On Monday, March 13, the Federal Home Loan Bank (FHLBank) system issued a single-day record of $88.7 billion in short-term, floating-rate notes with maturities ranging from three months to one year. The system originally aimed to raise $64 billion to support regional institutions following the government takeovers of Silicon Valley Bank (SVB) in California and Signature Bank in New York, but heightened liquidity demands encouraged the securement of an additional $24.7 billion, totaling $88 billion. The offering of floating-rate notes was led by a syndicate group composed of Barclays Plc, Nomura Holdings Inc., Wells Fargo & Co. and Citigroup Inc. Syndicate groups are unusual in most short-term agency trades, but the banks worked together to appeal to a uniquely large investor base.
SVB was shut down on Friday, March 10 by the California Department of Financial Protection, which triggered a panic that contributed to the closure of New York’s Signature Bank two days later. The FHLBank system was itself a major liquidity provider to Silicon Valley Bank, which had $15 billion of outstanding loans from the FHLBank of San Francisco at the end of 2022.
The bank closures led to intensified fears of a greater financial crisis, sending regional banks and smaller financial institutions into a panic. Regional bank stocks subsequently fell over Friday and Monday, which forced those institutions to seek additional market liquidity. On Sunday, the Federal Reserve announced it will offer funding to eligible depository institutions to help banks meet liquidity needs. The FHLBank system stepped in this week to offer banks funding, which relieved stress for many financial institutions seeking funding from the Fed or other sources of liquidity.
Originally established by the Federal Home Loan Bank Act during the Great Depression, the FHLBanks were designed to promote homeownership and offer liquidity to mortgage providers. The system is composed of 11 regional member-owned corporations and an Office of Finance, which represents the system’s fiscal interests. FHLBanks serve as a source of liquidity to various market sectors and have mitigated the impacts of multiple economic crises, including during the COVID-19 pandemic. The system also works to foster community development and affordable housing needs by working to connect its members with federal programs such as the Affordable Housing Program, the Community Investment Program and the Community Investment Cash Advance Program.
The Federal Housing Finance Agency (FHFA), which regulates the FHLBank system, was created by Congress amid the 2008 financial crisis, replacing the Federal Housing Finance Board and other agencies that possessed less expansive regulatory authorities.
Systemic Review and Wrap-Up Listening Session
The FHFA has been performing a comprehensive review of the FHLBanks titled “FHLBank System at 100: Focusing on the Future Initiative” since September 2022, when it convened a three-day kickoff listening session that took place on Sept. 29, Sept. 30 and Oct. 4. The session was followed by 15 roundtable discussions, with three more slated to take place over the next two weeks. FHFA has used the review to receive stakeholder feedback related to the FHLBank’s: a) general mission, b) organization and operational efficiency, c) role in promoting affordable, sustainable, equitable and resilient housing and community investments, d) ability to address the needs of rural and financially vulnerable communities, e) member products, services and collateral requirements, and f) membership eligibility.
FHFA recently announced it will close its review of the FHLBanks’ system with a wrap-up listening session that will take place from March 22–24. The first day of the listening session will exclusively feature in-person contributions, while the second and third days will be conducted virtually. All three days will be available for streaming through the agency’s website. FHFA will continue to receive written comments on the FHLBank system until March 31.
Any industry members that have a vested interest in the FHLBanks should look to submit their input on this plan to make sure their position is considered.