Federal Home Loan Bank (FHLB) System Definition

What is the Federal Home Loan System (FHLB)?

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

While the FHLB itself is overseen by a government office and its mandate reflects a public purpose, each FHLBank is privately owned and receives no government funding.

Key points to remember

  • The FHLB is a network of 11 regional banks that provide liquidity to other banks to keep money flowing to consumers and businesses.
  • The FHLB was created by the federal government during the Great Depression, but it receives no funding from taxpayers: its banks are private cooperatives.
  • FHLBanks raise funds primarily by issuing bonds called consolidated bonds.
  • FHLBanks focuses on mortgage finance and related community investments, providing low cost loans that member banks can pass on to their customers.

How the Federal Home Loan Bank (FHLB) System Works

The 11 regional banks that make up the Federal Home Loan Bank System, known as FHLBanks, are structured like private equity companies, more specifically like cooperatives. They are owned by their members, local financial institutions that buy FHLBank shares. Institutions must engage in home loans as a condition of membership. As cooperatives, FHLBanks pay no federal or state income tax.

FHLB banks

The 11 banks of the Federal Home Loan Bank System are scattered across the country. Each serves a geographic region made up of several states. The 11 FHLBanks include:

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

There were 12 FHLB banks. But in 2015, the Federal Home Loan Bank of Seattle merged with the Federal Home Loan Bank of Des Moines. The institution is headquartered in Des Moines and has an office in West Seattle.

FHLB Services

As cooperatives, FHLBanks keep costs and overheads low, which is reflected in the interest they charge their member banks. This means that member banks have access to low cost loans, which they in turn lend to their customers.

The main objective of FHLBanks is real estate financing. Unlike other government-funded real estate companies — Fannie Mae and Freddie Mac — the FHLBs do not guarantee or insure mortgages. Instead, the FHLB act as a “bank to bank” by providing long and short term loans, called “advances”, to their members, as well as grants and specialized loans aimed at increasing affordable housing and economic development. In some cases, FHLBs also provide secondary market opportunities for members interested in selling mortgages.

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

About 80% of US lending institutions rely on federal mortgage banks.

6,600

The approximate number of certified banks, credit unions, insurance companies, savings banks and community development financial institutions that are members of and receive funds from the FHLB.

How FHLBanks are funded

To raise funds, Federal Home Loan Banks issue bonds, discount notes, and other forms of term debt in the capital markets. These are consolidated bonds.

Debt issuance for the 11 banks is handled by the FHLB finance office. Although each debt instrument is issued individually by each bank, it is collectively backed by all the banks in the system, which allows for a lower risk investment.

History of the FHLB system

The Federal Home Loan Bank System developed in response to the Great Depression, which devastated the US economy, especially the banking industry. It was created by the Federal Home Loan Bank Act of 1932, the first in a series of bills aimed at making homeownership an achievable goal for more Americans. The reasoning was that by providing banks with low cost funds to use for mortgages, they would be more likely to grant loans; as a result, it would be easier for individuals to borrow money to buy a home, thereby stimulating the residential real estate market.

The FHLB originally consisted of 12 independent regional wholesale banks (similar to the 12 regional 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 11 currently.

The law also created the Federal Home Loan Bank Board to oversee the system. The Board was abolished in 1989 and the responsibility for supervision was transferred to the Federal Housing Finance Board (FHFB) and the responsibility for regulation to the Office of Thrift Supervision (OTS). Since 2008, the FHLB has been regulated by the Federal Housing Finance Agency, created by the Housing and Economic Recovery Act (HERA).

On June 23, 2021, the United States Supreme Court ruled that the head of the Federal Housing Finance Agency (FHFA), which oversees the FHLB, could be removed from office without cause. Later that day, President Joe Biden removed Trump-appointed FHFA director Mark Calabria from his post and appointed Sandra L. Thompson interim director.


For much of the 89-year history of the FHLB, savings and loan institutions have dominated the ranks of its member financial institutions. Their numbers began to decline in the 1980s and 1990s, 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 become the majority of members.

Impact of the Federal Home Loan System

Proponents of the Federal Home Loan Bank System argue that it plays a vital role in the continued flow of funds into the residential mortgage market, making housing and home ownership possible for millions of people. The FHLBs also provide financing for rental properties, small businesses, and other neighborhood development initiatives, leading to economic and employment growth, stronger local communities and a better overall quality of life.

However, critics claim that the FHLB, through its use of federally subsidized programs, distorts the basic economics of housing market supply and demand. Funding through the FHLB, they argue, encourages irresponsible lending and a residential real estate cycle with more volatile ups and downs.

$ 712.1 billion

The total amount of combined assets held by FHLBanks as of September 30, 2021.

There are also concerns that the recent growth in Federal Home Loan Bank membership and increased reliance on FHLB funding, as well as the growing interconnectedness of the financial system, could mean that any distress among FHLBanks could spread more widely in capital markets and the economy. .

The FHLBanks have had their share of financial difficulties over the years. In fact, it was the inability to recover from capital losses that led FHLB Seattle to merge with FHLB Des Moines. However, their practices remain strong overall. During the 2008 subprime mortgage-induced financial crisis, for example, the FHLBanks demanded no government bailouts, as did GSE sisters Fannie Mae and Freddie Mac. In fact, as other sources of funding dried up, they increased their lending.

Bernadine J. Perkins