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The Federal Housing Finance Agency (FHFA) on Tuesday announced the publication of a new, final rule in the Federal Register seeking to expand liquidity for the Federal Home Loan Bank (FHLBank) system, which would be accomplished by adjusting the treatment of some short-term FHLBank investments.
The rule modifies the system’s limit on the extension of specified forms of unsecured credit, according to FHFA, giving the banks more control over how they manage short-term investments. This addresses limitations on certain capital requirements the system has to work through, according to the agency.
“Previously, an FHLBank’s deposits held in member-provided interest-bearing deposit accounts (IBDAs) counted toward a more restrictive limit set in FHFA’s existing regulation governing FHLBank capital requirements,” the agency said. “Under the final rule published today, these deposits will count toward a more flexible limit — similar to the treatment of federal funds sales — allowing the FHLBanks to better manage and respond to the liquidity needs of their members in a safe and sound manner.”
Ryan Donovan, the president and CEO of the Council of Federal Home Loan Banks, said that the council appreciates the FHFA’s rulemaking action on this issue.
“The FHLBanks are committed to safety and soundness and responsible balance sheet management,” Donovan told HousingWire in a statement. “This rule will give them greater flexibility in managing their liquidity positions in support of their members and we are grateful to FHFA for finalizing the rule.”
FHFA Director Sandra Thompson added that the new rule will better allow the FHLBanks to accomplish their mission, particularly in the pursuit of more cost-effective housing for consumers.
“FHFA’s priority is to ensure that the Federal Home Loan Banks manage their balance sheets and financial transactions responsibly, remaining safe and sound while providing necessary liquidity to their members,” Thompson said. “This regulation better enables the FHLBanks to meet their mission by providing them with greater flexibility to deploy tools to facilitate the expansion of affordable, sustainable housing.”
The rule also aims to “clarify” terms for the banks to determine limits on unsecured credit to other participants in a financial transaction. After initially proposing the rule this past October, the agency solicited feedback.
That feedback was implemented in the final rule by “establish[ing] an exception for certain amounts in operations and custodial accounts that the proposed rule would have counted toward the intra-day unsecured credit limit and clarifies that the limits are focused on liquidity activities,” FHFA explained.
Editor’s note: This story has been updated with a statement from Ryan Donovan, president and CEO of the Council of Federal Home Loan Banks.
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