YouSaid · the spoken record

Dan Siciliano

lines on the record: 79
first: 2023-12-11
most recent: 2023-12-11
sittings or episodes: 1
sources: podcast

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“Banks, certainly a center of excellence. We do have mortgage partnership finance governing council where all 11 banks participate as part of that, which is part of our MPF program and AMA programs that acquired member asset programs that all of our federal home loan banks participate. And these are where we purchase mortgage loans directly tied to the mission, purchase mortgage loans from our member institutions that originate loans. And we hold on balance sheet or sell to as a pass-through to Fande May or securitize through Jenny May. So there are examples of centers of excellence today. I think we can expand upon the centers of excellence as we look into the future and look at ways in which we can generate more efficiencies, but we do a lot today already. So these are things that we can continue to build on as we look ahead into the future.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Where would they be? And so we staff the federal home loan banks to manage all economic cycles. So in times of crisis, when there's not a high demand, we still need to have the staff and resources available to be ready for the need when that comes about. We certainly saw that in March so the other piece too is that you see a large ramp up in resources at the same time and a large ramp up in expenses as advances go up the sure answer is no you're not you're not seeing that so we need to be we manage the the federal home loan banks very efficiently in that regard you know i do agree with with dan that you know centers of excellence are important there are examples of centers of excellence today in the federal home loan bank system where we do have centers of excellence certainly the office of finance issues dan on behalf of the 11 federal home loans”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Jack, let me come back to the question you raised in relation to the operations of the federal and loan banks. One, I would just say that we're efficiently run organizations for the complexity that we have to manage. But I would give you an analogy in relation to the federal home loan banks. We provide, as we provide certainly liquidity in all economic cycles, especially in times of crisis. But take the fire station example. If you have a fire station in your local community, it's critically important that that fire station is staffed and staffed appropriately for all types of crisis. If you use the analogy of saying, oh, gee, we've never had a fire. We don't need the fire station anymore. You wouldn't cut all of the fire people that are supporting that community. Because the first time you have the emergency.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Money, right? It's like everyone wins. And that only gets you so far, though. Like, I can argue that you should take a pay cut to come and work for us. But at a certain point, I can't argue that you can't afford a house in San Francisco. That gets hard. So I would be very careful about doing more than we already do with execom. Public filings, co-op pressure to contain costs. There's a non-objection policy. The agency has proposed that they set exec comp. To my knowledge, there is no precedent in the federal government where a regulatory agency sets the executive compensation for a regulated entity that is privately capitalized and not in conservatorship. I'm not sure that's the way to go. Maybe more public disclosure or something, but I don't think it's the way to go to have the government set the comp. Because then I guess they would set the comp for FDA supervised biotech and we should set the comp for utilities. I don't know.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Probably described skill sets that you didn't have. Maybe you described workload that wasn't there. These federal home banks, I'll say this because I don't know if Michael's in a position where he can say this quite out. I'm an independent director, right? And my job is to look out for the bank. This is talent that you're fending off hedge fund poachers. You're fending off private equity. You're fending off well-run banks who pay their CEOs two, three, eight, twenty-five times that, right? Like the federal home loan banks are a cool place to work because we have public interest. We're kind of the white knights. No one's the chump when.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“And so, if you were going to say, Well, let's only be what we need to be for that specific moment in time, you might have shrunk the system, but that's very hard to do because lo and behold, a year later, we're ramping up and two years later, we're really ramping up. So I think you have to be thoughtful about minimum infrastructure. I like the idea of Centers for Excellence. Our board, our current chair, my predecessor, happens to be on the board of the Federal Reserve as well. And the Federal Reserve does a good job of having centers of excellence. And I think that is a future for the Federal Home Loan Bank system to systematize and maybe save some money and certainly to level out the growth. But I would say you have to be very careful that when an agency is appropriately coming and saying, you know what, we learned a lot of lessons. I think you should pay more attention to these five things and dig deeper on this stuff and really be attentive. When you say that to someone like the Federal Home Loan Bank System, you've just described people.