Federal Home Loan Bank (FHLB) System
What Is the Federal Home Loan Bank System (FHLB)?
The Federal Home Loan Bank System (FHLB) is a consortium of 11 regional banks across the U.S. that give a dependable stream of cash to different banks and lenders to finance housing, infrastructure, economic development, and other individual and community needs. The Federal Housing Finance Agency supervises the FHLB.
While the FHLB itself is directed by a government bureau and its command mirrors a public purpose, each bank in the FHLB network is privately capitalized and receives no government funding.
How the Federal Home Loan Bank (FHLB) System Works
The 11 regional banks containing the Federal Home Loan Bank System, known as FHLBanks, are structured as privately capitalized enterprises — explicitly, cooperatives. They are owned by their members, nearby financial institutions which buy stock in the FHLBank. The institutions must participate in real estate lending as a condition of membership. As cooperatives, the FHLBanks pay no federal or state income taxes.
FHLB Banks
The 11 banks of the Federal Home Loan Bank System are spread around the country. Every one services a geographic region comprised of several states. 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
6,600
The surmised number of banks, credit unions, insurance companies, thrifts, and certified community development financial institutions that are members of the FHLB and receive funding from it.
FHLB Services
As cooperatives, FHLBanks keep up with moderate costs and overhead, reflected in the interest they charge their member banks. This means the member banks approach low-cost loans, which they, thusly, loan to their customers.
The FHLBanks' primary center is real estate financing. Not at all like the other real estate-situated government-sponsored undertakings — Fannie Mae and Freddie Mac — FHLBs don't guarantee or guarantee mortgage loans, be that as it may. All things being equal, FHLBs act as a "bank to banks" by giving long-and short-term loans, called "propels," to their members, as well as particular awards and loans pointed toward expanding affordable housing and economic development. At times, FHLBs additionally give secondary market outlets to members interested in selling mortgage loans.
FHLBanks partake in and operate through different federal programs. These incorporate the Affordable Housing Program, the Community Investment Program, the Mortgage Partnership Finance Program, and the Mortgage Purchase Program.
Around 80% of U.S. lending institutions depend on Federal Home Loan Banks.
How the FHLBanks are Funded
The Federal Home Loan Banks issue bonds, discount notes, and different forms of term debt in the capital markets to raise funds. These are known as consolidated obligations.
The FHLB Office of Finance oversees debt issuance for every one of the 11 FHLBanks. While every debt instrument is issued individually by each bank, it is backed all in all by all banks in the system, accommodating a lower-risk investment.
On June 23, 2021, the U.S. High Court decided that the head of the Federal Housing Finance Agency (FHFA), which regulates the FHLB, could be eliminated without cause. Later that very day, President Joe Biden eliminated Trump-designated FHFA Director Mark Calabria and delegated Sandra L. Thompson as acting director.
History of the FHLB System
The Federal Home Loan Bank System was developed in response to the Great Depression, which devastated the U.S. economy — particularly the banking industry. It was made by the Federal Home Loan Bank Act of 1932, the main in a series of bills that looked to make homeownership a reachable goal for additional Americans. The reasoning was by furnishing banks with low-cost funds to be utilized for mortgages. They would be bound to make loans; accordingly, individuals would find it more straightforward to borrow money to buy homes, in this way animating the residential real estate market.
The FHLB initially comprised of 12 independent, regional wholesale banks (like the 12 regional Federal Reserve Banks). The Act gave them total funding of $125 million. In 2015, however, the Seattle and Des Moines banks merged, diminishing the total number of FHLBanks to its current 11.
The Act additionally made the Federal Home Loan Bank Board to administer the system. It was discontinued in 1989, and oversight responsibility was moved to the Federal Housing Finance Board (FHFB) and regulatory responsibility to the Office of Thrift Supervision (OTS). Beginning around 2008, the FHLB has been regulated by the Federal Housing Finance Agency, made by the Housing and Economic Recovery Act (HERA).
For a significant part of the FHLB's 89-year history, savings and loan institutions overwhelmed the positions of its member financial institutions. Their numbers started to lessen during the 1980s and '90s, after the 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 the greater part of the membership.
Impact of the Federal Home Loan Bank System
Defenders of the Federal Home Loan Bank System contend it assumes a critical part in the continuous flow of funds to the residential mortgage market, making housing and homeownership feasible for millions. FHLBs likewise give funding to rental properties, small organizations, and other neighborhood development drives, coming about in economic and employment growth, stronger nearby networks, and a higher overall quality of living.
Notwithstanding, pundits claim that the FHLB, by means of its utilization of federally financed programs, misshapes the essential market interest economics of the housing market. Funding through the FHLB, they contend, supports flighty lending and a residential real estate cycle with more volatile blasts and busts.
$723.2B
The amount altogether combined assets held by FHLBanks as of Dec. 31, 2021, the latest figure as of Mar. 25, 2022.
There are likewise worries that the recent growth in the Federal Home Loan Bank members and increased dependence on FHLB funding, alongside the rising interconnectedness of the financial system, could mean that any distress among FHLBanks could spread all the more widely all through the capital markets and the economy.
FHLBanks have had their share of financial hardships throughout the long term — in fact, it was a powerlessness to recuperate from capital losses that drove FHLB Seattle to converge with FHLB Des Moines. Be that as it may, their practices overall stay. During the subprime mortgage-initiated 2008 financial crisis, for instance, the FHLBanks required no government bailouts, as sister GSEs Fannie Mae and Freddie Mac did. In fact, as different wellsprings of funding evaporated, they increased their lending.
Features
- The FHLB is a network of 11 regional banks that give cash to different banks to keep money flowing to consumers and organizations.
- FHLB banks raise funds primarily from giving bonds called consolidated obligations.
- The FHLB receives no taxpayer funding: Its banks are private cooperatives.
- FHLB banks center around mortgage financing and related community investments, giving low-cost loans that member banks can give to customers.
- The FHLB was made by the federal government during The Great Depression.
FAQ
Does the FHLB System Loan Money to Individuals?
No The FHLB System's banks loan to other lending institutions, primarily to support real estate loans.
What number of FHLBanks Are There?
The FHLB isn't one single bank, however a network of 11 regional banks give cash to different banks that utilization it.
Is Federal Home Loan Bank a Government Agency or Bank?
The Federal Home Loan Bank System completely was made to act as a government-sponsored entity designed to support community investments and mortgage lending. It's anything but an agency yet it was made by the Federal Home Loan Bank Act.
