Few outside the banking world grasp the true importance of the Federal Home Loan Banks (FHLBs), whose collective loans to U.S. banks outpace the Federal Reserve’s by more than 10 to 1 as of summer 2023. Today Jack speaks to Michael Ericson, President of the Chicago Federal Home Loan Bank, and Dan Siciliano, chair of the Council of FHLBs and independent director of the San Francisco FHLB, about the FHLB’s mission, capitalization, and implicit government guarantee. Ericson and Siciliano argue that the declining advances from FHLBs to U.S. banks since May 2023 may indicate an easing of liquidity pressures in the U.S. banking system. Filmed on August 15, 2023.

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Timecodes:

(00:00) Introduction

(00:21) About Federal Home Loan Bank (FHLB) System

(21:08) FHLB Is Much, Much Less Centralized Than The Federal Reserve

(25:47) San Francisco FHLB Advances To Now-Defunct West Coast Banks

(34:48) FHLB & Affordable Housing

(38:07) What Caused Banks' Scramble For Cash in March 2023?

(46:21) FHLB Implict Government Guarantee

(57:24) How Have FHLBs Never Lost Any Money On Advances To Banks?

(01:06:58) Interest Rate Hedging

(01:08:31) Liquidity Issues In U.S. Banking System Have "Calmed Down Quite A Bit"

(01:15:16) Capital Stock Of Federal Home Loan Banks

(01:24:40) Will Regulators Attempt To Curb FHLB Lending To Non-Mission-Oriented Institutions?

(01:28:00) Potential New FHFA Regulation of FHLB

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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.