Don Layton applauded FHFA’s plans to reform the FHLBanks, arguing that it will take strong, independent supervision to prevent them from exploiting their government subsidy for private gain.
Lenders typically hedge loans by short selling the type of security those loans will eventually go into. However, if the market for that security is unattractive, they can cross-hedge into better performing markets if their pricing movement correlates with the loans.
Industry trade groups as well as analysts believe the proposed waiver pilot is purely a political gesture and will, in fact, expose borrowers and lenders to financial risk.
The FHLBanks, like Fannie Mae and Freddie Mac, have a public/private structure that can incentivize private profits at public cost. Don Layton, former Freddie CEO, said the banks are ripe for reform.