MOODY'S CONFIRMS Aaa RATINGS OF LONG-TERM CONSOLIDATED DOMESTIC AND GLOBAL DEBT OF THE FEDERAL HOME LOAN BANKS
Moody's Investors Service has confirmed its Aaa ratings of the long-term consolidated domestic debt and Global Debt Program of the Federal Home Loan Banks (FHLBanks). In addition, Moody's confirmed its Prime-1 rating of the FHLBanks for their consolidated short-term domestic and global debt. The FHLBanks' Aaa rating principally reflects their good risk-adjusted profitability, outstanding asset quality, and sound management. The rating agency added that the FHLBanks' US Government-sponsored Enterprise (GSE) status, and their important role in residential housing finance in the United States, continue to provide substantial creditor support. The FHLBanks' rating outlook is stable.
The FHLBank System consists of twelve individual banks. The FHLBanks are instrumentalities of the US Government and US Government-sponsored Enterprises (GSEs), and were established in 1932 by the Federal Home Loan Bank Act. The FHLBanks' primary purpose is to provide a stable source of credit to banks, thrifts, credit unions and insurers which are their members/owners, which in turn use the funds for liquidity and to finance long-term portfolio investments in residential mortgages. The FHLBanks remain conservatively run, well-managed banks that operate on sound, business-like principles. Their consolidated debt obligations, both short- and long-term, are joint and several obligations of all twelve banks that comprise the FHLBank System. Moody's notes that no obligations of the FHLBanks are guaranteed by the US Government, and that obligations of individual banks do not benefit from the joint and several guarantee. The FHLBanks are regulated by the Federal Housing Finance Board, an independent authority.
According to Moody's, the FHLBanks' fundamental financial and business positions remain strong. Asset quality is excellent, and should remain so. The FHLBanks have never suffered a credit loss on advances. This credit quality record is attributable to conservative underwriting standards, strong quality-monitoring policies, and the fact that collateral is required on all advances. However, the FHLBanks are entering new mortgage finance markets which have different risk characteristics. These new activities could result in credit losses. Nevertheless, Moody's does not expect the FHLBanks' excellent credit record to materially change.
The FHLBanks' profitability is good on a risk-adjusted basis, and should remain so. However, it is pressured by payments to the Resolution Funding Corporation (Refcorp) and by affordable housing subsidies it is required to make. Liquidity continues to be strong, said Moody's, and asset-liability management risks remain well managed. Funding is stable, and mostly consists of consolidated short- and long-term debt obligations, supplemented by members' deposits.
The rating agency noted that while nominal capital levels are strong, effective leverage is higher. This recognizes the lack of any appreciable level of retained earnings, and the fact that FHLBank stock is carried at par on members' balance sheets. These factors decrease the robustness of the FHLBanks' equity base.
The FHLBanks are among the largest issuers of debt in the world. They are active issuers of debt in the global capital markets through their Global Debt Program. The FHLBanks' borrowing is coordinated by the Office of Finance, which is based in Reston, Virginia, USA.
Moody's also confirmed its Aaa long-term deposit ratings and P-1 short-term deposit ratings for the following individual FHLBanks:
Federal Home Loan Bank of Boston
Federal Home Loan Bank of Chicago
Federal Home Loan Bank of Cincinnati
Federal Home Loan Bank of Indianapolis
Federal Home Loan Bank of Pittsburgh
Federal Home Loan Bank of San Francisco
Federal Home Loan Bank of Seattle
Federal Home Loan Bank of Topeka
Moody's also confirmed its Aaa long-term deposit ratings for the following individual FHLBanks:
Federal Home Loan Bank of Atlanta
Federal Home Loan Bank of New York
There were 6,806 members of the Federal Home Loan Bank System at September 30, 1998. Total combined assets of the FHLBanks were US$388.4 billion.
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