FHLBank Week

July 20-24

Celebrating 94 Years of Reliable Liquidity to Support Housing Finance and Community Investment

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Home / Governance and Regulation / Safety & Soundness

Safety & Soundness

When applying for membership, applicants are subject to a thorough financial review and the FHLBanks employ an integrated approach to assessing the ongoing creditworthiness of their members, relying on call reports, financial data, reports of examination, and other qualitative information. Additionally, FHLBanks may impose borrowing limits on individual members to reduce credit exposure to a member that is experiencing financial difficulty.

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To borrow from their FHLBank, members must, by law, pledge mission-related collateral as security. This includes:

  • Mortgages and mortgage-backed securities
  • Loans and securities issued by the United States government
  • Securities issued by any U.S. agency
  • Cash or deposits at the FHLBank
  • Other collateral that is real estate related

Community financial institution members (depository institutions with less than $1.541 billion in assets) may also pledge the following as collateral:

  • Small business loans
  • Small farm loans
  • Small agribusiness loans
  • Community development loans
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Every loan made by a FHLBank must be fully collateralized and is subject to haircuts, meaning the borrower must pledge collateral with a value that is greater than the amount borrowed so that the collateral is sufficient to cover the loan in the event the FHLBank needs to liquidate the collateral.

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Securities are repriced daily

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Market values for HELOCs and home equity loans are posted monthly

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Market values for commercial, multifamily, and farmland portfolios are posted quarterly

Collateral is subject to regular reviews and valuations and the FHLBanks can also demand additional or substitute collateral during the life of a given advance (loan).

In the case of a member experiencing a period of financial stress, an FHLBank can only lend to that member with the consent of the member’s primary financial regulator.

By law, the FHLBanks are also required to obtain a perfected security interest on all advances to members, giving them priority over other lien creditors in the case of a member failure.

FHLBank funds

The FHLBanks are funded by private capital

Eligible financial institutions become members by purchasing capital stock, which provides permanent capital to each FHLBank. Some FHLBanks also require members to purchase and hold capital stock in proportion to their use of FHLBank loan products.

The primary source of funding for the FHLBanks is the issuance of debt securities in global capital markets. Debt securities are issued by the Office of Finance, the FHLBanks’ capital markets agent, and proceeds from the issuance of these securities are used by the FHLBanks to provide liquidity to their members in support of housing finance and community investment.

The FHLBanks have never incurred a loss on an advance in their more than nine decades of existence.

The 11 FHLBanks are jointly and severally liable for every bond issued by the Office of Finance. Joint and several liability enhances the safety and soundness of the FHLBank System and gives investors confidence that FHLBank System debt will be repaid.

FHLBank investments are very safe. By regulation, the FHLBanks are prohibited from purchasing non-investment grade securities and nearly all of their investments are triple-A rated.

Each FHLBank is registered with the SEC and is supervised and regulated by the Federal Housing Finance Agency (FHFA).