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FHLBank Advances
Advances are low cost loans made by the Federal Home Loan Banks (FHLBanks) to member institutions, including federally insured savings associations, commercial banks, credit unions and insurance companies. Advances ensure that financial institutions will have sufficient funds to meet the credit needs of their communities. All member financial institutions know that FHLBanks will be there for them, and this enables these institutions to do even more in their communities.
Advances are the primary FHLBank product. At the end of 2006 the total advances distributed to members of the twelve FHLBanks was $641 billion.
FHLBanks fund advances by selling debt in capital markets, thus becoming a link between Wall Street and the more than 8,100 main street member lenders institutions that make up the FHLBank System.
Benefits
Advances benefit member institutions and the nation’s banking system in several ways:
- Advances increase the availability of residential mortgage and community investment credit, thus lowering borrowing costs for homebuyers, small businesses and other community borrowers.
- Advances enable member institutions to ensure a steady flow of credit and other services for housing and community development. Advances provide funding to smaller lenders that lack access to funding sources available to larger entities.
Collateral
- FHLBank members that borrow advances must pledge collateral against them. By statute, that collateral is limited to major types of mortgage loans and mortgage-backed securities. In addition, Community Financial Institutions (CFIs), those with assets of less than $567 million, may also pledge small business and agricultural loans.
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