The Federal Home Loan Bank (FHLBank) System advances play a key role in supporting mortgage lending and community credit, a new study from the Urban Institute has found.
FHLBank is one of the nation’s largest government-sponsored enterprises and provides liquidity to 6,500 member banks, credit unions, insurance companies, and community development financial institutions.
The Urban Institute said its report looked at how advances and FHLBank membership affect total lending. It examined lending for housing, small businesses, agriculture, and community development. The report used more than two decades of data to assess how FHLBanks support lending.
The report analyzed bank members, both commercial and savings, as well as credit union members. These together account for more than 80 percent of all members during the 2002–24 period examined.
Created in 1932 to support mortgage lending and community credit, the FHLBank system has only been studied a few times, the Urban Institute said, to quantify the system’s impacts on member lending activity.
Urban Institute said it intended the study to help better understand the system.
Advances Associated with Higher Lending
“As policymakers and regulators reassess the system’s mission and structure, understanding how advances—the collateralized loans FHLBanks provide to members—affect real-world lending is essential. This report provides comprehensive national evidence on the relationship between advances and lending across commercial banks, savings institutions, and credit unions,” FHLBank said.
The study found that FHLBank advances are strongly associated with higher lending across banks and credit unions. It stated that from 2002 to 2024, advances increased correspondingly with higher lending levels, with larger effects observed after the 2008 financial crisis.
It said that a $100 increase in advances relative to assets is associated with $38 more in bank loans, rising to $48 after 2008. Those results, together with observed quarterly changes in advances, suggest that bank advance use expands total lending by between $75.6 billion and $97.3 billion per year, Urban Institute said.
According to the study, housing-related lending, which is central to the system’s mission, shows the clearest response. Urban Institute shows that a $100 increase in advances relative to assets is associated with an $18 increase in residential real estate loans over assets and $22 after 2008.
That translates to a $35.2 billion and a $45.6 billion annual overall residential real estate lending increase, Urban Institute said.
Expanded Mortgage-backed Securities
The study also said that banks expand mortgage-backed securities holdings and warehouse lending, showing that advances support mortgage activity via multiple channels.
Urban Institute said that analysis of Home Mortgage Disclosure Act data showed that a $100 increase in advances over assets is associated with $22 more in mortgage originations over assets, which rises to $38 in the post-2008 period. It said that smaller banks show strong responses, with a $51 increase in mortgage origination over assets post-2008.
The institute’s report said that lending to low- and moderate-income households also increases, and it indicates that advances can help grow access to mortgage credit for underserved borrowers.
While the effects are smaller than for residential real estate, advances are consistently linked to higher levels of small business, small farm, and community development lending. For every $100 in additional advances over assets, banks increase small business lending over assets by $2.40 and small farm lending over assets by $1.20, with the latter showing stronger effects after 2008. Small and midsize banks appear to rely more heavily on advances to support small business lending. Community development lending shows a weaker and less consistent association with advances, but the relationship is positive when the pandemic period (post-2019) is excluded.
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