The Federal Home Loan Banks: How They Work and What They Offer

The Federal Home Loan Banks (FHLBs) are a group of federally-chartered banks that provide liquidity and credit support to member institutions, which include commercial banks, thrifts, and credit unions. The FHLBs were created in 1932 in the aftermath of the Great Depression to ensure that there was a reliable source of funding for housing finance. In this blog post, we will discuss how the FHLBs work and what they offer their members.

What are the Federal Home Loan Banks?

The FHLBs are cooperatives, meaning that they are owned by their member institutions. Each member institution is required to purchase stock in its respective FHLB, which gives the institution a vote in the cooperative's governance. The FHLBs are overseen by the Federal Housing Finance Agency (FHFA).

How do the Federal Home Loan Banks work?

The FHLBs offer several programs and services to their member institutions, including the following:

- Advances: The FHLBs provide advances to member institutions at rates that are below market. Advances are typically used by member institutions to fund mortgage loans.

- Discount Window: The Discount Window is a program through which member institutions can borrow funds from the FHLBs at rates that are below market.

- Housing Finance Programs: The FHLBs offer several programs that support housing finance, such as the Affordable Housing Program and the Community Investment Program.

The FHLBs are an important source of funding for housing finance in the United States. If you are a member institution, be sure to take advantage of the programs and services that they offer.

How the FHLBs are funded?

The FHLBs are funded through the sale of debt securities in the capital markets. The FHLBs issue a variety of debt securities, including bonds, notes, and commercial paper. The proceeds from the sale of these securities are used to fund advances and other programs.

FAQs

How were the  FHLBs created?

The FHLBs were created in 1932 in the aftermath of the Great Depression. At that time, there was a need for a reliable source of funding for housing finance. The FHLBs were established as a way to provide that funding.

What is the role of the FHFA?

The FHFA is the federal agency that regulates the FHLBs. The FHFA is responsible for ensuring that the FHLBs operate in a safe and sound manner.

Who can join the FHLBs?

Eligible institutions include commercial banks, thrifts, and credit unions. To become a member, an institution must purchase stock in its respective FHLB.

What are the benefits of being a member of the FHLBs?

Some of the benefits of being a member include access to below-market rates on advances and the ability to participate in housing finance programs.

What are the FHLBs' primary functions?

The FHLBs' primary functions are to provide liquidity and credit support to member institutions. Additionally, the FHLBs offer programs and services that support housing finance.

How many member banks are in the Federal Home Loan Bank System?

As of June 30, 2020, there were approximately 8000 member institutions in the Federal Home Loan Bank System.

How much capital is required to be a member of a Federal Home Loan Bank?

An institution must purchase stock in its respective FHLB equal to at least 0.45% of the institution's total assets. This is known as the minimum capital requirement.

What are the Federal Home Loan Bank membership requirements?

To become a member of an FHLB, an institution must purchase stock in the FHLB equal to at least 0.45% of the institution's total assets. Additionally, the institution must meet certain eligibility criteria, such as being a depository institution or an insurance company that is authorized to engage in the business of making loans secured by real estate.

What is the difference between a Federal Home Loan Bank and a Federal Reserve Bank?

The Federal Reserve Bank is the central bank of the United States. They are responsible for conducting monetary policy and regulating depository institutions. The Federal Home Loan Banks are wholesale banks that provide liquidity and credit to depository institutions. They also offer programs and services that support housing finance.

What is the Federal Home Loan Banks' Affordable Housing Program?

The Affordable Housing Program is a program through which member institutions can receive subsidies for providing financing to low- and moderate-income households. The subsidies are used to offset the costs of originating, servicing, and holding loans for these households.

What is the Federal Home Loan Banks' Community Investment Program?

The Community Investment Program is a program through which member institutions can receive grants for supporting economic and community development. The grants can be used for a variety of purposes, such as funding affordable housing or small business lending programs.

What is the Federal Home Loan Banks' Education Program?

The Education Program is a program that provides financial assistance to eligible educational institutions. The assistance can be used for a variety of purposes, such as funding capital improvements or providing scholarships.

What is the Federal Home Loan Banks' Jobs and Economic Development Program?

The Jobs and Economic Development Program is a program that provides grants and loans to support economic development projects. The projects must be located in areas that are experiencing high unemployment or underemployment.

What is the Federal Home Loan Banks' System Open Market Account?

The System Open Market Account is an account that is used by the FHLBs to invest in securities. The investments are made in order to provide liquidity to the FHLBs and support housing finance.

What is the Federal Home Loan Banks' Housing Finance Fund?

The Housing Finance Fund is a fund that supports the development of affordable housing. The fund provides grants and loans to developers of affordable housing projects. The projects must be located in areas that are experiencing high unemployment or underemployment.

What is the Federal Home Loan Banks' Small Business Lending Fund?

The Small Business Lending Fund is a fund that supports lending to small businesses. The fund provides grants and loans to small business lenders. The loans must be used for the purpose of lending to small businesses.

What is the Federal Home Loan Banks' System Community Development Financial Institutions Fund?

The System Community Development Financial Institutions Fund is a fund that supports the development of community development financial institutions. The fund provides grants and loans to community development financial institutions. The institutions must be located in areas that are experiencing high unemployment or underemployment.

The bottom line

The Federal Home Loan Banks are a system of 12 wholesale banks that provide liquidity and credit to depository institutions. They also offer programs and services that support housing finance. The FHLBs are governed by the Federal Housing Finance Agency. The Federal Home Loan Banks play an important role in the US housing market by providing liquidity and credit support to member institutions. If you are thinking about buying a home, it is important to understand how the FHLBs work and what they offer.

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