The Federal Housing Financing Agency will conduct a comprehensive review of the Federal Home Loan Bank System this fall.
FHFA Director Sandra L. Thompson announced the forthcoming probe in a statement issued Wednesday afternoon. She said the agency would examine the 11 Home Loan banks on several fronts to "ensure they remain positioned to meet the needs of today and tomorrow."
The announcement comes amid growing
The Home Loan banks were created during the Great Depression to provide liquidity for home financing and community development, and to serve as a lender of last resort. In recent years, they have become the subject of increasing scrutiny as demand for advances — the mechanisms through which the Home Loan banks support their member institutions —
Part of the reason advances have dropped is because of the
Amid this decline in advance volumes, the Home Loan banks have conducted a greater share of their business in other areas, a trend line that could
The researchers noted that the special treatment provided to Home Loan banks warrants a "well-defined mission" that no longer seems to exist. Without it, "the FHLBs crop up in unexpected parts of financial markets as they pursue profitable opportunities."
Despite being established by the federal government, Home Loan banks are private entities. They are set up as cooperatives, with their shareholders being member banks within their respective regions and they raise funds by selling tax-exempt bonds. The Home Loan banks receive no public funding but they are exempt from paying state or federal taxes.
The FHFA, which oversees the 11 Home Loan banks, will evaluate them on six criteria: their general mission and purpose in the current market; their organizations, operational efficiency and effectiveness; their role in promoting quality, affordable housing and community investment; their ability to address the needs of rural and financially vulnerable communities; their member products, services and collateral requirements; and their membership eligibility and requirements.
The FHFA will hold a pair of public listening sessions as part of its review. The first session will be held on Sept. 29. It will also hold a roundtable discussion on the future of the Home Loan banks and take written comment through Oct. 21.