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So two thoughts. First, I think if you look at the federal home loan bank system, almost all of that expenditure is people, right? I mean, it's mainly people. There's some systems, but it's mainly salaries and people. And the federal home loan banks are actually pretty nimble. For example, we're talking hundreds of employees, not thousands of employees, and recognize that there's a lot of incentive to do this right because while a large portion of the profits go to affordable housing, a larger portion of the profits, and that's a separate debate, but a larger portion of the profits go back to the members. The members care a lot about how much capital you're building up, because that means the co-op works better and is safer and there when they need it and how much of the remaining capital you might hand back to them in the form of dividends. So there's like attentive pressure to keep costs down. So with that in mind, I think one of the hardest things is that there's an accordion nature. So in 2020, advances plummeted as the Fed flooded the system with liquidity, right?”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Bank that probably wouldn't work, but you also can't have everybody be like a small community bank because ironically, we wouldn't support community banks as well if that was the case. It is a diversified portfolio of members. And I think that's good. In fact, I don't know if we arrived at it by luck or design kind of doesn't matter. It's actually, I think, one of the pieces of the secret sauce for the stability and longevity and success of the federal home loan bank system.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Margin left, and we're talking about big numbers, right? So the federal home loan bank system therefore makes profits and those profits, a portion of them go from our pocket directly, not from the bank, our pocket into affordable housing. And so, again, insofar as it's a member in good standing, they do have a nexus that could have been bigger, I guess, but they have a substantial real nexus with housing and they generate profits in the federal home loan bank system that in turn are put into affordable housing. I'm actually okay with that. In fact, that seems like a pretty virtuous cycle to me because in turn, we can then take some of that affordable housing and leverage other members who maybe are more on the ground. Maybe they're a CDFI or they are a small community bank and they're doing really interesting stuff and it's a third or a half or two-thirds of their balance sheet that they're working on doing interesting things. That gives us the capital to kind of push their way. So it's an ecosystem. You can't have 100% of members be like Silicon Valley.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah, I think, and to just clarify that, right? So it was their affordable housing portfolio was larger than most community banks. Full stop, the whole bank, right? So you're right, though. I mean, could they do more? Should we look back? There's a whole set of policies, laws, and regs that control that function, right? The CRA, Community Reinvestment Act. And I don't know enough to comment on that other than, again, to say, you know, I would take a smaller piece of a big bank doing a lot over a rule that doesn't allow them to be a part of the federal home loan bank system, in part because of this simple scale equation. So, you know, Silicon Valley Bank used advances. They had a lot of MBS. They did some that in turn, even though we are hedging all this risk and we de-risk this whole transaction, there is still a little itty bitty bit of.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“The Federal Reserve buys and holds mortgage-backed securities, probably pretty similar securities to what Silicon Valley Bank held. I mean, they're somewhat fungible, that they don't say, they specifically, I think, denied that they are stimulating the housing markets. It's to stimulate the economy. In other words, the Federal Reserve does not have an affordable housing mission. When they buy more respect sharing, they are trying to meet their macroeconomic goals that are given to them via Congress, but it's not the same goal as to support the housing market specifically, even though on the fact, on the ground, I actually sort of agree with the federal Homo Bank and not with Federal Reserve that that is what really happens. You can see a correlation between periods of quantitative easing and like mortgage-backed security spreads. Dan, I would say Silicon Valley Bank, 1.3 billion dollars undoubtedly a lot, but if you compare that to their venture capital business about lending.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“The irony is that insurance companies, CDFIs, they play a critical roles in housing. And that if you keep at a 10% test, then you're excluding CDFIs, which are very important in community development, where they wouldn't have the mortgage related assets that didn't even qualify. And I don't think that's, I think that when we talk about unintended consequences, that's As it relates to mortgage related assets, there is set out in the stature and the rule itself. And it includes one to four family mortgage loans. It includes residential mortgage-backed securities and a number of other housing-related types as well. So it's a very extensive list of assets that would qualify as mortgage assets.