how the federal home loan banks are funded
the federal home loan banks issue bonds discount notes and other forms of term debt in the capital markets to raise funds these are known as consolidated obligations the fhlb office of finance manages debt issuance for all 11 fhlbanks while each debt instrument is issued individually by each bank it is backed collectively by all banks in the system providing for a lower risk investment on june 23 2021 the u s supreme court ruled that the head of the federal housing finance agency fhfa which oversees the fhlb could be removed without cause later the same day president joe biden removed trump appointed fhfa director mark calabria and appointed sandra l thompson as acting director thompson was later confirmed as director by the u s senate and sworn in in june 2022 history of the fhlb systemthe federal home loan bank system was developed in response to the great depression which devastated the u s economy especially the banking industry it was created by the federal home loan bank act of 1932 the first in a series of bills that sought to make homeownership an achievable goal for more americans the rationale was that by providing banks with low cost funds to be used for mortgages they would be more likely to make loans resulting in individuals finding it easier to borrow money to buy homes thus stimulating the residential real estate market the fhlb originally consisted of 12 independent regional wholesale banks similar to the 12 regional federal reserve banks the act provided them with total funding of 125 million in 2015 though the seattle and des moines banks merged reducing the total number of fhlbanks to its current 11 the act also created the federal home loan bank board to oversee the system it was discontinued in 1989 and oversight responsibility was transferred to the federal housing finance board fhfb and regulatory responsibility to the office of thrift supervision ots since 2008 the fhlb has been regulated by the federal housing finance agency created by the housing and economic recovery act hera for much of the fhlb s 89 year history savings and loan institutions dominated the ranks of its member financial institutions their numbers began to dwindle in the 1980s and 90s after the savings and loan crisis in the 21st century commercial banks which were allowed to join the system in 1989 and insurance companies have come to make up most of the membership impact of the federal home loan bank systemproponents of the federal home loan bank system argue it plays a critical role in the continuous flow of funds to the residential mortgage market making housing and homeownership possible for millions fhlbs also provide funding for rental properties small businesses and other neighborhood development initiatives resulting in economic and employment growth stronger local communities and a higher overall quality of living however critics claim that the fhlb via its use of federally subsidized programs distorts the basic supply and demand economics of the housing market funding through the fhlb they argue encourages irresponsible lending and a residential real estate cycle with more volatile booms and busts the amount in total combined assets held by fhlbanks as of dec 31 2023 the most recent figure as of june 27 2024 there are also concerns that the recent growth in the federal home loan bank members and increased reliance on fhlb funding along with the increasing interconnectedness of the financial system could mean that any distress among fhlbanks could spread more widely throughout the capital markets and the economy fhlbanks have had their share of financial difficulties over the years in fact it was an inability to recover from capital losses that led fhlb seattle to merge with fhlb des moines however their practices overall remain strong during the subprime mortgage induced 2008 financial crisis for example the fhlbanks did not require any government bailouts as sister gses fannie mae and freddie mac did in fact as other sources of funding dried up they increased their lending 