An opinion piece published last week about the Federal Home Loan Bank (FHLBank) System offers several “principles” for evaluating a report from the Federal Housing Finance Agency (FHFA) based on the agency’s recently concluded review of the FHLBank System. All of the principles lack a strong factual basis.
Oddly enough, the author of the piece is a former director of the FHLBank of Boston who previously argued that the FHLBanks should expand beyond housing into areas like small business lending and has also recently referred to the FHLBanks as a “beacon of the financial system,” further noting that “from affordable housing to job creation to economic development to preserving community banks, the system and its banks have made a difference.”
It can be a very healthy exercise to change one’s opinion, but extreme fluctuations from one end of the spectrum to the other suggest a severe disregard for thoughtful analysis.
The FHLBank System is capitalized by its members and not a single penny of taxpayer money supports its operations. Moreover, any benefit FHLBanks get from being “government-sponsored” is shouldered by investors who are willing to accept a lower rate of return on the bonds we issue because the many layers of protection built into the system prompt them to perceive us as the extremely safe and sound investment that we are.
The positive impact the FHLBanks have on housing affordability and a functioning mortgage market in this country has also been clearly demonstrated. A recent University of Wisconsin study estimates that the activities of the FHLBanks reduce interest payments on mortgages by $13 billion each year and make more than $130 billion of additional mortgage credit available each year.
An additional benefit of the system is that we are the largest private sector contributor to affordable housing initiatives in the country — a fact that is surely not lost on thousands of community groups, many of which offered feedback during FHFA’s review. Collectively, the FHLBanks have contributed more than $7.6 billion to affordable housing, supporting more than 1 million households since 1990.
Every dollar of funding an FHLBank provides to its members is backed by mission-related collateral consistent with federal law and regulation and supervised and enforced by FHFA. Every dollar contributed through the Affordable Housing Program is likewise delivered pursuant to the regulations promulgated by the agency. FHFA has a clear line of sight into who FHLBanks lend to and where Affordable Housing Program dollars go. Additionally, the FHLBank members are themselves highly regulated institutions, with regulators that have a full view of their level of FHLBank borrowings and an understanding of and appreciation for the importance of such reliable liquidity in all business cycles.
Finally, though executive compensation is always ripe for cheap shot analysis, there is indisputable value in assuring that multibillion-dollar financial institutions that are privately capitalized, manage significant risk and serve a critical role in maintaining the free flow of credit throughout our economy have experienced leadership — in the executive suite and around the board table. As part of its oversight responsibilities FHFA reviews and can object to compensation arrangements for FHLBank executives and board members.
Over the last year, FHFA has heard from nearly 1,000 people interested in the future of the FHLBank system. The consistent and overwhelming theme of this feedback has been that stakeholders are highly appreciative of the fundamental role we play and want more, not less from the system. Outlying views that are devoid of factual basis and thoughtful analysis should not be relied on to advance the discourse around the future of the FHLBank system.
Ryan Donovan is president and chief executive officer of the Council of Federal Home Loan Banks.