JOE R. IRWIN IS ONE of hundreds of bankers who have made alliances with the Federal Home Loan Bank System. But his recent move to join the government-sponsored group brings new visibility to the arrangements.
Mr. Irwin is chief investment officer of PNC Bank Corp., the nation's 11th-biggest bank company. Its flagship subsidiary, the $31 billion-asset lead bank in Pittsburgh, joined the Home Loan system earlier this month as its largest commercial bank member. PNC Bank of Ohio also has been approved for membership.
For decades the Home Loan banks have provided long-term wholesale funds to thrifts, but only since 1989 have they been empowered to sell advances to qualifying commercial banks, credit unions, and life insurance companies.
After an early lull, the arrangement has gained steam. About 800 commercial banks joined the system during the 12 months that ended May 31 -- more than doubling their ranks, to 1,609, according to the Federal Housing Finance Board.
Simultaneously, outstanding advances to bank members leaped by 150%, to about $10 billion. Mr. Irwin said risk management guided his decision. Home Loan bank advances should help narrow maturity mismatches on funding for PNC's vast holdings of residential mortgages and mortgage-backed securities, he explained.
"As long as we are comfortable with rate risk, we'd rather not shrink the balance sheet, because that would penalize profitability," said Mr. Irwin, who is responsible for the treasury, securities, and investment banking divisions of PNC.
The company expects to draw advances having maturities of two to five years, he said.
That is clearly preferable to selling liabilities to money-market mutual funds, which are legally restricted to investments with maturities of 13 months or less, he explained.
Mr. Irwin is a new convert to the advantages of the Home Loan system.
He said he shrugged off membership three years ago, when the yield curve was flat and short-term rates appeared poised to fall.
But the reversal of those two variables changed his thinking, he said.
PNC Bank of Pittsburgh has agreed to phase in its required purchase of more than $90 million of stock in the Federal Home Loan Bank of Pittsburgh over a year, so as not to swamp the lender with capital.
Mr. Irwin must keep a dose eye on the other advantage of membership: the dividend on the Home Loan Bank stock.
The current annualized yield of 8% is "fairly attractive," he said. "Should it become unattractive, then we would have to reevaluate."