FEDERAL HOME LOAN BANKS
OVERVIEW OF THE FEDERAL HOME LOAN BANK SYSTEM
- The FHLBank system is comprised of eleven (11) independent cooperatives. Each FHLBank is privately owned by their member financial institutions - large and small - from across all 50 states, U.S. possessions and territories.
- The FHLBank system’s 6,505 members include: 4,232 banks and thrifts, 1,623 credit unions, 579 insurance companies and 71 community development financial institutions. Each FHLBank is privately capitalized by its member-shareholders.
- The FHLBanks' mission is to provide reliable liquidity to member institutions to support housing finance and community investment.
- The FHLBanks provide long-term and short-term secured loans, called “advances,” to their members. For collateral, FHLBank members primarily use residential mortgage loans, as well as government and agency securities.
- The FHLBanks play an essential role by helping member institutions meet the credit needs of communities everywhere in all economic cycles. Without the FHLBanks, it would be more difficult for local lending institutions to provide credit and financial services for families, farms and businesses in every U.S. state and territory. Credit would be tighter and more expensive.
(Source: Council of FHLBanks; FHFA).
GEOGRAPHIC ASSIGNMENTS OF FHLBANK DISTRICTS.
Illinois
Wisconsin
Indiana
Michigan
Kentucky
Ohio
Tennessee
Arkansas
Louisiana
Mississippi
New Mexico
Texas
New Jersey
New York
Puerto Rico
Virgin Islands
Delaware
Pennsylvania
West Virginia
Arizona
California
Nevada
Colorado
Kansas
Nebraska
Oklahoma
Alaska
America Samoa
Arizona
California
Guam
Hawaii
Idaho
Iowa
Mariana Islands
Minnesota
Missouri
Montana
Nevada
North Dakota
Oregon
South Dakota
Utah
Washington
Wyoming
OTHER AFFILATES, TRADE GROUP AND REGULATORY AGENCY.
The FHLBank Office of Finance serves as the fiscal agent for the FHLBanks issuing and servicing its debt securities (discount notes and bonds).
The Council of FHLBanks serves as the public voice and trade association for the FHLBanks.
The Federal Housing Finance Agency, or FHFA, is the primary regulatory agency for the FHLBanks. The FHFA also serves as the primary regulator for Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation).
The FHLBanks as well as Fannie Mae, Freddie Mac and the Farm Credit System are “government-sponsored enterprises” or “GSEs”. GSEs are privately-held corporations created by Congress with a public purpose to support certain sectors of the economy by being a reliable provider of liquidity and to reduce the cost of credit for those sectors.
HISTORICAL PERSPECTIVE ON FHLBANKS.
FHLBank Membership Since 1932
FHLBank Advances and Membership Since 1932
FHLBANKS SERVE AS CRITICAL LIQUIDITY SOURCE DURING ECONOMIC CRISES.
Federal Home Loan Banks & Role as Liquidity Source During Periods of Economic Crisis:
The FHLBanks have and continue to play an important role as source of liquidity to its members during periods of economic crisis. During the Great Recession, the FHLBanks stepped up and added over $370 billion in liquidity to its members through their advances. The FHLBanks were referred to as “Lender of Next to Last Resort” in an article by the FRBNY.
And during the COVID-19 pandemic and its dramatic impact to the U.S. economy, the FHLBanks have provided over $165 billion during Q1 2020 to support member liquidity, including sources for funding of the Paycheck Protection Program (PPP). As the crisis improved, advances were paid down. Advances surged during Q4 2022.
And during the Bank Liquidity Panic in March 2023, FHLBanks supported members with advances surging to over $1 trillion.
FHLBANKS & MEMBERSHIP.
# of Members by FHLBank
Change in # of Members by FHLBank Since One Year Ago
Advances Outstanding by FHLBank
Change in Advances O/S by FHLBank Since One Year Ago
FHLBank Membership by Type of Financial Institution
Change in FHLBank Membership by Type of Financial Institution Since One Year Ago
BALANCE SHEET COMPOSITION OF FHLBANKS.
TOTAL ASSETS: The asset side of the FHLBank balance sheet is comprised of its primary mission assets: (1) Advances and (2) Mortgages and investments: (1) S-T investments (predominantly fed funds and repurchase agreements) and (2) Investment Securities (predominantly single-family and multifamily residential mortgage backed securities).
TOTAL LIABILITIES AND CAPITAL: The liabilities and capital components are primarily: (1) consolidated obligations comprised of Discount Notes and Bonds and (2) Capital.
TYPES OF WHOLESALE FUNDING: DISCOUNT NOTES AND BONDS.
