Comment Detail

Comment

To Whom it May Concern,

As you wind down the public input phase of the FHLBank System at 100 Initiative, I would like to re-emphasize the importance of the FHLBank System to the banking system―and community banks in particular―and encourage you to be very cautious and thoughtful regarding in any potential changes to the system.

From my experience as a community bank CEO, our FHLB membership is an integral part of our liquidity planning. FHLB funding has played a critical role for our bank in the major financial cycles of mid-to-late 2000’s and most recently with the rapid increase in interest rate and deposit outflows. Even between those time, when there were stretches when we did not have any FHLB advances, just knowing that we had access to a reliable source of liquidity allowed us to continue to lend to homeowners and business in our communities. If that source of liquidity became less reliable or accessible, our business model and lending activity would be significantly altered.

Regarding specific issues which appear to be under consideration by the FHFA, I would like to offer the following thoughts:

While large financial institutions have more options than smaller institutions in accessing liquidity and the capital markets, large banks are an important part of the FHLB ecosystem. They account for a material portion of the FHLBs’ earnings, which is the basis for the Affordable Housing Program funding. If one of the priorities of the FHFA review is affordable housing, restricting larger banks access to the FHLB system would reduce AHP funding from the system. Smaller institutions, like mine, also benefit from the scale larger banks bring to the FHLBank system and access to capital markets.

If the FHFA desires to more closely connect FHLB advances to housing, I would again encourage you to exercise caution in how this might be achieved. Our bank provides a good example for my concern. We have about 50% of our balance sheet in mortgage related assets. At this point in time, about 10% of funding comes from FHLB advances. As you can imagine, we do not try to associate FHLB advances to specific mortgage assets. But clearly, FHLB funding plays an important role in our ability to make and hold mortgage loans, especially non-conforming mortgage loans. These are good loans but are not readily marketable to the GSEs or other investors. Without FHLB funding, our lending to non-conforming borrowers would be greatly restricted.

I would also encourage you to move cautiously with regards to expanding FHLB membership to other housing related entities, such as REITs or mortgage banks. Opening membership to less-regulated entities would significantly increase the risk in the system. As you know, one of the key strengths of the FHLBank system is its history of never having a credit loss. Opening membership to these entities would increase risk to the system and potentially compromise this nearly risk-free standing in the capital markets.

My final comment would be that any changes to the FHLBank system that negatively affect member institutions will almost certainly negatively affect the abovementioned considerations in the long-term.

Sincerely,

Jason Meyerhoeffer
President and CEO
First Federal Savings Bank