YouSaid · the spoken record

Michael Ericson

lines on the record: 111
first: 2023-08-18
most recent: 2023-08-18
sittings or episodes: 1
sources: podcast

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“Resources from the banks would go to affordable housing. The rough offset to that was they gave the banks tax exempt status. So we don't pay income taxes, but we do this. That's somewhere between $500 and $900 million of the number you hear when people say $5, 6, 7 billion dollars. The rest of it is a computation of how much cheaper the debt is over time because of the GSE status. And I think I might be the only one who is obsessive compulsive enough to have read the string of 11 papers that go all the way back to the 80s and cite each other about how that works. And I just want to point out it is clearly the case that there is some modest advantage. Is it one basis point, five basis points, 12 basis points, depending on the day and the term of the bond? Is that the benefit? It's hard to say, but it's not zero. It's definitely bigger than zero. So there's some benefit to the system.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Place because that's what we issue, we do debt auctions, we do other things. That's what the market bears for the debt that we issue. Certainly there is a government implicit guarantee that is there. But also there is a funding advantage that we provide back to our members that in turn provide that benefit back to consumers that are really able to see that benefit in lower mortgage costs lower lower loans and interest rates that they have to pay as well. So there is an advantage that our member institutions see.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“That I don't know off the top of my head what the spread level was in relation to the debt that we had issued. Certainly back in the most recent crisis and certainly during the week in March where we had issued the level of debt that we had to issue, certainly the spreads that we had seen had widened out relative to what we had historically seen. And that's typical when we issue larger levels of debt in order to meet the liquidity demand. That's what the market bears in order to purchase our debt in the marketplace. So it's common to see our debt spreads wide out or contract accordingly. But the widest level, I don't know off the top of my head of what that is. I would say though that the debt that we issue, it's competitive in the marketplace.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, the ability of federal home loan banks to issue debt on a short-term time horizon and to access cheap funding, so a low spread above treasuries is immense. And we saw that in March where issued 250, 400, 400 billion of securities to fund those advances. Why do you think the federal home loan banks have such a cheap cost of capital? And I'm going to read that federal home loan, I'm going to say it so you don't have to. This is from the FHFA, your regulator website, consolidate obligations of federal home loan banks are not guaranteed or insured by the federal government. However, the federal homeland bank status as a government-sponsored enterprise accords certain privileges and enables the federal home loan banks to raise funds at slightly above comparable obligations issued by the U.S. Department of the Treasury. So that is the implicit guarantee idea that if so, as you say, federal home bank never lost any money on an advance. But if something were to happen that”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“But in general, that funding advantage that we're able to pass along to our member institutions, I think in the paper itself talked about an additional $130 billion in mortgage lending being done per annum by having access to the federal home loan banks, saving consumers $17 billion per annum in interest rates. So that really is hitting the benefit that we are able to operate, the funding advantage that we have into the communities across the United States.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Command and the market participants purchase our debt, and that's the price that we pay on the debt. And in turn, charge a nominal level rate above that on the advances itself, that our debt itself trades at a spread above the treasury. But yeah, but in turn, pass along the funding advantage that we have to our member institutions. And in turn, the benefit to that is that they are able to provide cheaper funding and lending into the community.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so going back to our model, we are a member-owned cooperative, right? And so part of philosophically it's not our goal to profit off the backs of our member institutions itself. And so we have deep access to the debt markets itself. And so we can go in and issue various types of debt to meet the member demands that are there, be it short-term, long-term, issued debt that has optionality, what have you. And that's really designed to meet the demands that our members have. And so when we price our advances, it's really priced based upon our funding that we have access to in the debt market. So we issue debt based upon what the market”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so you said it's a market price for the advance rate, it's market price. Tell us how that is. So the demand for advances, that's all banks and that's the market. But when it comes to the supply of advances, that comes from the federal home loan bank. When I look at, let's say, a spread of federal home loan bank advances over treasuries or risk-free interest rates, Michael, I'm not going to make up a number because it's going to be wrong. So you can provide us with a number. Is that because federal home loan banks are targeting our specific spread for profitability? Is it because, you know, if you were charging 200 basis points over, regulators would be angry. I mean, what is the driver of your demand to lend and set those advance rates?”