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The Federal Home Loan Bank System: the lender of next-to-last resort?

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Author Info

  • Adam B. Ashcraft
  • Morten L. Bech
  • W. Scott Frame

Abstract

The Federal Home Loan Bank (FHLB) System is a large, complex, and understudied government-sponsored liquidity facility that currently has more than $1 trillion in secured loans outstanding, mostly to commercial banks and thrifts. In this paper, we document the significant role played by the FHLB System at the onset of the ongoing financial crises and then provide evidence on the uses of these funds by the System's bank and thrift members. Next, we identify the trade-offs faced by member-borrowers when choosing between accessing the FHLB System or the Federal Reserve's Discount Window during the crisis period. We conclude by describing the fragmented U.S. lender-of-last-resort framework and finding that additional clarity about the respective roles of the various liquidity facilities would be helpful.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 357.

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Date of creation: 2008
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Handle: RePEc:fip:fednsr:357

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Keywords: Federal home loan banks ; Discount window ; Liquidity (Economics) ; Financial crises;

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References

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  1. Mark J. Flannery & W. Scott Frame, 2006. "The Federal Home Loan Bank system : the "other" housing GSE," Economic Review, Federal Reserve Bank of Atlanta, issue Q 3, pages 33-54.
  2. John B. Taylor & John C. Williams, 2008. "A Black Swan in the Money Market," NBER Working Papers 13943, National Bureau of Economic Research, Inc.
  3. Ambrose, Brent W & Warga, Arthur, 2002. "Measuring Potential GSE Funding Advantages," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 25(2-3), pages 129-50, Sept.-Dec.
  4. Stojanovic, Dusan & Vaughan, Mark D. & Yeager, Timothy J., 2008. "Do Federal Home Loan Bank membership and advances increase bank risk-taking?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 680-698, May.
  5. W. Scott Frame & Diana Hancock & Wayne Passmore, 2007. "Federal Home Loan Bank advances and commercial bank portfolio composition," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2007-31, Board of Governors of the Federal Reserve System (U.S.).
  6. Wayne Passmore & Shane M. Sherlund & Gillian Burgess, 2005. "The effect of housing government-sponsored enterprises on mortgage rates," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-06, Board of Governors of the Federal Reserve System (U.S.).
  7. Philip E. Strahan & Evan Gatev & Til Schuermann, 2004. "How do Banks Manage Liquidity Risk? Evidence from Equity and Deposit Markets in the Fall of 1998," NBER Working Papers 10982, National Bureau of Economic Research, Inc.
  8. Olivier Armantier & Sandra Krieger & James McAndrews, 2008. "The Federal Reserve's Term Auction Facility," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 14(Jul).
  9. James McAndrews & Asani Sarkar & Zhenyu Wang, 2008. "The effect of the Term Auction Facility on the London Inter-Bank Offered Rate," Staff Reports, Federal Reserve Bank of New York 335, Federal Reserve Bank of New York.
  10. Nothaft, Frank E & Pearce, James E & Stevanovic, Stevan, 2002. "Debt Spreads between GSEs and Other Corporations," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 25(2-3), pages 151-72, Sept.-Dec.
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Citations

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Cited by:
  1. Gary Gorton & Andrew Metrick, 2013. "The Federal Reserve and Panic Prevention: The Roles of Financial Regulation and Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 45-64, Fall.
  2. Viral V. Acharya & Gara Afonso & Anna Kovner, 2013. "How do global banks scramble for liquidity? Evidence from the asset-backed commercial paper freeze of 2007," Staff Reports, Federal Reserve Bank of New York 623, Federal Reserve Bank of New York.
  3. Nuno Cassola & Ali Hortacsu & Jakub Kastl, 2009. "The 2007 Subprime Market Crisis Through the Lens of European Central Bank Auctions for Short-Term Funds," NBER Working Papers 15158, National Bureau of Economic Research, Inc.
  4. Atanasov, Vladimir & Merrick, John, 2011. "Financial asset demand is elastic: Evidence from new issues of Federal Home Loan Bank debt," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3225-3239.
  5. Robert L. Hetzel, 2009. "Should increased regulation of bank risk-taking come from regulators or from the market?," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Spr, pages 161-200.
  6. Gary B. Gorton & Andrew Metrick, 2013. "The Federal Reserve and Financial Regulation: The First Hundred Years," NBER Working Papers 19292, National Bureau of Economic Research, Inc.
  7. Spence Hilton & James McAndrews, 2011. "Challenges and lessons of the Federal Reserve's monetary policy operations during the financial crisis," Chapters, European Central Bank, European Central Bank.
  8. Arnoldo LOpez Marmolejo & Fabrizio Lopez-Gallo, 2010. "Public and Private Liquidity Providers," Working Papers 1015, BBVA Bank, Economic Research Department.
  9. Larry D. Wall, 2010. "Prudential Discipline for Financial Firms: Micro, Macro, and Market Structures," Working Papers id:3040, eSocialSciences.
  10. Lawrence J. White & W. Scott Frame, 2009. "The Federal Home Loan Bank System: Current Issues in Perspective," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 09-18, New York University, Leonard N. Stern School of Business, Department of Economics.
  11. Huberto M. Ennis & Alexander L. Wolman, 2012. "Large excess reserves in the U.S.: a view from the cross-section of banks," Working Paper, Federal Reserve Bank of Richmond 12-05, Federal Reserve Bank of Richmond.

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