The Federal Home Loan Banks
provide stable, on-demand, low-cost funding to American financial institutions
for home mortgage loans
, small business, rural, agricultural, and economic development lending. With their members, the FHLBank System represents the largest collective source of home mortgage and community credit
in the United States
. The banks do not provide loans directly to individuals, only to other banks.
The 12 banks of the FHLBank System are owned by over 8,100 regulated financial institutions from all 50 states, U.S. possessions, and territories. Equity in the FHLBanks is held by these owner/members and is not publicly traded. Institutions must purchase stock in order to become a member. In return, members obtain access to low-cost funding, and also receive dividends based on their stock ownership. The FHLBanks are self-capitalizing in that as members seek to increase their borrowing, they must first purchase additional stock to support the activity. FHLBanks are exempt from state and local income taxes, but are subject to property taxes. The FHLBanks also pay an assessment of 10% of annual earnings for affordable housing programs, and 20% of annual earnings to support the Resolution Funding Corporation (REFCORP). The mission of the FHLBanks reflects a public purpose (increase access to housing and aid communities by extending credit to member financial institutions), but all 12 are privately capitalized and, apart from the tax privileges, do not receive taxpayer assistance.
Financial Results and Condition
On August 13, 2008, the FHLBanks Office of Finance published the second quarter combined financial report. For Q208, the FHLBanks recorded net income of $718 million, up 14% from the same period one year before. For the six months ended June 30, total earnings were $1.415 billion, a 13% increase over the same period in 2007. Combined assets of the 12 Federal Home Loan Banks were $1,344 billion at the close of Q208. Of this total, secured loans equaled $914 billion, or about 68% of assets. Investments were the second largest component at $334 billion, or 25% of assets. Mortgage loans held in portfolio were $89 billion, or less than 7% of assets. The FHLBanks made affordable housing contributions of $176 million in the first half of 2008, up 25% from the year-ago period reflecting the increase in net income. Compared to year-end 2007, secured loans, investments, net income, capital and affordable housing contributions increased, while the mortgage loan portfolio decreased.
The principal investments of the FHLBanks are secured loans to members, Federal funds sold, commercial paper, mortgage-backed securities, and GSE securities. The FHLBanks are required by regulation to hold collateral in excess of the actual loan amount for any given borrower. The FHLBanks are funded through the daily sale of debt securities in the global capital markets. All 12 FHLBanks are jointly and severally liable for the liabilities of each individual FHLBank. Since August 2006, all 12 Banks have been registered with the United States Securities and Exchange Commission and all financial statements and other filings are available to the public at the SEC web site (EDGAR). (See external links)
Congress passed the Federal Home Loan Bank Act
, which established the FHLBank System, in 1932, during the Great Depression
. This was in order to provide funds to "building and loan" institutions, providing liquidity and making mortgages available. The Financial Institutions Reform, Recovery and Enforcement Act of 1989
) abolished the Federal Home Loan Bank Board and transferred responsibility for oversight of the Federal Home Loan Banks to the Federal Housing Finance Board
. At that time the Bank Board’s previous supervisory and regulatory responsibilities with respect to thrift institutions and their holding companies were transferred to the newly created Office of Thrift Supervision
, under the U.S. Department of the Treasury. FIRREA also allowed all federally-insured depository institutions to join the FHLBank System, including commercial banks
and credit unions
On July 30, 2008, the Housing and Economic Recovery Act of 2008 (HERA) became law. The FHLBanks were referenced in this legislation, and the two changes were 1) the existing regulator (the Federal Housing Finance Board) was replaced with the Federal Housing Finance Agency, and 2) the Secretary of the Treasury was authorized to purchase FHLBank debt securities in any amount through December 31, 2009. After that time, the limit would return to the original $4 billion.
On September 7, 2008, the U.S. Treasury announced a new credit facility for the three housing government-sponsored enterprises. This enables the Secretary of the Treasury to purchase FHLBank debt in any amount subject to the pledging of secured loans as collateral. The authority for this facility expires on December 31, 2009.