that details expectations for providing members with access to advances in a safe and sound manner.

ICBA View: ICBA is deeply concerned about the impact of the FHFA’s ongoing review of the FHLBank mission and its impact on the ability of the system to provide liquidity to community banks.

  • In a recent article in American Banker (subscription required), ICBA’s Tim Roy said the FHFA does not have the authority to redefine the FHLBank mission and any change must be approved by Congress.
  • ICBA issued a national news release following an FHLBank of New York message noting it would impose additional reporting requirements to align with the FHFA’s more restrictive approach to lending.

Previous Comments: Following last fall’s comprehensive FHFA report on the FHLBanks, ICBA urged the agency to ensure any new policies affecting the system do not disrupt it as a source of liquidity for community banks. ICBA also offers a high-level summary of the report outlining its views on the agency’s policy recommendations.

Feedback: ICBA is working with its FHLBank Task Force on the proposed rule and advisory bulletin and will respond to the FHFA accordingly. Comments on the proposal are due 60 days following its publication in the Federal Register.