FHLBanks: Liquidity You Can Count On

As established by Congress, the clear mission of the Federal Home Loan Banks (FHLBanks) is to provide liquidity to members – including more than 1,600 credit unions across the country – and support housing and community development. The FHLBanks fulfill this mission through a range of products.

FHLBank loans to members (advances) represent the primary liquidity product and account for the largest dollar value of liquidity. Advances provide liquidity at terms ranging from overnight to 30 years and are primarily collateralized with mortgages and mortgage-backed securities. As of the end of the second quarter, the FHLBanks collectively provided more than $787 billion in liquidity to members.

The FHLBanks also offer letters of credit (LOCs) and provide an additional source of liquidity through their Acquired Member Assets (AMA) programs. 

LOCs represent guarantees on behalf of members to a third party and are often used to secure public unit deposits (for example, municipal bonds), or to support other financial obligations. LOC liquidity is flexible and reliable and helps members effectively manage their balance sheet. 

AMA programs authorize FHLBanks to purchase mortgages loans (principally conforming residential mortgages) from members and provide access to the secondary market. AMA programs allow members to transfer liquidity risk, interest-rate risk, and prepayment risk while retaining servicing income and connection to mortgage borrowers. This liquidity option is particularly beneficial for small and mid-sized mortgage originators.

Regardless of available products, serving as a reliable liquidity provider is the very heart of the FHLBank System. As the Federal Housing Finance Agency stated in its recent 100-year report on the System, the “providing liquidity to support housing finance and community development, especially through small, community-based institutions with limited access to capital markets, remains a critical and core focus of the System.”

Access to FHLBank liquidity serves as an equalizer for small, community-based lenders that do not have ready access to other low-cost, nationally available funding sources. Under existing laws and regulations, all FHLBank members, regardless of size, have access to advances on equal terms based on criteria such as member credit quality and collateral. This equality in pricing helps all members, from the largest to the smallest, serve all communities, including rural and underserved areas. Without the FHLBanks, it would be more difficult for local lending institutions to provide credit and financial services for families, farms, and businesses in every U.S. state and territory. 

The FHLBanks have been a reliable source of liquidity for members for nearly 100 years.