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- Title
THE EFFECT OF FHLB BOND OPERATIONS ON SAVINGS INFLOW AT SAVINGS AND LOAN ASSOCIATIONS: COMMENT.
- Authors
VAN HORNE, JAMES C.
- Abstract
In a recent article, Jene K. Kwon and Richard M. Thornton (KT) contend that the efficiency of Federal Home Loan Bank (FHLB) intermediation is dampened because FHLB bonds and savings at Savings and Loan Associations (S&L's) are substitutes. The FHLB borrows in the capital markets and makes advances to individual S&L's, the bulk of whom are unable to borrow in the capital markets on their own. The result is that S&L's are able to indirectly tap the capital markets for funds. In particular, this proves to be important in times of high interest rates and disintermediation. However, if a significant portion of FHLB bonds are sold to S&L savers, the FHLB intermediation is self-defeating. Thus, the issue raised by KT is a very serious one. In this paper, we reexamine their evidence and, contrary to their conclusions, find it to be inconclusive with respect to the hypothesis tested. In addition, we point out certain features of their model which are suspect.
- Subjects
UNITED States; FEDERAL home loan banks; SAVINGS &; loan associations; BONDS (Finance); BANK deposits; BANKING industry
- Publication
Journal of Finance (Wiley-Blackwell), 1973, Vol 28, Issue 1, p194
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1973.tb01361.x