The Federal Home Loan Bank (FHLB) system was created almost a century ago and has evolved over time to play an important role in monetary policy implementation. It is a key participant in money markets, providing liquidity to thousands of financial institutions in the U.S. This article looks at why this system was created, how it is structured, and the composition of its balance sheet.
The FHLB system currently consists of 11 institutions—each of which operates within a defined geographic area or district, as shown on the map below—and an Office of Finance that acts as the system’s fiscal agent. Collectively, they constitute one government-sponsored enterprise (GSE), which was established by Congress in 1932 through the Federal Home Loan Bank Act for the purpose of supporting the liquidity needs of residential mortgage lenders during the Great Depression. Since then, Congress has modified the FHLB system on several occasions, including following the savings and loan crisis of the 1980s, the 1986-1992 commercial banking crisis, and the 2008 mortgage crisis. The FHLB system is supervised and regulated by the Federal Housing Finance Agency, an independent agency established by the Housing and Economic Recovery Act of 2008.
