Since the fall of Silicon Valley Bank (SVB) in March 2023, many investors have been closely monitoring the Federal Reserve’s recent lending to U.S. banks, which amounts to roughly $100 Billion as of late June.

What has received far less attention is the Federal Home Loan Bank (FHLB) system, which has extended over $1 Trillion of liquidity (10x the Fed!) to banks throughout the U.S.

Kathryn Judge, Harvey J. Goldschmid Professor of Law at Columbia Law School, joins Forward Guidance to explain the history and purpose of the FHLBanks, calling them the “lender of second-to-last resort.” Judge argues that the FHLB system has grown beyond its original mission and that reform is desperately needed. Judge also opines on the SEC’s move to regulate crypto, as well as SOFR’s replacement of LIBOR. Filmed on June 29th, 2023.

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Kathryn Judge’s book, “Direct: The Rise of the Middleman Economy and the Power of Going to the Source”: https://kathrynjudge.com/books/direct

“The Problem Lender of Second-to-Last Resort”: https://prospect.org/economy/2023-03-29-problem-lender-federal-home-loan-banks/

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Timestamps:

(00:00) U.S. Banking System Is "Uneven"

(03:06) What Is The Federal Home Loan Bank (FHLB) System?

(07:24) Deregulation in 1980s and 1990s

(11:22) Commercial Banks vs. Thrifts (And Glass–Steagall)

(17:31) FHLB Lending During Great Financial Crisis (GFC)

(25:14) "FHLB Has Never Lost Money On Advances"

(33:54) FHLB's "Abuses" Must Stop

(34:28) Permissionless

(41:24) What Will New Bank Regulation Look Like?

(50:38) Risk-Weighting In Bank Capital Regulations

(53:42) Blockworks Research

(54:42) Held-To-Maturity Accounting

(58:37) The Rise Of Middlemen in Finance And Business

(01:06:00) SEC's War With Crypto

(01:08:04) The End Of LIBOR Eurodollar Contracts

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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.