The primary purpose of the Federal Home Loan Banks is to provide their members with sure and steady funding. This addresses a key risk of bank management: unexpected funding needs of new assets or deposit withdrawals. There are a limited number of ways in which financial institutions can increase liquidity: attracting deposits, cutting expenses and accessing capital markets. It takes time to attract deposits, and smaller institutions, especially, are dependent on their local markets. There are only so many expenses that may be decreased while still providing quality service to customers. The Federal Home Loan Bank System is the only source of capital market access for the majority of their members-most community banks do not have the ability to access the debt markets on their own.
Advances-loans to members-are a nearly instantaneous way for members to get the liquidity they need. The Federal Home Loan Banks go to the debt markets several times a day to provide their members with the funding that they need. The size of the Federal Home Loan Bank System allows for these advances to be structured in any number of ways, allowing each member to find a funding strategy that is tailored to their specific needs
In order to access advances, a member must pledge high-quality collateral, in the form of mortgages, small business, and agriculture or community development loans. The member must also purchase additional, activity-based stock in proportion to their borrowing.