(Corrects last name to “Watt” from “Watts” throughout story)
May 24 (Reuters) - The U.S. regulator that oversees the Federal Home Loan Bank system said on Tuesday it is reviewing the mortgage finance agency’s increased use of short-term funding, which could be risky if it were to suddenly dwindle.
“Short-term funding requires more frequent debt rollover than longer-term funding and this could become a safety and soundness issue if liquidity dries up unexpectedly,” Melvin Watt, director of the Federal Housing Finance Agency, said in prepared remarks at the FHLB directors’ conference in Washington.
FHLB’s short-term borrowing in the form of discount notes made up of 54 percent of its total debt at the end of 2015, up from 43 percent at the end of 2014 and 39 percent at the end of 2013, Watt said.
FHLB lends to banks, credit unions, insurance companies and other members to make mortgages for consumers.
Watt said the FHFA has begun discussion with the 11-member system and its finance arm, the Office of Finance on recent changes on debt issuance.
“We hope that constructive dialogue among FHFA, the Office of Finance and the FHLBanks will address the concerns and make it unnecessary for FHFA to issue guidance on the topic,” Watt said.
Watt added the 11 regional FHLB banks met their liquidity requirements in 2015 even with greater reliance on short-term funding. (Reporting by Richard Leong; Editing by Bernard Orr)