thumb|300px|right|Location of the territories for the 11 (previously 12) FHLBanks, post-merger of the Seattle and Des Moines banks in 2015

The Federal Home Loan Banks (FHLBanks, or FHLBank System) are 11 U.S. government-sponsored banks that provide liquidity to financial institutions to support housing finance and other forms of community investment. FHLBanks are located in the cities of Atlanta, Boston, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco, and Topeka.

Overview

thumb|right|Federal home loan bank Atlanta|301x301pxThe FHLBank System was chartered by Congress in 1932, during the Great Depression. It has a primary mission of providing member financial institutions with financial products/services which assist and enhance the financing of housing and community lending. FHLBanks operate exclusively in the secondary market providing loans (advances) to financial institutions, not individuals.

The 11 FHLBanks are each structured as cooperatives owned and governed by their member financial institutions, which today include savings and loan associations (thrifts), commercial banks, credit unions, and insurance companies. While FHLBanks are private, the FHLBank System is directly regulated by the Federal Housing Finance Agency (FHFA) and FHLBanks enjoy certain benefits from their government sponsorship, namely an “implied guarantee” from the federal government and “Regulatory and income tax exemptions that reduce their operating costs.” The Congressional Budget Office estimated in the 2024 fiscal year that FHLBanks receive a net government subsidy of $6.9 billion.</blockquote>The FHLBank System was roughly structured as a Federal Reserve system for thrifts. At the time, thrifts could not join the Federal Reserve and access emergency lending through the discount window, explaining why the FHLBanks were initially needed to address emergency needs of the Great Depression.

Involvement in 2023 banking crisis

At times, FHLBanks have been used as a “lender of next-to-last resort” providing emergency liquidity to distressed banks. Such was the case in 2023 when a few member banks with exposure to the cryptocurrency industry (Silvergate Capital Corporation, Signature Bank and Metropolitan Bank Holding Corporation) received FHLB loans in response to a run on deposit withdrawals. The FHLBank of San Francisco also loaned $30 billion to Silicon Valley Bank (SVB) prior to SVB’s collapse. According to the FHFA, “During the week beginning March 13, 2023, the FHLBanks funded $675.6 billion in advances, the largest one-week advance volume in FHLBank System history.” Aaron Klein, Kathryn Judge, and Alan Cui from The Brookings Institution argue that “Allowing banks and thrifts to go the FHLBanks instead undermines [mechanisms for ensuring accountability at the Federal Reserve] and can allow problems at banks to fester.” Furthermore, FHLBanks demanding larger haircuts on collateral “tend[s] to exacerbate liquidity strains.”

Mark T. Williams from Boston University, in the Financial Times, point to the important on-demand liquidity and shock absorber role the FHLBanks perform in times of financial crisis. He contends that the March 2023 bank runs would have been more pronounced had such lending not been available.

As part of a comprehensive review of the FHLBank System, the FHFA noted the necessity of distinguishing the role of FHLBanks and The Federal Reserve in emergency lending situations. FHLBanks face "operational and financing limitations" which make them unfit to serve as the lender of last resort.

See also

  • Farm Credit System
  • Government-sponsored enterprise

References

Further reading

  • For a list of articles discussing the Federal Home Loan Bank System, Fannie Mae, and Freddie Mac, see Fannie Mae and Freddie Mac: A Bibliography.
  • Susan M. Hoffman and Mark K. Cassell, eds. Mission Expansion in the Federal Home Loan Bank System (State University of New York Press; 2010) 208 pages
  • Thomson, James B. and Matthew Koepke. "Federal Home Loan Banks: The Housing GSE That Didn’t Bark in the Night?," Economic Trends 09.23.10 (Federal Reserve Bank of Cleveland) online
  • Council of FHLBanks
  • FHLBanks Office of Finance
  • Federal Housing Finance Agency
  • SEC filings from the FHLBanks

Banks

  • 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