Federal Home Loan Banks - AbsoluteAstronomy.com

The Federal Home Loan Banks (FHLBanks, or FHLBank System) are 12 U.S.

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

Government-sponsored enterprise

A government-sponsored enterprise is a financial services corporation created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent...

bank

Bank

A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

s that provide stable, on-demand, low-cost funding to American financial institutions (not individuals) for home mortgage loan

Mortgage loan

A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...

s, small business, rural, agricultural, and economic development lending. With their members, the FHLBanks represents the largest collective source of home mortgage and community credit in the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

Overview

The FHLBank System was chartered by Congress in 1932 and has a primary mission of providing member financial institutions with financial products and services that assist and enhance the financing of housing and community lending. The 12 FHLBanks are each structured as cooperatives owned and governed by their member financial institutions, which today include commercial banks, thrifts, credit unions and insurance companies. Each FHLBank is required to register at least one class of equity with the SEC, although their debt is not registered.

A primary benefit of FHLBank membership is access to low cost secured borrowings, known as advances, which are funded by the FHLBanks in the capital markets from the issuance of discount notes or term debt, collectively known as consolidated obligations (COs). COs are joint and several obligations of all the FHLBanks, i.e., any debt issued on behalf of one FHLBank is the responsibility of all for repayment, with the issuing FHLBank having the primary responsibility. The Office of Finance (OF) serves as the fiscal agent for the FHLBanks, with responsibility for offering, issuing and servicing COs, as well as preparing the combined financial reports. Although the individual FHLBanks are SEC registrants, the FHLBank System is not. Thus, the FHLBank System financial reports are properly viewed as “combined” rather than “consolidated.”

Ownership

The 12 banks of the FHLBank System are owned by over 7,700 regulated financial institutions from all 50 states, U.S. possessions, and territories. Equity in the FHLBanks is held by these owner/members and is not publicly traded. Institutions must purchase stock in order to become a member. In return, members obtain access to low-cost funding, and also receive dividends based on their stock ownership. The FHLBanks are self-capitalizing in that as members seek to increase their borrowing, they must first purchase additional stock to support the activity. FHLBanks are exempt from state and local income taxes, but are subject to property taxes. The capital investments in FHLBanks receive preferential risk-weighting exemption treatment from the Basel II rules (which would normally require non-traded equity investments to be risk-weighted at 400%, but the exemption allows only 100%). The FHLBanks pay an assessment of 10% of annual earnings for affordable housing programs, and 20% of annual earnings to support the Resolution Funding Corporation

Resolution Funding Corporation

The Resolution Funding Corporation is a government-sponsored enterprise that provides funds to the Resolution Trust Corporation, which was established to finance the bailout of savings and loan associations in the wake of the savings and loan crisis of the 1980s in the United States...

(REFCORP). The mission of the FHLBanks reflects a public purpose (increase access to housing and aid communities by extending credit to member financial institutions), but all 12 are privately capitalized and, apart from the tax privileges, do not receive taxpayer assistance.

Financial results and condition

On August 12, 2011, the FHLBanks Office of Finance published the second quarter combined financial report. For 2Q11, the FHLBanks recorded net income of $251 million. Combined assets of the 12 Federal Home Loan Banks were $809.2 billion as of June 30, 2011. Of this total, advances equaled $428 billion. Investments were the second largest component at $295.8 billion. Mortgage loans held in portfolio were $55.8 billion. The FHLBanks made affordable housing contributions of $32 million in the second quarter of 2011.

The principal assets of the FHLBanks are advances (secured loans to members), Federal funds sold, commercial paper, mortgage-backed securities

Mortgage-backed security

A mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization.-Securitization:...

