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Price Discusses FHLBank Standby Letters of Credit Legislation

On April 11, John Price, FHLBank Pittsburgh’s president and CEO, was a panelist at a conference sponsored by the American Enterprise Institute on “The Federal Home Loan Banks and State and Local Revenue Bonds.” Price discussed the FHLBank point of view while Gary Dunton, CEO of MBIA, Inc. argued the issue from the perspective of bond insurers. Former FHLBank of Chicago President and current AEI Resident Scholar Alex Pollock also participated.

Price reviewed proposed legislation that will allow FHLBank member institutions to offer letters of credit, backed by their FHLBank, on tax-exempt bonds. He made the following points:

• The legislation is needed to benefit communities and small issuers that are currently underserved by bond insurers who are generally more hesitant to do business with these entities, because doing so may not be cost-effective and does not fit their business model.
• If this legislation passes, the SLOCs issued by FHLBanks would go primarily towards modest projects such as small local colleges, health care facilities, small manufacturers and other private activity bonds issued by local governments.
• Community banks within the FHLBank System are well suited to underwrite the credit for such projects since this is an essential aspect of the business of community banking.
• There would be little overlap between the activity of the FHLBanks and the bond insurers.
• The bond insurers would still dominate the market for both government and private activity bonds.
• This legislation is not intended to enable FHLBanks to divert business from other financial institutions, but will help community banks serve the needs of their own communities.

To view video of Price’s remarks at the AEI forum, click here.