Basel Spurs Big-Bank Borrowing From U.S. Home Loan BanksClea Benson
Four of the nation’s largest banks, led by JPMorgan Chase & Co., are driving a surge in borrowing from the Federal Home Loan Bank system as they raise funds to buy assets that meet new liquidity requirements.
Lending at the 12 regional Home Loan Banks rose 30 percent to $492 billion between March of 2013 and December 2013, largely the result of advances made to JPMorgan, Bank of America Corp., Wells Fargo & Co. and Citigroup Inc., according to a report released today by the Federal Housing Finance Agency Office of the Inspector General.
The concentration of Home Loan Bank lending in four large institutions could present safety and soundness risks, the report said. In addition, auditors questioned whether lenders created to support housing finance should be providing funds so banks can meet standards set under the international Basel III accord.
“The increasing use of advances by members to meet Basel III’s liquidity requirements could raise public concerns about the system’s commitment to its housing obligations,” the report said.
The Federal Home Loan Banks, established by the government in 1932 to support mortgage credit, have an implicit government guarantee, meaning that investors expect they won’t be allowed to fail. They make advances to their 7,500 member financial institutions that can be used to originate home loans or for other purposes.
Citigroup, JPMorgan, Bank of America and Wells Fargo accounted for 27 percent of total advances from the Home Loan Banks at the end of 2013, up from 14 percent the year before, the report said. Lending to JPMorgan increased the most, to $61.8 billion in December 2013 from $13.3 billion in March 2012.
Basel III, approved by U.S. regulators in July, included standards for how much capital banks must have against investments in specific financial products. A related effort still under way in the U.S. would require banks to hold easy-to-sell assets and get a minimum amount of funding from sources unlikely to dry up in a crisis.
The FHFA, which regulates the Home Loan Banks, should publicly release more information on advances to big banks, the report said.