Unless I’ve misunderstood, the FHLB credit lines charge about the interest rates you would expect. For example: https://www.fhlbboston.com/fhlbank-boston/rate

Unless I’ve misunderstood, the FHLB credit lines charge about the interest rates you would expect. For example: https://www.fhlbboston.com/fhlbank-boston/rates#/long-term https://www.fhlbboston.com/fhlbank-boston/rates#/long-term If a bank’s portfolio of long-term fixed income instruments has a mark to market value that is $27bn less than their hold-to-maturity value, and the bank borrows $27bn at market rates to cover the shortfall, they will pay approximately, wait for it, $27bn (present value) in net interest while waiting for maturity to happen. If the bank can manage to borrow the money in the form of non-interest-bearing deposits for the entire term of these instruments, then, sure, they’ll end up okay, because they will effectively make enough money on these deposits to cover their losses. But the whole industry of non-interest-bearing deposits is a bit odd. When interest rates are around 2% and banks are offering maybe 0.75% interest, it may not be worth their clients’ time to try to earn interest. But when FDIC-insured banks are paying 3-4.5%, convincing a client to keep holding $2M in a non-interest-bearing account instead of spending an hour a week shuffling assets between checking and savings is a much harder sell, and much of those $27bn of required profits may well end up in the pockets of a bank’s customers. Which makes the effective value of the bank’s equity look bad, and maybe negative, and the bank may be toast. Put another way, if you are actually insolvent, credit at market rates cannot make you solvent unless you have some other source of profit.