Comment Detail

Comment

Thank you for allowing an opportunity to opine on the FHLB. My Bank relies heavily on the FHLB for a variety of needs, most importantly, funding. I would assume this to be its primary role for most member banks.
It is my understanding there are a few questions under review.
Tracking of proceeds:
The recent upheaval in the banking sector demonstrates the need for contingency funding. The argument may be that is not what the FHLB is for. However, how did those funds become available? By pleading loans, usually, 1-4 family loans. My Bank has 220% of its capital in 1-4 family loans and a loan to deposit ratio of over 100%. If we did not have access to the FHLB, we would be unable to continue to meet the needs of our community. I cannot tell you which loans the FHLB has funded, it would be impossible. FHLB advances are bullets, while loans are amortizing. As soon as the first payment on these loans are made, there is a mismatch in the bullet funding to the amortizing loan. This is great for us, as we can then reuse the funds of that same advance to make new loans. I then take those loans, pledge them back to the FHLB, to ensure a consistent source of funding.
New Membership:
FHLB is essentially a bankers bank. To invite additional constituents would cause heartache as it is not currently equipped to work with and monitor additional industries. The lack of understanding of new industries will beget risk the FHLB is not prepared to handle, and increase losses, increasing costs. The FHLB has an advantage with its current constituency, as it is a heavily regulated group, whose risk taking activities are closely scrutinized.
Collateral Types:
The FHLB is currently, in my opinion, very generous with the collateral types it allows. These loans and securities are closely watched by the FHLB, via regular audits. I do believe electronic signatures should be allowed, as that is where the industry is moving.
Ongoing Mission Tests:
I’m not sure I understand this one well enough to speak to it. If a bank is not making housing loans, in most cases, it is failing its community. The borrowing base certificates specifically define collateral type. So, in my opinion, banks are already subject to ongoing mission and collateral tests.
Large Member Eligibility:
Without large embers, the FHLB would not have the scale required to cover operating costs.
In 2022, the FHLB Des Moines had net income of $430 million (up from only $206 million a year prior.) This sounds like a healthy number, but it is on total assets of $164 billion. This is an ROA of 0.38% and Net Interest Margin of only 0.48%. without large members providing the operating scale, the FHLB would be insolvent.
As a community banker, I would love to see large banks penalized, as retaliation for the punitive regulations to which community are subject, due frequently to the actions of large banks. However, this would be short sighted, as without large member banks, there could not be an FHLB.
The only change I’d like to see in the FHFA system is 12 CFR Section 1266.4, which directs the Federal Home Loan Banks (FHLBs) to use tangible capital in assessing a commercial bank’s credit worthiness for purposes of issuing advances. In the event that a bank does not meet the required tangible capital levels, it could be denied access to the FHLB advance system unless its Primary Federal Regulator (PFR) requests in writing that an advance be made or rolled over. This is inconsistent with how banks capital regulations. In rate environments such as we currently find ourselves, an industry that operates on 10% capital can find itself underwater, but on paper only. This must be fixed quickly, in the interest of stabilizing the banking system, and to provide uninterrupted funding for the purpose of community investment.

Thank you,
Derek Fraley, CEO
Systematic Savings Bank