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Show up on the report that you were looking at. So again, hold the banks that the federal home loan bank level to account. Don't make such a very specific rule at each member level. And that includes, by the way, one of the proposals, the blunt proposal is this kind of 10% nexus, which most of our members meet in spades, but for some, like insurance companies, I would rather have the public policy debate about that, but you would be excluding a lot of insurance companies because their balance sheets are so huge, of course, right? So you could be talking about a substantial component, you know, in real terms, but as a percentage of assets, it may not qualify.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Have to get your hands dirty. Now, if a federal home loan bank has only banks that look like Silvergate or others where over time they were less at the intersection of housing and they don't perform on their affordable housing, well, then hold them to account. But I think I mentioned this the other day. I think a portfolio of members makes sense. Some will do a lot. I would say Silicon Valley Bank, by the way. So yeah, I guess as a percentage of balance sheet, it wasn't a whole bunch, but by the way, that's a little lagging, right? Because their balance sheet grew so quickly. But also, I don't think we want to, you know, scoff at $1.3 billion worth of affordable housing intersection, not to mention all the MBS and other things that they held. But on top of that, they also sponsored a lot of programs and projects. In fact, we know that because we cooperate with them and we had to find homes for each of those projects. And the Federal Home Law Bank of San Francisco found a home. I think it was 19 active projects worth a whole bunch where they were playing some role which made on.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Certainly, hold the federal home loan banks at the federal home loan bank level to account about performing on the affordable housing mission, which is the co-mission with liquidity. Liquidity was actually first when we were created in 1932, but housing has always been a part of it and became more formally a part of it 20, 30 years ago. But I don't think at each individual member level, it makes sense to do other than what we already have in place, which is you can't get advances unless you have qualifying collateral. Congress set what was qualifying collateral. And personally, I think it's very disingenuous and maybe even naive to say, well, mortgage-backed securities, that doesn't count. Really? Do you want to disincentivize holdings of MBS? Do you want to decrease aggregate demand for MBS just like that? If we think the current mortgage rates are bad, imagine if we disincentivize 40% of MBS holdings. What a disaster. So I don't think it's fair to say, yeah.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“So, a couple things Silvergate is a complicated example in part because they evolved over time. And I think one of the red flags that we look at now, and you look backwards, it's like, gosh, if a bank grows really, really fast, it's fundamental nature changes, should we assess it differently? But that's the conversation we just had about kind of credit worthiness and being smarter about that. The question about should you be providing advances. So if you're a member of the Federal Home Loan Bank, not easy to do, you have to qualify. If you remember good standing and you have the appropriate collateral, which to your point, it could be mortgage-backed securities, it could be loans held that are mortgage related or other or multifamily housing loans. It could be any number of things, but you can't get advances unless you have that collateral. Now, I think the point you might be making as an argument that some make is like, well, you know, this mortgage-backed security thing, you know, that's no good. We want them to get their hands dirty. We want them to go out. We want them to lend money directly. I will tell you that you should.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“I think 1.05%, of course, that is anecdotal. But if your client base is generally pretty wealthy folks, I mean, is that part of the mission? If all of there's a bank who made 100% loans, but they were all too millionaires at very low interest rates, is that filling the federal home loan banks mission or for that affordable housing, does there also need to be some component of that? And then I think the biggest example and the most pointed language in this report was they used the word tenuous in relation to Silvergate banks receiving advances from the federal home loan bank and Silvergate initially started as a mortgage finance company, but over the past few years they had reinvented themselves as a crypto bank and they banked many institutions, including, I think, the fall.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Home loan banks need to return to its mission of funding housing and affordable housing. And before we talk about the specific recommendations, Dan, I'll cite a few examples. One, for example, is Silicon Valley Bank, a bank for venture capitalists who are typically pretty well healed. They made a lot of mortgage loans. They bought a lot of mortgage-backed securities, but they were not doing a lot of lending in the affordable housing market. I have the stats. I think 1.3 billion of investments in qualified housing projects to a balance sheet of well over close to 200 billion. So like less than 1% of all assets, but still 1.3 billion is large, but just as a percentage, it is not that meaningful, you know, first republic bank also made a lot of, well, the first republic bank did make a lot of mortgage loans, to be fair, anecdotally, they did make a loan to Mark Zuckerberg.