Study Shows FHLBanks Mitigate Bank Financial Stress, Deliver Billions in Economic Value
The Council of Federal Home Loan Banks, which represents FHLBank Boston and 10 other FHLBanks across the country, today announced the release of new research by the Urban Institute, a nationally respected, nonpartisan think tank based in in Washington, D.C.
About the Report
The study – the first in an expected three-part Urban Institute research series highlights that quantifies the value of the FHLBank System – measures the economic benefit the 11 Federal Home Loan Banks deliver by reducing systemic stress and lowering the likelihood of bank failures and estimates that these stability effects generate $13.2 billion to $21.4 billion in annual economic value, depending on market conditions.
This study is the first independent effort to assign a measurable dollar value to the FHLBanks’ liquidity and stability functions, helping to fill a long-standing gap in public understanding of the System’s essential economic contributions.
Report Highlights
Highlights of the study include:
- The FHLBanks deliver liquidity benefits to the U.S. economy of $13.2 to $21.4 billion annually – 1.9 to 3.1 times greater than the $6.9 billion annual benefit the Congressional Budget Office (CBO) estimated the FHLBanks receive from their government-sponsored enterprise (GSE) status in 2024.
- During periods of funding strain, banks turn to the FHLBanks. A one-percentage-point decline in liquid assets is associated with a 0.37-percentage-point increase in advances – demonstrating that the System provides a flexible liquidity backstop.
- FHLBank funding strengthens member-bank financial stability. A one-percentage-point increase in advances (as a share of assets) corresponds to a 19-point improvement in a bank’s solvency (z-score) the following quarter.
- FHLBank membership reduces the bank-failure rate by roughly 10% and yields $950 million in annual savings to the federal deposit-insurance system.
- FHLBank membership reduces overall systemic risk in the banking system. At the macro level, increased advances are associated with a persistent 0.3-percentage-point decline in systemic tail-risk (CATFIN index). Today, 86 percent of U.S. banking assets are held by FHLBank members – underscoring the System’s reach and importance. The FHLBank System acts as a shock absorber in the financial system. Access to advances during the March 2023 banking turmoil helped prevent additional failures by supplying liquidity earlier in the crisis timeline and giving regulators and policymakers more time to respond.
- The study also found that U.S. homeowners save $3.8 billion each year in lower-cost mortgages thanks to FHLBank liquidity.
