Will FHLB Atlanta's Failure Spark a Major Regulatory Overhaul?

Over a year ago, Chuck Schumer said (and I agreed) that the Federal Home Loan Bank of Atlanta was an all-but-unregulated nightmare of enormous proportions. Now, HousingWire's Paul Jackson tweets a rumor that FHLB Atlanta is going to be taken over by its regulator -- the same ineffectual Federal Housing Finance Board which has been so useless and complacent until now.

This has all the makings of a major fiasco -- one which, if Barack Obama plays it right, could finally push Congress to conduct the soup-to-nuts regulatory overhaul which is long overdue. If, by this time next year, the FHFB, and the OTS and the OCC and the FHFA and the FDIC and the NCUA, not to mention the CFTC and the SEC and the state insurance commissioners and Uncle Tom Cobbley and all, are things of the past, then maybe some good will have come of this. But all that turf is jealously guarded, so I'm not holding my breath. Obama wants to change Washington, but Washington, by its nature, hates to be changed.

Comments

[District Ba...:]

No question the FHLBs are in serious trouble. In a perverse way, it's unfortunate that none of them will ever be allowed to fail. Maybe then we'd see some real 'change we can believe in.' As it is, the FHLBs will cut dividends, then suspend redemptions and eliminate dividends entirely, then they (like so many others) will get 'TARPed.'

Jan 09 11:37 AM

[Adam W:]

I've got to disagree. The FHLBs are not even close to failing. Look at their financials, they have a healthy balance sheet and consistent income. A one time write down of securites that make up a small portion of their assets puts them near an arbritrary required capital threshold limit. Close to failure? No! Also, the FHLB banks serve such a vital need in providing capital for financial instituitions. Who's going to take over the more then $1,000,000,000,000, (that's not too many zero's that's a Trillion) in loans to banks they currently have outstanding?

Jan 09 04:16 PM

[Lilguy:]

Why would you trust the balance sheet of an FHLB any more than you would trust one from Citi, Lehman Bros., Bear-Stearns, etc.?? Capital threshold requirements are all that preserve some minor sanity in the banking industry--and only then when the banks don't securitize and leverage bad debts & sell them to others, move the debt off-book, and so on. Haven't we learned anything about banks in the last year and more? Finally, I regret to say that $1 trillion is really not that big a number on a nationwide basis.


On Jan 09 04:16 PM Adam W wrote:

> I've got to disagree. The FHLBs are not even close to failing.
> Look at their financials, they have a healthy balance sheet and consistent
> income. A one time write down of securites that make up a small
> portion of their assets puts them near an arbritrary required capital
> threshold limit. Close to failure? No! Also, the FHLB banks serve
> such a vital need in providing capital for financial instituitions.
> Who's going to take over the more then $1,000,000,000,000, (that's
> not too many zero's that's a Trillion) in loans to banks they currently
> have outstanding?

Jan 10 09:25 AM