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Other sessions, the deposit franchise of any given bank or credit union is the heart of its kind of operations typically. And, you know, when interest rates change so fast, there's going to be outcomes and effects of that. And so smart institutions need to deploy tools. And one of the most important tools they deploy is anything that helps them bridge the intermediate volatility of rates, right? Until they can, in fact, reset expectations by depositors or get other capital in different terms. We're there for them so they can come to us and say, hey, I need a two-year term on this. And it's market discipline. So it is market priced to your point, right? But again, they're super smart players as members and they're going to pick us when it's the right choice. We're just one of many choices.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Also worth honing in on the technical point that depositors writ large, you might be trying to balance a term issue, right? So again, the federal home loan bank has lots of different products available on similar terms to all of its members. And you can get in advance for short or medium term or longer term. And that helps manage your liquidity. Whereas Jack, to your point, you can raise rates for depositors and draw them in, or you can perhaps, you know, do brokered CDs or CDs, but it is much more difficult to ascertain the duration of that liquidity or that deposit. And so we are one of many tools that well-run financial institutions will use to make sure that they're matching the certainty of their liquidity with their needs. And that optionality vis- ⁇-vis the federal home bank isn't as easily available vis- ⁇-vis depositors. And as you've mentioned several times on.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Base that they would have if deposits are leaving their institution. They have other avenues to look at and obtain deposits. They can look in the brokered CD market where they can obtain deposits in that way to meet funding demands that they have. They also have the ability to utilize the federal home loan banks in that regard. So that's how they would have access to the federal home loan banks.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“I think in general each member institution may have their own business philosophy business needs. And so that's at the discretion of the member institution. In general, what you would see is as interest rates are rising, member institutions may not increase their deposit rates at the same pace at which the Fed may be raising interest rates or as the loaning of the curve may be going up or what have you. And so what you see there is in general as rates are rising, they would earn additional margin. Accordingly, though, as deposits are flowing out, they would redo their deposit studies and analysis and change rates accordingly and change the rates on their deposits.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Why would banks for phrase this question, which is federal home loan bank funding of banks is typically like where the Fed funds rate is, your risk free interest rates plus a little bit of a spread? So why would a bank let deposits leave to go to a money market fund and then secure funding from the federal home loan bank at now what's now 5.6% depending on short-term financing rather than just paying that deposit 5.6%?”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Certainly during the crisis itself, what we had seen is significant outflows of deposits from certain institutions, and that exacerbated it. And those deposits going in from the banking space into money market funds.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think it was a culmination of things, certainly during, as mentioned before, during the run-up in 2022 as the Fed started raising interest rates because of the inflationary pressures. What we had seen is in our depository institutions, a lot of the deposits flowing out of the banking system in general and moving into money market funds in general. So we did see an exit of that, coupled with the fact that during the same time period, loan demand was also very strong as well. So our members had funding needs as well. And so during the course of 2022, you did see a buildup of additional demand for advances in general. And so that was the leading cause.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Just by way of background, the federal home loan banks, each one of us set aside 10% of our earnings into affordable housing related programs. So the affordable housing program related grants or through down payment assistance programs for homebuyers. And that's one piece of what we do, but the federal home loan banks do well beyond just the 10% that we are required to set aside. We have a number of voluntary programs that we also do in support of our member institutions in the affordable housing space as well. And so to think about the network that we have in that way and how we support our mission in affordable housing is absolutely critical. So that's the second piece of the mission. We spent a lot of time talking about the liquidity piece of the mission, but certainly our folks.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so Silicon Valley Bank was characterized more by mortgage-backed securities as collateral in that. We take that as well as mortgages held as collateral. So that's correct. It's a great question. I don't know the answer to that question. I can say in absolute terms that the programs were sizable, but as a function of the overall size of the bank, of all the things I thought to look up in advance, I didn't look that up. I can look that up for you and send it to you. It's a good question. The numbers were pretty big, but yeah, I don't know. I don't want to guess because I get it wrong, but I'll find that for you.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“All of the affordable housing projects, right? So other member banks took them on. We helped make sure that happened. So even that kind of function, which again, I assume it's reasonably a footnote, but in terms of mission and functioning as we should, making sure that the affordable housing components were followed through was a big deal to us anyway at San Francisco Bank.