In this alert, we assess a new series of papers from Federal Reserve staff warning about the increasingly systemic rollover risk at Home Loan Banks competing among themselves for the big-bank advance business that keeps the System’s lights on.  Although FHFA Director Watt warned the Banks in 2016 and again this year about rollover risk, Fed data show how inexorably the System is becoming a critical maturity-transformation engine and taking on all the risks this inevitably entails without the liquidity cushions or capital needed to absorb it.  The Fed study concurs with a Milken paper we previously analyzed, although it goes farther to point to the types of systemic risks the Fed worries about in concert with FSOC.  If policy-makers agree with these findings, the FHLBs are in for a shock.

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