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Hey, if they don't trust each other, why should I trust 'em? 

From Reuters :

NEW YORK (Reuters) - The Federal Home Loan Banks said on Monday the amount of loans made to its member banks rose to a record high in the first quarter as a credit crunch crimped other funding sources for banks.

The system of 12 regional FHLB banks, the largest collective source of U.S. home funding, has increased in importance to the housing market since the credit crunch shriveled up other sources of funds for mortgage lenders.

The group makes low-cost loans to its members, which it funds by selling debt in the capital markets.

Advances, or secured loans, rose 4.3 percent to $913 billion in the first quarter, representing 69.0 percent of total assets, FHLBanks said in a statement.

The volume of loans the FHLB provides to members belonging to the network has soared since last summer as lenders such as Countrywide Financial Corp boosted requests for the funding.

FHLBanks on Monday also preliminarily reported a 12.2 percent rise in first-quarter net income to $697 million, from a year earlier.

"The overall profitability of the FHLBanks is going to make people, for now, rest easy," said Jim Vogel, agencies analyst, at FTN Financial Capital Markets in Memphis, Tennessee.

"If you have a check list of the things you are watching out for, you can check off the FHLBanks and move on to the next item on your list after today's report," he said.

FHLBanks, Fannie Mae, Freddie Mac, and the Federal Housing Administration have become favored vehicles of the Bush administration as it makes efforts to stem surging mortgage defaults, falling home prices and rising foreclosures.

In late March, the Federal Housing Finance Board said it would enable banks in the Federal Home Loan Bank System to expand holdings of securities issued by Fannie Mae and Freddie Mac.

Although profitable in the first quarter, combined net income was hampered by a net loss of $78 million at the Federal Home Loan Bank of Chicago.

The FHLB of Chicago in the past decade has been criticized for lax interest-rate risk management, in part due to the growth of a program known as the Mortgage Partnership Finance Program, analysts said. The bank launched the program in the late 1990s to share the risk of managing mortgages with lenders...

 From  Bloomberg :

Federal Reserve Chairman Ben S. Bernanke may need to step up his effort to unfreeze bank funding markets as a surge in borrowing costs blunts the impact of the cash auctions the central bank introduced in December.

The cost of obtaining funds for three months has risen by 0.33 percentage point since the Federal Open Market Committee's last meeting on March 18. The jump may force homeowners with variable-rate mortgages and some companies to pay more on their loans at a time when economic growth is faltering.

Policy makers may discuss the results of the $100 billion-a- month Term Auction Facility when they gather for the second day of their two-day meeting in Washington to set interest rates. The central bank will probably increase the size and duration of its biweekly auctions, according to economists at Barclays Capital Inc. and other firms.

``There's clearly a need for the Fed to do more,'' said Charles Lieberman, a former New York Fed economist who's now chief investment officer of Advisors Capital Management LLC in Paramus, New Jersey. ``The underlying problem'' is that banks and other investors are ``still nervous'' about lending to each other, he said...