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“There's another role too, which is tied to housing, and we haven't really talked about that, which is maybe we'll get a chance to talk a little bit about the affordable housing intersection with the federal home loan banks. But anytime there's a problem at a member bank and take Silicon Valley Bank, for example, the federal home loan bank in San Francisco worked with Silicon Valley Bank afterwards and the successor bank, the Bridge Bank, and managed to take, there was more than a dozen ongoing affordable housing projects. Because again, the Federal Home Loan Bank typically through its members provides all sorts of funding to enhance affordable housing and there's lots of different programs. And at any given moment, a member bank or a member institution will have several programs underway, Silicon Valley Bank and First Republic Bank were big and had lots of affordable housing programs underway. And part of the role of the federal home loan bank in that story that doesn't really get written about and that's okay is that we managed to find homes for”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Fed also playing the role that they need to play as well to be a backstop provider of liquidity. And that was a role that they played then, and it was a role that they played back in 2007 and 2008. But the federal home loan banks, we play a critical role in providing funding and liquidity to our member institutions through all economic cycles.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think it's remarkable news during that time there was a considerable amount of stress and uncertainty in the financial markets in general. And the federal home loan banks played a critical role in providing a stabilizing force and support for liquidity across the entire banking system, across all of our community financial institutions. credit unions, and certainly meeting that demand. And we had seen that. And there was certainly during that time, there was a built-up fear. And that was the whole purpose of the federal home loan banks is to ensure that we are providing that liquidity and support both in stable markets as well as in times of crisis. And we executed in accordance with our mission and did it really well. And also with that being said, it was good to see the”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Second guess it. I again to be clear the board plays a strong role in supervising, but our job is to make sure that the bank is run in a way that it can provide advances to its members when they need it. And that includes all the members. And so Silicon Valley Bank, while interesting and dramatic, I think that's sort of the red herring in a way to the more interesting story, which is, you know, did the federal home loan banks manage to provide advances to the Littler banks and the littler institutions that no one's going to write a big article about? Did they manage to raise enough capital on the global markets in order to continue funding once it kind of fallen out of the news in April? And then what happened after that? And that, to Michael's point, I think, was pretty good news, including at San Francisco Bank.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. So, well, first, I'd love you to start trying to name what that is. People keep calling it a bank sprint or something. I hope you'll go with a meme run, which is different from a bank run, but it's up to you. So I think that that time frame says it all, right? Like there was no way for Silicon Valley Bank, I think, except for you said this on your podcast with one of your best guests. Magically, if the Fed had waved its wand and imposed the program on the Wednesday night or the Thursday morning, perhaps Silicon Valley Bank would not have failed because it could have taken the collateral that it had, all these securities and gotten full face value for them, not had to mark them down, not had to discount them at the Fed. And that could have made all the difference. Beyond that, yeah, I think what's in the public record is undisputed. And it doesn't make any sense for me to.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“I just want to say, yo, Dan, I want you to abide by all secrecy and mandates that you. $65 billion of available increased term borrowings. And then it failed two days later. And then later, we learned when Gregory Becker testified, he said that $42 billion of deposits were withdrawn in 10 hours. So people can, you know, people can put together the puzzle pieces, you know.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“And between the time when it did that and it needed to provide advances, the banks are well capitalized, meaning the federal home loan bank system. And that strong capital base allows for the ability to serve the needs of members even without having to that very moment go into the global bond market and draw capital. And this function, I think, is one, a little bit complicated so people don't talk about it a lot, but is a big deal, I think, from a financial stability viewpoint. You have these 11 banks, they have these good piles of capital, which they hold to be available to members. And when something happens, they can provide that capital using the rules that they have to be smart about it. And they can do so and then go and tap the global markets. They don't have to tap the global markets right away. And that allows for a lot of flexibility, which de-stresses the overall environment in banking.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Failure is so unique in its speed and size that you almost have to come up with new words and new names. And so that posed all sorts of challenges to all sorts of players because you had the start of an observation of a crisis and then the end of that moment, probably 36 to 48 hours, depending how you measure it. So I will say that I think everybody was under a tremendous amount of stress in terms of if requests came in, the ability to satisfy them, you know, just mechanically would be limited. I would like to point out something that Michael alluded to, but maybe we should connect the dots though. And that is the federal home loan bank system's ability to go into the capital markets with the reputation that it has and the history of no losses and its kind of positive overall approach allowed it to draw capital to fund all of this.