Federal Home Loan Banks

FHLBanks operate exclusively in the secondary market providing loans (advances) to financial institutions, not individuals.

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.

After signing the Federal Home Loan Bank Act, President Herbert Hoover gave a statement describing the purpose of the FHLBank System:The purpose of the system is both to meet the present emergency and to build up homeownership on more favorable terms than exist today.

The immediate credit situation has for the time being in many parts of the country restricted the activities of building and loan associations, savings banks, and other institutions making loans for home purposes, in such fashion that they are not only unable to extend credit for the acquirement of new homes, but in thousands of instances they have been unable to renew existing mortgages with resultant foreclosures and great hardships.

FIRREA also made commercial banks and credit unions eligible to be members of FHLBanks if 10% of their assets were in residential mortgages.

The Secretary of the Treasury was authorized to purchase FHLBank debt securities in any amount through December 31, 2009, after which the limit would return to the original $4 billion.

On August 5, 2011, the Federal Housing Finance Agency announced that the FHLBanks had satisfied their obligation to make payments related to the Resolution Funding Corporation (RefCorp) bonds.

You have a lot of banks that access the FHLBs, but aren’t using advances for mortgage liquidity"[9][10][11] Aaron Klein, Kathryn Judge, and Alan Cui from The Brookings Institution argue that “Allowing banks and thrifts to go the FHLBanks instead undermines [mechanisms for ensuring accountability at the Federal Reserve] and can allow problems at banks to fester.”[12] Furthermore, FHLBanks demanding larger haircuts on collateral “tend[s] to exacerbate liquidity strains.”[13] Mark T. Williams from Boston University, in the Financial Times, point to the important on-demand liquidity and shock absorber role the FHLBanks perform in times of financial crisis.