Federal Home Loan Bank
The Federal Home Loan Bank System (FHLB) is a network of eleven regional government-sponsored cooperative banks chartered by Congress in 1932 that provide low-cost secured loans — called advances — to member depository institutions including commercial banks, savings institutions, credit unions, and insurance companies to support housing finance and community lending.
The Federal Home Loan Bank System was established during the Great Depression as part of the Federal Home Loan Bank Act of 1932, responding to a severe credit contraction that had frozen mortgage lending and contributed to widespread foreclosures. Congress created the FHLB System as a federal backstop for housing finance, modeled partly on the Federal Reserve's lending function but dedicated specifically to supporting residential mortgage credit.
The eleven regional Federal Home Loan Banks — headquartered in cities including Atlanta, Boston, Chicago, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco, Seattle, and Topeka — are owned cooperatively by their member institutions. Membership is voluntary but widespread: as of recent data, over 6,500 commercial banks, thrifts, credit unions, and insurance companies hold FHLB membership. Members are required to purchase capital stock in their regional FHLB, and that capital secures their access to advances.
FHLB advances are the core product of the system. These are collateralized loans made to member institutions at rates below what they could access in the open market, funded by the FHLBs' ability to issue debt securities in capital markets at near-Treasury rates due to their government-sponsored status. Collateral for advances typically includes residential mortgage loans, agency MBS, commercial real estate loans, and small business loans.
The FHLB System plays a particularly important countercyclical role during periods of financial stress. During the savings and loan crisis of the late 1980s, the 2008 financial crisis, the COVID-19 shock of 2020, and the regional bank stress episode of early 2023 following the failures of Silicon Valley Bank and Signature Bank, FHLBs dramatically expanded their advance books as member institutions drew on the system as a liquidity backstop. Critics have noted that this role has sometimes effectively subsidized troubled institutions and that FHLB borrowings by failing banks have encumbered assets that might otherwise have been available to depositors and the FDIC.
The FHLB System is regulated by the Federal Housing Finance Agency (FHFA) and operates under a congressional charter. Though its obligations do not carry an explicit U.S. government guarantee, the market has long treated FHLB debt as carrying an implicit government backstop, enabling the system to raise funds at rates modestly above but close to U.S. Treasury yields. This funding advantage is ultimately passed through to member institutions and, theoretically, to mortgage borrowers in the form of more affordable home loans.