What is the Federal Home Loan Bank System?

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  • Written By: Brenda Scott
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 September 2019
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In 1932, the United States Congress created the Federal Home Loan Bank System in response to the impact of the Depression on home ownership. The purpose of the system was to slow down the number of foreclosures, stimulate the construction industry, and increase home ownership. A five-member Federal Home Loan Board was established to charter and oversee thrifts, or savings and loans (S&L), and a bank was created to provide low-interest money to member institutions for mortgage financing. The Federal Home Loan Bank System as it exists today is a government sponsored enterprise made up of 12 cooperatively owned Federal Home Loan Banks (FHLBs) that act as a liquidity source for over 8000 member financial institutions.

In the 1980s, a crisis in the S&L industry erupted as a result of poor mortgage lending. In response, Congress abolished the Federal Home Loan Board in 1989 and replaced it with the Federal Housing Finance Board, which was charged with oversight of the Federal Home Loan Bank System. At that time, membership was extended to include commercial banks, credit unions and insurance companies in addition to traditional thrifts. In 1999, the Gramm-Leach-Bliley Act broadened agricultural bank access to the Federal Home Loan Bank System in an effort to provide funding for rural development. In 2008, responsibility for oversight moved once more and became the responsibility of the Federal Housing Finance Agency, which also oversees Freddie Mac and Fannie Mae.


The Federal Home Loan Bank System is considered a government sponsored entity because it was created by an act of Congress which provided several benefits to assist in keeping overhead costs down. These include an exemption from corporate income tax and an exemption from Securities and Exchange registration requirements for their debt instruments. The twelve banks raise money through the sale of notes and bonds on the financial markets, which they in turn lend to member institutions at low-interest to fund mortgages.

The twelve banks which comprise the Federal Home Loan Bank System are located regionally various American cities. Banks, thrifts, credit unions and insurance companies are welcome to join the bank in their region providing they meet certain criteria. For instance, members must have 10% of their asset portfolio in mortgages or be designated as a community financial institution. The FHLBs are all separate legal entities and each is governed by its own 14 member board, the majority of who are elected by member financial institutions.

The Federal Home Loan Bank System also participates in the Affordable Housing Program (AHP) established by Congress in 1989. The AHP provides subsidies for the purchase, construction or rehabilitation of housing property, both owner-occupied and rental units, for low and moderate income individuals. Each of the 12 FHLBs are required to contribute 10% of their net income in the form of grants into AHP. The funds are disbursed on a competitive basis to projects sponsored by member financial institutions who are working in conjunction with a local nonprofit organization.


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