Future of Home Loan Banks Tied to Seattle-Des Moines Merger Talks
By Rob Blackwell
The future of the Federal Home Loan Bank System may rest on merger talks between its Des Moines and Seattle banks. The two announced last week they were exploring a merger, surprising many observers who thought a voluntary combination of Home Loan banks had become impossible. The banks would have to resolve complicated governance issues and other logistical matters to get the deal done. But if they can, other Home Loan banks may move quickly to consolidate, potentially reshaping the system. “There will be a substantial number of mergers if it’s shown that this can work,” said Stephen Cross, a former top examiner for the Home Loan banks at the Federal Housing Finance Agency. “If this merger goes through, it is a great development for the Home Loan Bank System because you will end up with larger, stronger and more efficient banks.” Consolidation of the 12 Home Loan banks has long been seen as necessary, yet a lack of political will and unavoidable technical issues have prevented it from happening. “The basic business of the Home Loan Bank System is, in the current interest rate environment and the current mortgage market, a low-volume, low-profit business,” Karen Shaw Petrou, managing partner of Federal Financial Analytics, said in an interview.