Federal Home Loan Banks

ABA Position

The Federal Home Loan Banks have been a fundamental part of the nation's financial system for more than eight decades, and they provide members with an important source of funding for mortgages, affordable housing, community development, and liquidity management.

The system has proven to be well designed; its cooperative structure ensures that each participant has an interest in its safety and soundness. Member institutions capitalize the system with their investment, and in return, they receive the benefit of borrowing at attractive rates, earning potential dividends on their investment, and eligibility for Affordable Housing Program funds (and other community support programs) in lieu of or in addition to potential dividends.

In November 2023, FHFA completed a review of the system and published 55 recommendations for changes, including clarifying the dual mission of the FHLBs to provide liquidity to members and support for affordable housing efforts by members; ensuring that FHLBs are not the “lender of last resort” for members; and strengthening member risk management.

ABA agrees that an expansion of the Affordable Housing Program (AHP) mandate or some other form of community support obligations may be appropriate. We are generally supportive of voluntary efforts by the FHLBs to expand their affordable housing efforts, and especially welcome efforts that help community banks further affordable housing efforts.

We believe the attention by FHFA to the FHLBs’ role in the provision of liquidity is both expected and reasonable. However, changes in this area have the potential for significant negative impact on banks of all sizes if not done with careful consideration by all stakeholders, including members and prudential regulators. No changes should be made without input and understanding by all impacted parties.

While FHFA made no specific recommendations to expand or restrict membership in the system, there are groups who have long advocated for access to the system or to restrict some banks’ existing access. ABA believes that restricting current members’ access or allowing entities with vastly different regulation, collateral and oversight into the system risks destabilizing it and putting existing members’ capital at risk, with potential negative cascading effects throughout the financial system and US economy.