Federal Home Loan Bank System

The Federal Home Loan Banks (FHLBanks, or FHLBank System) are 11 U.S. government-sponsored banks that provide reliable liquidity to member financial institutions (not individuals) to support housing finance and community investment. With their members, the FHLBanks represents the largest collective source of home mortgage and community credit in the United States.

The FHLBank System was chartered by Congress in 1932 and has a primary mission of providing member financial institutions with financial products and services that assist and enhance the financing of housing and community lending. The 11 FHLBanks are each structured as cooperatives owned and governed by their member financial institutions, which today include savings and loan associations (thrifts), commercial banks, credit unions and insurance companies. Each FHLBank is required to register at least one class of equity with the SEC, although their debt is not registered.

A primary benefit of FHLBank membership is access to reliable liquidity through secured loans, known as advances, which are funded by the FHLBanks in the capital markets from the issuance of discount notes or term debt, collectively known as consolidated obligations (COs). COs are joint and several obligations of all the FHLBanks, i.e., any debt issued on behalf of one FHLBank is the responsibility of all for repayment, with the issuing FHLBank having the primary responsibility. The Office of Finance (OF) serves as the fiscal agent for the FHLBanks, with responsibility for offering, issuing and servicing COs, as well as preparing the combined financial reports. Although the individual FHLBanks are SEC registrants, the FHLBank System is not. Thus, the FHLBank System financial reports are properly viewed as “combined” rather than “consolidated.”

The 11 banks of the FHLBank System are owned by over 7,300 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 all corporate federal, state, and local taxation, except for local real estate tax. The capital investments in FHLBanks receive preferential risk-weighting exemption treatment from the Basel II rules (which would normally require non-traded equity investments to be risk-weighted at 400%, but the exemption allows only 100%). The FHLBanks pay an assessment of 10% of annual earnings for affordable housing programs. 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 11 are privately capitalized and, apart from the tax privileges, do not receive taxpayer assistance.

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