The ability of the Federal Home Loan Bank to generate fees on emergency lending is sure to stoke debate in Washington over reforming a system designed to help finance mortgage lending.
A customer stands outside of a shuttered Silicon Valley Bank headquarters on March 10, 2023 in Santa Clara, California. That was the price tag to retire billions in financing that the firm obtained in a last-ditch attempt to survive a run on deposits, according to an internal Federal Deposit Insurance Corp. document obtained by Bloomberg.
In November, the Federal Housing Finance Agency, which oversees home-loan banks, said it planned to study prepayment fees and potentially change rules. The regulator aims to ensure such institutions have an incentive “to improve their due diligence” before ramping up financing — known as advances — to struggling members.
As SVB teetered on the edge of collapse last year, the FHLB of San Francisco quickly ramped up its lending to the struggling bank, eventually providing it with $30 billion. When it collapsed, that money was repaid early, along with fees. When SVB failed, the FHLB had a right to recall its money but chose not to do so, he said. Instead, the bridge bank that took over SVB decided to repay the advances early and incur the cost laid out in the contract. Doing so allowed for full control of SVB’s assets that had been pledged as collateral to the home-loan bank.
Spokespeople for the FDIC and FHFA declined to comment. In its November report, the FHFA said a home-loan bank “may choose to waive a prepayment fee if it will not result in an economic loss to the FHLBank.” The FDIC document doesn’t specify the impact, if any, of any such waivers.
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