The views expressed do not necessarily reflect those of the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of Atlanta, or their respective staffs. We thank Brent Ambrose, Robert DeYoung, Deborah Lucas, Joseph McKenzie, Joe Peek, Larry Wall, two anonymous referees, and various seminar participants for helpful comments on previous drafts. We also thank Melissa Hamilton for her outstanding research assistance.
Federal Home Loan Bank Advances and Commercial Bank Portfolio Composition
Article first published online: 22 MAY 2012
© 2012 The Ohio State University
Journal of Money, Credit and Banking
Volume 44, Issue 4, pages 661–684, June 2012
How to Cite
FRAME, W. S., HANCOCK, D. and PASSMORE, W. (2012), Federal Home Loan Bank Advances and Commercial Bank Portfolio Composition. Journal of Money, Credit and Banking, 44: 661–684. doi: 10.1111/j.1538-4616.2012.00505.x
- Issue published online: 22 MAY 2012
- Article first published online: 22 MAY 2012
- Received May 9, 2007; and accepted in revised form August 17, 2011.
- Federal Home Loan Bank;
- government-sponsored enterprise;
- mortgage funding;
- portfolio shocks;
Federal Home Loan Bank (FHLB) advances are a source of government-sponsored liquidity intended to encourage housing finance, although “community financial institutions” may use such funds more generally. Because money is fungible, it is an empirical question as to how advances are actually employed. Using panel-vector autoregression techniques, we estimate dynamic responses of U.S. commercial bank portfolios to: FHLB advance shocks, bank lending shocks, and macroeconomic shocks. We find that FHLB advances: (i) are used as a general source of liquidity by U.S. commercial banks of all sizes and (ii) dampen the sensitivity of mortgage lending to macroeconomic shocks at small banks.