Investment Boom Stokes Fears FHLBs Have Gone Off Mission
By Donna Borak
Have the Federal Home Loan banks drifted too far from their original purpose? That’s the fear among top officials at the Federal Housing Finance Agency, who have watched with alarm as the level of the banks’ investments has surged, sometimes surpassing the level of their advances. Four of the 12 Federal Home Loan banks — Chicago, Seattle, Cincinnati and Indianapolis — now hold more in investments than advances, and two others — Boston and Topeka — are close to joining them. In a speech to Home Loan bank officials last week, FHFA Acting Director Edward DeMarco warned the banks this cannot be allowed to continue, emphasizing that their role is to promote liquidity through advances, not grow an investment portfolio. “This is not a sustainable operating condition for an FHLBank,” DeMarco warned. Industry observers agreed. “It just points to the strategic challenge for the system, which is that their mission is to provide advances, but their business increasingly isn’t,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. “The banks are moving into investments because they cannot make ends meet with advances.”