The ABA warns against opening the FHLB System to non-bank entities | Techy Kings

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Allowing newer non-bank entities to access the Federal Home Loan Bank system would introduce significant risks, since they do not have capital requirements, regulations or oversight comparable to existing FHLB members, the American Bankers Association said in a recent comment to Federal Housing Finance Agency.

FHFA is conducting a review of the FHLB system, and the ABA’s comment letter is an extension of comments made by the association during a recent listening session hosted by the agency. In its letter, the ABA welcomed the review but noted that only Congress can make significant changes to the FHLB’s ownership structure and membership criteria. The association also reiterated the FHLB system operates as intended and cannot be reused or changed without good rationale.

FHFA is seeking feedback on six topics, including the purpose of FHLBs in a changing marketplace, their role in promoting affordable housing, and eligibility and membership requirements. The ABA said that other commenters have suggested continuing to provide FHLB advances for community banks but limiting larger banks to the Federal Reserve or other sources of liquidity. “Such restrictions would undermine the FHLB’s mission to provide reliable liquidity to their member institutions to support housing financing and community investment,” the ABA said. There are also proposals to open the system to newer financial service providers, but since they are governed by different rules, that would be a mistake, the association said.

“If there is a demonstrated need to provide these entities with a source of liquidity, Congress should enact legislation that addresses that need with a new, separate system, ideally with the same level of protection that has kept the FHLB system financially viable and financially stable. fiscal for 90 years. year,” the ABA said. “However, Congress should not attempt to revise or reform the existing system to accommodate these other entities, as doing so would almost certainly destabilize the existing system and potentially destabilize the broader financial system.”

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