FDIC 'Secured' Debt Program Hurting FHLBs, Too

The FDIC's "Temporary Liquidity Guarantee" program has opened the door to banks and thrifts issuing unsecured debt, but is hurting all the housing government sponsored enterprises, including the 12 Federal Home Loan Banks. A new report issued by the FHLBs says the FDIC's program - which guarantees all debt instruments issued by depositories - is making it harder for the GSEs to access long-term debt. Since the Federal Deposit Insurance Corp. announced the TLG program, "the pricing of long-term debt of all the housing GSEs, including the FHLBanks, deteriorated," according to the bank system's combined third quarter financial report. The financial discussion section of the report points out the FHLBanks have "limited access to the term-debt market," and they are "receiving a large proportion of their funding from money funds." FDIC finalized the bond guarantee program in late November and so far banks and bank holding companies have issued $38.6 billion in TLGP bonds. Meanwhile, banks and thrifts increased their borrowings from FHLBanks during the third quarter and outstanding advances jumped $97.8 billion or 11% to $1 trillion as of Sept. 30. But the FHLBanks are concerned the TLG and other government programs to provide liquidity and capital to the banking system "may lower future demand for advances."