In one of the Federal Housing Finance Agency’s (FHFA) last actions under Director Sandra Thompson, the agency issued a final rule adjusting the treatment of certain short-term Federal Home Loan Bank (FHLBank) investments to improve access to liquidity. The rule will remove capital restrictions on certain forms of unsecured credit that may be extended to FHLBanks.
Previously, FHLBank deposits held in member-provided interest-bearing deposit accounts counted toward a more restrictive limit set in FHFA’s existing regulations. Under the final rule, these deposits will count toward a more flexible limit, comparable to the treatment of federal funds sales. This more flexible limit is expected to allow FHLBanks to better manage and respond to the liquidity needs of their members in a safe and sound manner.
“FHFA’s priority is to ensure that the Federal Home Loan Banks manage their balance sheets and financial transactions responsibly, remaining safe and sound while providing necessary liquidity to their members,” Thompson said in a statement. “This regulation better enables the FHLBanks to meet their mission by providing them with greater flexibility to deploy tools to facilitate the expansion of affordable, sustainable housing.”
The rule also attempted to clarify terms for FHLBanks to determine limits on unsecured credit to counterparties.
Based on feedback to the proposed rule, including a 12-page comment letter from the 11 FHLBanks, the FHFA included in the final rule an exception for certain amounts in operations and custodial accounts that the proposed rule would have counted toward the intra-day unsecured credit limit and attempted to clarify the limits are focused on liquidity activities.