The FHLBs have announced a plan to retain the REFCORP repayments that otherwise will end in the course of 2011.  This is touted as a supplement to System stability sufficient to calm Administration and market concerns.  We doubt it. Under the proposal, System members will get less than they otherwise would for the privilege of membership that provides services under attack by the FDIC, Administration and – most critical – market forces. This will likely encourage still more defections from the Bank’s bread-and-butter advance window and provide yet more impetus for the Administration’s reforms that target the Banks to small and medium sized members and shrink their retained portfolios.

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