On September 30, the Federal Housing Finance Agency (FHFA) announced its intention to increase counterparty exposure limits for Federal Home Loan Bank 1 (FHLB) deposit accounts to the same level as the limits set for Federal Funds Loans 2. I did. This approach has already been discussed. December 2023 Report 3. This harmonization could lead FHLBs to favor bank deposits with better rewards. Supply to the federal funds market, in which the FHLB holds an important position as a lender, would decline and the effective federal funds interest rate would rise.
On the plus side, this could help large U.S. banks meet certain liquidity requirements4. The speed with which FHLB deposits accumulated in 2018 and then 2022, and the compensation offered to counterparties (which exceeded Federal Reserve reserves), in fact meant that FHLB’s intraday and daily liquidity position This suggests that it is improving. of a major bank. We note that the rises in December 2018 and 2022 on the eve of two extreme liquidity pressures (September 2019 and March 2023) constitute related leading indicators, although in different circumstances. Further suggestions will be made and will supplement the list in due course. These indicators are already monitored by the Federal Reserve.
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