For the past several years, a small but vocal set of critics has called for significant changes to the Federal Home Loan Bank System. Their critiques – often surfacing or resurfacing during moments of financial stress – have not been limited to the FHLBanks’ conduct in crises, but extended to questioning the System’s underlying structure, mission, and continued relevance.
To examine these concerns, Congress asked the U.S. Government Accountability Office (GAO), the independent, non-partisan investigatory agency, to review the role of the System during times of financial crisis. As an independent government entity that operates on behalf of Congress to evaluate federal programs and policies through objective, evidence-based analysis, GAO’s role is not advocacy, but oversight. Not speculation, but judgment. In other words, GAO’s job is to call balls and strikes.
GAO examined whether key features of the FHLBank System – including the use of advances during periods of stress – create undue risk for the broader financial system or interfere with the orderly resolution of troubled financial institutions. The report also analyzed the System’s cooperative ownership model and the statutorily defined priority afforded to collateral pledged to the FHLBanks.
So what did GAO find? Looking across multiple periods of financial stress, GAO concluded that the FHLBanks have operated as intended: safely and soundly, providing reliable, countercyclical liquidity across the financial cycle without evidence that they increase the likelihood of bank failure or systemic disruption.
As GAO succinctly summarized,
“[T]he FHLBanks generally serve as a reliable and consistent source of funding for banks of all sizes throughout the financial cycle.”
This is a critical finding, and it confirms that access to FHLBank liquidity does not exacerbate stress – it helps absorb it.
The GAO also underscored how the cooperative FHLBank model supports housing finance, community development, and financial stability when those objectives matter most. By supplying liquidity against high-quality collateral through a member-owned structure, the System strengthens the resilience of local financial institutions and the communities they serve.
That point is central. The FHLBanks are member-owned cooperatives created to support neighborhood lenders – institutions that anchor communities large and small across the country. Through dependable access to liquidity, the System enables these local institutions to lend with purpose, supporting small businesses, financing affordable housing, and meeting the needs of families and communities through all phases of the economic cycle.
In this context, funding translates into new homes, growing businesses, and the capital that allows community-focused institutions to continue serving local needs and strengthening the places they call home.
The GAO clearly and compellingly affirms the value the FHLBanks deliver to their roughly 6,500 members and the thousands of communities they serve nationwide: reliable liquidity that supports housing and community investment without undermining financial stability – precisely as Congress intended. That is a finding worth taking seriously.
