Restricting FHLB Membership Would Hurt My Pennsylvania Coal Town

I'm not from Washington, D.C. But I still operate in the world of politics and public policy. My work is located in the community where I grew up — Tamaqua, Pa. (population 7,000). It's a small coal town in northeastern part of the state, where one of my jobs is to foster affordable housing and community development. But I've recently learned of a proposal to tighten the membership requirements for Federal Home Loan banks that would severely hurt Tamaqua and places like it all across United States.

In the first part of the 20th century, my thriving hometown was at the center of many industries — mining, railroads and manufacturing. As the local economy declined decades ago, many residents left for opportunities elsewhere. I took a different path. When we were first married, I told my wife, a New Jersey native, that I would like to settle together and raise our family in Tamaqua. "If you don't like it, we can move," I offered. We stayed. Nineteen years and three teenagers later, we both still love Tamaqua.

Another one of my jobs in Tamaqua involves working with three rural primary-care health clinics that serve the uninsured and other patients with limited care options. As president of the local Borough Council and executive director of the Tamaqua Area Community Partnership, a local nonprofit community development organization, I work with dedicated colleagues to make our community better. It's an uphill battle every day.

Over the years, we can remember very few economic bright spots. The work of the Federal Home Loan Banks and their local member financial institutions has been one of them. Now the Federal Housing Finance Agency wants to enact a new rule that would further hinder our struggling but hopeful and improving town.

The FHLBank of Pittsburgh and its member banks have helped improve our economic outlook. They have provided a steady, reliable supply of liquidity for housing, jobs and community development. They didn't swoop down and save the day. Instead, they've worked with us side-by-side, for the long haul, to invest in our people. Through the FHLBank of Pittsburgh's Blueprint Communities program, we learned first how to develop and implement a plan to repurpose two abandoned properties. Buildings that had once been the Boot & Shoe Factory and Liberty Hall had become broken-down, vandalized structures occupied by no one but squatters and drug dealers. To most people in the community, the blight seemed beyond repair. Making it all the worse was the fact that these buildings were located near one of our school district's busiest bus stops.

With the help of the FHLBank and other partners, the two buildings are now affordable housing for seniors, veterans and families. A combined $6.8 million investment transformed this corner of our area.

This kind of thing happens all the time in hometowns like mine everywhere in the U.S., thanks to the FHLBanks and their member institutions. Now the FHFA's proposal could dramatically change that dynamic.

The FHFA proposal sets arbitrary asset thresholds for FHLBank membership that would push out important FHLBank members — local lenders. Under the proposal, many financial institutions would be required to keep at least 10% of their assets in mortgages in order to qualify for membership. Those with less than $1 billion in assets would need to maintain at least 1% of their assets in mortgages.

By owning and belonging to FHLBanks, these lenders have created a strong network of cooperatives across the U.S. that provide access to credit and capital to cities, towns and counties in every state and territory of the U.S. Excluding these members would have a direct impact on my town because excluded institutions will lose access to the financial lifeblood that is pumped in here in the form of FHLBank liquidity. The resulting FHLBank system will be weakened by their absence. Members will lose access to one of the world's best mechanisms of funding for local financial institutions.

The negative impact of the proposed FHFA rule would go beyond weakening the FHLBanks and beyond denying local lenders access to them. The rule would significantly reduce the investments in communities that result from FHLBanks' strong earnings. Ten cents out of every dollar of FHLBank earnings goes to direct investment in places like Tamaqua through the Affordable Housing Program. The AHP is the nation's largest single source of private capital flowing into affordable housing and community development, according to the Council of FHLBanks.

The Tamaquas of our country need the kind of access to capital and credit that only the FHLBanks and their member institutions provide. We need strong local lenders in our local economies. And we need more, not fewer, transformations and preservation of buildings in order to offer high-quality affordable housing and neighborhood improvement.

That's why the FHFA's proposed changes to the FHLBanks' membership rule are unfair to FHLBanks, their members and the communities they serve.

Micah Gursky is the executive director of the Tamaqua Area Community Partnership in Tamaqua, Pa. This article is adapted from a comment letter written by Mr. Gursky to the FHFA regarding the notice of proposed rulemaking on membership rule changes for the Federal Home Loan banks.