ICBA Says FHLB Advances Should Not Be a Factor in Determining FDIC Assessment Rates

The Independent Community Bankers of America (ICBA) told the Federal Deposit Insurance Corporation (FDIC) that although it generally agrees with the FDIC’s interim covered bond policy statement, ICBA strongly opposes including secured liabilities – and in particular Federal Home Loan Bank (FHLBank) advances – as part of an institution’s assessment base or as a factor for determining the insurance assessment rate.

“FHLBank advances are a consistent, reliable source of liquidity for all FHLBank members,” said Karen Thomas, ICBA executive vice president and director of government relations. “If the use of FHLBank advances is discouraged, FHLBank members would be forced to seek alternative and more costly and volatile funding sources, thereby reducing profitability and increasing liquidity risk.”

In its comment letter to the FDIC, ICBA pointed out that FHLBank advances are particularly important to community banks which represent a significant majority of the FHLBank System’s members. These institutions do not have reliable access to other sources of cost-effective wholesale funding and rely on the availability of FHLBank advances as a critical tool for managing their balance sheets and implementing their business plans. Discouraging the use of the FHLBank funding would be counterproductive to the current efforts to restore liquidity and bolster confidence in the mortgage market.

A relatively new innovation in the United States, covered bonds are general obligation bonds of the issuing bank secured by a pledge of loans that remain on the bank’s balance sheet. ICBA said that the FDIC’s interim policy statement on treatment of covered bonds when a bank is under FDIC receivership and conservatorship will provide important guidance to potential bond issuers and investors and will encourage more banks to use covered bonds. In issuing the interim policy statement on covered bonds, the FDIC asked whether an institution’s percentage of secured liabilities to total liabilities should be factored into an institution’s insurance assessment rate or whether the total secured liabilities should be included in the assessment base.

Read ICBA’s comment letter to the FDIC on covered bonds at www.icba.org.

About ICBA

The Independent Community Bankers of America, the nation’s voice for community banks, represents nearly 5,000 community banks of all sizes and charter types throughout the United States and is dedicated exclusively to representing the interests of the community banking industry and the communities and customers we serve. For more information, visit www.icba.org.