Ownership
The 12 banks of the FHLBank System are
owned by over 8,100 regulated financial institutions from all 50 states,
U.S. possessions, and territories. Equity in the FHLBanks is held by these
owner/members and is not publicly traded. Institutions must purchase stock
in order to become a member. In return, members obtain access to low-cost
funding, and also receive dividends based on their stock ownership. The
FHLBanks are self-capitalizing in that as members seek to increase their
borrowing, they must first purchase additional stock to support the
activity. FHLBanks are exempt from state and local income taxes, but are
subject to property taxes. The FHLBanks also pay an assessment of 10% of
annual earnings for affordable housing programs, and 20% of annual earnings
to support the Resolution Funding Corporation (REFCORP). The mission of the
FHLBanks reflects a public purpose (increase access to housing and aid
communities by extending credit to member financial institutions), but all
12 are privately capitalized and, apart from the tax privileges, do not
receive taxpayer assistance.
Financial
Results and Condition
On August 13, 2008, the FHLBanks Office of
Finance published the second quarter combined financial report. For Q208,
the FHLBanks recorded net income of $718 million, up 14% from the same
period one year before. For the six months ended June 30, total earnings
were $1.415 billion, a 13% increase over the same period in 2007. Combined
assets of the 12 Federal Home Loan Banks were $1,344 billion at the close of
Q208. Of this total, secured loans equaled $914 billion, or about 68% of
assets. Investments were the second largest component at $334 billion, or
25% of assets. Mortgage loans held in portfolio were $89 billion, or less
than 7% of assets. The FHLBanks made affordable housing contributions of
$176 million in the first half of 2008, up 25% from the year-ago period
reflecting the increase in net income. Compared to year-end 2007, secured
loans, investments, net income, capital and affordable housing contributions
increased, while the mortgage loan portfolio decreased.
The principal investments of the FHLBanks
are secured loans to members, Federal funds sold, commercial paper,
mortgage-backed securities, and GSE securities. The FHLBanks are required by
regulation to hold collateral in excess of the actual loan amount for any
given borrower. The FHLBanks are funded through the daily sale of debt
securities in the global capital markets. All 12 FHLBanks are jointly and
severally liable for the liabilities of each individual FHLBank. Since
August 2006, all 12 Banks have been registered with the United States
Securities and Exchange Commission and all financial statements and other
filings are available to the public at the SEC web site (EDGAR). (See
external links)
According to Bloomberg, the FHLB is the
largest U.S. borrower after the federal government.
History
Congress passed the Federal Home Loan Bank
Act, which established the FHLBank System, in 1932, during the Great
Depression. This was in order to provide funds to "building and loan"
institutions, providing liquidity and making mortgages available. The
Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
abolished the Federal Home Loan Bank Board and transferred responsibility
for oversight of the Federal Home Loan Banks to the Federal Housing Finance
Board. At that time the Bank Board’s previous supervisory and regulatory
responsibilities with respect to thrift institutions and their holding
companies were transferred to the newly created Office of Thrift
Supervision, under the U.S. Department of the Treasury. FIRREA also allowed
all federally-insured depository institutions to join the FHLBank System,
including commercial banks and credit unions.
On July 30, 2008, the Housing and Economic
Recovery Act of 2008 (HERA) became law. The FHLBanks were referenced in this
legislation, and the two changes were 1) the existing regulator (the Federal
Housing Finance Board) was replaced with the Federal Housing Finance Agency,
and 2) the Secretary of the Treasury was authorized to purchase FHLBank debt
securities in any amount through December 31, 2009. After that time, the
limit would return to the original $4 billion.
On September 7, 2008, the U.S. Treasury
announced a new credit facility for the three housing government-sponsored
enterprises. This enables the Secretary of the Treasury to purchase FHLBank
debt in any amount subject to the pledging of secured loans as collateral.
The authority for this facility expires on December 31, 2009.
On January 8, 2009, Moody's said that only
4 of the 12 FHLBs may be able to maintain minimum required capital levels
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