October 4, 2024. As it sits right now, the FHLBs are proposing maintaining the status quo, with members garnering, almost entirely, the rewards of the system – cheap liquidity, high dividends and a growing pile of retained earnings.
The FHLB presidents point to the complexities of the system to rationalize how they are doing enough. The Chairs of the Board do much the same. And the Council is loudly out there attacking each and every criticism. Win. Win. Win. And maintain the status quo.
They might win, but in doing so, a huge unmet housing need will be left on the backburner. They might win, but they will have lost the opportunity to meaningfully contribute to the debate. They might win and slip comfortably back to their very low-profile existence.
Or they might win, but before long begin to hear a growing drumbeat of why even have the FHLBs? Are they relevant anymore and why can’t others fill the void if they were to fold?
For any risk professional and the bank leaders, this question needs to be discussed – by the FHLBs AND their members.
Members currently reap significant rewards from the system and that is worth maintaining. However, there is a difference between protecting the status quo and protecting the franchise. A more forceful effort to address affordable housing and community development should prove to be required risk management. Nibbling around the edges likely won’t be enough and member institutions may suffer the possible outcome.