In the 1890s, Italian economist and polymath Vilfredo Pareto identified a striking pattern in wealth and income. He observed that a small percentage of the population accounted for a disproportionate share of the total income and wealth. This recurring relationship, observed across economies, businesses, and societies, would later become known as the Pareto Principle, or the 80-20 rule.
By the mid-20th century, the Pareto Principle was recognized across disciplines—20% of customers often generate 80% of revenue; 20% of tasks yield 80% of productivity gains—and it has become a foundational concept for understanding efficiency, scale, and impact.
In 2025, the Pareto Principle remains as relevant as ever and is a valuable framework through which to understand the operations of the Federal Home Loan Bank System (FHLBank System).
The FHLBank System is composed of 11 independent, privately owned, cooperative banks. Each FHLBank serves member-owners—banks, credit unions, insurance companies, and community development financial institutions (CDFIs)—within a defined geographic region. The FHLBank System, as a whole, supports approximately 6,500 members, from small institutions with a few million dollars in assets to global firms with trillions of dollars in assets operating across the United States.
At any point in time, between 50% and 60% of members, on average, are actively using the FHLBank System to support their liquidity needs and pledge acceptable collateral to their respective FHLBank in exchange for advances (loans). As one might expect, the dollar value of advances is highly correlated with institution size: large entities draw larger advances; small entities draw smaller advances. While the largest FHLBank members account for the largest dollar volume of advances, small community lenders—many of which are designated community financial institutions (CFIs) under the Federal Home Loan Bank Act—account for the largest number of advance users.
This is where the Pareto Principle comes into play. A relatively small percentage of members account for the bulk of the dollar volume of advances, generating a majority of the FHLBank System’s income from issuing advances. That income, in turn, sustains the operations and services of the entire FHLBank System. Meanwhile, smaller members, including many community banks and credit unions, account for the majority of advance volume and additional products and services offered by the FHLBanks. Smaller members rely on FHLBank liquidity to support local lending and provide critical banking services in communities often underserved by larger national and international institutions.
Some argue that the FHLBanks should exclusively serve small financial institution members. These critics fail to recognize how larger members support the FHLBank System, which in turn supports smaller FHLBank members that serve communities and households across the country. It is the income generated by the larger members that allows the FHLBanks to offer the broad array of liquidity, education, and other services that they provide, which are especially beneficial to smaller institutions that represent the heart of the FHLBank System’s mission and the vast majority of member engagement.
Visually, the Pareto Principle is clear in the FHLBanks’ 2024 data. As shown in Figure 1, 4% of members with advances finished the year with high dollar value advances (greater than $1 billion) outstanding, while 96% of members (3,386 members) had small dollar value advances outstanding. If we approximate advance income based on advance balances on December 31, 2024, each large advance member, on average, generates income for the FHLBank System that is nearly 60 times greater than the income generated by a typical small member (Figure 2). Thus, a single large advance user provides the FHLBank System with income to support programs that benefit dozens of smaller member institutions.
Rather than the Pareto Principle, the FHLBanks represent a Super-Pareto Principle: 129 members (four percent of borrowers, or two percent of total membership) support approximately 71% of advance operations, 71% of affordable housing program (AHP) and voluntary program advance funding, and 71% of the FHLBank System’s consistent presence for advances in capital markets. The FHLBanks’ reliable capital market presence attracts a deep pool of U.S. and international investors that allow the FHLBank System to provide reliable, low-cost, everyday liquidity to members of all sizes to help manage their balance sheets and support their customers and communities across the United States.
The strength of the FHLBank System lies in its cooperative structure and its ability to serve the full spectrum of members, from large national financial institutions to small town community lenders. Just as Vilfredo Pareto observed over a century ago, the FHLBanks harness the power of a few to empower opportunity for the many.
Figure 1: FHLBank Members with Outstanding Advances as of the end of 2024
Source: Council of FHLBanks, Federal Home Loan Banks 2024 Annual Report
