Mergers More Likely Among FHLBs

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WASHINGTON – A voluntary merger among some of the 12 Federal Home Loan Banks may become a possibility now that the GSE regulator is trying to lay out a formal merger approval process.

The Federal Housing Finance Agency yesterday issued a notice of proposed rulemaking to establish conditions and procedures for the consideration of voluntary mergers, reported National Mortgage News, an affiliate of Credit Union Journal.

As proposed, the board of directors could consider a merger proposal by a simple majority vote. “To require authorization by something more than a simple majority of each board could discourage Bank management and directors from developing and considering merger proposals that could be benefit to the Bank’s members and the Bank System as a whole,” the FHFA proposal states.

Before filing a formal merger application, FHFA expects the merging banks to discuss their plans with “agency staff on an informal basis” to see if there are any supervisory concerns or other issues that need to be addressed.

Any merger will require ratification by the member institutions. The comment period on the proposal ends 60 days after it is published in the Federal Register.

The most likely merger candidates are the Chicago, Dallas and Seattle FHLBs due to declining memberships and other factors. Back in 2007, the Dallas and Chicago FHLBs entered into merger discussions that fell apart after seven months.

The Dallas FHLB recently reported that two of its largest borrowers reduced their advances by $13.8 billion in the third quarter. It now has $27.3 billion in total advances.

As of Sept. 30, the 12 FHLBs have $900 billion in assets.


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