Definition
The Federal Home Loan Bank System (FHLBank System) is a network of 11 regional banks created by the Federal Home Loan Bank Act of 1932. Its primary purpose is to provide liquidity to member financial institutions (including banks and credit unions) to support housing finance and community investment. These banks lend money to member institutions, primarily thrift institutions, which then support residential mortgages, community development loans, and other necessary financial services.
The system was significantly remodeled by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which also established the Office of Thrift Supervision (OTS) to replace the Federal Home Loan Bank Board.
Examples
- Community Savings Bank: A small local bank uses an advance from its regional FHLBank to fund additional mortgage loans, ensuring that it can meet the housing needs of its community even during times of low liquidity.
- Credit Union Collaboration: A regional credit union secures a loan from its FHLBank to offer more competitive mortgage rates, attracting more members and supporting higher levels of homeownership in the area.
Frequently Asked Questions
What is the main purpose of the Federal Home Loan Bank System?
The primary purpose of the FHLBank System is to provide liquidity to its member institutions, helping them finance housing and community development. This ensures stability and readiness to support economic housing needs, particularly during periods of financial distress.
Who can become a member of the FHLBank System?
Membership is open to various financial institutions, including commercial banks, credit unions, thrift institutions, and insurance companies, provided they meet certain regulatory requirements.
How does the FHLBank System support housing finance?
The FHLBanks provide secured loans (advances) to their members, which can then be used to make residential mortgage loans or other banking activities supporting housing and community development.
Are the FHLBanks part of the federal government?
The FHLBanks are federally chartered but privately capitalized and independently managed institutions. They operate under the regulatory oversight of the Federal Housing Finance Agency (FHFA).
Does the FHLBank System offer grants?
Yes, the FHLBanks offer various affordable housing programs and grants to support community investments and specific housing finance initiatives, benefitting low and moderate-income families.
Related Terms with Definitions
- Liquidity Management: The strategy by which an organization ensures timely and cost-effective access to cash or cash equivalents to meet its financial obligations.
- Thrift Institution: A financial institution focused on accepting savings deposits and making mortgage loans, such as savings and loan associations, and credit unions.
- Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA): A U.S. federal law enacted initially to realign and equip financial regulatory bodies in response to the savings and loan crisis, leading to the creation of the OTS and the remodeling of FHLBanks.
- Office of Thrift Supervision (OTS): A former agency under the U.S. Department of the Treasury that supervised savings banks, later integrated into the Office of the Comptroller of the Currency (OCC) in 2011.
Online Resources
- Federal Housing Finance Agency (FHFA): FHFA’s website offers detailed information on the FHLBank System, regulations, and compliance guidelines.
- Federal Home Loan Banks (FHLBanks): The official site providing an overview of individual FHLBanks and their initiatives.
References
- U.S. Government Accountability Office (GAO), “Challenges and Recent Reforms: An Overview,” GAO.
- Federal Housing Finance Agency, “Annual Report to Congress.”
Suggested Books for Further Studies
- “The American Mortgage System: Crisis and Reform,” edited by Susan M. Wachter, et al.: Comprehensive analysis on the U.S. mortgage system’s functions and reform needs.
- “Liquidity Risk: Managing Funding and Asset Risk,” edited by E.R. Lynette: Explores concepts of liquidity management, essential for understanding systems like the FHLBank.
- “The Savings and Loan Crisis: Lessons from a Regulatory Failure,” by James R. Barth, Susanne Trimbath, Glenn Yago: Offers historical context of the S&L crisis, which led to the FIRREA and subsequent changes in the financial oversight landscape, including the remodelling of FHLBank.