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“48 hours may be too much time to get your house in order for purposes of accessing the Fed. And if that's true, then everyone should do it in advance. I would suggest that's a relatively new lesson in prudent risk management. Now, we're the best players always doing it. Sure, you can detect that a little bit, by the way, in public filings by publicly traded banks and other institutions where they'll talk about their risk mitigation. They might comment on their alternative emergency sources of funding, the Federal Reserve is one part of that, and you can pick up if they're doing more or less on that. Because as Michael said, I don't even know, but if I was looking for it, that's where I would go to look. By the way, we didn't comment on your other questions about operating expenses and size and Zach. Did you want to still go to that?”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“To be clear, I think it's such a different world than it was 10 years and certainly 20 years ago that not having the mechanics in place, I think 20 years ago was maybe a non-issue because just to be comparatively clear about the difference, like when the WAMU failure was underway, let's imagine if you want to analogize, that's a person jogging and walking briskly in terms of the run. The Silicon Valley Bank was like a motorcycle that just went whoosh, right? So the speed with which that happened, thinking to yourself, two, three, four business days, we can get stuff in place if it ever happens. And that's, we now know the lesson is”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“And what we learned was that in the crisis, not every member could easily tap into the Fed. And as Dan mentioned, this requires legal agreements to be set in place and not only with the member institution, but also with the Fed and the federal home loan banks. And so those take time to work out. And if you're at the end of the day, it's not going to get rubber stamped. And so that's we need to build this into how we think about providing lending in times of crisis as we move forward and we'll continue to look at how we do that and evaluate it.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think that's just prudent risk management practices that our member institutions need to ensure that they have right liquidity procedures, practices in place and ensuring that they can tap into the Fed in times of crisis. That's also a good practice to have. One of the things, one of the lessons learned through the most recent bank crisis in March was the speed at which deposits left the banking system was unprecedented and number two was the size. And so if we think about into the future what it could look like, it really makes it even more important that members have that liquidity access not only to the federal home loan banks in times of crisis, but also if there's other needs that they can actually tap into the Fed.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“With our members to say, hey, by the way, have you gone through the slightly time consuming logistical process of laying the groundwork so that if you ever did have to access the Fed window, you could do so quickly? And if the answer is no, I can't speak for the other banks. But what we do is we say, well, let's help you with that a little bit. Let's figure out how to do that. And you'd be surprised there are some very large institutions who just haven't gotten around to it. And so I think that's being fixed system-wide. Michael, I don't know if that's your experience as well.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Part of this also is making sure that our members recognize that they have other liquidity sources as well. So if they can utilize the federal home loan bank or utilize the Fed, they have those options available. And I think that was a big learning moment coming through the crisis back in March. And so we want to make sure that we have the right practices and policies in place. However, as Dan pointed out, to the extent that the finance agency wants to do this through a supervisory process, I think it's better as we look through all the mechanics and the potential unintended consequences. It would be better if it was done through rulemaking so people can weigh in and understand what are the economic implications of some of these changes and what this really means. I think that would be a better, more transparent way so folks understand the implications.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, what I would say is just in relation to the report itself, recognize that we need to expand and enhance the credit practices we have and certainly we'll address those issues as they've come up in examinations and other things as well. So that's part of normal course of business, normal course of operations. focused on and concerned about credit of our member institutions? Absolutely. So if we need to expand and enhance the practices that we have, we'll certainly do that. The other piece too is in the report looking at how the federal home loan banks transition from lending to member institutions versus the Fed. I think that's something that many of us do have intercreditor agreements in place with the Federal Reserves in our district and with the member institutions that we know how that would be handled. And, you know.