Federal Home Loan Bank System

System that supplies credit reserves to U.S. Savings and loan associations and other mortgage-lending financial institutions; its functions are similar to what the Federal Reserve System does for commercial banks. The Federal Home Loan Bank System consists of twelve regional federal home loan banks that make low-rate advances to savings and loan associations, cooperative banks, and commercial banks. It raises money by selling notes and bonds in the financial markets. The Federal Home Loan Bank System was created in 1932 following a wave of bank failures to help restore confidence in the nation's financial system and improve the supply of funds available for home loans. In 1989 Congress passed a law (the Financial Institutions Reform, Recovery and Enforcement Act) to address the wave of savings and loan failures in the 1980s caused by poor real estate investments. The Federal Home Loan Bank Board was replaced as chief financial regulator by a new agency, the Federal Housing Finance Board, which now oversees the Home Loan Bank System. In 1989 the Federal Home Loan Bank System's public policy mission was expanded to include affordable housing and community development lending. Since 1997 the regional home loan banks have purchased pools of conforming mortgage loans under a cooperative risk-sharing arrangement (called Mortgage Partnership Finance or Mortgage Purchase, depending on the district bank involved) with the originating financial institutions. The Financial Services Modernization Act of 1999 (the Gramm-Leach-Bliley Act) expanded the types of collateral for credit advances to include small business loans and farm and agribusiness loans and permitted commercial banks to become member institutions if they originated a certain percentage of their loans as residential mortgages. See also Qualified Thrift Lender.

A federally created banking system primarily intended to assure Liquidity to qualified thrift lenders. The Office of Thrift Supervision was established to replace the Federal Home Loan Bank Board, as part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (firrea).