The Future of the FHLBank System

The Federal Housing Finance Agency (FHFA) this week released a wide-ranging report on the Federal Home Loan Bank (FHLBank) System following a lengthy review.

The report, ‘FHLBank System at 100: Focusing on the Future’, outlines recommendations for strengthening the FHLBank System, ensuring its continued role as a stable and reliable source of liquidity for the nation's housing finance system.

FHLBanks have already begun responding to stakeholder feedback, voluntarily increasing their commitment to affordable housing and community development by 50% above the statutory minimum and exploring ways to further support community development financial institutions (CDFIs).

Ryan Donovan, president and CEO of the Council of Federal Home Loan Banks, said the report was just the beginning of what was expected to be “a long process aimed at ensuring the FHLBanks remain well positioned to serve their members and their members’ communities for the next 100 years”.

Donovan also emphasized that FHLBanks were committed to working with FHFA, their members, and other stakeholders to ensure that any changes in policy did not negatively impact their ability to provide essential liquidity and critical affordable housing and community development funding where needed.

Sandra Thompson, FHFA director, said the review had “provided an opportunity to assess the FHLBank System’s strengths and identify areas where it can further enhance its mission”.

Key recommendations from the review included:

• Modernizing the membership structure to ensure the FHLBanks remain relevant and accessible to a broad range of financial institutions.
• Enhancing the FHLBanks’ ability to support affordable housing and community development goals.
• Strengthening risk management practices to maintain the FHLBanks’ financial stability.

Rob Nichols, president and CEO at the American Bankers Association, praised the review as recognizing “the essential role of the Federal Home Loan Bank system”.

“The report makes clear that the FHFA understands the system’s important dual mission to serve as both a source of liquidity for member banks and as an avenue for members to advance affordable housing and community development,” Nichols said.

However, he also noted that some of the rulemaking actions outlined in the report “raise concern”, although he did not provide details.