Comment Detail

Comment

I am writing you to today to discuss the current challenges facing our financial markets. I currently serve as the CEO of Desert Valleys FCU and we are not a current member of my Federal Home Loan Bank. Desert Valleys is a small rural credit union which serves over 5,000 members in the community of Ridgecrest and the Eastern Sierra Corridor of California. As a CEO, I have been leading my credit union and working in this sector for over two decades. Leading a small credit union is much more than a career, it is a passion. Sleepless nights, endless work days, and a devotion to my members is why I put the effort to keep my credit union moving along. For myself, this dedication to community further extends into public service as I also serve as the Mayor of the City of Ridgecrest.

The reason I am submitting comments for this review of the Federal Home Loan Banks (FHLBs) has to do with the years of knowledge which I have accumulated not just understanding my own credit union but also the observations, trends, and vulnerabilities of peer institutions. Over my two decades of experience, I regularly assess and examine my peers. Through this examination, I have developed an in-depth understanding of the impact management and lack of liquidity can have on premiums assessed against credit union by the National Credit Union Share Insurance fund.

As a small credit union, we live on the margins. Every decision to spend money or to invest in growth, places our institution in some margin risk. This is challenging for regulators and their examiners to understand as their focus remains on protecting the agency and the Share Insurance Fund. As was seen in 2009, the failure of large credit unions can create extreme costs on smaller credit unions. Over three years, more than 20% of our capital was paid into the Share Insurance Fund for the corporate credit union collapse. One failed credit union can put my credit union at risk, a point myself and other smaller credit unions have already experience once. This is why I keep a watchful eye on my peers.

With these lenses on, I ask you and your team to consider what it means if you limit liquidity in the system, in any way shape or form. Going into 2020, I was $40M in assets. When we emerged from the pandemic, I was a healthy $65M. In the credit union space, growth is good as long as we have the earnings to match. As interest rates have gone up, the margins are changing and liquidity is becoming restrictive.

The cost of brokered deposits and/or borrowing secondary capital only further presses these margins. While I am yet to join my FHLB, it is only a matter of time that I will be as these costs increase. While, the borrowing needs of Desert Valleys maybe much smaller than large banks, our membership consideration should not be restricted due to my size or any magic formula developed by those that do not understand the fundamentals of model.

Further, my colleagues in the same deposit insurance pool are FHLB members. Given then events of the past week and half, why would any regulator attempt to tier membership to the FHLBs or lending facility? The FHLBs are a willing partner in ensuring liquidity services are provided, especially for low-risk assets such as US Treasuries.

If my colleagues, and perhaps one day myself, do not have that access point, the FHFA and other regulators are inviting failure. Agency securities, US Treasuries and so forth are not risky bets as some have claimed. However, at the right time, when prudent, we must all rebalance our portfolios. The FHLB system is a tool in that tool box for managing our balance sheet.

With that in mind, I respectfully request you consider the impact of any changes or action on smaller credit unions and the systemic impact on all financial institutions. If you have any questions in regards to this letter, please feel free to contact me at (760) 446-3500.