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  • Writer's pictureGeof Kelly

The FHLBank System at 100: Key Points and Take-Aways

Now Is the Time to Do Our Homework on Deposits

The Federal Home Loan Bank (FHLBank) System, with historical roots dating back to the Great Depression, has stood as a critical linchpin in the U.S. financial landscape, pivotal in supporting housing finance and community development initiatives.

However, amidst ever-evolving housing and mortgage market dynamics, the Federal Housing Finance Agency (FHFA) recognizes the imperative for periodic reviews of the FHLBanks’ role as a source of liquidity. As such, it recently embarked on a comprehensive reassessment effort aimed at ensuring that the FHLBank System remains adaptable and responsive to the evolving needs of its members and the broader housing finance system.

In November of 2023, the FHFA issued a comprehensive report, “FHLBank System at 100: Focusing on the Future,” examining its 90-year legacy and proposes a series of transformative goals that it hopes to achieve before its centennial in 2032.

If you haven’t had the opportunity to review the 140-page document, the following outlines four key points and offers some takeaways.


From the Editor

I recently came across an advertisement from a community bank offering a 100-year CD Special. I couldn’t help but wonder what the banking landscape might look like 1200 months from now when that deposit reaches maturity! Will CDs even “be a thing” in 2124?

Clearly, a lot can change in a century. Perhaps the FHFA feels similarly given its recent re-evaluation of the Federal Home Bank System?

For those uninitiated, the FHFA recently released a whitepaper aptly titled, The FHLBank System at 100, which examines the 90-year legacy of the System and broadly outlines its goals and objectives as it heads towards its 100th anniversary.

This voluminous report (140 pages) is filled with several noteworthy items that will likely influence / modify the traditional role between the FHLBank and its member banks and credit unions.  

Fortunately, in this month’s Bulletin, DCG Director Geof Kelly saves us a lot of reading and provides a succinct summary of critical components in the document. Geof covers the stated goals and objectives of the Federal Home Loan Bank System, its perspectives on being the “lender of last resort,” the relationship between outstanding borrowings and residential lending, and the possibility of consolidation amongst the district banks.

I’d highly recommend a quick perusal of Geof's overview and following up with your FHLBank member representative to better understand what this changing landscape might mean (if anything) for your institution. Ultimately, the goals of the FHFA, FHLBanks, and community financial institutions are similar, and another 100 years of co-existence is dependent upon that symbiotic relationship.

Vin Clevenger, Managing Director


Key Point 1: Review of the Overall FHLBank Mission

Central to the reassessment effort is the FHFA's intent to update its regulatory mission statement to provide clarity on the FHLBanks' role within the housing finance system. The updated guidance will outline expectations given contemporary market realities. The FHFA will also revise its supervisory and rating systems as well as member evaluation processes, fostering transparency, accountability, and efficiency within the FHLBank System's operational framework.

Amidst these regulatory refinements, the FHFA remains steadfast in its commitment to uphold the FHLBank System’s two primary objectives: to furnish stable and reliable liquidity to its member institutions and to support housing and community development initiatives.

As the FHLBank System undergoes regulatory recalibration, it will continue to serve as an essential player in bolstering the nation's housing market.

Furthermore, recognizing the significance of accountability and public trust, the FHFA seeks to enhance public reporting on individual FHLBank district performance in meeting mission targets. By fostering greater transparency and visibility, this enhanced reporting framework will not only bolster stakeholder confidence but also create a culture of continuous improvement and strategic alignment across the FHLBank System's diverse regional districts. In essence, these concerted efforts underscore the FHFA's commitment to ensuring the FHLBank System's resilience, relevance, and efficacy in advancing the nation's housing finance objectives.

Key Point 2: Continued Role as a Stable and Reliable Source of Funding

The report emphasizes the importance of delineating the distinct roles of the FHLBank System from that of the Federal Reserve Bank (FRB) emergency financing mechanisms, ensuring clarity and avoiding the perception of the FHLBanks as "lenders of last resort."

Last year’s bank failures catalyzed this issue, as large members like Silicon Valley Bank, Signature Bank, and First Republic Bank drew down billions of dollars’ worth of advances from the FHLBank System in short order prior to their demise.

The FHFA observed that despite the stigma of leveraging the Federal Reserve Discount Window in times of stress, the Federal Reserve Discount Window was created for this purpose. 

Moreover, the FHFA proposed that concrete member credit reviews must be conducted to proactively identify and mitigate risks to the FHLBank System. The report stresses the importance of reassessing a member’s repayment capacities, emphasizing a holistic evaluation beyond collateral considerations and tangible equity alone. Strengthening FHLBank capital management, including robust stress testing and a thorough review of retained earnings policies, is essential to protect against potential economic shocks. The report advises Banks and Credit Unions to work proactively with their respective FHLBank districts to understand these developments, as they could materially influence current collateral eligibility and related contingency funding arrangements.

