Definition
The Federal Home Loan Bank System was established in 1932 by the Federal Home Loan Bank Act during the Great Depression to provide stable, low-cost funding to American financial institutions for home mortgage lending, community investment, and affordable housing projects. The system consisted of twelve regional banks that acted as a reserve system for savings and loan associations, cooperative banks, and other mortgage lenders, providing them with credit in a manner similar to the Federal Reserve Bank’s support for commercial banks.
Examples
- Savings and Loan Associations (S&Ls): Financial institutions that specialized in accepting savings deposits and making mortgage loans. During the mid-20th century, S&Ls relied heavily on credit from the Federal Home Loan Bank System to finance their mortgage lending activities.
- Cooperative Banks: Member-owned financial institutions that provided traditional banking services with an emphasis on serving the community. These banks benefitted from the credit reserves provided by the Federal Home Loan Bank System to support their mortgage lending.
- Affordable Housing Projects: Nonprofit organizations and community developers accessed funding through local banks, which in turn used the Federal Home Loan Bank System to secure credit and promote affordable housing development.
Frequently Asked Questions
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What was the primary purpose of the Federal Home Loan Bank System?
Answer: The primary purpose of the Federal Home Loan Bank System was to provide a stable source of funding to member financial institutions to promote home mortgage lending, community investment, and affordable housing.
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How did the Federal Home Loan Bank System support mortgage lenders?
Answer: The system supported mortgage lenders by supplying them with credit reserves, which allowed these institutions to finance more mortgage loans and support housing developments.
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What types of financial institutions were members of the Federal Home Loan Bank System?
Answer: Members included savings and loan associations, cooperative banks, and other mortgage lenders.
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How many regional banks made up the Federal Home Loan Bank System?
Answer: The system comprised twelve regional banks.
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What legislation established the Federal Home Loan Bank System?
Answer: The system was established by the Federal Home Loan Bank Act of 1932.
Related Terms
- Federal Reserve Bank: The central bank of the United States, providing credit reserve support to commercial banks.
- Federal Home Loan Bank Act: The 1932 act of Congress that created the Federal Home Loan Bank System.
- Savings and Loan Association (S&L): Financial institutions specializing in accepting savings deposits and making mortgage loans.
- Cooperative Bank: A financial institution owned and operated by its members, focused on serving their community.
Online References
- Federal Housing Finance Agency - Overview of the FHLB System
- The Library of Congress - Federal Home Loan System
Suggested Books for Further Studies
- Quinn, S. (2009). “The History of the Federal Home Loan Bank System, 1932-1990.”
- Opdyke, J. D. (2008). “The Federal Home Loan Bank System: Its Roots in Stimulating Homeownership.”
- Gorton, G. B. (2010). “Slapped by the Invisible Hand: The Panic of 2007.”
Fundamentals of Federal Home Loan Bank System: Finance and Banking Basics Quiz
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