(RECAP: Federal Housing Finance Agency Director Mel Watt sounded alarm bells Wednesday about Home Loan Banks’ reliance on small-term funding in the form of discount notes. During a speech to the FHLB’s director’s conference, he noted that at yearend 2015, discount notes made up 54% of outstanding Home Loan Bank debt, compared to 43% in 2014 and 39% in 2013. “Small-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,” Watt said. “The FHLBs and the Office of Finance are having ongoing discussions about how to address this issue.” Watt also reiterated concerns regarding insurance companies and large bank members, saying that some FHLBs have large exposures to a few individual members.)

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