FHLBs May Escape Lending Limits in Reform Bill

Sen. Tim Johnson (D-S.D.) is sponsoring a bipartisan amendment that would remove the Federal Home Loan Banks from concentration limits in the Wall Street reform bill. If approved, the regional FHLBs will not be forced to cut lending to their largest members. FHLB officials estimate the 12 banks would have to reduce their advances to some members with only $3 billion in assets under the current bill. One FHLB would have to cut advances by $1 billion up to $17 billion to each of its top 10 borrowers. The Council of Federal Home Loan Banks, the American Bankers Association, and other groups have warned that the reduction in lending will not only affect the economy, but would lead to a reduction in FHLB capital and services to smaller members, including thrifts and community lenders. The groups argue that members have to pledge collateral (mostly mortgages) to receive FHLB advances which means they are not risky unsecured loans. Under the concentration limits, "systemically important" institutions cannot lend more than 25% of their capital to any one borrower. The Johnson amendment exempts the FHLBs from this lending limit. The measure has 12 co-sponsors: six Democrats and six Republicans. "I am cautiously optimistic the concentration issue will be addressed satisfactorily," said Bob Davis, ABA executive vice president. The Senate resumes consideration of the Wall Street reform bill Monday afternoon.