By Paul Peduto

Members often ask us how much in Federal Home Loan Bank of Boston advances they can borrow without exposing themselves to undue risk and regulatory concerns. It's an important question and one we'd like to help them answer.

The question is especially relevant in light of a recent Federal Deposit Insurance Corporation (FDIC) study showing that Federal Home Loan Bank System advances have become an increasingly important funding source for community banks nationwide.

While the FDIC study concluded that "most banks with a high concentration of FHLB advances do not have a high level of risk-management deficiencies," it noted that managers seeking an effective and safe solution to funding needs should "demonstrate a thorough knowledge of FHLB advance products, their risks, and enterprise-wide implications" before using them.

After reviewing the feedback we've received from the FDIC and financial advisors to many of our members, we've concluded that an appropriate borrowing level depends on the risk profile of individual members. Members can borrow as much as they feel is necessary as long as they have a thorough understanding of advances and the effect they have on their risk profile.

Although the FDIC article asserted that FHLB advances are an important funding source for community banks when properly managed, it emphasized that education is an important and necessary complement to their use.

In this regard, the Bank offers several strategies to help keep members informed and attentive to changes in the banking environment. One critical strategy is for members to meet regularly with our relationship managers to work out customized strategies and gain a broader perspective on the use of Bank advances in fine-tuning their business.

Equally important are the Bank's regularly scheduled educational sessions, which offer members a broad overview of Bank products and how they can be used effectively in their businesses. Our upcoming FHLB101 and A/L101 webinars (see accompanying article) provide members with critical information on the smart use of Bank products and how members can benefit from them while managing their exposure to risk. For your convenience, all of these sessions will be available online.

To learn more about the FDIC's perspective on community banks' use of FHLB advances, see the article "Federal Home Loan Bank Advances: A Supervisory Perspective" on the FDIC web site.

For more information about Bank products and services, please contact me at 617-292-9762, or call John Baity at 617-292-9710; David Birkins at 617-292-9617; or Steve McHugh at 617-292-9616.

Paul M. Peduto is first vice president / sales and business development at the Federal Home Loan Bank of Boston.