Federal Home Loan Bank Advances and Commercial Bank Portfolio Composition
The primary mission of the 12 cooperatively owned Federal Home Loan Banks (FHLBs) is to provide their members financial products and services to assist and enhance member housing finance. In this paper, we consider the role of the FHLBs' traditional product--"advances," or collateralized loans to members--in stabilizing commercial bank members' residential mortgage lending activities. ; Our theoretical model shows that using membership criteria (such as a minimum of 10 percent of the portfolio being in mortgage-related assets) or using mortgage-related assets as collateral does not ensure that FHLB advances will be put to use for stabilizing members' financing of housing. Indeed, our model demonstrates that advances--a relatively low cost managed liability--are most likely to influence lending only when such liabilities are used to finance "relationship" loans (i.e., loans to bank-dependent borrowers) that will be held on a bank's balance sheet and are least likely to influence lending for loans where the loan rate is heavily influenced by securitization activities, like mortgages. ; Using panel vector autoregression (VAR) techniques, we estimate recent dynamic responses of U.S. bank portfolios to FHLB advance shocks, to bank lending shocks, and to macroeconomic shocks. Our empirical findings are consistent with the predictions of our theoretical model. First, recent bank portfolio responses to FHLB advance shocks are of similar magnitude for mortgages, for commercial and industrial loans, and for other real estate loans. This suggests that advances are just as likely to fund other types of bank credit as to fund single-family mortgages. Second, unexpected changes in all types of bank lending are accommodated using FHLB advances. Third, FHLB advances do not appear to reduce variability in bank residential mortgage lending resulting from macroeconomic shocks. However, some banks appear to have used FHLB advances to reduce variability in commercial
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 44 (2012)
Issue (Month): 4 (06)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
- W. Scott Frame & Lawrence J. White, 2004.
"Fussing and fuming over Fannie and Freddie: how much smoke, how much fire?,"
FRB Atlanta Working Paper
2004-26, Federal Reserve Bank of Atlanta.
- W. Scott Frame & Lawrence J. White, 2005. "Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 159-184, Spring.
- Lawrence White & W. Scott Frame, 2004. "Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?," Working Papers 04-27, New York University, Leonard N. Stern School of Business, Department of Economics.
- Grebler, Leo, 1973. "The Effect of FHLB Bond Operations on Savings Inflows at Savings and Loan Associations: Comment," Journal of Finance, American Finance Association, vol. 28(1), pages 198-202, March.
- W. Scott Frame & Lawrence J. White, 2004.
"Regulating housing GSEs: thoughts on institutional structure and authorities,"
Federal Reserve Bank of Atlanta, issue Q 2, pages 87 - 102.
- Lawrence J. White & W. Scott Frame, 2004. "Regulating Housing GSEs: Thoughts on Institutional Structure and Authorities," Working Papers 04-01, New York University, Leonard N. Stern School of Business, Department of Economics.
- Robert Eisenbeis & W. Frame & Larry Wall, 2007.
"An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and An Evaluation of the Policy Options for Reducing Those Risks,"
Journal of Financial Services Research,
Springer, vol. 31(2), pages 75-99, June.
- Robert A. Eisenbeis & W. Scott Frame & Larry D. Wall, 2006. "An analysis of the systemic risks posed by Fannie Mae and Freddie Mac and an evaluation of the policy options for reducing those risks," FRB Atlanta Working Paper 2006-02, Federal Reserve Bank of Atlanta.
- Hancock, Diana & Laing, Andrew J. & Wilcox, James A., 1995. "Bank capital shocks: Dynamic effects on securities, loans, and capital," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 661-677, June.
- Berger, Allen N, 2003.
" The Economic Effects of Technological Progress: Evidence from the Banking Industry,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 35(2), pages 141-76, April.
- Allen N. Berger, 2002. "The economic effects of technological progress: evidence from the banking industry," Finance and Economics Discussion Series 2002-50, Board of Governors of the Federal Reserve System (U.S.).
- Kwon, Jene K & Thornton, Richard M, 1971. "An Evaluation of the Competitive Effect of FHLB Open Market Operations on Savings Inflows at Savings and Loan Associations," Journal of Finance, American Finance Association, vol. 26(3), pages 699-712, June.
- 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.
- Robert A. Eisenbeis & W. Scott Frame & Larry D. Wall, 2004.
"Resolving large financial intermediaries: banks versus housing enterprises,"
FRB Atlanta Working Paper
2004-23, Federal Reserve Bank of Atlanta.
- Wall, Larry D. & Eisenbeis, Robert A. & Frame, W. Scott, 2005. "Resolving large financial intermediaries: Banks versus housing enterprises," Journal of Financial Stability, Elsevier, vol. 1(3), pages 386-425, April.
- Ben S. Bernanke & Alan S. Blinder, 1989.
"The federal funds rate and the channels of monetary transmission,"
89-10, Federal Reserve Bank of Philadelphia.
- Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
- Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
- Van Horne, James C, 1973. "The Effect of FHLB Bond Operations on Savings Inflows at Savings and Loan Associations: Comment," Journal of Finance, American Finance Association, vol. 28(1), pages 194-97, March.
- Heuson, Andrea & Passmore, Wayne & Sparks, Roger, 2001. "Credit Scoring and Mortgage Securitization: Implications for Mortgage Rates and Credit Availability," The Journal of Real Estate Finance and Economics, Springer, vol. 23(3), pages 337-63, November.
- Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
- James B. Thomson, 2002. "Commercial banks’ borrowing from the Federal Home Loan Bank," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jul.
- Brent W. Ambrose & Michael LaCour-Little & Anthony B. Sanders, 2004. "The Effect of Conforming Loan Status on Mortgage Yield Spreads: A Loan Level Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(4), pages 541-569, December.
- Patrick de Fontnouvelle & Victoria Garrity & Scott Chu & Eric S. Rosengren, 2005. "The potential impact of explicit Basel II operational risk capital charges on the competitive environment of processing banks in the United States," Basel II White Paper 4, Board of Governors of the Federal Reserve System (U.S.).
- Rosalind L. Bennett & Mark D. Vaughan & Timothy J. Yeager, 2005.
"Should the FDIC worry about the FHLB? the impact of Federal Home Loan Bank advances on the Bank Insurance Fund,"
Supervisory Policy Analysis Working Papers
2005-01, Federal Reserve Bank of St. Louis.
- Rosalind L. Bennett & Mark D. Vaughan & Timothy J. Yeager, 2005. "Should the FDIC worry about the FHLB? The impact of Federal Home Loan Bank advances on the Bank Insurance Fund," Working Paper 05-05, Federal Reserve Bank of Richmond.
- M Arellano & O Bover, 1990.
"Another Look at the Instrumental Variable Estimation of Error-Components Models,"
CEP Discussion Papers
dp0007, Centre for Economic Performance, LSE.
- Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
- Silber, William L, 1973. "A Model of Federal Home Loan Bank System and Federal National Mortgage Association Behavior," The Review of Economics and Statistics, MIT Press, vol. 55(3), pages 308-20, August.
- Goldfeld, Stephen M & Jaffee, Dwight M & Quandt, Richard E, 1980. "A Model of FHLBB Advances: Rationing or Market Clearing?," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 339-47, August.
- Frame, W Scott & Srinivasan, Aruna & Woosley, Lynn, 2001. "The Effect of Credit Scoring on Small-Business Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 813-25, August.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:44:y:2012:i:4:p:661-684. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.