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Inside Washington (11/29/2010)
* WASHINGTON (11/30/10)--Demand for Federal Home Loan Bank (FHLB) advances fell to $402 billion in the third quarter, their lowest point since 1999. The 10-year low prompts questions about the system’s future at a time when the Federal Reserve Board has made efforts to create liquidity in the economy, according to industry experts (American Banker Nov. 29). Advances are a core business of home loan banks. Attempts to reach into other areas, such as mortgage loan purchasing and mortgage-backed securities investments, have resulted in losses at several home loan banks. Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc., said the FHLBs are experiencing difficulties in providing funding to insured depositories. Banks, in turn, attempted to increase earnings with investments, only to experience losses. These developments raise questions as the Obama administration puts together its housing reform package, said the Banker. Banks argue that the drop in advances is a natural part of the cycle resulting from FHLBs’ role in providing liquidity during the recent financial crisis …


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