FHFA Guideline Proposal Could Lead to Mergers in Home Loan Bank System

By Donna Borak

The Federal Home Loan Bank System could finally be on its way to shrinking. The Federal Housing Finance Agency on Monday issued a proposal that would provide specific guidelines and procedures to allow for the voluntary merger of any of the 12 Home Loan banks. The banks were already allowed to merge under the Housing and Economic Recovery Act, but regulators had provided no details on the terms of a merger or whether it would be approved. Industry observers said that outlining those terms could eventually pave the way for consolidation in the Home Loan Bank System. “This proposal reflects the parlous condition at the majority of the banks. Last week FHFA disclosed that seven of the 12 have very low supervisory ratings,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. “The proposal paints a broad landscape of strategic options for the banks, with voluntary merger just one of them. I think the banks will need very, very quickly to consider their strategic options under this proposal and draw up plans ASAP before their choices are constrained still more and FHFA is forced to intervene.”

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