PITTSBURGH (9/15/14)--The Federal Home Loan Bank (FHLB) system, made up of 12 regional cooperative banks that are governed by Congress, offer secured loans, called advances, to local lenders to help finance housing, jobs and economic growth.
This allows the banks to offer their members, which include a growing number of credit unions nationally, liquidity for a financial institution's short-term needs; lower-cost funding for mortgages and asset-liability management; and also funds for housing and community development.
While the Federal Home Loan Bank system has seen membership rates among credit unions climb over the past few years, the participation rate might not be as high as you think, at least for now.
One reason for the gap could be that some credit unions aren't yet fully aware of the benefits these cooperative banks can provide.
"Many credit unions who are not bank members are unaware of the vast type of products the home loan bank offers," Christina Mihalik, vice president of government affairs for the Pennsylvania Credit Union Association, told
John Foff, business development manager for the Federal Home Loan Bank of Pittsburgh, says that, in the past, credit unions often only looked within the credit union system when seeking liquidity solutions, though that trend might be changing.
Foff noted that in talking with FHLBs throughout the country, many report credit unions have become their fastest growing segment of membership, especially larger credit unions.
"What they've come to realize today ... is that we can be a business partner in liquidity (as well)," Foff told
At the end of June, 1,246 credit unions were members of one of the 12 regional banks, with 441 as active borrowers. Currently, credit unions comprise 10.3% of FHLB members.
Among those credit unions involved, $30 billion in advances have been secured from the FHLBs, up from $27 billion year-over-year.
Credit unions are also represented on several FHLB boards, with two board members on the FHLB of San Francisco, including Richard A. Heldebrant, president/CEO, Star One CU, Sunnyvale, Calif., with $6.7 billion in assets; and two on the FHLB of Seattle: J. Benson Porter, president/CEO, BECU, Tukwila, Wash., and Robert Teachworth, president/CEO, Denali Alaskan FCU, Anchorage, with $544 million in assets.
Credit union participation may also be on the rise, Foff added, because of the National Credit Union Administration's proposal last year that requires credit unions to ramp up liquidity requirements for emergency situations.
Although the NCUA did not specifically name the FHLBs as an emergency source of liquidity in its rule as urged by the Credit Union National Association, the rule itself has sent credit unions in search for alternative liquidity resources.
Credit union consideration of FHLB membership has recently found another challenge. Whether it makes sense for a credit union to utilize the banks or not, a recent proposal by the Federal Housing Finance Agency threatens to make it harder for smaller credit unions to access the services they provide in the first place.
If approved, the proposed rule would require all credit unions to carry 10% of assets in residential mortgage loans to retain membership status, which could prove difficult for smaller credit unions.
CUNA is fighting hard against tougher FHLB membership requirements for credit unions. CUNA Deputy General Counsel Mary Dunn earlier this month said CUNA is urging the FHFA to provide relief for credit unions on this point (
"The FHLBs are a very important source of liquidity for credit unions in the mortgage marketplace, and it is important all credit unions and their member-owners have access to these resources," Dunn said. "CUNA is working with representatives of the FHFA and three of the banks to assure access."
This is Part One of a series that will cover the relationship between credit unions and the Federal Home Loan Bank system. Part Two, which will run Tuesday, will feature the growing relationship between the FHLB of Pittsburgh and the Pennsylvania Credit Union Association.