🅰 What Is the Federal Home Loan Bank (FHLB) Sys💎tem?

The Federal Home Loan Bank (FHLB) System is a consortium🎃 of 11 regional banks across the United States that provide a reliable stream of cash to other banks and mortgage lenders to finance housing, infrastructure, economic development, and other individual and community needs. The Federal Housing Finance Agency (FHFA) oversees the FHLB.

While a government bureau oversees the FHLB iꦐtself, and its mandate reflects a public purpose, each bank in the FHLB network is privately capitalized and does not receive any government funding.

How the Feꦐderal Home Loan Bank (FHLB) System Works

The 11 regional banks comprising the Federal Home Loan Bank (FHLB) System, known as FHLBanks, are structured as privately capitalized corporations—specifically, cooperatives. They are owned by their members, local financial institutions that buy stock in the FHLBank. The institutions must engage in real estate lending as a condition of membership. As cooperatives, the FHLBanks pay no federal or state income taxes.

What Banks Are Part of the Federal Home Loan System?𓃲

The 11 banks of the FHBL System are scattered around the country. Each one services 𝄹a geographic region made up of several s📖tates. The 11 FHLBanks include:

• Federal Home Loan Bank of Atlanta
• Federal Home Loan Bank of Boston
• Federal Home Loan Bank of Chicago
• Federal Home Loan Bank of Cincinnati
• Federal Home Loan Bank of Dallas
• Federal Home Loan Bank of Des Moines
• Federal Home Loan Bank of Indianapolis
• Federal Home Loan Bank of New York
• Federal Home Loan Bank of Pittsburgh
• Federal Home Loan Bank of San Francisco
• Federal Home Loan Bank of Topeka

FHLB Services

As cooperatives, FHLBanks maintain moderate costs and overhead, reflected in the interest they charge their member banks. This means the member banks have access to low-cost loans, which they, in turn, lend to their customers.

The FHLBanks' primary focus is real estate financing. Unlike the other real estate-oriented 澳洲༺幸运5官方ꦑ开奖结果体彩网:government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—FHLBs do not guarantee or ensure mortgage loans, however. Instead, FHLBs act as a "bank to banks" by providing long- and short-term loans, called "advances," to their members, as well as specialized grants and loans aimed at increasing affordable housing and economic development. In some cases, FHLBs also provide secondary market outlets for members interested in selling mortgage loans.

FHLBanks participate in and operate through various federal programs. These include the Affordable Housing Program, the Community Investment Program, the Mortgage Partnership Finance Program, and the Mortgage Purchase Program.

About 80% of U.S. lending institutions rely on FHLBanks.

How the Federal Home Loan Banks are Funded

The FHLBanks issue bonds, discount notes, and other forms of term debt in the capital markets to raise funds. These are known as consolidated obligations.

The FHLB Office of Finance manages debt issuance for all 11 FHLBanks. While each debt instrument is issued individually by each bank, it is backed collectively by all banks in the system, providing for a lower-risk investment.

History of the FHLB System

The FHLB System was developed in response to the Great Depression, which devastated the U.S. economy—especially the banking industry. It was created by the 澳洲幸运5官方开奖结果体彩网:Federal Home Loan Bank Act of 1932, the first in a series of bills that sought to make homeownership an achievable goal for more Americans. The rationale was that, by providing banks with low-cost funds to be used for mortgages, they would be more likely to make loans, resulting in individuals finding it easier to borrow money to buy homes, thus stimulating the residential real estate market.

The FHLB originally consisted of 12 independent, regional wholesale banks (similar to the 12 regional 澳洲幸运5官方开奖结果体彩网:Federal Reserve Banks). The Act provided them with total funding of $125 million. In 2015, however, the Seattle and Des Moines banks merged, reducing the total number of FHLBanks to its current 11.

The Act also created the Federal Home Loan Bank Board to oversee the system. It was discontinued in 1989, and oversight responsibility was transferred to the Federal Housing Finance Board (FHFB) and regulatory responsibility to the Office of Thrift Supervision (OTS). Since 2008, the FHLB has been regulated by the Federal Housing Finance Agency, created by the 澳洲幸运5官方开奖结果体彩网:Housing and Economic Recovery🍸 Act (HERA).

For much of the FHLB's 89-year history, 澳洲幸运5官方开奖结果体彩网:savings and loan institutions dominated the ranks of its member financial institutions. Their numbers began to dwindle in the 1980s and '90s after the 澳洲幸运5官方开奖结果体彩网:Savings and Loan Crisis. In the 21st century, commercial banks (which were allowed to join the system in 1989) and insurance companies have come to make up most of the membership.

Impact of the Federal Home Loan Bank System

Proponents of the FHLB System argue it plays a critical role in the continuous flow of funds to the 澳洲幸运5官方开奖结果体彩网:residential mortgage market, making housing and homeownership possible for millions. FHLBs also provide funding for rental properties, small businesses, and other neighborhood development initiatives, resulting in economic and employment growth, stronger local communities, and a higher overall quality of living.

However, critics claim that the FHLB, via its use of federally subsidized programs, distorts the basic supply-and-demand economics of the housing market. Funding through the FHLB, they argue, encourages irresponsible lending and a residential real estate cycle with more 澳洲幸运5官方开奖结果体彩网:volatile booms and busts.

There are also concerns that the recent growth in the FHLB members and increased reliance on FHLB funding, along with the increasing interconnectedness of the financi🌠al system, could mean that any distress among FHLBanks could spread more widely throughout the capital markets and the economy.

FHLBanks have had their share of financial difficulties over the years—in fact, it was an inability to recover from capital losses that led FHLB Seattle to merge with FHLB Des Moines. However, their practices overall remain strong. During the subprime mortgage-induced 澳洲幸运5官方开奖结果体彩网:2008 financial crisis, for example, the FHLBanks did not require any government bailouts, as sister GSEs Fannie Mae and Freddie Mac did. In fact, as other sources of funding dried up, they increased their lending.

The Bottom Line 

The Federal Home Loan Bank System (FHLB) consists of 11 U.S. regional banks that provide a regular supply of cash to other banks and lenders. The steady flow of funds enables these fin꧒ancial institutions to provide capital to fund different individual and co🎶mmunity needs, including housing, infrastructure, and economic development. A government bureau oversees the FHLB. However, the banks in the group are privately capitalized and do not receive government funding.