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Home loan bank system plays a different role. It's private capital, it raises bonds on a market in a market and using market discipline. But the goal of the Federal Home Loan Bank is to ensure that its members can meet their liquidity needs. So part of that goal is ensuring that they've availed themselves of all of the potential sources. So I do want to say in fact, I think there's been a regulatory emphasis on this. It is part of the federal home loan bank's role, at least I can speak for San Francisco, to encourage, to educate, and to facilitate any member's access to a variety of liquidity sources, including the Fed. And part of our kind of above and beyond customer service is to say, hey, if you think you're going to go to the Fed, you're feeling good about it. You got all the conduits connected. There's some stuff you got to do. We can help you with that. So that's what I meant by that. I didn't mean to imply that there was no capacity, although I will say, and this is public, the Silicon Valley Bank.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“So, two things. One, you know, when I came onto the board of the Federal Home Loan Bank, I had taught banking at Stanford to undergraduates every few years. And then, of course, I was at the law school for a long time. And I was very surprised at the things I didn't understand directly on the ground. And one of them was the extent to which there is a lot of congressionally mandated and federal agency enforced bank secrecy. And it makes a lot of sense. But I was surprised by how far reaching that is. And so a lot of the details, I can't talk about they will come out later, but I can say I don't think it's right to assume that the federal home loan bank, you know, just because it's chatting with potential members about making sure they can access the Fed is actually in a constrained position where they couldn't provide advances. Let me expand on that just so that we can kind of understand it. I think that one of the critiques of the federal home loan bank system has been, hey, shouldn't the Fed do all of this? And the Fed plays a certain role.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“And Dan, you said the banks were tapping the San Francisco federal home loan bank, and there was a point saying where I think you were saying we can't lend anymore. Can you go to the Fed? I'm going to take a guess as to the banks of that applied to Silicon Valley Bank, First Republic Bank. And Silvergate Bank, which as of year end 2022, December 31st of last year, Silicon Valley Bank had $15 billion borrowed from the Federal Homeland Bank of San Francisco, First Republic, had $14 billion, and Silver Gank $4.3 billion. So just under 40% of all federal home loan bank advances were to those three institutions, two of which failed and one of which wound down. So could you describe that experience of banks demand for liquidity was in excess of the collateral that they could provide?”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I would say it was reassuring too in relation to the fact that the federal home loan banks executed in accordance with the mission that Congress had intended. And that was to ensure that we are providing liquidity to our member institutions. And we did that flawlessly. I know that we met all of the member demands during that week and also throughout the month of March and to see us execute in that way was actually really remarkable doing exactly what Congress had intended us to do.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“And it was sort of reassuring. And what I mean by that is things operated as expected, meaning that sometimes we could give advances that members wanted. Sometimes you could give some of what members wanted, and sometimes perhaps they ended up at the doorstep of the Fed. And we helped them do that. Because by the way, the mechanics of getting capital from the Fed isn't necessarily easy. And we are a co-op. And so we have conversations that go something like, hey, maybe you should be ready to go to the Fed and there's this stuff you got to do. It's a little bit paperworky and bureaucratic. How about we help you get ready to do that in case that's needed? And I say that only because to emphasize the fact that there is kind of this cooperative ongoing nature going on. But in the end, as the dust settled, more or less, it was good to see everything worked as it was supposed to, at least from my viewpoint. So that was reassuring.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I like to joke. I like serving on the board of the Federal Home Loan Bank of San Francisco and had been serving for six years. But this was a really busy year. It's a nice way to put it. So the experience was really to see the credit box operation in action where the board, obviously during times of stress or where there was a lot of things happening, which obviously there was in San Francisco and California, Nevada, Arizona, were convened to provide more real-time oversight to what the senior management is doing. But for us, that meant getting weekly reports of a working capital committee about what was happening on the ground, what the decisions were, often hearing what the regulators were telling our teams at the bank and giving them feedback. So it was busy, chaotic, hectic. But in the end, I wouldn't have known I would say this, but in the end,”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“I'm an independent director. So, as it turns out from a corporate governance viewpoint, all the directors of all the federal home banks are independent from a corporate governance viewpoint. We distinguish, we have our own term of art where we say independent director means someone who's not affiliated at all with one of the member banks and member directors mean it's a director who has an independent director fiduciary responsibility but happens to be affiliated with a member bank. So there's a certain number of spots for members and there's a certain number of spots for independent directors. A lot of the independent directors sometimes they are”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah. There's a great question. I am not merely that important. So really the chair of the council theater home loan banks is a coordinating entity for all the boards to be able to communicate, interact with the regulator. We have someone who heads the council, but it's really just a gathering place because if you think about it, we have this joint and several liability. So we should probably be really talking to each other with some regularity. And also the system's complex and there's a lot to learn from each other, both at the executive level, which kind of happens anyway, but certainly at the board level as well. So the council, you know, this is probably an unfair description, but it's pretty accurate. It is, you know, a coordinating entity that while it doesn't have policy power, it has convening power and can convene the federal Homeland Banks together.