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“I do think there's a good argument for an increased focus on creditworthiness. I mean, no doubt about it. That's writ large inside the report. That's been a lot of the conversation between the federal loan banks and the agency throughout the year. And I don't think anyone in the right mind doesn't think we should be paying even more attention in a nuanced way, in an active way, an even more updated way to credit worthiness. So that's the easy part of the answer. I'm going to have Michael expand on your technical question, but I want to go back to this example of why you still have to be careful about not public rulemaking on something like this. So let's imagine that there's a shock to the system and you have 150 basis point increase in the effective cost of capital. So it goes from five something percent to six and a half percent, you know, the risk-free rate shoots up for a little while. All of a sudden, you could argue that a half to two-thirds of the entire banking system has this net negative tangible equity problem, right? So the question is, do you want to create a rule that strips”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Wasn't diatribe, and I should say some of the recommendations that were in this report are by their very nature of being in this report public, although they lack some specifics. So I should say, Dan, so the entire banking world and the banking regulation world allows an accounting methodology of if you put a security into a held maturity portfolio, you don't have to report well, you can report the losses, but that doesn't count against capital. And when it comes to available for sale, I forget the exact thing. It may depend on size. So I apologize for getting the details. So your position, Dan, and your position, Michael, is this accounting treatment when it comes to deciding creditworthiness, I mean, does that factor in at all? Because at the end of the report, in the appendix of the”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“One thing I'll say is I'll sleep better if the ones that are material at all, which is most of them, go through a public visible, transparent scrutiny process where people come onto shows like yours and they talk about it. There's the blogospheres active about it. People are writing comment letters. That process, though cumbersome sometimes, has meant that the United States, we have a huge executive bureaucracy, that's for sure. And I think more often than not, American taxpayers are not super happy with that bureaucracy. But anyone who has ever traveled or lived abroad will be able to compare and contrast that by and large we have a superior executive bureaucracy relative to other places in part because of this process where if you propose something crazy, you're going to get a thousand or ten thousand or twenty thousand letter comments about it and the agency is going to be like, oh, oops, sorry, didn't realize that. We'll modify it. And that's a good process. Sorry, that constituted a diet.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Are identified either big deal items or recommendations or something in between? And I think it is certainly the council's position, and I think most of the federal homeland banks believe this very strongly, that if there are going to be material changes, so maybe you say, listen, on this credit item, that's a big black market. It wasn't before, but let's make that thing a black mark. If that's going to become formalized, what you want to see happen is that to come out as a rule for it to be published in the federal register, for it to give a chance to have people comment on it, and for it then to be adopted or modified or whatever, you don't want it to show up where the regulator examines a bank and says, I know we haven't done this before, but there's this new way of thinking we have. And we're going to, Mark, that you have a deficiency here because you haven't really adapted to our new way of thinking. Now, I don't think you have to be a bad actor to go about that. In fact, that can sometimes be faster. But I think the problem with that is that it skips.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Information, but to the big picture point about the process. So let us imagine that there is a credit worthiness process. And I think I mentioned this once before, but the banks are at the same time, all financial institutions are moving from sophisticated scorecard systems by and large, and I can speak for San Francisco. And over time, this is a big picture trend everywhere, moving towards more sophisticated, what you might call scientific models. And they might run those by side. They might do a lot of things. So this difference between promulgating a new rule if you want to change the process by which the banks evaluate creditworthiness and hold them to account to that versus doing it by exam. What that means, if you don't live in the banking system, and again, I come at this as like a recovering finance professor and a person very familiar with the banking system, but bankers, when they say, you know, regulation by exam, what they mean is that when they go through their regular exam process,”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Gonna say, Jack, if I can translate that a little bit. So I think that's exactly right. Thought which maybe we take for granted, but not everyone knows. So most of the time, the federal home loan banks have non-public information about their members. Now, it's a little complicated, but we get cooperative information from regulators in many cases. We certainly get disclosures related to our advanced process. And so just so that you have a sense, we aren't just operating off of public metrics.