The 12 Federal Home Loan Banks are the only way most of community financial institutions can access the global capital markets. Structured as cooperatives, their customers are also their owners, fostering conservative management and a long-term view of financial performance.

Safety and Soundness

Federal Home Loan Banks have never incurred a loss on an advance, in eight decades of existence. This record is attributed to the collateralization of all advances, conservative underwriting standards and strong credit monitoring policies. All of the Federal Home Loan Banks' lending is fully collateralized. Additionally, if a loan in a pool of collateral is under-performing, it must be replaced. The credit profiles of members are actively monitored. Federal Home Loan Bank investments are also very safe. By regulation, they are prohibited from purchasing non-investment grade securities and nearly all of their investments are triple-A rated.

Federal Home Loan Banks are jointly and severally liable for their combined obligations. If any individual Bank would not be able to pay a creditor, the other eleven Banks are required to step in and cover that debt. This provides another level of safety and leads to prudent borrowing throughout the Federal Home Loan Bank System. In 2001, the Government Accountability Office noted, "Joint and several liability for the payment of consolidated obligations gives investors confidence that System debt will be paid."

The Basics

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