On September 18, the FHFA’s OIG released an evaluation report finding that, while coordination between the FHFA and the FHLBanks has improved since the 2023 bank failures, several FHLBanks continue to face challenges obtaining timely and complete supervisory information from federal and state regulators.

The report, covering the period from November 1, 2022, to September 30, 2024, found that at least two FHLBanks received “redacted reports of examination (ROEs)” from federal regulators, and another FHLBank could not obtain a federal regulatory report containing relevant supervisory information. OIG noted that FHLBanks “may have lacked information needed to adequately inform their decisions on membership applications and advance lending.” The report also found that seven state regulators did not share ROEs with FHLBanks, “creating risk visibility gaps,” and identified “lapses in the FHLBanks’ receipt of material adverse event notifications,” which are intended to alert FHLBanks to negative changes in a member’s financial or operating condition.

The OIG’s report contained six recommendations to the Division of Federal Home Loan Bank Regulation, including:

1. Assessing the extent to which FHLBanks rely on redacted ROEs for membership and monitoring decisions;
2. Clarifying and reinforcing the expectation that FHLBanks should request and receive ROEs that are “not substantively redacted” and other relevant supervisory reports from federal and state regulators;
3. Engaging federal regulators to reinforce compliance with 12 U.S.C. § 1442(a)(1) — requiring reports, records and information to be produced “relating to the condition of any member of any FHLBank upon request by a[n] FHLBank” — and to ensure materials provided are not substantively redacted;
4. Assessing the extent to which restrictions on access to state-issued ROEs may hinder FHLBanks in making fully informed decisions concerning membership and advances;
5. If applicable, continuing to engage with industry members and state regulators to aid FHLBanks in accessing state-issued ROEs; and
6. Completing an assessment of weaknesses in FHLBanks’ enforcement of material adverse change notification requirements and providing guidance on best practices.

The FHFA agreed with the recommendations, and the OIG stated that the planned corrective actions were “responsive.” However, the report stressed that recommendations would remain open until the OIG confirmed that the corrective actions had been implemented.