Son Of FLUBBER! Banks’ Liquidity Sources Threatened By Plans To Limit Home Loan Borrowing (18 Straight Weeks Of Negative Growth In Bank Credit, 5 Rate Cuts Priced In For 2024)

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The Federal Home Loan Bank System (comprised of Federal Home Loan Banks or FLUBs) are a major source of American home loans and liquidity … at least until now.

US banks will need to find other ways to access liquidity if the Federal Housing Finance Agency follows through with its goal to limit depository institutions from borrowing from Federal Home Loan Banks.

According to a recently released report, the Federal Housing Finance Agency (FHFA) plans to propose rules that would curtail US banks’ borrowings from the Federal Home Loan Banks (FHLBs) to ensure they are not used as a “lender of last resort.” The announcement comes after the liquidity crunch in March spurred several banks to tap into the FHLB system, sending FHLB advances to a three-year high in the first quarter. During that quarter, when two large regional banks failed, FHLB advances totaled $804.39 billion, comprising 3.7% of banks’ total liabilities.

While totals have fallen since then, sitting at $602.62 billion, or 2.8% of total liabilities, in the third quarter, the FHFA is still seeking to impose limitations. Should the agency enact the new rules, banks’ liquidity options would be hindered. The FHFA wants Federal Reserve facilities to be used instead, but banks are reluctant to tap those because of the stigma attached to those sources, industry experts said.

“It is fair to argue that some banks have come to rely on FHLB funding as a crutch, and the ramp in lending to struggling banks during the mini-crisis in March is an area of continued debate,” Isaac Boltansky and Isabel Bandoroff of BTIG LLC wrote in a Nov. 11 note. “With that being said, there is still a clear stigma associated with tapping the Fed’s Discount Window and other facilities, which should be part of the conversation if the FHLB support will eventually be curtailed.”

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Among the various rules the FHFA plans to propose is requiring that certain members have at least 10% of their assets in residential mortgage loans or equivalent mission assets, including assets that qualify as Community Financial Institution collateral, on an ongoing basis in order to stay eligible for FHLB financing.

The leading FLUB borrower? Columbus Ohio’s own JP Morgan Chase!

The problem is that bank credit growth has been contracting for several weeks now. 18th straight week of negative credit growth.

As FLUB advances decline with Fed balance sheet shrinkage.

Everything is beautful? Not really. 5 Fed rate hikes priced in for 2024.

Yes, its beginning to look a lot like rate cuts.

So we are seeing Son of FLUBBER. Except this Flubber is crashing and burning.

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Published by confoundedinterest17

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