Definition of FHLB Federal Home Loan Bank
The Federal Home Loan Bank (FHLB) System is a network of 11 regional, member-owned cooperative banks that was created by the U.S. Congress in 1932. The goal of the FHLB System is to supply reliable liquidity to its member financial institutions (such as community banks, credit unions, and insurance companies), support housing finance, and foster community investment at the local level. The system works by providing low-cost funding and other financial services to these local institutions, enabling them to offer more affordable loans to customers and meet community needs.
Examples
Example 1: Supporting Local Lenders
Suppose a community bank in a small town wants to offer more mortgage loans to residents but lacks the necessary funds. By becoming a member of the regional FHLB, the community bank can borrow from the FHLB at favorable terms, which it then uses to provide mortgages to local residents, thereby increasing homeownership in the community.
Example 2: Housing and Economic Development
A credit union in a rural area might seek funding to support affordable housing projects or economic development initiatives. Through the FHLB, the credit union can access grants and subsidized funding programs to invest in apartment complexes for low-income families or to finance local business development projects, boosting economic activity and quality of life in the region.
Frequently Asked Questions (FAQs)
What is the main purpose of the FHLB System?
The primary purpose of the FHLB System is to provide liquidity and support to member financial institutions to enhance housing finance, community development, and economic growth.
How do financial institutions become members of the FHLB?
Financial institutions, including community banks, credit unions, and insurance companies, can apply for membership to the FHLB by meeting specific criteria and purchasing stock in the regional FHLB.
Are FHLB advances available to non-member institutions?
No, FHLB advances (loans) are only available to member institutions. Non-members cannot access the funding programs and services provided by the FHLB System.
How does the FHLB impact local housing markets?
The FHLB helps local housing markets by providing member institutions with affordable funding, which these institutions can use to originate more mortgage loans, finance affordable housing projects, and invest in community development.
What types of programs are offered by the FHLB?
The FHLB offers various programs such as advance funding, grant programs for affordable housing, economic development initiatives, and community investment programs.
Related Terms
Mortgage-Backed Securities (MBS)
Financial instruments that represent claims on the principal and interest payments from a pool of mortgage loans.
Community Reinvestment Act (CRA)
A law intended to encourage financial institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods.
Housing Finance Agency (HFA)
State-chartered authorities established to help meet the affordable housing needs of the residents of their respective states.
Liquidity
The availability of liquid assets to a market or company, responsible for its ability to meet short-term obligations.
Online Resources
- Federal Housing Finance Agency (FHFA)
- Federal Home Loan Bank System
- U.S. Securities and Exchange Commission
References
- Federal Housing Finance Agency. “Overview of the Federal Home Loan Bank System.” FHFA.gov.
- Federal Home Loan Bank. “Annual Report 2022.” FHLbanks.com.
- Federal Reserve Bank. “The Role of the Federal Home Loan Bank System in U.S. Housing Finance.” FederalReserve.gov.
Suggested Books for Further Studies
- “Housing Finance: Policy and Practice” by Tim Williams
- “The Handbook of Mortgage-Backed Securities” by Frank J. Fabozzi
- “Finance, Investment, and Reform: A Bottom-Up Reappraisal of Global Governance” by C. Randall Henning
