Significant gaps found
The OIG’s report highlighted several critical gaps in the FHFA’s current supervisory framework. Notably, the agency has yet to issue formal guidance on how FHLBanks should manage collateral subordination practices to facilitate member banks’ access to the Federal Reserve’s discount window. Additionally, the FHFA lacks written protocols to guide coordination with other regulatory bodies during bank failures, and the agency’s examination guidance has not been updated since 2014—well before the recent failures exposed new risks.
The report also criticized the Division of Bank Regulation (DBR), responsible for overseeing FHLBanks, for failing to comply with examination workpaper standards in certain instances. The OIG identified cases where examiners provided insufficient documentation or unsupported conclusions in their assessments, particularly in areas directly related to the 2023 bank failures. These lapses, though not widespread enough to be considered a formal evaluation finding, were noted for DBR’s consideration and response.
To address these issues, the OIG made four key recommendations. These include issuing guidance on collateral subordination, developing protocols for handling member distress and coordinating with regulators, updating examination guidance to reflect lessons learned from the 2023 bank failures, and ensuring comprehensive examination coverage of all relevant topics.
The FHFA has agreed to implement these recommendations.
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Source: mpamag.com