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Day in and day out partner with our members, and that is enabling them to, especially the regional and small banks, enabling them to do their operations. And as lots of guests on your show have said, regional and small banks constitute the heart of a lot of important functions in the United States banking system that most of us wouldn't realize how important they were until they were gone, right? And that's at least why I participate in the Federal Home Loan Bank as a board member and the like.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“And that, I think that doesn't come out in the stories typically, but it's important because I think that means that the Federal Home Loan Bank works cooperatively with prudential regulators. I mean, we are a private entity. We are privately funded, but we're highly regulated. And, you know, there's strict banking regulation. And I think that's one of the behaviors that is important to tease out. And I know people are always trying to take your shows and chart stuff out. Like one of the things you could chart out is you could look at the access to other sources of liquidity during times of stress for any given institution. And you would see that not only would the Federal Home Loan Bank use of our available advances in liquidity would go up, the other sources liquidity typically would go up as well. And it would only be missing if maybe something broke, right? Which is another reason they'd be tapping other sources of liquidity. And so I emphasize that because we are, as Michael pointed out, kind of a”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“And I drew out that point in part because I know, Jack, you've done some amazing interviews with former FDIC people, and we tend to come up recently, obviously, if you're talking like Sheila Bear or whoever, but it is important to note that during all of this, the last six, nine months and obviously prior to that, if the FDIC was a relevant player in that story, and I'm distinguishing perhaps from like banks versus credit unions, right? It'd be a different player. And the FDIC said, hey, put on the brakes. The federal home loan bank would.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Reservation of that comment, Michael No, there's no reservation to the comment. That's exactly how it would play out. And a good example of a member has negative tangible capital. So in essence, their asset value is less than the liabilities that they have outstanding. They have negative tangible capital. We wouldn't be lending to the member institutions unless we had consent or non-objection from the primary regulator. So there are avenues that we would have in place”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Well, Michael, can I ask so just drawing from San Francisco experience, but I'll rely on Michael to make sure it's a generalized reality, it's true also that we couldn't provide in advance if the prudential regulator had said, hey, put on the brakes. Like we're analyzing, looking at it, like from my experience, the communications between the regulators and the Federal Home Loan Bank is pretty robust. There's a lot of exchange of information. There's certain rules about confidentiality and the like, but certainly in answer to your question, Jack, if a prudential regulator said, you know, were the prudential regulator of this member of yours and we would like you to stop advancing or perhaps they have other restrictive guidance, my understanding is the federal home loan banks would immediately follow that lead. Is there any reservation of that comment, Michael?”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“We would evaluate the member credit quality associated with the borrowing activity that they do. Certainly we have regulations that we have to follow to ensure that we are following those regulations and providing the funding to the member institutions themselves. And also if a member was in a distressed state, we would work with the primary regulator as well, their primary regulator to ensure that we would provide funding that it would be not put undue stress on the primary regulator as well or to the institution. So we are in constant contact with the member, the member regulators, especially if the member is in distress.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Michael, going back to my question. So when banks call the federal home loan bank of Chicago up or the federal home loan bank of San Francisco up and they ask for a loan, under what circumstances can the federal home loan bank say no”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“So many members in the federal home loan bank system. We have about 6,500 members in the system itself. And if you think about the impact the community financial institutions have in all aspects of the US economy and rural America and the urban landscape as well to think about the reach that we had in making sure that we were protecting them, protecting families, protecting Main Street America in relation to that and providing liquidity when it was needed most. Liquidity that we're able to provide, it's not a private benefit. It's a public good. And we were able to ensure that these institutions were able to continue to thrive and support the communities in which they serve.