CONSOLIDATED OBLIGATIONS - FUNDING: The FHLBanks fund themselves by issuing “consolidated obligations” of the System. These COs are issued through the FHLBanks' Office of Finance acting as agent. Although each FHLBank is an independent entity, the FHLBanks are jointly and severally liable for all System COs. COs of bonds (original maturity > 1 year) and discount notes (original maturity < 1 year and sold at a discount). COs are not guaranteed or insured by the federal government. However, the FHLBanks’ status as a government-sponsored enterprise, or GSE, accords certain privileges that enables the FHLBanks to raise funds at rates slightly above comparable obligations issued by the U.S. Department of the Treasury. (Source: FHFA).
MIX OF FUNDING AND MATURITY TRANSFORMATION: The FHLBanks use a mix of funding: short-term funding in the form of Discount Notes and long term funding in the form of Bonds. Over the years, the ratio of Discount Note funding as a percentage of total Consolidated Obligations has varied. This variation, in part, depends upon the borrowing needs of its members (short-term or long-term). With the banking system crisis during the Great Recession, this question of mix - as a liquidity risk rather than as an interest rate risk - has been elevated by the FHLBank regulatory, FHFA and has been raised in Federal Reserve speeches, by the Office of Financial Research and the Federal Reserve staff. While the issue raised must be assessed, it is complex and not subject to formulation of a bright red-line. The FHFA issued an advisory bulletin on liquidity management.
PRIMARY MISSION ASSETS.
ADVANCES: FHLBanks provide funding to members through secured or collateralized loans known as advances. Collateral may include residential mortgage loans, MBS and other types of eligible collateral pledged by the borrowing institution. Advances are offered in a wide range of fixed-rate and variable-rate products with various maturities, interest rates and payment structures and optionality. Maturities range from one day to up to 30 years. The FHLBanks have never suffered a loss on any advance - ever!
MORTGAGES (AMA): Under the Acquired Member Asset (AMA) regulation, FHLBanks are permitted to acquire mortgage loans from members. There is a three-part test: (1) typically whole conforming mortgage loans, (2) must be acquired directly from a member and (3) credit risk-sharing required such that a substantial portion of the credit risk is borne by the selling member. (Source: FHFA). This “skin-in-the-game” risk-sharing approach has been employed by the FHLBanks since the start of these AMA programs in 1999. These programs provide members with a competitive secondary market outlet for high-quality, conforming, fixed-rate mortgages. Advisory Bulletin (AB 2020-01) provides guidance regarding a FHLBank’s risk management of AMA, including FHFA's expectations that Bank boards of directors establish certain limits. The Banks should be able to demonstrate their progress toward adherence to this guidance by September 30, 2020 and should have final limits in place by December 31, 2020. Since this guidance, the mortgage portfolio has been declining.
FHLBANK CAPITAL - "SELF CAPITALIZED" BY MEMBERS.
FHLBank Capital & Capital Ratios
CAPITAL: The capital foundation of a FHLBank is unique. It is distinguished by the fact that the capital stock is redeemable.
The capital base is dynamic - not static. Members of a FHLBank must purchase capital stock as a condition of membership. Members are also required to purchase capital stock whey they borrow or engage in other activities with the FHLBank. For an advance borrowing, this capital requirement is typically in the 4 - 5% range. And when the advance is paid off, the FHLBank redeems this capital stock. This member-provided capital is designed to expand and contract in response to member borrowing needs.
It is “self-capitalizing”.
The total capital base of a FHLBank is comprised of this capital stock plus retained earnings. The FHFA establishes a minimum capital ratio of 4.0% - total capital divided by total assets.
FHLBANK AFFORDABLE HOUSING PROGRAM MAKES IMPORTANT IMPACT.
Affordable Housing Assessment Trends
Overview of the AHP Awards:
From 1990 to 2019, the FHLBanks contributed a total of approximately $6.6 billion to AHP, assisting more than 957,000 households. (Source: FHFA).
In 2019, the FHLBanks awarded $458 million, assisting over 46,000 low- or moderate-income families.
AFFORDABLE HOUSING PROGRAM: The FHLBanks' Affordable Housing Program (AHP) is the largest private source of grant funds for affordable housing in the United States. It is funded with 10 percent of the FHLBanks' net income each year. (Source: Council of FHLBanks).
The Federal Home Loan Bank Act (Bank Act) requires each FHLBank to establish an AHP. Under the program, members of the FHLBank apply to the Bank for AHP funds. The member provides the funds to approved projects and households to be used for the purchase, construction, or rehabilitation of affordable housing. AHP funds may be in the form of grants or a subsidized interest rate on advances from a FHLBank to its member. For AHP-assisted owner-occupied housing, the eligible household income must be at or below 80 percent of AMI. For AHP-assisted rental housing, at least 20 percent of a project’s units must be affordable for and occupied by households with incomes at or below 50 percent of AMI. (Source: FHFA).
In 2023, the FHLBanks set aside $752 million in AHP Assessments compared to $355 million, $201 million and $315 million in 2022, 2021 and 2020, respectively.