A Silhouette of a Man Throwing a Lifeline to Another Man

The 11 federal home loan banks (FHLBs), an obscure corner of the government’s financial apparatus, played a key role in saving banks from possible failure during the March banking crisis triggered when Signature and Silicon Valley banks failed at the same time.

FHLBs loaned $495 billion last month to banks that saw frightened customers pulling their money and risking a run that could cause a bank to collapse.

Interest on the loans ranges between 4 and 5 percent.

Charles Schwab Co. faced massive withdrawals during last month’s turmoil. It reported $46 billion in loans from FHLBs last quarter, compared to $12 billion in the last quarter of 2022 and none a year ago.

The company said the loans would cut into revenue and profits but they also are “limited and temporary,” CFO Peter Crawford told The Wall Street Journal. “This is not something that is going to be part of our long-term financial picture.”

FHLBs were set up in 1933 to ensure that money for mortgages would still be available during the Great Depression so people could buy homes and help sustain the construction and real estate industries. 

Critics say the banks have experienced mission creep and now make loans to other banks for a range of reasons, including propping up banks that are unstable.

Both Signature and Silicon Valley banks had taken billions in loans from the federal institutions.

Regulators have long allowed FHLBs to lend to struggling banks as a way to help them survive crises, according to Ryan Donovan, president of the Council of Federal Home Loan Banks.

The banks “take into consideration both a member’s creditworthiness and the quality and value of the assets pledged as collateral to ensure prudent lending to members,” he added.

FHLB officials have said that the banks continue to focus on their purpose of lending for housing, which is needed especially now that interest rates are high and homelessness is a persistent problem.

Silicon Valley Bank (SVB) was a key player in financing affordable housing projects in California when it collapsed. Much of the financing came through SVB but originated in the FHLB in San Francisco.

Each FHLB is a separate institution owned by member banks in its geographic region. However, the FHLBs are collectively liable for each other’s debts. FHLBs have never recorded a credit loss, Donovan said.

TRENDPOST: We note this to illustrate that as George Carlin said, “It’s one big club, and you ain’t in it.” The Bankster bandits are “too-big-to-fail” while the plantation workers of Slavelandia and small and medium-sized businesses can go broke and busted. Not only is nothing given to them to survive a crisis committed by the banks and government such as the subprime housing crisis and the COVID War… they both steal and take what they can in foreclosures.  

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