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Our members understand what is being asked of them instead of going through the supervisory process where it may be more opaque. So having that transparency is really important for us so that our members understand what role we play as well as what role the Fed plays as well.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Building more robust practices in place. And I think that that's something that we need to continue to look at our existing standards that we have and to the extent that we need to provide more timely information and review. Certainly that's something that we are evaluating as well. I do think that there is part of the recommendations as well as understanding when members are in stress and how members access the federal home loan bank and how the federal home loan bank is utilized versus the Fed. And I think that we need to have conversations with the primary regulators on what that would potentially look like. I think more importantly though in the so there are lessons learned but more importantly is we look at the report itself we want to ensure that you know this is done through a rulemaking process and that”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Yes, but we're still monitoring the health and the quality of the member institution itself. And so it's there deteriorating in quality, credit quality, where we take additional measures to ensure that we're protecting the risk of the institution, of the federal home loan bank in that regard. So we'll take other steps to manage our risk exposure. Also, if they're in a deteriorated state, we'll also be engaging with their primary regulator as well, as we would lend to the institution if they came into borrow from the bank. I guess the one thing just to take a step back, I think that in the report that the finance agency had issued and the system at 100, they did certainly focus on the need for the federal home loan banks to evaluate the creditworthiness of the member institutions and ensure that we are”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“So the federal home loan banks were evaluating the creditworthiness of all of our members. So we take into account a number of things that certainly take into account the capital position of the member itself to the extent that they have negative tangible capital were precluded from being able to lend to them unless we receive a non-objection from their primary regulators. So it's already a governor in place that we employ. And I think it's...”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Let me give an early comment and have Michael expand on that because that's a pretty sophisticated credit risk monitoring function, which we do actively. The one big picture here, though, is that as a member's credit worthiness and overall situation deteriorates, obviously the federal home loan banks are in the mix on that because they're interacting with the relevant agencies, getting updates. We have our own systems, but there are already a lot of steps that take place. For example, you may shorten the overall term or the tenor of current advances. You will obviously remark to market the eligible collateral. So the collateral function and marking that to market appropriately is kind of built in. What you've asked is an interesting bigger picture question about credit worthiness and the accounting optics of a given member relative to how we assess their credit worthiness. And each bank's a little different, but I think we're really eyes wide open.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I actually don't have details on those specifics, nor even if I did am I allowed to share them. But what I can say, though, and let's tease this out, I agree that peak crisis during that phase, any emergency or hurried borrowing in large amounts is always stigmatizing, whether it's from the Fed, whether it's from the federal home loan bank system, or whether it's from a conglomerate led by JP Morgan, right? Like all of that is going to be stigmatizing. The stigma differentiation for the Federal Reserve versus others, including the Federal Home Loan Bank, is what I would call early stress phase, right? It's when you aren't paying particular attention, Jack, and I know you pay attention to who's doing what in what case. If suddenly...”