What Is the Federal Home Loan Bank System (FHLB)?

The Federal Home Loan Bank (FHLB) System is a consortium of 11 regional banks across the U.S. that was created by the federal government to keep a reliable stream of cash available to other banks for lending to individuals.

This system was created in 1932 in response to the economic conditions of the Great Depression, which had crippled the U.S. economy.

The banks receive no government funding and pay no federal or state income taxes.

How the FHLB Works

Federal Home Loan Banks are structured as privately capitalized corporations and receive no taxpayer funding. The banks are owned by the financial institutions, which buy stock in the FHLB to become members. The institutions must engage in real estate lending as a condition of membership.

More than 7,000 banks and credit unions in all are members of FHLB.

Key Takeaways

  • The FHLB is a network of local banks that provide cash to other banks in order to keep money flowing to consumers and businesses.
  • It was created by the federal government during The Great Depression but receives no taxpayer funding.
  • Some of its funding comes from issuing bonds called consolidated obligations.

Member banks have access to low-cost loans, which they, in turn, lend to their customers. A primary product available for member banks is cash-advance loans. Advances are generally available to members immediately if approved.

How the Banks are Funded

To provide for capital, the Federal Home Loan Banks issue discount notes and term debt in the capital markets. These are known as consolidated obligations.

Debt issuance for all 11 banks is managed by the FHLB Office of Finance. While debt is issued individually by each bank, it is backed collectively by all banks in the system, providing for a lower-risk investment.

FHLB Services

FHLBs also offer credit through various programs. They include the Affordable Housing Program, the Community Investment Program, the Mortgage Partnership Finance Program, and the Mortgage Purchase Program.

The Federal Housing Finance Agency is the government bureau charged with FHLB oversight.

More than 7,000

The number of banks and credit unions that are members of FHLB and receive funding from it.

The FHLB was created by the government to provide an additional source of real-estate-lending support for the U.S. banking system. Its function in the banking system greatly differs from that of other government-created entities such as Fannie Mae, Freddie Mac, and Ginnie Mae.

Their focused objective targeting the real estate market also distinctly differentiates these banks from Federal Reserve banks.

FHLB Banks

The Federal Home Loan Bank System includes the following 11 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