It’s not a wonderful bureaucracy

Bankers’ resistance to meaningful reform of their Federal Home Loan Banks invites the invocation of filmmaker Frank Capra.

It’s Christmas 2022. Old Man Potter needs cash to run his bank. He has two choices. He can increase the interest he pays to his depositors from less than 1 percent currently to 3 percent and attract funds. Or he can borrow the funds from his uncle, Sam, on Wall Street at 2 percent. Sam is happy to oblige because his cost of funds is less than 2 percent, thanks to a robust taxpayer subsidy of his debt. 

Potter is a curmudgeon, but he is not a fool. As he has done for decades, he elects to borrow the money from Sam. The citizens of Bedford Falls become poorer. Potter gets richer. So does Sam. 

Word gets around about this arrangement and Clark, an eager newspaper reporter, manages to corner Potter for a brief interview. He asks Potter why he went with his uncle in New York rather than with his own neighbors for the funds. Potter responds defensively saying it was not because of “greed” but because he has to manage his bank’s “liquidity.” 

“Besides,” Potter adds, “the money I borrow from Sam goes right back into the community in the form of mortgage loans on family homes.” 

Clark shoots back, “Wait, your bank stopped making loans on 1-4 family homes many years ago.” A visibly irritated Potter responds, “Maybe so, but Sam makes below-market-rate loans for affordable housing.” 

Clark does some…