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We’re writing to share our experience in the usage of our FHLB membership in improving liquidity for ourselves and the community in the run-up to the 100th anniversary of the FHLB System.

We’re a small community bank, with assets at around $100 million, based in New York. We were established in 1981 as the first indigenous Chinese community bank in New York. We have 2 branches, both located in New York Chinatown. Over the years, we’ve developed a focus on commercial real estate lending, catering mainly to local businesses and investors primarily in the Tri-State area.

In view of the small size and special focus of our lending operations, usage of the FHLB suite of products has, over the years, been limited to FHLB Advances. Ever since the 2008 Financial crisis, liquidity has become a top concern for banks large and small alike, for the ability to settle financial obligations as they fall due (whether to pay back depositors who are withdrawing money or meeting financing or investment obligations as they are drawn or called upon) is key to survival when calamity strikes – be it in the form of a stock market crash or a pandemic outbreak. For a small bank like ours, not only is liquidity generally limited (for profitability depends heavily on loans so LTD ratios cannot be overly constrained) but the means to tap into contingent liquidity are scarce. Thankfully, with the launching of the FHLB Advance Program, members like us can gain access to instant liquidity through borrowing against loans pledged, which not only improves our resiliency against sudden (often unforeseen) liquidity crunches significantly but allows us to optimize earnings through lending (for otherwise a higher level of liquid funds would have to be maintained as a buffer and less loans may be booked as a result). Thus, the program is truly a ‘win-win’ concept turned real, for banks are much better equipped to weather sudden liquidity crunches, depositors are more protected than ever before from bank insolvency due to abrupt changes in market conditions and FHLB is optimizing its muscle power in help ensuring order & stability in the day-to-day functioning of the community banking sector.

Besides FHLB Advances, the Bank did tap into the FHLB’s SBRG Program during the early phase of the COVID-19 Pandemic to help bring financial relief to some of its small business customers. The program was simple to follow and easy to use, and the grant was prompt in processing and quick in disbursement, thus providing, through the effective collaboration of FHLB and member banks, immediate financial relief to the community at a time when many a business (and, consequently, livelihood) was at the brink of collapse.

Though our usage of the FHLB membership in improving ‘liquidity’ for ourselves and our community is, as elaborated above, far from ‘full-fledged’, the significance to the financial stability of the community through usage of these 2 programs alone cannot be over-emphasized. This is especially true as the past 2 decades have shown us that we are living in a rapidly changing world when catastrophes are striking at an ever-increasing rate so the ability of the community to survive and recuperate (core to which is the uninterrupted flow of liquidity at all times) hinges on how innovative we can be, how well we are prepared and how quickly and effectively we may act in response – amongst all of which FHLB has more than demonstrated its leadership role and its members their pivotal parts in execution.

One thought that comes to mind which would be of great help to small banks like us is if FHLB can develop initiatives to help its members with cybersecurity (in particular incident response) preparedness. Like ‘liquidity’, ‘cybersecurity’ poses a huge threat to financial institutions’ stability and ongoing viability. Often times, due to the high costs involved, getting a retainer contract or even a demo ahead of strike is not realistic, let alone comparing one vendor against another in terms of pricing or quality of services as vendors are unlikely to be interested unless banks are serious about an engagement. Therefore, if FHLB can consider hosting forums (such as annual webinars) when it can bring together cybersecurity/ cyber forensics firms to shed light on the type of services offered and pricing options, it will be a great help to the members in gathering the necessary information ahead of time, something which individual members often lack the muscle power as well as time to accomplish on their own. Taking the initiative another step further, if a 1-2 hour video session simulating how incident responses may be managed by a small to medium size bank in a ‘live’ scenario with the help of cyber forensic firms can be arranged annually (and members who wish to participate can all ‘chip in’ and pay a fair share of the costs), then it will go a long way to get the members prepared (as well as identify gaps) proactively. This way, FHLB will obviate the need to provide contingent liquidity to member banks who have the misfortune of being hacked by nipping the contingency in the bud and, in so doing, better ensure ‘order and stability’ of the financial community as a whole.

Thank you.