Fed Funds Lending Takes Regional Turn
The Federal Home Loan banks now have to fend for themselves in the fed funds market.
The central funding arm of the Federal Home Loan bank system has been disbanded to cut costs, Austin Dowling, head of the office of finance, confirmed.
As a result, since last week the regional banks have had to manage a $7 billion position in short-term funds that had been handled centrally.
"What we managed here in Washington was a sort of mutual fund," said Shirrel Ogden, manager of the investment division of the office of finance.
As a result of the change, at least some of the home loan banks may need to open new credit lines with commercial banks in order to be able to place all their funds and take care of any borrowing needs that may arise.
A fed funds trader at one money-center bank said a regional home loan bank recently approached about him about opening an overnight credit line.
The home loan banks often find themselves with excess short-term funds because they receive principal and interest payments from savings and loans with home loan bank advances.
The office of finance had been taking care of about 20% of the total selling activity of the home loan banks. Now, though, they will have to handle the selling themselves.