In addition,  FHLBanks and the Federal Reserve will focus on streamlining the process for moving FHLBank-pledged collateral to the Federal Reserve Discount Window to expedite liquidity provisioning, enhancing the System's efficacy in supporting member institutions during times of financial strain. By adhering to these multifaceted strategies, the FHLBank System can reinforce its pivotal role in sustaining liquidity and promoting financial stability within the housing finance ecosystem.

Key Point 3: Housing and Community Development

To further its support of housing and community development across the country, the FHFA is focused on increasing support for mission-oriented organizations not currently members of the FHLBank System (non-depository CDFIs in particular).

Non-depository CDFIs specialize in providing services to low-to-moderate income communities but have struggled to garner membership due to unique business models and insufficient real estate-related collateral to pledge in support of advances. The development of alternative credit programs and eligible collateral changes may support this effort.

The report highlights the evolution of eligible collateral used by member institutions to secure advances from the FHLBank System. While each district bank dictates acceptable collateral types, haircuts, and valuation methods, the FHFA seeks to develop a formal Mission-Oriented Collateral (MOC) program that better synchronizes district requirements while encouraging the use of collateral that aligns with the FHLBanks’ mission of community housing support and development.

The FHFA will review these MOC program proposals presented by each FHLBank and may update regulations as a result. Depending upon the outcome, this could have implications on eligibility of collateral currently being pledged by member institutions, thus impacting contingency liquidity programs and current funding structures.  

The FHFA will re-evaluate its definition of “long-term advances” to determine potential borrowing eligibility for member institutions. Where short-term advances do not have any restrictions currently, the Bank Act requires that long-term advances only be made to member institutions in support of residential housing finance initiatives. Each FHLBank district performs proxy tests to ensure that members with long-term advances do not exceed the book value of residential housing finance assets in support of this mandate. (Current FHFA regulation defines advances with an original term to maturity of greater than five years as long-term). However, its Community Support Requirements (CSR) regulation defines any advance greater than one year as long-term. The FHFA will seek to align these definitions, which could impact the ability of members to obtain advances with terms greater than one-year (as proxy tests for eligibility would apply). This is particularly true for institutions with no meaningful level of residential collateral.

Key Point 4: System Operational Efficiency, Structure, & Governance

FHLBanks are tasked with seeking efficiencies through shared functions, consolidation, and collaboration initiatives. By establishing “Centers of Excellence,” this approach aims to streamline operations and enhance effectiveness across the FHLBank System. Additionally, FHFA will undertake a comprehensive review of the governance structures of FHLBanks, evaluating the size and expertise of their respective boards of directors. This evaluation is crucial for ensuring that governance practices align with the evolving needs and objectives of the FHLBank System.

Furthermore, FHFA plans to assess member counts within each district to determine if consolidation of districts is necessary, keeping in mind a minimum statutory requirement of eight districts. This evaluation will involve a thorough examination of regional needs and operational effectiveness, with the goal of optimizing the structure of the FHLBank System. These measures collectively aim to enhance the functionality and effectiveness of the FHLBank System in fulfilling its mission.


Apparent in the FHLBank System at 100 Report is the FHFA’s emphasis on maintaining relevance and effectiveness in an evolving landscape, while protecting its mission of promoting homeownership and economic development.

While the report may not have made front-page news, many of the items summarized above will have implications on the future relationship between the FHLBanks and member institutions.

Most noteworthy in the report is that the FHLBank should not be considered the lender of last resort. And clearly, the FHFA “has made it known” that the role of the FHLBank System is to provide liquidity for home ownership and community development as originally constituted.

As review efforts continue and regulatory proposals come to light in the not-too-distant future, member institutions are encouraged to work proactively with primary regulatory bodies and local FHLBanks to better anticipate looming changes and how they may impact go-forward operations and liquidity contingency planning.


For more insights from Darling Consulting Group, click here.



Geof Kelly is a Director at Darling Consulting Group. In his role, he partners with banks and credit unions throughout the country to improve the effectiveness of their asset/liability management (ALM) process. He collaborates with management teams to craft institution-specific strategies designed to enhance financial performance, while navigating interest rate, liquidity, and capital risk management within the dynamic economic and regulatory landscape. 


Geof joined Darling Consulting Group in 2024 with over a decade of industry experience in senior management capacities at banking and consulting institutions. He earned a B.S. in Accounting & Business Management and an M.S. in Accounting from the University of Massachusetts-Amherst. 


© 2024 Darling Consulting Group, Inc.


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