Senator Sherrod Brown, a Democrat from Ohio, sent a letter to the Federal Housing Finance Agency Director Sandra Thompson on the use of the Federal Home Loan Bank System. Photographer: Al Drago/Bloomberg
Brown's letter comes after the failures of Silicon Valley Bank and Signature Bank, as well as the collapse of Silvergate. All three institutions took advances from the Federal Home Loan Bank system prior to their collapse as they struggled for liquidity.
"The FHLBank System was created to provide liquidity to sound institutions to facilitate lending. It was not structured to be a lender of last resort – or of next-to-last resort – for struggling institutions," Brown said in the letter. "If FHLBank members attempt to use the system as a financial backstop, it could have unintended consequences for the FHLBank System and for our broader financial system."
Brown asked that Thompson, as part of a broader review of the Federal Home Loan Bank System, include a "detailed review" of the system's role in providing liquidity to banks in the days leading up to the recent bank failures, and whether those actions were consistent with the Federal Home Loan Bank's mission.
Are Federal Home Loan Bank advances a sign of distress?
The Home Loan Bank System says it is working precisely as Congress intended it to, by lending to banks in stress. Critics say borrowings can spread undercapitalized banks' problems into the broader financial system.
The ability of the system to extend liquidity to banks at all times "raises concerns that members may attempt to draw on the system when they are experiencing financial instability or insolvency," according to the letter.
Because of the advances to failed banks, among other instances of the Federal Home Loan Banks extending liquidity to troubled institutions, critics have called for more oversight of the banks, even calling the system "irrelevant" in housing finance. Some executives of the Federal Home Loan Banks, meanwhile, argue that the banks are working exactly as Congress intended.
The Charlotte-based megabank announced that it had appointed two business leaders to be co-presidents of the bank, and elevated its chief financial officer to serve as executive vice president.
The Massachusetts bank is being accused of aiding and abetting the operation of a Ponzi scheme centered in Hamilton, New York. The bank declined to comment on the allegations.
City National Bank promotes Brandon Williams to head private banking and wealth management; a former U.S. Postal Service letter carrier is sentenced to five and a half years for stealing over $10 million in checks from the mail; Lazard expands its North American investment banking franchise with two managing director hires; and more in this week's banking news roundup.
The government-powered network is allowing larger payments to settle instantly, a move The Clearing House has also made for its RTP network. Payment experts say more than higher limits are needed to make speedy processing ubiquitous.
The world's largest stablecoin issuer is preparing to launch USAT, its U.S.-regulated, dollar-backed stablecoin, by the end of the year, Tether CEO Paolo Ardoino told reporters at an event in New York. Bo Hines was also named CEO of USAT.
