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Ryan Donovan is the President of the Council of Federal Home Loan Banks.

The Council is dedicated to enhancing public awareness and understanding of the Federal Home Loan Bank System.

It is the primary public voice of the FHLBank System and its function is to represent the positions and views of its members to Washington, DC policymakers.

The FHLBank System was created by the Federal Home Loan Bank Act of 1932 as a government sponsored enterprise to support mortgage lending and community investment. The System is composed of 11 regional banks which are privately capitalized and owned as cooperatives by their members. Their regional distribution enables each bank to focus on the distinct needs of their individual communities.

While only financial institutions may belong to a FHLBank, people everywhere benefit from them. Each year, the FHLBanks provide access to billions of dollars in low-cost funding to approximately 6,600 of America’s banks, credit unions, insurance companies and community development financial institutions. Without access to FHLBank advances, most members would find it difficult to support lending within their community.

FHLBanks carry out their core mission of providing liquidity by raising funds in the global financial markets, then lending that money in the form of “advances” (loans) to members and local communities.

Each FHLBank is operated independently and receives no taxpayer assistance. Each bank is registered with the SEC and is supervised and regulated by the Federal Housing Finance Agency (FHFA). The Office of Finance serves as the fiscal agent for the FHLBanks.

The new paper from Jim Parrott and Mark Zandi is an opening salvo in what will likely be a high-stakes battle over the future of the lenders. The FHLB system has come under fire in recent weeks for loans made to now-collapsed financial institutions Silicon Valley Bank, Signature Bank and Silvergate Capital Corp.

FHLB loans come with favorable interest rates due to implied US government backing, despite the banks being cooperatives owned by financial institutions. Critics say they can encourage risky behavior by financial firms.

However, Parrott, a former Obama administration housing adviser, and Zandi, chief economist at Moody’s Analytics, said on Tuesday that the FHLBs are vital sources of liquidity for financial institutions and act as a “first responder” in crises. If anything, the system should be expanded, they said in an Urban Institute paper.

“Without the FHLBs, these downturns in the economic cycle would have been significantly more painful, with greater swings in the cost and availability of credit, exacting greater damage on the economy,” they wrote. 

Week of SVB:

The Federal Home Loan Bank System issued $304 billion in debt last week, according to a person familiar with the matter, who asked not to be identified discussing non-public data.

That’s almost double the $165 billion that liquidity-hungry lenders tapped from the Federal Reserve.

The  Next to Last Resort