A year’s worth of listening sessions, roundtables, written
comments and other public engagement about the Federal Home Loan Bank (FHLBank)
System culminated in the Federal Housing Finance Agency’s (FHFA) report,
“FHLBank System at 100: Focusing on the Future.” The report was compiled in
anticipation of the system’s centennial in 2032.
“The Federal Home Loan Bank System is a critical component
of the nation’s broader housing finance system,” FHFA Director Sandra Thompson
said in a release. “FHFA is focused on ensuring that the FHLBank System serves
as a stable and reliable source of liquidity in support of its housing finance
and community development objectives – and does so in a safe and sound manner.”
The “FHLBank System at 100: Focusing on the Future”
initiative launched in August 2022 as part of a comprehensive review by the
FHFA of the role of the system, analyzing its strengths and areas for
improvement, clarifying its mission and updating how FHFA evaluates its
performance in achieving that mission.
The Federal Home Loan Bank Act established the FHLBank
System in 1932 to help revive the housing market after the Great Depression and
to create a reliable source of liquidity and support to mortgage lenders. Today,
it consists of 11 regional FHLBanks and the Office of Finance, which serves as
fiscal agent. The system connects lending institutions to the global capital
markets, helping lenders better support housing and community development.
“While the nation’s housing finance system has changed
dramatically over the past 90 years, providing liquidity to support housing
finance and community development, especially through small, community-based
institutions with limited access to capital markets, remains a critical and
core focus of the system,” the report stated.
The FHFA stated in the report that feedback provided by
nearly 800 stakeholders who spoke at a listening session, participated in a
roundtable discussion, or submitted written input generally fell into one of
two categories.
“Most current depository and insurance company members, and
industry groups that represent these members, were primarily focused on ongoing
access to liquidity and conveyed the view that changes to the FHLBank System
were not warranted,” the report stated. “They cautioned that changes could
jeopardize the FHLBanks’ ability to provide stable and reliable liquidity to
members — in particular, smaller members that have limited access to other
sources of capital.
“Others, including non-depository CDFIs, small credit
unions, affordable housing advocates and practitioners, community development
organizations, representatives from fair housing organizations, and individuals
who had previously engaged with the FHLBank System questioned whether the
FHLBanks had strayed from their ‘public purpose’ of funding mortgage lending
and supporting affordable housing and community development. Numerous
participants questioned whether current FHLBank activities justify the benefit
the FHLBanks derive from their GSE status. While supportive of the FHLBank
System, these stakeholders expressed the view that the FHLBanks should ensure
that a greater portion of the benefit flows through to consumers and
communities.”
This year’s bank failures highlighted an area of the FHLBank
System that is recommended for review.
“[The] bank failures and the ongoing market stress
highlighted the need for a clearer distinction between the appropriate role of
the FHLBanks, which provide funding to support their members’ liquidity needs
across the economic cycle, and that of the Federal Reserve, which maintains the
primary financing facility for troubled institutions with immediate, emergency
liquidity needs,” the report stated. “The FHLBanks must also work with their
members’ primary regulators to ensure processes are built to meet the needs of
members in all market conditions.”
Another area the report indicated warrants further review is
FHLBank’s structural and governance requirements.
“The regional composition of the FHLBank System has been,
and likely will continue to be, impacted by demographic shifts and
consolidation among members — trends that will require continued monitoring and
analysis,” the report stated. “The FHLBanks should collaborate, where
appropriate, to achieve greater operational efficiencies and improve delivery
of products and services. FHFA will explore opportunities to harmonize member
eligibility requirements and modernize the composition and size of FHLBank
boards of directors.”
The FHFA called the report a “blueprint” for improving the
FHLBank System.
“The publication of this report represents the beginning of
a multi-year, collaborative effort with stakeholders to address the recommended
actions in the report,” the report stated. “FHFA can implement some of the
recommendations through ongoing supervision, as well as rulemaking or guidance,
under existing statutory authorities. However, there are some recommendations
that can only be fully implemented through Congressional action.”