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What is the Federal Home Loan Bank Act?

In the backdrop of the 1932 financial landscape, a significant piece of legislation was crafted to bolster homeownership in the United States—the Federal Home Loan Bank Act (FHLBA). This groundbreaking law was a game-changer, creating a foundation of low-cost funds, specifically earmarked for member banks to extend as mortgage loans to aspiring homeowners.

The Federal Home Loan Bank Act was a legislative pioneer, setting a precedent for federal regulation and oversight in economic matters. The bill was put into motion under the auspices of President Hoover, amidst an era marked by financial turmoil. The key objective of this legislation was to streamline the liquidity access to banks to fuel home loans, thereby making it feasible for a larger proportion of Americans to acquire permanent residences.

In essence, the FHLBA gave birth to the Federal Home Loan Bank (FHLB) system, which persists today, functioning as a cooperative banking network for various lending institutions that offer home loans. This system currently constitutes 11 FHL banks, a robust structure that has withstood the test of time.

Fundamentally, the FHLB system operates on a membership basis. Participating institutions, spanning the majority of the nation’s lending institutions (over 80 percent, according to the FHLB website), purchase stock in the bank. This ownership stake entitles them to borrow from the FHLB, and these borrowed funds are then channeled into customer loans. In turn, loans from the FHLB are priced at a minimal spread over comparable US Treasuries, ensuring cost-efficiency.

This legislation also introduced the Federal Home Loan Bank Board (FHLBB), an entity which was later replaced by the Federal Housing Finance Agency (FHFA). In the contemporary financial realm, the FHFA plays a pivotal role, overseeing the activities of the FHL banks, along with prominent institutions such as Fannie Mae and Freddie Mac.

The FHLB system secures its funding through the sale of Consolidated Obligations to the public. However, it's worth noting that while the FHLB system itself is registered with the Securities and Exchange Commission (SEC), the 11 individual FHL banks are not.

The far-reaching impact of the Federal Home Loan Bank Act is undeniable. Beyond merely creating a source of low-cost funds, it introduced an element of stability and credibility to the loan industry, giving a much-needed boost to the housing industry during a precarious time. It fostered an environment where homeownership evolved from a distant dream to a tangible goal for more Americans, highlighting the crucial role of federal legislation in regulating and stimulating economic progress.

Today, over 90 years since its inception, the Federal Home Loan Bank Act continues to be an integral part of the American housing finance system. Its enduring legacy stands as a testament to the transformative power of policy in reshaping the economic and social landscape of a nation.


The Federal Home Loan Bank Act was signed into law by President Hoover in 1932.

The goal of the legislation was to make liquidity more accessible to banks for the purpose of making home loans, so that more Americans could acquire permanent residences. The bill established the FHL Bank system, which now consists of 11 FHL banks.

The Federal Home Loan Bank Act of 1932 established the FHL Bank system, which is a co-operative banking network for banks and other lending institutions who make home loans. The FHL banks are owned by their member institutions, who purchase stock in the bank and are then permitted to take loans out from it, using that money to provide loans to customers.

The Federal Housing Finance Agency, or FHFA, oversees the FHL banks as well as Fannie Mae and Freddie Mac. According to the FHL website, over 80 percent of the nation’s lending institutions make use of the FHL for their liquidity needs. Loans are priced at a small spread over comparable US Treasuries.

Funds for the FHL are generated through the sale of Consolidated Obligations to the general public, but, while the FHL System is registered with the SEC, the 11 individual FHL banks are not.

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Disclaimers and Limitations

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