	Introduction

The 12 banks (the Banks) that make up the Federal Home Loan Bank (FHLB) System constitute one collective government-sponsored enterprise (GSE). Originally chartered by Congress to provide liquidity to the nation's predominant lenders for home mortgage loans—savings and loan associations and savings banks—the Banks have undergone a series of changes over the years as the nation's financial institutions have changed. It also discusses issues affecting the Banks and highlights the differences between the FHLB System and the other two housing-related GSEs. The act also opened membership in the Banks to all depository institutions, so long as they engaged in significant mortgage lending, and set up two requirements for the System: a set-aside of at least 10% of each Bank's net earnings for low- and moderate-income housing programs, and repayment of part of the debt incurred in paying off insured depositors for the savings and loans that failed (REFCORP debt, please see the Appendix). Mission

The Banks have three missions. The second mission is for housing and community investment. Federal Housing Finance Board

The regulator of the Banks is the Federal Housing Finance Board (FHFB), an independent regulatory agency in the executive branch. The Board has five members. These supervisory powers for System organization may be tested by a proposed merger between FHLB Chicago and FHLB Dallas. Because depository institutions, for which the federal government has clear safety responsibility, can hold agency debt without regard to limits on loans to a single lender, the possibility exists that a failure of the Banks could trigger failures of commercial banks, savings associations, and credit unions that were overexposed to System debt. The slowdown in the housing market could negatively affect the FHLBs. Large lenders with affiliates that are members of a regional FHLB could use the System to access liquidity to refinance troubled loans. Legislative Issues

The major issue before Congress concerning the FHLB System is GSE regulatory reform. Both H.R. 1427 and S. 1100 would fold the FHFB and the Office of Federal Housing Enterprise Oversight (OFHEO)—the current regulator of Fannie Mae and Freddie Mac—into a single overseer for all three housing-related GSEs. 1427 , sponsored by Representative Frank and others, passed the House on May 22, 2007, by 313-104. The bill would fold the FHFB and OFHEO into a single regulator for all three housing-related GSEs, to be known as the Federal Housing Finance Agency. S. 1100 was referred to the Senate Banking Committee on April 12, 2007, but no further action has been taken as of the date of this writing. Legislation would grant greater power and independence to the new regulator than to OFHEO, while nearly matching the authority and independence of the current FHFB.
The Federal Home Loan Bank (FHLB) System comprises 12 regional banks (the Banks) that form a collective government-sponsored enterprise (GSE). As a GSE, the Banks have special ties to the federal government that accord them "agency" status and lead investors in capital markets to infer that the government would step in to make good any failure in the debt of the Banks.
Originally begun in 1932 as lenders to the savings and loan associations that were the primary lenders for home mortgages, the Banks have undergone several changes since the savings and loan crisis of the 1980s. Membership in the Banks has changed, today encompassing more commercial banks than savings associations and including credit unions, insurance companies, and some associated housing providers. Purposes of lending—while still primarily housing-related—now include agricultural and small business lending. The changes have also resulted in special mission set-asides for low- and moderate-income housing and special programs for community development. The five-member Federal Housing Finance Board (FHFB) regulates the System.
Some advocate combining the FHFB with the Office of Federal Housing Enterprise Oversight (OFHEO), which is the current regulator of Fannie Mae and Freddie Mac, the other two housing-related GSEs. Differences between FHFB and OFHEO, including capital and ownership standards, requirements for the housing mission, and regulatory powers, complicate regulatory consolidation. In the 110th Congress, two major bills would merge regulation for the housing-related GSEs. Both S. 1100 and H.R. 1427 would combine regulation of the three housing GSEs under a single regulator who would have powers and independence similar to those of the FHFB. H.R. 1427 passed the House on May 22, 2007. S. 1100 was referred to the Senate Committee on Banking, Housing, and Urban Affairs on April 12, 2007. The measures have several important differences. (See CRS Report RL33940, Reforming the Regulation of Government-Sponsored Enterprises in the 110th Congress, by [author name scrubbed], [author name scrubbed], and [author name scrubbed] for additional information.)
The slowdown in housing markets and rise in foreclosures have led to concerns about the health of the FHLBs. Some large non-member lenders have affiliates that are members of a regional FHLB. These affiliates could draw on FHLB resources to move some troubled loans onto System balance sheets. This is a concern because some believe that the government would not let the FHLB System fail, and that such affiliate actions could raise the potential risk and cost to taxpayers.
Possible mergers of FHLBs is another issue. FHLB Dallas has been in negotiations to merge with FHLB Chicago, in part because of the financial difficulties of FHLB Chicago. The potential merger would be the first of its kind and raises several oversight issues, including FHFB approval powers and System organization. This report will be updated as events warrant.