The Banking System Is Healing | Dan Siciliano & Michael Ericson
Dec 11, 2023
01:29:47
auto_awesome Snipd AI
Dan Siciliano, Chair of the Council of FHLBs, and Michael Ericson, President of the Chicago Federal Home Loan Bank, discuss the current health of the banking system. They cover topics such as the collapse of SVB, how the FHLB operates, credit risk, the role of the FHLB vs the Fed, and bank credit worthiness. They also share lessons learned from the March bank panic and discuss Silvergate Bank and Silicon Valley Bank.
Read more
AI Summary
AI Chapters
Episode notes
auto_awesome
Podcast summary created with Snipd AI
Quick takeaways
The Federal Home Loan Bank system maintains a strong financial position and provides liquidity to member institutions.
Credit risk management and collateral assessment are crucial components within the Federal Home Loan Bank system, ensuring robust risk practices and collateralized lending.
During periods of banking stress, Federal Home Loan Banks act as a bridge to provide funding and liquidity to member institutions, working closely with regulatory agencies.
Transparency in the rulemaking process of the Federal Home Loan Bank system is essential for effective regulation and understanding of obligations.
Deep dives
Overview of the Federal Home Loan Bank System
The podcast episode features a discussion with Michael Erickson, President and CEO of the Chicago Federal Home Loan Bank, and Dan Ceciliano, Chair of the Council of Federal Home Loan Bank. They provide an overview of the Federal Home Loan Bank system, its role in the commercial banking system, and its unique structure as a system of banks and credit unions. They emphasize the system's strong financial position and its ability to provide liquidity to member institutions.
Assessing Credit Risk and Collateral
The discussion delves into credit risk management and collateral assessment within the Federal Home Loan Bank system. The banks evaluate the creditworthiness of their members and assess the value and quality of collateral being pledged. They employ robust credit practices to manage risk exposure, including collateral standards and collateral value assessment. This collateral serves as security for the advances provided by the banks. The conversation highlights the system's strong track record of no dollar loss and its ability to navigate credit issues within its collateralized lending framework.
Role of Federal Home Loan Banks in Times of Stress
The podcast addresses the role of Federal Home Loan Banks during periods of banking stress. The banks coordinate closely with regulatory agencies to manage risk, minimize losses, and ensure stability in the financial system. They act as a bridge to provide funding to member institutions in times of stress, working in cooperation with regulators like the FDIC to facilitate liquidity. The discussion acknowledges the stigma associated with emergency borrowing, both from the banks and the Federal Reserve, and underscores the importance of maintaining discretion and flexibility in supporting banks during challenging times.
Proposed Reforms and Future Directions
The discussion touches on proposed reforms and potential future directions for the Federal Home Loan Bank system. The recommendations included in a report from the Federal Housing Finance Agency aim to define and embolden the banks' mission to fund housing and community development. They also address the aligned operational costs and executive compensation and call for closer attention to declines in market values and the creditworthiness of member institutions. The conversation highlights the importance of transparent cooperation between the banks and regulators, as well as ongoing evaluation and improvement of credit risk assessment practices.
The Importance of Transparency in the Rulemaking Process
Transparency in the rulemaking process is crucial for the Federal Home Loan Bank (FHLB) system, as it ensures that members understand their obligations and the role of the FHLB and the Federal Reserve. By going through a rulemaking process, as opposed to a supervisory process, the FHLB can provide clarity and avoid potential misunderstandings or unintended consequences. Engaging with the public, allowing for comments, and promoting dialogue helps create a more robust and effective regulatory framework.
Creditworthiness and the Evaluation Process
The episode explores the importance of creditworthiness and the evaluation process for financial institutions. The FHLB system acknowledges the need for increased focus on creditworthiness, but also highlights the complexity of assessing creditworthiness, especially during times of economic stress. The discussion emphasizes the significance of maintaining a balance between encouraging responsible lending practices and allowing for flexibility and discretion in the evaluation process, in order to ensure the stability and effectiveness of the FHLB system.
The Role of Federal Home Loan Banks in Funding Housing and Affordability
The podcast delves into the role of Federal Home Loan Banks (FHLBs) in funding housing and affordable housing projects. It raises questions about the extent to which FHLBs should prioritize lending to affordable housing and whether institutions that primarily serve wealthier clients align with the FHLB mission. The discussion highlights the importance of having a diversified portfolio of FHLB members, including both larger banks, such as Silicon Valley Bank, and smaller community banks or community development financial institutions (CDFIs), to effectively support housing initiatives at different scales and in various communities.
This week, Michael Ericson President of the Chicago Federal Home Loan Bank & Dan Siciliano Chair of the Council of FHLBs and independent director of the San Francisco FHLB join the show for a discussion on the current health of the banking system.
At the end of the year in 2023, 9 months after the March banking panic, Dan & Michael make a case that the U.S banking system if more healthy & stale than earlier this year. We deep dive into the collapse of SVB, how the FHLB operates & what to expect looking ahead to 2024. To hear all this & more, you'll have to tune in!
--
Follow Jack Farley on Twitter https://twitter.com/JackFarley96
Follow Forward Guidance on Twitter https://twitter.com/ForwardGuidance
Follow Blockworks on Twitter https://twitter.com/Blockworks_
--
Use code FG20 to get 20% off Blockworks’ Digital Asset Summit in March: https://blockworks.co/event/digital-asset-summit-2024-london
--
Timestamps:
(00:00) Introduction
(01:09) What Is The FHLB?
(04:12) Strength Of The Banking System
(17:27) Does The FHLB Have Credit Risk?
(28:04) The Collapse Of SVB
(37:24) Role Of The FHLB vs The Fed
(47:05) Bank Credit Worthiness
(01:03:40) Lessons Learned From The March Bank Panic
(01:08:48) Silvergate Bank
(01:16:02) Silicon Valley Bank
(01:19:50) Operational Expenses Of The FHLB
--
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.
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
