August 24, 2023
The Financial Times recently published an article by Mark T. Williams, Master Lecturer of Finance, on the importance of Federal Loan Home Banking systems on-demand liquidity role and replacement by the Federal Reserve Bank.
Some claim that the FHLBanks are weakening the banking system, causing bank failures, and increasing costs. Williams believes such claims are overblown, especially given the March 2023 bank failures represented less than one tenth of one percent of FHLBank’s membership. He points out that overlooked are the hundreds and even thousands of healthy banks who gained needed safety net liquidity in times of market crisis.
Williams adds that, “Many who look at this problem objectively agree that FHLBank can be improved, but to eliminate its on-demand lending and shock absorber role is a dangerous idea”.