The Federal Home Loan Banks offer loans to Wall Street that are too cheap

 The Economist 

Nearly a year on from the failure of Silicon Valley Bank (SVB), New York Community Bank has lost about half of its value since it announced on January 31st that it was setting aside $552m to cover troubled loans secured against commercial real estate.

 Last spring the bank was a saviour of sorts, buying $38bn of assets from Signature Bank, which failed around the same time as SVB. 

Now it is the first example of a new set of problems facing the industry.

Federal Home Loan Banks (FHLBs), a network of privately owned but government-sponsored lenders to banks. 

The government started the FHLBs in the 1930s 

In the spring of 2023 “advances” to its members—which include life insurers and others as well as banks—passed $1trn for the first time since the global financial crisis, up from just $335bn at the end of 2021. 

One problem is that it comes too cheap. The FHLBs fund their loans by selling their debt to investors (after the Treasury, they are the world’s second-biggest issuers of dollar-denominated bonds). 

They are owned by their member institutions but their debt is presumed by investors to be all but guaranteed by the government.

 In all the FHLBs dole out an implicit subsidy that researchers valued at around $5.5bn in 2022, when the FHLBs were smaller than they are today.

The Economist 13 Ferbruary 2024 

https://www.economist.com/leaders/2024/02/13/another-bank-subsidy-america-should-kill-off

The Federal Home Loan Bank system

Gillian Tett juli 2023

https://englundmacro.blogspot.com/2023/07/the-federal-home-loan-bank-system.html