Structure of the FHLBanks

The FHLBank, System was created by the Federal Home Loan Bank Act in 1932. It consists of the Office of Finance and 11 regionally-based, self-capitalizing cooperative financial institutions that are federally chartered.

Each FHLBank is independently operated and privately owned. The FHLBank System is funded entirely by private capital and is not supported by Congressional appropriations, nor do taxpayers pay any out-of-pocket expenses to keep the System operating.

Every FHLBank has its own board of directors, comprised of members of that FHLBank and independent (non-member) directors. The boards of directors represent many areas of expertise, including banking, accounting, housing, and community development. By statute, two-fifths of the directors must be independent, and at least two of those directors must be public interest directors with at least four years of experience in representing community or consumer interests. Directors serve four-year terms and may not serve more than three consecutive terms.

To become a member of a FHLBank, a financial institution must apply for membership with the appropriate FHLBank and purchase stock in that FHLBank, which is held at par value and not traded. Each applicant undergoes a thorough financial review prior to being admitted as a member. Current membership consists of roughly 6,500 commercial banks, credit unions, insurance companies, savings banks, and community development financial institutions (CDFIs) across the country.

The Office of Finance issues bonds in the debt markets on behalf of the entire System. The proceeds of those bond sales are made available to the FHLBanks and are then used for advances (loans) to members.

The cooperative structure of the FHLBank System eliminates many of the incentives a publicly traded company may have to increase risk and, in fact, discourages FHLBanks from taking excessive risk. As cooperatives, FHLBanks do not have the pressure for high rates of return as do publicly traded companies. They pass their borrowing benefits in the global debt markets on to their members in the form of lower borrowing costs, which are subsequently passed on to consumers, businesses, and communities. Additionally, the cooperative nature and regional structure of the FHLBank System enables each FHLBank to respond to local needs and design products and services tailored to the communities served by their members.

Financial institutions of all sizes and charter types rely on the FHLBanks as a cost-efficient, evenly priced source of short- and long-term funding.