Credit unions are ‘critical beneficiaries’ of FHLBank system

October 31, 2022

Credit unions derive significant benefits from being a part of the Federal Home Loan Bank (FHLBank) system, CUNA wrote to the Federal Housing Finance Agency (FHFA) Monday. CUNA’s comments were sent to the FHFA for its comprehensive review of the Federal Home Loan Bank system.

“The liquidity provided by the FHLBank system, together with several programs related to affordable housing and community development, have been instrumental in furthering credit unions’ role in fostering increased residential mortgage originations to all sectors of society, ranging from low-income homeowners, persons of color, veterans, and other underserved groups,” the letter reads.

“This data demonstrate that credit unions remain critical beneficiaries of the FHLBank system and are effective stewards of the funding and other services directed by the various FHLBank as they serve to advance their statutory mission.”

Highlights include

  • CUNA strongly believes that individual FHLBanks must be able to exercise their respective discretion with respect to local projects and needs given that individual FHLBanks and their respective boards of directors are equipped with the local wherewithal and comprehensive understanding of the communities within their respective jurisdictions and any attendant potential risks.
  • FHFA should permit credit union service organizations (CUSOs) to join FHLBanks as members if they otherwise qualify.
  • FHFA should not attempt to establish any new, free-standing data collection and reporting requirements to maintain FHLBank membership, particularly for regulated and examined depository institutions.

CUNA also called on FHFA to waive the regulatory requirement for the FHLBanks to treat negative tangible equity as a disqualifying metric of creditworthiness when considers new advances to members.

“In the longer term, we would strongly recommend that the FHFA modify its requirements to be in alignment with the capital requirements set by the NCUA and other primary banking regulators when determining a credit union’s creditworthiness in connection with a new advice,” the letter reads. “The alignment of federal requirements will provide operational ease for credit unions, the FHLBanks, and reduce the likelihood of regulatory gaps and unintended consequences that result from different capital frameworks.”