CU Industry Orgs Argue FHLB’s Mission Statement Should Expand

In an eight-page letter to the Federal Housing Finance Agency (FHFA), sent by America’s Credit Unions and signed by 33 other credit union leagues and associations, the credit union industry asked the agency to reconsider the creation of a dual mission statement of the Federal Home Loan Bank (FHLB) to be more flexible and inclusive for credit unions. Otherwise, the groups stated, the current proposed changes could limit credit unions’ ability to function.

Monday’s letter stated, “America’s Credit Unions and the Leagues write to express concerns that the proposed changes to the mission statement and the proposed incentive programs will be detrimental to the interest of credit unions.”

The letter continued, “Credit unions depend on the flexibility of the FHLBs to adapt to changing economic conditions and community needs. The proposed changes to the mission statement could limit credit unions’ access to liquidity, impose restraints on their ability to offer innovative financial products, and increase compliance costs and administrative burdens. Furthermore, without additional clarification, the proposed incentive program would likely primarily benefit volume lenders and push small community lenders out of the market.”

In Monday’s letter, the credit union groups pointed out that the industry depends on FHLB’s ability to be flexible and adapt to changing economic conditions and the needs of the communities served by credit unions.

“To strengthen the FHLB System’s connection to housing and community development, the FHFA should focus on the FHLB’s engagement with the credit union industry,” the letter stated. “Like FHLBs, credit unions are member-owned, not-for-profit financial cooperatives. Credit unions are at the heart of the FHLBs’ statutory mission.”

According to the letter, more than 1,600 credit unions are FLHB members, which is more than 25% of the current FHLB membership.

“Over its 100-year history, the FHLB system has provided critical liquidity for credit unions, including many smaller community lenders that often do not have access to other sources of low-cost funding, especially in stressed market environments. America’s Credit Unions and the Leagues support an amendment to the Bank Act that includes credit unions in the definition of ‘community financial institutions.’”

In their current form, community financial institutions (CFIs) are defined by the Bank Act as those organizations whose deposits are insured by the Federal Deposit Insurance Act and “this definition excludes credit unions because they are insured by the National Credit Union Administration” due to the rules set by the Federal Credit Union Act.

“Structurally, credit unions are bound to a mandate to serve their communities because they are not-for-profit, member-owned financial cooperatives and are only allowed to serve their defined fields of membership. Due to this unique structure and the significant legal limitations placed on credit unions to ensure this mission is adhered to, all credit unions are inherently CFIs,” the groups wrote.