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The cash fund reform appears to have provided FHLBs

Figure 3: Maturity framework of assets and liabilities

supply: FHLB 10Q and 10K filings.

Even though the change toward FHLB’s greater reliance on short-term capital started in the past, now this change seemingly have been offered additional help by the consequences associated with SEC’s reform of prime cash market funds. Those issued by FHLBs–and Treasury- and agency-backed repurchase agreements in response to the reforms, money market fund managers and investors shifted $1.2 trillion from prime money funds to government money funds, which are restricted to holding essentially only Treasury and agency securities–including. As shown within the remaining panel of Figure 4, at the conclusion of February 2017, almost one-fifth of this money investment industry’s three trillion buck profile ended up being dedicated to FHLB debt. 4 furthermore, the share of FHLB financial obligation held by cash funds–shown at the center panel regarding the figure–has increased sharply, so when of February 2017 endured at over fifty percent of all of the FHLB that is outstanding financial obligation. 5 And, as shown because of the red line in just the right panel associated with the figure, cash funds have reduced the weighted normal readiness (WAM) of the FHLB debt-holding. 6

Figure 4: Money funds and FHLB financial obligation

Supply: SEC N-MFP filings, FHLB filings.

The amount of money fund reform appears to have given FHLBs an additional benefit in their capital expenses in accordance with finance institutions that relied on capital from prime cash funds. As shown by the red line in Figure 5, the weighted typical price on FHLB financial obligation held by cash funds at the time of the end of February 2017 had been about 10 basis points below compared to prime cash funds, denoted by the dashed black colored line. 7 As outcome, for banking institutions it might are becoming cheaper to get financing intermediated by FHLBs than funding from cash funds. More…