Arlington, VA — The Federal Home Loan Bank (FHLB) system has faced increasing criticism over the years, a trend that has intensified following the collapse of Silicon Valley Bank. Despite these criticisms, the FHLB continues to function as intended, providing essential support to its member banks and the communities they serve.

However, the Federal Housing Finance Agency (FHFA) recently published a report proposing substantial reforms to the FHLB system. These proposed changes are based on largely unfounded criticisms, which the American Consumer Institute (ACI) addresses in our new paper, The Federal Home Loan Bank, Tax-Free Liquidity to Supporting Housing. The primary criticisms addressed in the paper fall into three categories:

Read the full report here.

  1. Lack of Support for Small-to-Medium-Sized Banks: Critics argue that the FHLB does not adequately support small-to-medium-sized banks. This assertion overlooks the fact that a significant portion of FHLB’s membership consists of small and community banks, which rely on FHLB advances to manage liquidity and fund local lending.
  2. Cost to Taxpayers: There is a misconception that the FHLB system costs taxpayers money. In reality, the FHLB operates without taxpayer funding. It is a self-sustaining entity that funds its operations through the issuance of debt in the capital markets.
  3. Mission Shortcomings: Some claim that the FHLB has fallen short of its mission to support housing and community development. Contrary to this claim, the FHLB has a strong track record of funding affordable housing projects and community development initiatives.

ACI’s paper finds that the FHFA’s report and the resulting calls for reform are based on these misplaced assertions. The FHLB system is not broken and does not require substantial reforms. Instead, it should be allowed to continue its crucial role in supporting the financial stability of its member institutions and the communities they serve.

Read the full report below or by clicking here.

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The American Consumer Institute is a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter (X) @ConsumerPal.

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Nate Scherer is a Policy Analyst with the American Consumer Institute where he researches and writes about a diverse range of consumer issues. He previously served as a Policy Analyst at the Reason Foundation and has also worked for several other nonprofits including the Texas Public Policy Foundation and the Leadership Institute. More recently, he worked an educator for Fairfax County Public Schools and performed research for Georgetown University’s Edunomics Lab. He possesses a Master of Arts in Teaching in Secondary Education, Social Studies, and has a Bachelor of Arts in Politics. He currently resides in Falls Church, VA.