Flood: Federal Home Loan Banks Strengthen Communities Through Liquidity and Housing Support

Today, the House Financial Services Committee is holding a Housing and Insurance Subcommittee hearing, led by Subcommittee Chairman Mike Flood (NE-01), to examine the Federal Home Loan Banks’ role in providing liquidity to financial institutions and supporting affordable housing and community development.

Read Subcommittee Chairman Flood’s opening remarks as prepared for delivery:

"Today, we will examine the dual roles of the Federal Home Loan Banks, both in providing liquidity to member institutions and their obligation to housing affordability. 

"The Federal Home Loan Bank Act of 1932 created the Federal Home Loan Bank system. At the time, these institutions were created to address liquidity challenges experienced by mortgage lenders during the Great Depression. 

"The eleven Federal Home Loan Banks are federally chartered cooperative financial institutions. Each Federal Home Loan Bank is privately owned and capitalized by its members, but the Federal Home Loan Bank System collectively constitutes a government-sponsored-enterprise. 

"The Federal Home Loan Banks were capitalized by Treasury when they began, but they repaid that investment in 1951 and have not received direct federal financial assistance since then. 

"However, the Federal Home Loan Bank System does enjoy some privileges due to its federal status. The system enjoys an implicit federal guarantee, which makes it easier for the banks to find buyers of their debt. Additionally, they are exempt from federal, state, and local taxes. 

"Let’s talk about how the Federal Home Loan Banks actually provide liquidity to the market in practice: 

"If a member institution requires liquidity, the Federal Home Loan Banks can provide advances, or short-term cash loans, to that member. Those loans are secured by collateral from the member institution. 

"To fund these advances, the Federal Home Loan Bank system issues debt, and their debt is issued jointly—meaning that all eleven banks are liable to cover the debt together. 

"That structure helps provide confidence to investors that the Federal Home Loan Banks’ debt is reliable and low-risk, driving demand for their debt. 

"For member institutions, these advances can help bridge gaps with liquidity, and they can also help finance loans in the community, like mortgage loans. These advances serve as an additional funding source that provides stability in particular to community banks. 

"Their mission has changed since their charter in the 1930s—most notably, they now have a requirement to provide affordable housing grants in their respective districts. 

"Since 1995, the Federal Home Loan Banks are required annually to contribute 10% of their profits to affordable housing projects through what’s called the “Affordable Housing Program.” Additionally, many of the Federal Home Loan Banks contribute an additional 5% of their profits to affordable housing activities on a voluntary basis. 

"These AHP grants are a large source of affordable housing development dollars. Last year, the Federal Home Loan Bank System committed more than $1.1 billion to support affordable housing and community development initiatives.

"To sum things up, the Federal Home Loan Banks serve important and related dual roles.  

"They provide short-term liquidity to member institutions that can be used to provide more loans at the local level, and they provide direct assistance through grants in the Affordable Housing Program to communities across the country. 

"I have seen first-hand in my district the important role of the Federal Home Loan Banks. I have found the Federal Home Loan Bank of Topeka’s housing programs to be more efficient and effective in getting capital out to communities than many other federal grant programs. 

"In fact, I feel so strongly about the value of the Federal Home Loan Banks’ community development capabilities—that I have set up meetings between the Federal Home Loan Bank of Topeka and several communities in my district.  

"Those meetings have helped facilitate more investment in my part of the state, and they have helped inform my view that the Federal Home Loan Banks are integral to communities across the country.  

"Both of their roles, providing liquidity to member institutions and directly supporting housing, are important parts of building stronger communities. 

"My goal with this hearing is to better understand how the Federal Home Loan Banks operate, and better understand what, if any, changes to their charter would improve their operations and strengthen their impact. 

"I yield back."