the Federal Home Loan Bank system
When Silicon Valley Bank collapsed this spring, it revealed ugly truths about the private sector financial world — including that investors and regulators had become “blindsided by risks which ex post seemed too obvious to be missed”, as a hard-hitting new book from NYU Stern business school notes.
Most notably, many financiers ignored rising interest rates — even though these were clearly visible — while taking crazy bets that later blew up.
... the role of government agencies such as the Federal Home Loan Bank system and the role of collateral in the financial system. Both deserve far more debate if we want to avoid another SVB-type shock.
The FHLB was created in 1932 ... its mandate was expanded in the 1980s to cover mainstream commercial banks as well. And during the 2008 financial crisis, the FHLB furtively rescued many institutions by supplying loans when commercial markets closed due to the implosion of the subprime mortgage sector.
... between September 2021 and March 2023 its loan book exploded from $344bn to more than $1tn.,That surge was even more extreme than the one in 2008. But it went largely unnoticed
... the surge started long before the problems at SVB became widely known and data now shows that the three banks that imploded from March 2023 — SVB, Signature and First Republic — were heavy FHLB borrowers.
The NYU team concludes from this that it is high time to overhaul the FHLB.
I strongly agree.
Gillian Tett FT 20 July 2023
Gillian Tett - en av mina Gurus
Gillian Tett is chair of the editorial board and editor-at-large, US of the Financial Times. She writes weekly columns, covering a range of economic, financial, political and social issues.
In 2014, she was named Columnist of the Year in the British Press Awards and was the first recipient of the Royal Anthropological Institute Marsh Award.
In June 2009 her book Fool’s Gold won Financial Book of the Year at the inaugural Spear’s Book Awards.
Tett’s past roles at the FT have included US managing editor, assistant editor, capital markets editor, deputy editor of the Lex column, Tokyo bureau chief, and a reporter in Russia and Brussels.
SVB and Beyond: The Banking Stress of 2023
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