Federal Home Loan Bank Advances and Commercial Bank Portfolio Composition
W. Scott Frame, Diana Hancock, and Wayne Passmore
Working Paper 2007-17
This paper considers the role of Federal Home Loan Bank (FHLB) advances in stabilizing their commercial bank members' residential mortgage lending activities. Our theoretical model shows that using mortgage-related membership criteria or requiring mortgage-related collateral does not ensure that FHLB advances will be put to use for stabilizing members' financing of housing. Using panel vector autoregression (VAR) techniques, we estimate recent dynamic responses of U.S. bank portfolios to FHLB advance shocks, bank lending shocks, and macroeconomic shocks. Our empirical findings suggest that FHLB advances are just as likely to fund other types of bank credit as to fund single-family mortgages.
JEL classification: G21, G18, G38
Key words: advances, government-sponsored enterprises, GSE, portfolio shocks, panel VAR
The authors thank Brent Ambrose, Joseph McKenzie, Joe Peek, Larry Wall, and various seminar participants for helpful comments on previous drafts. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta, the Board of Governors, or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to W. Scott Frame, Financial Economist and Associate Policy Adviser, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309, 404-498-8783, firstname.lastname@example.org; Diana Hancock, Assistant Director and Chief, Financial Studies, Research and Statistics, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, Washington, D.C. 20551, 202-452-3019, email@example.com; or Wayne Passmore, Deputy Associate Director, Research and Statistics, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, Washington, D.C. 20551, 202-452-6432, firstname.lastname@example.org.
For further information, contact the Public Affairs Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-8020.