WASHINGTON, April 16 A U.S. government watchdog
on Wednesday warned that big banks have dramatically boosted
their borrowing from a federal housing finance program, a move
that could pose risks to the government-sponsored system if a
big borrower defaulted.
The Federal Housing Finance Agency's (FHFA) inspector
general also noted that some firms appear to be using funds from
the program to meet liquidity standards designed to make banks
more stable in a crisis.
The watchdog said in the report on Wednesday that loans to
banks by government-sponsored entities that support mortgage and
small-business lending jumped in 2013 after declining in the
wake of the housing crisis.
That was largely because the four biggest members of the
Federal Home Loan Banks system - JPMorgan Chase, Bank of
America, Citigroup and Wells Fargo -
increased borrowing by 158 percent from March 2012 to December
2013, the report said.
That concentration could leave the system vulnerable if a
big borrower defaulted, the watchdog said. It also said the
government-sponsored lenders could unfairly prioritize big
members over smaller ones.
The 12 home loan banks extend secured loans, known as
advances, to banks to encourage them to lend. Advances dipped
after the 2007-2009 financial crisis, when banks pulled back on
Last year, the 12 lenders gave out nearly $500 billion in
advances, still well below the 2008 peak of $1 trillion but a
jump from $381 billion in March 2012, the report said.
Advances are seen as a core part of the home loan banks'
mission to support housing finance. Boosting advances leads to
higher interest income and could put the home loan banks on
firmer footing, the report said.
But concentrated lending to bigger banks could pose safety
risks or hurt public perception of the program because the firms
used some of those funds to buy Treasury bonds and other
securities to meet new liquidity rules.
The strategy is legal but could lead to questions about the
home loan banks' "commitment to their housing mission," the
The rules from an international group known as the Basel
committee require big banks to hold assets they could sell
quickly in a cash crunch. The goal is to make banks more stable
during another economic meltdown.
The Federal Reserve last year proposed even tougher rules in
the United States and projected U.S. banks would need about $200
billion more in liquid assets by 2017 to comply.
JPMorgan has disclosed in regulatory filings that it used
federal home loan bank advances to buy liquid assets, the report
said. Officials from two banks, which were not named in the
report, confirmed that they stepped up use of advances to meet
An official from a third bank said the liquidity rules might
influence its use of advances, and the fourth bank did not
respond to requests for information from the FHFA inspector
general, the report said.
Advances to smaller banks did rise by 9 percent from March
2012 to December 2013, the report said. That may have occurred
after depositors withdrew funds to seek higher rates elsewhere,
the watchdog said.
(Reporting by Emily Stephenson; editing by Andrew Hay)