FHFA’s review of the Federal Home Loan Bank System

A little more than a year ago, the Federal Housing Finance Agency (FHFA) initiated a comprehensive review of the Federal Home Loan Bank System, a network of 11 regionally based banks that provide wholesale funding to their members. FHFA’s stated purpose for reviewing the FHLBank System, which was created in 1932, was “to ensure the FHLBanks remain positioned to meet the needs of today and tomorrow” as the system approaches its centennial.

The agency asked stakeholders for feedback on six focus areas:

• The FHLBanks’ general mission and purpose in a changing marketplace.
• FHLBank organization, operational efficiency, and effectiveness.
• FHLBanks’ role in promoting affordable, sustainable, equitable, and resilient housing and community investment.
• How the system addresses the unique needs of rural and financially vulnerable communities.
• Member products, services, and collateral requirements.
• Membership eligibility and requirements.

After six public listening sessions, 19 regional and virtual roundtables, and two public comment periods, the agency wrapped up its review last March.

Credit unions made their voices heard

Though not every credit union is a member of a FHLBank, every credit union in the country is eligible for membership. There are roughly 1,600 credit union members in the FHLBank System, and credit unions are one of the fastest-growing membership segments.

As valued members of the FHLBank System, many credit unions participated in FHFA’s review process, with representatives speaking at the listening sessions and participating in several roundtables. Credit union representatives and trade groups also submitted comment letters in support of the system. Members were asked to convey why they have chosen to be members of their Home Loan Bank, how they use their membership, and the impact their membership has had on the people and communities they serve.

The response was overwhelmingly positive, with nearly 1,000 people participating in the process. If a single theme weaved through almost all the feedback FHFA received, it was undoubtedly that everyone wants more from the FHLBank System, not less.

In our view at the Council of Federal Home Loan Banks, this is a nice problem to have.

What’s next?

FHFA is expected in the next few weeks to issue a report based on their findings. Our expectation is that it will include legislative, regulatory, and supervisory recommendations. More importantly, based on what we heard during the review, we think it is reasonable to expect the report to be additive in nature, charting a path for us to be stronger partners with our members and the community groups we support through our Affordable Housing Program and other voluntary programs.

There may also be some recommendations that run counter to much of what the agency heard during the process.

What should credit unions do?

While we expect a report that will include multiple recommendations, the publication of FHFA’s report is just the beginning of what will be a long process. We do not expect anything to change for our members in the immediate future. Some in Congress may introduce legislation based on the statutory recommendations, but what is more likely to happen is the agency will use the regulatory and supervisory process to affect change.

This is where we need credit unions and other stakeholders to engage. We need our members to engage in any agency action that limits, complicates, or disrupts our members’ access to their Home Loan Bank, or minimizes the value of their membership or the nature of our cooperative. Just as credit union advocacy relies on individual credit unions speaking for the entire system of credit unions, it will be important for Home Loan Bank members to advocate for us. If those who are most invested in the system do not speak for us, who will?

As someone who advocated for credit unions for 15 years, I find the position we are in very familiar. It is not much different from how credit unions would approach NCUA or the CFPB. We will work in Congress to help ensure the law supports how we serve our members, and we’ll work with FHFA to make sure the agency is not impeding access to the Home Loan Banks through overregulation.

For our credit union members, this is a well-worn advocacy path, just with a different regulator. However, in this context it is a regulator that may change how credit unions access much-needed liquidity.

RYAN DONOVAN is president/CEO at the Council of Federal Home Loan Banks.