Fhlbs Invoke End Of Chevron Doctrine In Face Of New US Rules

(MENAFN- Live Mint) Eight months after US regulators laid out a sweeping plan to overhaul the $1.3 trillion federal Home Loan bank system, a fresh Supreme Court ruling risks derailing their strategy for muscling through changes.

The Council of Federal Home Loan Banks, a trade group representing the system, wrote to rulemakers this week that they need to consider the high court's decision upending a 40-year-old legal precedent known as the Chevron doctrine. Under the old standard, courts generally deferred to the technical expertise of regulators when interpreting ambiguous laws.

“The Supreme Court recently held that an agency interpretation of a statute should not merely be a 'permissible' interpretation that is a reasonable construction of the statute, but instead should be the best interpretation of the statute,” Council President Ryan Donovan wrote in a letter Monday to Sandra Thompson, the director of the Federal Housing Finance Agency, which oversees the FHLBs.

The wonky argument is an early example of how industry groups may invoke the new decision - known as Loper Bright Enterprises v. Raimondo - to fight regulations they dislike. Legal experts say the opinion stands to mire agencies in court battles and potentially limit rulemaking.

In a statement to Bloomberg News, Donovan said the reference to Loper was a brief passage capping a“constructive,” 6,000-word letter and that the organization is engaging with the FHFA and Biden administration to seek common ground.

“We are surprised that anyone reading our comment letter would conclude the final paragraph regarding the Loper decision – less than 200 words – represents the core of what we shared,” he said in the statement.“We look forward to working with FHFA as it proceeds with rulemaking.”

A spokesperson for the regulator didn't respond to a request for comment. The trade group's letter responded to the agency's request for information on the FHLBs' mission.

Cheap Financing

The FHLB system came under increasing scrutiny last year after the government-supported lenders extended billions of dollars to regional banks including Silicon Valley Bank and First Republic that ultimately collapsed.

In a series of articles, Bloomberg News examined how the banking and insurance industries tap into relatively cheap FHLB financing to support business lines with little to do with mortgage lending. The articles also tallied how FHLBs enjoy billions of dollars in annual government subsidies, yet keep most of their profit for themselves and member financial institutions.

That stoked a debate about whether the Depression-era system should be doing more to promote affordable housing, with members of Congress calling for reforms.

The FHFA outlined a series of planned actions in a sweeping report in November. In the run-up to its release, the Council boosted lobbying spending and voluntarily increased the amount it pledged to affordable housing.

In his letter this week, Donovan outlined some areas in which his organization would welcome reform, including increased flexibility in how the FHLBs support affordable housing. He also provided context on ways the system has lived up to the mission that lawmakers set for it. That includes acting as a reliable source of liquidity for financial firms and providing more than $8 billion in support for affordable housing programs in recent decades.

“Congress intended for the FHLBanks to provide liquidity to their member institutions, backed by collateral that it specified, to enable the FHLBanks to fulfill their housing and community development mission,” Donovan wrote.“No further clarification of the Bank Act intents and purposes is required.”

It's far from certain whether a court would agree with the Council's reading, said Kathryn Judge, a professor at Columbia Law School, who focuses on financial regulation and has advocated for reforming the FHLB system. A judge could ultimately interpret the law in a way that the home-loan banks dislike. The housing agency also has tools to make reforms through its supervision of the FHLBs, she said.

“The FHFA still has significant room to maneuver,” the professor said.“It could well be that applying Loper Bright gives the Federal Home Loan Banks less of what they want.”

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