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I completely grant your point that there's a stigma associated with borrowing from the Federal Reserves discount window or any other program at the Federal Reserve. I might also say there's a stigma of taking advantages from the federal home loan bank system during periods of stress. Like I was actively following First Republic's filings of oh, how much is it borrowing from the federal homeland bank? $28 billion. That seems like a lot. And then it's also borrowing, taking deposits from JP Morgan, which subsequently acquired their assets. And now that we have this hard data that was released in the report, obviously both of you had this data for a while, but the 28.1 million dollars was how much First Republic borrowed or how to outstanding in middle of March of this year and that shot up from $18 or $19 billion at the beginning of March because that's when Silicon Valley Bank”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Make things better? Did it make things worse? And I think in those conversations, including in some public testimony from the FDIC, you will hear that the federal home loan bank system was a very welcome partner in that process during that time. And I think that that's probably the ultimate litmus test I would use.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Federal home loan banks should do and have been doing, but I think have accelerated is work with members to be prepared to help them go to the Fed, right? There's some connections you have to create. There's collateral structure you have to set up. There's stuff you have to do that you probably can't do in a big hurry in an emergency. And I can speak for San Francisco Bank, you know, whether they're stressed or not, we've been urging and working with our member banks and other institutions to be ready to go to the Fed window. So I think that's an example. Again, it's all these things are complicated, it's nuanced, but I would say that the pattern of advances actually worked out pretty well. If backward looking and you say, how did that turn out? And the number one thing I would say, if you want to judge those advances is go to the appropriate regulatory agency, whether it's FDIC or the Fed or otherwise, and ask them to assess the pattern that they like it, did they not like it?”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think it's the right place to pay attention, right? So I don't fall looking at that and trying to ask that question. On the other hand, I would suggest that it's an oversimplified view to simply say, you know, some of this stuff should have gone to the Federal Reserve. So first of all, I think what it's saying is these institutions should have knocked on the door of the Federal Reserve. It's no guarantee that they really would have been able to get the advances. And I'll explain why in just a second. But I think it's the right place to look. I don't think I would characterize the advances that occurred as inappropriately from federal home loan bank and not the Federal Reserve. So let's take a backward example. So the bank term funding program was created after Silicon Valley Bank failed. And one would say, gosh, why don't they, they should have had first republic really just go to they're big, they had the ability of the Federal Reserve. Why don't they do that? They could have used this program. Well, as it turns out, this ties to the housing issue. As you may recall, the first republic had lots of...”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“I found it 100 years ago, focusing on the future. I think this review started before the failure of Silicon Valley Bank. So it's not, this is not a, oh, because these banks failed, we need to make changes. We were proposing changes anyway, and this gives us a little bit of a wind at our sales to propose some regulations. And needless to say, these are very slow moving things and they need to go through various boards and be approved. But starting with you, Dan, on that topic of federal home loan bank making advances that is the remit of the Federal Reserve to make, I mean, do you accept that statement or would you like to challenge or qualify it in some regard?”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“They're a failed bank. And banks aren't failed banks until they're a failed bank. And I think that gray area, we've done well, in my opinion, in the past, the Federal Home Loan Bank system navigating that. And we need to be given with new insight and more care and better cooperation, but we need to make sure we maintain the discretion for us to still do that in the future because we do play a part in making sure that good banks that are going through stressful times survive to fight another day.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Should the banks, if they are certain about the collateral and have a good sense that they will absolutely get repaid, should the banks cooperate with those other federal entities in continuing advances during a period of stress both to the system and perhaps the individual banks? So my personal opinion, taking off both of my hats, right, would be that I think the banks have to be very, the whole system has to be very careful about not removing that discretion and accidentally limiting it outright because when you decide to say that a bank or a financial institution no longer deserves advances from someone as credible as the federal home loan bank system and that they just have to go to the Fed and that's all that's left, there's two issues one, not everyone can go to the Fed so you just doomed them and two even doing that maybe you set in motion this process where people like oh my god”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Is now different from when you underwrote. That's a question that the federal home loan banks have been working with for a long time. They're very good at dealing with that. They're absolutely perfect at making sure they don't take a loss, right? That's the collateral function. But I think the things that happen on the margin include working closely with the regulator. If the regulator says, hey, stop, don't do any more advances, the federal home banks stop. Right. I mean, we stated that publicly. That's a standard practice. But sometimes there's a bit of a nuance where the regulator might be like, if you can, please don't stop, right? Because we're in the process of trying to make this bank work. And that's, you know, we've written some stuff in the public sphere since the report came out. But that's the piece where I think people inappropriately label the banks or the federal loan banks as lender of last resort or lender of second last resort. That's actually not the question. The question is in cooperation with the relevant agencies, the FDIC, the OCC, the Federal Reserve.