The Dark Magic of GSE Maturity Transformation
A new paper from the Milken Institute researches a question we have long asked: how much funding do the largest banks get from Home Loan Banks and who takes the risk? In just a few years, FHLBs have taken a large piece of the maturity-transformation business once core to banks. Nice work since they got it, but they’ve also now gotten a lot of new risk for which their prudential structure in our view is ill-designed.