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America’s Community Bankers has told the Federal Housing Finance Board that it generally supports a proposal to broaden permissible collateral for certain members of the Federal Home Loan Bank System. “It is important that the FHLBanks and their members be able to use the expanded collateral authority,” ACB said in a comment letter.

The Gramm-Leach-Bliley Act created a category of Bank System members entitled community financial institutions — depository institutions with less than $500 million in assets averaged over three years. The statute authorized the FHLBanks to make long-term advances to the CFIs for small business, small farm and small agri-business lending, and to accept collateral from secured loans and securities in those categories.

While ACB is a strong supporter of the new authority, the trade group cautioned that the expanded collateral is riskier and more complicated than the traditional home mortgage loan collateral.

ACB suggested that the FHLBanks, in addition to determining how to evaluate the newly permissible collateral before acceptance, must also develop standards for determining the level of collateral needed for securing advances. “ACB believes that appropriately higher levels of collateral are necessary as determined by risk analysis of the new loan categories,” ACB said.

A copy of the comment letter is linked.