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“And understanding our members in light of the great financial crisis, in light of the last year or two. Absolutely. And I think that all of our credit models are evolving and the agency is very much working hand in hand. I would point out a couple things, though, that are really important takeaways. We have always had, and I think there's room to actually make it even more clear, either through some regs or otherwise, but we've always had very cooperative arrangements with the appropriate regulator for any given institution, whether it's the state regulator and the Fed or others, including the FDIC. And what I mean by that is where it gets interesting, let's say you underroeed a member, they were creditworthy, you assessed their collateral, you have a certain amount of advanced capacity, but then the world starts to get uncertain and shaky. And they have advances outstanding. Some of those might need to roll over and or they might want to increase their advances. So what do you do then when they're credit worthiness?”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Right. Yeah. So that's, let me untangle that because I think that gets at the heart of some of the hard policy questions that are coming up. So first, as a matter of policy and absolutely a matter of practice, the Federal Home Loan Banks underwrite their members for credit worthiness and ability to repay. I mean, that's a standard practice. That's pure safety soundness. We shouldn't do otherwise. And then, of course, we assess collateral in addition to that as security against it. And when people say the super lean, what they mean, and you correctly used it, this idea that we have secured our loans and we have security interest in this collateral in such a way that it's really pretty much impregnable. But that's kind of a normal process. Any bank that can lend and can get security interest in the collateral will do so. We can do so in a very specific pattern way. So the question then, I think, is do we have new insights into assessing credit worthiness?”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“That equity is one question. And then simultaneously, in other words, Silicon Valley Bank, it stopped tapping the federal home loan bank of San Francisco because it ran out of eligible collateral to pledge, not because the federal home loan bank did have enough capital or not because the federal home loan bank couldn't issue bonds in the marketplace. That is why a bank runs out of available liquidity is because they run out of eligible collateral two pledge.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and a key principle, I think, correct me if I'm wrong, is that in many cases, maybe in all cases, the limiting factor of whether when the federal Homo Bank stops lending to a member institution is one, I mean, if the member doesn't want it, if it doesn't apply, but it is the amount of pledgable assets. So, you know, for commercial banks, many people think of the reserve requirements where actually that doesn't really apply anymore. Banks are capital constrained. They can't make loans when they run out of capital, although the way they calculate that capital is different for the sake of taking advances from the federal home loan bank. It's not capital constrained because as both of you said, there's a self-capitalizing feature of a bank that has to take an advance out simultaneously by stock in the federal home loan bank. I might ask what happens if federal home loan bank, if that member fails, I mean, who has”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT
“But one of the things to keep in mind is that this nimbleness in our ability to manage these risks in the system is actually a tremendous strength to the financial system as a whole. And one of the themes that I think has come out in terms of our response is we should be thoughtful and careful about how we implement these recommendations. And we need to bring them into the full light of day just so everyone can weigh in. Like, you know, Federal Home Loan Bank, we know a lot about what we do, but we aren't moody's and we're not the analysts who follow the banks and we're not public policy folks who follow global debt markets. We need to give a chance for all those folks with the proposals in front of them, you know, whether it's a rule promulgation process or otherwise to be able to observe and comment and give feedback because we're so systemically central to all the stuff that goes on. You don't want surprises and you don't want unintended consequences. And we have a good system in place to make sure you can avoid those.”
2023-12-11 · Forward Guidance · The Banking System Is Healing | Dan Siciliano & Michael Ericson · IDENTIFIED FROM THE TRANSCRIPT