What is the Federal Home Loan Banking System (FHLB)?
The Federal Home Loan Bank System (FHLB) is a consortium of 11 regional banks in the US Created by the federal government to maintain a reliable flow of money available to other banks for individual loans.
This system was created in 1932 in response to the economic conditions of the Great Depression, which had slowed the American economy.
Banks do not receive funds from the government and do not pay federal or state income taxes.
How the FHLB works
Federal home loan banks are structured like capitalized private corporations and do not receive funding from taxpayers. Financial institutions own banks, which buy shares in the FHLB to become members. Institutions must participate in real estate loans as a condition of membership.
More than 7,000 banks and credit unions are members of the FHLB.
Key takeaways
- The FHLB is a network of local banks that provide cash to other banks for money to flow to consumers and businesses.
- It was created by the federal government during the Great Depression, but receives no taxpayer funding.
- Part of its financing comes from the issuance of bonds known as consolidated obligations.
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Member banks have access to low-cost loans, which, in turn, they offer to their clients. Cash advance loans are a key product available to member banks. Advances are usually available to members immediately if approved.
How banks are financed
To provide capital, federal mortgage loan banks issue discounted notes and term debt in the capital markets. These are called consolidated obligations.
Debt issuance for the 11 banks is managed by the FHLB Finance Office. While each bank issues debt individually, each bank in the system supports it together, providing a lower risk investment.
FHLB services
FHLBs offer credit through various programs. They include the Affordable Housing Program, the Community Investment Program, the Mortgage Company Financing Program, and the Mortgage Purchase Program.
The Federal Housing Finance Agency is the government office responsible for overseeing the FHLB.
More than 7,000
Number of banks and credit unions that are members and receive funds from FHLB.
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The FHLB was created by the government to provide an additional source of home loan support to the US banking system.Its role in the banking system is very different from other government-created entities such as Fannie Mae, Freddie Mac, and Ginnie Mae.
Their focus on the real estate market distinguishes between these banks and the Federal Reserve banks.
FHLB banks
The Federal System of Home Loan Banks comprises the following 11 banks:
- Atlanta Federal Home Loan Bank
- Boston Federal Home Loan Bank
- Federal Home Loan Bank of Chicago
- Federal Home Loan Bank of Cincinnati
- Dallas Federal Home Loan Bank
- Des Moines Federal Mortgage Bank
- Indianapolis Federal Home Loan Bank
- Federal Home Loan Bank of New York
- Federal Home Loan Bank of Pittsburgh
- Federal Home Loan Bank of San Francisco
- Topeka Federal Home Loan Bank
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