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NAFCU makes recommendations on FHLB membership to FHFA
NAFCU sent a letter to the FHFA in response to the request for input (RFI) issued by the Federal Housing Finance Agency (FHFA) in February regarding Federal Home Loan Bank (FHLB) membership and voiced concerns of member credit unions that rely on the FHLBs for liquidity purposes in order to fully serve the mortgage and community development needs of their membership.
The FHFA is currently looking into whether the agency’s existing regulations ensure the FHLB system remains “safe and sound” as part of a review of FHLB membership.
“Any expansion of membership to the FHLB system should be limited to those entities which are subject to a regulatory scheme from a prudential regulator and capital requirements,” wrote Elizabeth LaBerge, NAFCU’s senior regulatory counsel in the letter. “This is the most significant financial factor in maintaining reasonable risk in the system and preserving its benefits for current membership. Further, the FHFA should prohibit the use of conduits as they inject significant serious risk to the system and cannot demonstrate a nexus to the FHLB’s public policy mission.”
On the prohibition of the use of conduits, LaBerge urged that a captive entity serving as a conduit for an ineligible entity “introduces risk into the system that may be difficult to accurately assess, monitor or mitigate, ultimately putting the benefits of FHLB members at risk for existing members.”
In addition, LaBerge called on the FHFA to support revisions to the FHLB Act to include credit unions in the definition of a community financial institution (CFI). NAFCU has previously called on Congress to expand the definition of CFIs in the FHLB Act and raise the asset threshold to $10 billion in any further coronavirus relief legislation.
“NAFCU would welcome the support of the FHFA in this effort to correct the exclusion of credit unions from this statutory definition and to raise the threshold,” wrote LaBerge “These changes will ensure that the benefits of the FHLB System are fairly and appropriately extended to as many members as possible.”