A review of recent pricing on FHLB loans to members shows, since late last year, member banks and insurance companies can borrow from the FHLB at or very near (within basis points) of US Treasury rates. That bears repeating, banks and insurance companies lucky enough to be members of the FHLBs can borrow money at almost the same rate as the US Treasury. And not just any money, but money in unlimited amounts, and on demand, call your home loan banks and you get the money – at US Treasury rates, with no questions asked! I’d want some of that.
Look it up yourself. Some FHLBs publish their rates (though most don’t) and some also quote the cost of the advances (loans) after the added benefits of dividends paid. The net cost of borrowing comes in, again, within spitting distance of US Treasury borrowing rates – not for all FHLBs but at least two of the four that do publish (tangentially, one of the FHLBs miscalculates the value of the distributed profits – resulting in net borrowing rates well below US Treasury – but their math is just wrong – or we should all hope).
The FHLBanks stalwart defense of maintaining the status quo and this pricing is understandable – let’s maintain this market advantage for ourselves – no one else gets it, and we won’t even admit it is what is being defended (I’ll have more on that in future posts).
Conclusion: FHLBanks deny receiving a subsidy from their affiliation with the US government – okay, but the data says differently. Members of the FHLBs receive opportunities to borrow money at lower rates than any other borrower in the capital markets. So, if it isn’t a subsidy, let’s call it a windfall, a pot of gold, …. But let’s get on to the more relevant discussion – How to reasonably distribute the pot of gold. Maintaining the status quo is not the right answer.