As per an individual familiar with the situation, Federal Home Loan Bank issued $37 billion in debt last week of March. It significantly decreased from the $304 billion released two weeks earlier. After reaching a record high earlier in the month, this decline indicates that the banking crisis is beginning to ease.
The FHLBs, established in the 1930s, is a safety net to encourage mortgage financing. To emphasize the FHLBs’ function as a lender that banks utilize to strengthen their balance sheets, the system is now referred to as the “lender of the next-to-last resort“—a play on the moniker for the Federal Reserve’s discount window.
The Impact of Decreased Debt Issuance
The declines in advances and debt issuance are visible even though FHLB lending is still high. It indicates that member banks’ cash needs have been met or are declining. Many depositors are no longer withdrawing large sums of money from financial institutions. They also provide credence to Jamie Dimon, the CEO of JPMorgan Chase & Co., who stated last week that “we’re getting near the end of this particular crisis.”
The issuance of notes having periods of one day to one year, or short-term notes, decreased significantly. The week ending March 17 peaked at $153 billion, according to the person who asked to remain anonymous. It is because they were disclosing private data. The following week, this issuance dropped to $32.2 billion, and the following week, the issuance dropped to $17.6 billion.
More Attention to Safety Bets for Banks
Following the failures of Silicon Valley Bank, Signature Bank, and Silvergate Capital Corp., the FHLBs’ function as a safety net for banks has received more attention. Before their dissolution, all three organizations used the local FHLB bank for financing.
According to Bloomberg News, The FHLB’s need for change has increased due to the implied government backing of these banks. Loans come with favorable interest rates. Their debt is paid back before the Federal Deposit Insurance Corp. The system’s lending act support hazardous behavior.
The banking crisis began in March. A thorough study of the system was underway at the Federal Housing Finance Agency, which oversees it.
The system’s bond issuance has also decreased, with periods typically exceeding one year. The Silicon Valley Bank went into receivership. The system issued $151 billion in bonds, followed by $40.1 billion the following week and $19.8 billion the week of March 31.
In the absence of a long-term cash requirement, banks might be less keen to request longer-term loans from the FHLBs due to the prepayment penalty involved.