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Getting back to the activity in March, certainly March was a very active month for the federal home loan banks, certainly an active month from debt issuance standpoint. So I think during the lead into the most recent financial crisis during that week, the Federal Home Loan Banks had issued over approximately $400 billion in discount notes and interim funding in order to meet the liquidity demands of our member institutions, which was really quite remarkable for a number of reasons. But most notably, there's a lot of discussion about those institutions that had failed.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“The notion that if any one bank had a real problem, we would have to step in. And this is unique, I think, in most systems of this size. And we're a security lender, right? I mean, it's just a kind of vanilla security lender. We get pledged collateral. We do UCC filings. But behind that, we also have this overlay of joint and several liability. And frankly, this really strong reputation to uphold, which is never a single dollar lost on the investor side. And so there's a lot of attention to the credit side.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Jack, can I throw in a point about the credit kind of approach and the discipline that the federal loan banks bring before Michael gets the more exciting part of your question, which is what was March like? And that is, as it happens, I think a little known fact, the 11 banks are jointly in severally liable for their issuances. And what I mean by that is if there was any sort of a problem on one bank's issuance and their ability to meet the obligations of bondholders, the other banks are obligated to step in and cover that. And so it's a traditional joint and several liability issue. So I want to point out, because I think it's so unusual, this arrangement, that the discipline that banks bring, and there are slightly different flavors of the same approach that Michael described to issuing advances of their members is incentivized even more by several things. One, a conservative regulator, but also by our attentiveness of each other's behavior around”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“And collateral that is acceptable through statute. And we ensure that we have perfected our security interest to the collateral to the extent that securities are pledged as collateral to the federal home loan bank. We ensure that we have possession of that collateral. So we are protected from that risk and we'll certainly, to the extent that we have collateral protections and that in place, we will continue to lend and provide support to our member institutions, especially in the times when they do need liquidity. And that was most notable most recently in the March timeframe.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so in general, when you're looking at borrowings from the federal home loan banks, each one of us have very robust credit risk management practices in place to ensure that we're monitoring the members themselves, the member health and access into the bank. And we operate as a secured lender to our member institutions. And a big piece of that is ensuring that we have a possession or priority lean to the collateral that is being pledged to us. So we do a UCC filings on mortgage loan mission related collateral that is eligible to be pledged and that the eligibility is established by Congress and certainly through our regulators. But as mortgage loans, mortgage-backed securities, commercial real estate.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“And what is the limiting factor where banks can tap their federal home loan bank? And I'll put it on the spectrum of, you know, if you go and buy something, you have a credit card and your credit card is pre-approved when you swipe, the bank's not approving it. Like it already is approved. Whereas if you want to borrow money to get a mortgage, you're going to have to get approved and do credit analysis. So if a bank wants to get funding from a federal home loan bank, can they just tap it and can the federal home loan bank say no? What is the limiting factor? Is it the amount of collateral that they can pledge? And then, Michael, I want to put it in the question generally, but in the specific context of March of this year, when I believe the amount of advances from all federal homeland banks to the banking system extended by a quarter of a trillion dollars in one month. So that question generally, but then also specifically as the CEO and president of the”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“There is higher loan demand, and our members will need funding and liquidity to meet that demand. So you add a combination of those two factors that were in play. And certainly during those times, the advances levels will increase. And we saw that leading into 2022 and certainly into 2023. But we also provide a deep level of liquidity to our member institutions and we certainly saw that back in March. We saw that during the COVID crisis. We saw that in 2008. So yeah, you see these peaks and valleys. And that's the beautiful nature of the system is our self-capitalizing model allows us to expand to meet the needs of our members during times of higher demand and also contract when our members don't need to borrow from the federal home.”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, the federal home loan banks really, to go back to a previous piece of the conversation, the federal home loan banks are available to our members through all economic cycles, both in calm markets as well as in times of stress. And we saw that back in March where there was more liquidity pressure in the market environment in general. So what's precipitated that in general is during the course of 2022 as the Fed was increasing interest rates, we did see deposits leaving the financial system or leaving our depository member institutions. In addition to that, we saw loan demand in the system still continue to increase. And typically during times of economic expansion,”
2023-08-18 · Forward Guidance · The Banking System's Guardian Angel You've Never Heard Of | Michael Ericson & Dan Siciliano on Federal Home Loan Banks · IDENTIFIED FROM THE TRANSCRIPT