, and GSE securities. The FHLBanks are required by regulation to hold collateral in excess of the actual loan amount for any given borrower. The FHLBanks are funded through the daily sale of debt securities in the global capital markets. All 12 FHLBanks are jointly and severally liable for the liabilities of each individual FHLBank. Since August 2006, all 12 Banks have been registered with the United States Securities and Exchange Commission

United States Securities and Exchange Commission

The U.S. Securities and Exchange Commission is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States...

and all financial statements and other filings are available to the public at the SEC web site (EDGAR). (See external links)

At June 30, 2011, each of the FHLBanks was in compliance with its statutory minimum capital requirements and the FHLBank System as a whole is well above its minimum capital requirements.

On August 5, 2011, the Federal Housing Finance Agency

Federal Housing Finance Agency

The Federal Housing Finance Agency is an independent federal agency created as the successor regulatory agency resulting from the statutory merger of the Federal Housing Finance Board , the Office of Federal Housing Enterprise Oversight , and the U.S...

announced that the Federal Home Loan Banks had satisfied their obligation to make payments related to the Resolution Funding Corporation

Resolution Funding Corporation

(RefCorp) bonds. The Banks were required to pay 20 percent of their net income (after payments to the Affordable Housing Program) toward the RefCorp bond payments. Each Bank will now pay 20% of its net income into its own serparate restricted retained earnings account until the account equals one percent of that Bank’s outstanding consolidated obligations.

History

As a result of the Great Depression

Great Depression

The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

the FHLBanks were established by the Federal Home Loan Bank Board

Federal Home Loan Bank Board

The Federal Home Loan Bank Board was a board created by the Federal Home Loan Bank Act of 1932 that created and oversaw the Federal Home Loan Banks also created by the act. It was superseded by the Federal Housing Finance Board and the Office of Thrift Supervision in the Financial Institutions...

(FHLBB) pursuant to the Federal Home Loan Bank Act

Federal Home Loan Bank Act

The Federal Home Loan Bank Act, , is a United States federal law passed under President Herbert Hoover in order to lower the cost of home ownership.It established the Federal Home Loan Bank Board to charter and supervise federal savings and loan institutions...

of 1932. This was in order to provide funds to "building and loan" institutions, providing liquidity and making mortgages available.

As a result of the savings and loan crisis

Savings and Loan crisis

The savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...

of the 1980s the Financial Institutions Reform, Recovery and Enforcement Act of 1989

Financial Institutions Reform, Recovery and Enforcement Act of 1989

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 , , is a United States federal law enacted in the wake of the savings and loan crisis of the 1980s....

(FIRREA) abolished the FHLBB and transferred oversight responsibility of the FHLBanks to the Federal Housing Finance Board

Federal Housing Finance Board

The Federal Housing Finance Board was an independent agency of the United States government established in 1989 in the aftermath of the savings and loan crisis to take over oversight of the Federal Home Loan Banks , and was superseded by the Federal Housing Finance Agency in 2008.The FHFB...

(FHFB) and regulatory responsibility to the Office of Thrift Supervision

Office of Thrift Supervision

The Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...

(OTS) in the Department of the Treasury

United States Department of the Treasury

The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

. FIRREA also allowed all federally-insured depository institutions to join the FHLBank System, including commercial banks and credit unions.

As a result of the late-2000s financial crisis

Late-2000s financial crisis

The late-2000s financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s...

the Housing and Economic Recovery Act of 2008

Housing and Economic Recovery Act of 2008

The Housing and Economic Recovery Act of 2008 designed primarily to address the subprime mortgage crisis. It authorized the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers if lenders write-down principal loan balances to 90...

(HERA) replaced the FHFB with the Federal Housing Finance Agency

Federal Housing Finance Agency

(FHFA). The Secretary of the Treasury

United States Secretary of the Treasury

The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...

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 September 7, 2008, the U.S. Treasury announced a new credit facility for the three housing government-sponsored enterprises. This enabled the Secretary of the Treasury to purchase FHLBank debt in any amount subject to the pledging of advances and other assets as collateral. The authority for this facility expired on December 31, 2009.

External links

Banks