Comment Detail

Comment

The Iowa Bankers Association (IBA) appreciates the opportunity to comment on the Federal Housing Finance Agency’s (FHFA) review of the regulations governing core mission activities and mission achievement of the Federal Home Loan Banks (FHLBs).

The IBA is comprised of 260-member financial institutions with 1400 locations, with a brick-and-mortar presence in nearly every Iowa community. Iowa has more banking charters per capita than any other state. We don’t believe it’s a coincidence that our diverse banking system has resulted in one of the nations lowest percent of unbanked population, highest percentage homeownership, and high ratings for financial literacy. If you have a local bank in your town, you’re more likely to develop a trusting relationship, resulting in better financial resources and decision-making.

Iowa is also home to the largest number of farm banks and our small businesses, per a recent Federal Reserve study, tap their local banks first when seeking credit or financial services. Our banks also led the way in rapidly delivering Small Business Administration Paycheck Protection Program loans to Iowa’s small businesses during the pandemic.

These results would have been severely diminished had the Des Moines Federal Home Loan Bank (DM FHLB) not been there as a source of liquidity throughout changing economic cycles. And, I would suggest the DM FHLB would not have had the capacity to meet the needs of our banks were it not for their broad mission to be a source of liquidity enabling banks to meet a variety of credit needs to help grow healthy communities.

The needs of our nation’s communities are as different as the communities themselves. The needs of Greenfield, Iowa look very different than the needs of Brooklyn, New York. It would be short-sighted to let housing difficulties prevalent in large metropolitan areas, drive long-term changes to the FHLB system that may contribute to lower credit availability in rural communities.

It is clear from the FHLBs mission statement issued through regulation in the year 2000 that the institutions were designed to support lending, specifically for housing and community purposes. And, for community financial institutions, small business and small farm lending. We believe the emphasis on “lending” is purposeful. It would infer making advances available to professional credit intermediaries who have the local knowledge to make informed decisions necessary to grow healthy communities.

There are a myriad of local, state and federal housing programs and partners available to enhance borrower viability in more challenging lending circumstances. These programs have their own funding streams, both public and private. We don’t believe replicating the activities of these agencies is or should be the role of the FHLBs.

Our most significant concern from the FHFA report is the concept of an ongoing 10 percent of FI assets in residential mortgage loans test. Depending on how this proposal were drafted, 86 Iowa community banks could lose their eligibility for FHLB advances. This would have a devastating impact on bank liquidity and credit availability in rural Iowa.

Regarding the variety of FHFA proposals to create mission achievement and member incentive goals, we urge you to be mindful of the cost of data collection on community banks with small staffs, who are already stretched to the breaking point by a tsunami of federal regulations. The FHFA and the FHLBs do not need to be substitutes for prudential regulators when it comes to fair lending, UDAAP, or any other requirement for which banks are already examined and held to high standards. Instead, we’d urge you to work directly with the prudential bank regulators if affirmation is needed here.

Finally, the IBA believes strongly that any changes to the FHLB system should be determined by Congress, not the FHFA. For over 90 years, the System has served as a reliable and critical source of funding for Iowa banks through all economic cycles and has provided important financial stability to the broader financial system. Significant changes, without input from our elected leaders, could jeopardize this record of accomplishment.

Thank you for considering our comments.

Respectfully,

John Sorensen
President & CEO
Iowa Bankers Association
8901 Northpark Drive
PO Box 6200
Johnston, Iowa 50131