As lawmakers continue to assess the future of the government-sponsored enterprises (GSEs), a House Financial subcommittee heard testimony Wednesday urging policymakers to preserve the role of the 12 Federal Home Loan Banks (FHLBanks).
Empire State Bank Chairman and Co-CEO Anthony P. Costa, testifying on behalf of the American Bankers Association, said that policymakers must be mindful of the fact that any GSE reform "is likely to have an impact" on the FHLBanks.
"Great care must be taken with any reform of the secondary mortgage market to protect the traditional business of the FHLBanks and access to liquidity by their members," Costa said in prepared testimony. "Failure to do so will have a detrimental effect on mortgage funding and homeownership for many years to come."
According to Costa, the FHLBanks remain a primary source of liquidity for banks like his.
"I can connect the funding of many individual loans directly back to FHLBank liquidity and funding," he said. "Many of our loans would not have been made were it not for our FHLBank."
Noting that the FHLBanks continued to provide liquidity as the credit markets tightened, Costa commented that the banks "performed exactly as intended during the financial crisis."
Tim Zimmerman (pictured), president and CEO of Monroeville, Pa.-based Standard Bank, similarly urged Congress to keep the FHLBanks' role intact. Testifying on behalf of the Independent Community Bankers of America (ICBA), Zimmerman echoed Costa's sentiment that the banks are a crucial source of advances that community banks use to fund mortgages and other types of loans.
"Many rural bank members of ICBA report that FHLBank advances are absolutely essential for their ability to remain competitive in agricultural and agribusiness lending," Zimmerman said. "In particular, long-term fixed-rate agricultural real estate loans of 10 or more years would be nearly impossible for a community bank without the use of FHLBank advances. These loans cannot be funded with short-term deposits because of the interest-rate risk."
Zimmerman also testified that the ICBA opposes proposals to merge the FHLBanks with GSEs Fannie Mae and Freddie Mac.
"While community banks have benefitted from the existing FHLBank secondary market programs, the primary business of the FHLBanks must remain advances," he said.