Understanding the Federal Home Loan Bank System

Chartered by Congress in 1932, the Federal Home Loan Bank System (FHLBS) provides member financial institutions with funding to support mortgage lending. The Federal Housing Finance Agency (FHFA) regulates FHLBanks. Rather than providing loans to individuals directly, the FHLBS bank system offers low-cost financing for its members. This system results in the availability of affordable mortgages to individuals.

What Is the Federal Home Loan Bank System?

The FHLBank System is a government-sponsored but privately funded liquidity facility created during the Great Depression. It comprises 11 regional FHLBanks, which act as a source of liquidity to over 8,000 member financial institutions. The member financial institutions consist of commercial banks, credit unions, insurance companies, and thrifts.

The 11 regional FHLBanks districts include:

  • FHLBank of Atlanta
  • FHLBank of Boston
  • FHLBank of Chicago
  • FHLBank of San Francisco
  • FHLBank of Topeka
  • FHLBank of Indianapolis
  • FHLBank of Cincinnati
  • FHLBank of Des Moines
  • FHLBank of Dallas
  • FHLBank of New York
  • FHLBank of Pittsburgh

Each FHLBank is a separate legal entity run by a board of directors and has employees and financial statements. In addition, the member financial institutions own the facilities since they have equity stakes in the FHLB.


To become an FHLBank System member, a financial institution must purchase stock proportionate to its mortgage holdings and assets. Therefore, only thrift institutions, insurance companies, credit unions, and other financial institutions can become FHLB members.

However, the financial institutions must meet the following statutory requirements:

  • Duly organized and existing under the laws of the state of its incorporation.
  • Subject to inspections to determine their compliance with regulations and banking laws.
  • Keep at least 10% of their asset portfolios in housing and mortgage-related assets.
  • Support residential mortgage lending and community-related investment.
  • Exhibit safe financial conditions.
  • Demonstrate that the character of management is consistent with sound and economical home financing.

If a financial institution becomes a member of the FHLBank, it has to maintain a minimum investment in FHLBank stocks. Each regional FHLBank sets the minimum investment so that the total stock investment by all FHLBank members is sufficient to meet FHLBank's minimum capital requirement.

How the Federal Home Loan Bank System Works

The main difference between FHLBanks and other government-sponsored real estate entities like Fannie Mae and Freddie Mac is that FHLBanks primarily focus on real-estate financing. They act as 'banks to banks' by providing their members with long and short-term loans, including specialized grants.

The loans are over-collateralized, hence considered relatively safe, and mainly used for housing finance, asset-liability management, and funding mortgages.

Eligible collateral includes:

  • Government securities.
  • Multifamily mortgage loans.
  • Residential mortgage loans.
  • Available deposits in the FHLB regional bank.
  • Residential mortgage-backed securities.
  • And real estate-related assets.

The loans are made available at various maturities, and some have embedded options. Each FHLB has the mandate to choose fixed or variable interest rates of its advances and the collateral haircut of its members.

If an individual FHLB member fails to repay its debt, the other FHLBs cover the debt. FHLBanks majorly fund themselves and are jointly liable for all consolidated obligation debt.

Although the FHLBank System is government-sponsored, the consolidated obligations are not government-insured. Even so, FHLBanks get certain privileges, such as raising funds at rates above Treasury-issued comparable obligations.

Some of the federal programs FBLBanks participate in include:

  • The Affordable Housing Program
  • The Mortgage Partnership Finance Program
  • The Mortgage Purchase Program
  • The Community Investment Program


The primary funding sources for FHLBanks derive from issuing bonds, discount notes, and various forms of term debt known as consolidated obligations.

Moreover, investors have no idea which individual FHLB receives their money because the Office of Finance issues all debt.

The Office of Finance is responsible for the following:

  • Issuing and servicing debt securities for all FHLB regional banks.
  • Analyzing and publishing FHLB financial statements.
  • Providing FHLB regional banks with capital.
  • Selling debt securities on behalf of FHLB regional banks.
  • Preparing and delivering general market data and analysis to FHLB regional banks.

Benefits of the Federal Home Loan Bank System

FHLBS members benefit from access to various financial products and services that help lower their funding costs, mitigate risk and meet community credit needs.

Additionally, FHLBS contributes 10% of its net income to affordable housing programs every year.

Information presented in the Northwest Financial Wellness Center is provided for educational purposes only and is not related to actual Northwest products or services. Northwest makes no representations as to the accuracy, completeness or specific suitability of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Northwest recommends you consult a professional for any specific guidance you are seeking.