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FHFA 100 Year Report on FHLB System with Ryan Donovan: Key Takeaways for Credit Unions


Title: FHFA 100 Year Report on FHLB System with Ryan Donovan: Key Takeaways and Implications for Credit Unions


Introduction:

In a recent episode of With Flying Colors, Mark Treichel sits down with Ryan Donovan, the CEO of the Council of Federal Home Loan Banks (FHLB), to discuss the FHFA 100 Year Report on the FHLB System. Released just last week, this report provides a comprehensive analysis of the FHLB System and offers recommendations for its future. In this blog post, we will explore the key takeaways from the report and examine the implications it holds for credit unions.


The Importance of Stakeholder Feedback:

The report highlights the extensive process undertaken by the FHFA to gather feedback from stakeholders. Over the course of 6-7 months, they heard from around 800 stakeholders through listening sessions, regional roundtables, and comment periods. The overwhelming majority of the feedback received was positive and supportive of the FHLB System's role in providing liquidity for members and supporting affordable housing and community development.


Statutory Recommendations:

One of the major recommendations put forth in the report is to increase the affordable housing program's minimum contribution from the current 10% to 20% of net earnings. Interestingly, the FHLB System is already moving towards this direction, with each bank agreeing to go to 15% of net earnings. This demonstrates a commitment to addressing the needs of stakeholders and expanding the impact of the FHLB System on affordable housing initiatives.


Another significant recommendation is to expand the community financial institution definition to include credit unions. If this change is implemented, credit unions will have the opportunity to pledge small business and agriculture loans as collateral, expanding the options for collateral and enhancing the value proposition for credit union members.


The Need for Regulatory Clarity:

The report also emphasizes the need for clarity regarding the FHLB System's regulatory mission statement. It is likely that the FHFA will issue a proposed rule to address this and provide an opportunity for additional feedback from stakeholders. Simplification of the affordable housing program is also a priority, as the current system is burdened by regulatory complexities and duplicative requirements. Streamlining this program will make its impact more effective and increase the efficiency of the distribution of funds.


Challenges and Concerns:

While the report offers valuable recommendations, it also presents challenges and concerns for credit unions. The proposed ongoing mortgage asset test and changes to the definition of a long term advance could create additional burdens and delays in obtaining liquidity from the FHLB System. These changes may impact the value proposition and confidence credit union members have in the system. It is important to closely monitor the rulemaking process and provide input to ensure that any potential negative effects are minimized.


The Role of Credit Unions and Stakeholder Engagement:

As the FHLB System moves into a decade-long process of implementing the report's recommendations, stakeholder engagement becomes crucial. Credit unions, as members of the FHLB System, have a vested interest in the cooperative's future. It is essential for credit unions to actively engage in the policymaking process, provide feedback on proposed rules, and advocate for their needs. By participating in this process, credit unions can contribute to shaping the future of the FHLB System and ensure that it continues to meet their liquidity requirements while supporting affordable housing initiatives.


Conclusion:

The FHFA 100 Year Report on the FHLB System serves as a roadmap for the future of this critical financial cooperative. The report's recommendations offer valuable insights and opportunities for enhancing the role of the FHLB System in providing liquidity and supporting affordable housing. However, careful consideration is needed to address potential challenges and ensure that any regulatory changes do not hinder credit unions' access to reliable liquidity. By actively engaging in the policymaking process, credit unions can help shape the future of the FHLB System and ensure its continued success in meeting their needs.


The Entire Report can be found here:


https://www.fhfa.gov/PolicyProgramsResearch/Programs/Pages/FHLBank-Focusing-on-the-Future.aspx

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