The Bank’s mission is to provide its members with readily available liquidity,
including serving as a low-cost source of funds for housing and community development.
The Bank strives to enhance the availability of credit for residential mortgages
and targeted community development. The Bank manages its own liquidity so that
funds are available to meet members’ demand for advances (loans to members
and eligible nonmember housing associates). By providing needed liquidity and
enhancing competition in the mortgage market, the Bank’s lending programs
benefit homebuyers and communities.
The Bank is one of 11 Federal Home Loan Banks (FHLBanks). The FHLBanks operate
as separate entities with their own managements, employees and boards of directors.
The 11 FHLBanks, along with the Office of Finance (OF - the FHLBanks’
fiscal agent) comprise the FHLBank System. The FHLBanks were organized under
the authority of the Federal Home Loan Bank Act of 1932, as amended (the Act).
The FHLBanks are commonly referred to as government-sponsored enterprises (GSEs),
which generally mean they are a combination of private capital and public sponsorship.
The public sponsorship attributes include: (1) being exempt from federal, state
and local taxation, except real estate taxes; (2) being exempt from registration
under the Securities Act of 1933 (the 1933 Act) (although the FHLBanks are required
by Federal Housing Finance Agency (FHFA or Finance Agency) regulation and the
Housing and Economic Recovery Act of 2008 (the Housing Act or HERA) to register
a class of their equity securities under the Securities Exchange Act of 1934
(the 1934 Act)) and (3) having a line of credit with the U.S. Treasury. This
line represents the U.S. Treasury’s authority to purchase consolidated
obligations in an amount up to $4 billion.
The Bank is a cooperative institution, owned by financial institutions that
are also its primary customers. Any building and loan association, savings and
loan association, commercial bank, homestead association, insurance company,
savings bank, credit union, community development financial institution (CDFI),
or insured depository institution that maintains its principal place of business
in Delaware, Pennsylvania or West Virginia and that meets varying requirements
can apply for membership in the Bank. All members are required to purchase capital
stock in the Bank as a condition of membership. The capital stock of the Bank
can be purchased only by members.
The Bank’s primary mission is to intermediate between the capital markets
and the housing market through member financial institutions. The Bank provides
credit for housing and community development through two primary programs. First,
it provides members with advances against the security of residential mortgages
and other types of high-quality collateral. Second, the Bank purchases residential
mortgage loans originated by or through eligible member institutions. The Bank
also offers other types of credit and noncredit products and services to member
institutions. These include letters of credit, interest rate exchange agreements
(interest rate swaps, caps, collars, floors, swaptions and similar transactions),
affordable housing grants, securities safekeeping, and deposit products and
services. The Bank issues debt to the public (consolidated obligation bonds
and discount notes) in the capital markets through the OF and uses these funds
to provide its member financial institutions with a reliable source of credit
for these programs. The U.S. government does not guarantee the debt securities
or other obligations of the Bank or the FHLBank System.
As a GSE, the Bank’s principal strategic position has historically been
derived from its ability to raise funds in the capital markets at narrow spreads
to the U.S. Treasury yield curve. This fundamental competitive advantage, coupled
with the joint and several cross-guarantee on FHLBank System debt, has distinguished
the Bank in the capital markets and has enabled it to provide attractively priced
funding to members.
Though chartered by Congress, the Bank is privately capitalized by its member
institutions, which are voluntary participants in its cooperative structure.
The characterization of the Bank as a voluntary cooperative with the status
of a federal instrumentality differentiates the Bank from a traditional banking
institution in three principal ways:
Members voluntarily commit capital required for membership principally to
gain access to the funding and other services provided by the Bank. The value
in membership is derived from the access to liquidity and the availability of
favorably priced liquidity, as well as the potential for a dividend on the capital
investment. Management recognizes that financial institutions choose membership
in the Bank principally for access to attractively priced liquidity, the value
of the products offered within this cooperative, and the potential to receive
dividends.
Because the Bank’s customers and shareholders are predominantly the same
institutions, normally there is a need to balance the pricing expectations of
customers with the dividend expectations of shareholders. By charging wider
spreads on loans to customers, the Bank could potentially generate higher earnings
and potentially dividends for shareholders. Yet these same shareholders viewed
as customers would generally prefer narrower loan spreads. The Bank strives
to achieve a balance between the goals of providing liquidity and other services
to members at advantageous prices and potentially generating a market-based
dividend. The Bank typically does not strive to maximize the dividend yield
on the stock, but to produce a dividend that compares favorably to short-term
interest rates, compensating members for the cost of the capital they have invested
in the Bank.
The Bank is different from a traditional banking institution because its GSE
charter is based on a public policy purpose to assure liquidity for its members
and to enhance the availability of affordable housing for lower-income households.
In upholding its public policy mission, the Bank offers a number of programs
that consume a portion of earnings that might otherwise be available to its
shareholders. The cooperative GSE character of this voluntary membership organization
leads management to strive to optimize the primary purpose of membership, access
to funding, as well as the overall value of Bank membership.
Nonmember Borrowers. In addition to member institutions, the Bank is permitted
under the Act to make advances to nonmember housing associates that are approved
mortgagees under Title II of the National Housing Act. These eligible housing
associates must be chartered under law, be subject to inspection and supervision
by a governmental agency, and lend their own funds as their principal activity
in the mortgage field. The Bank must approve each applicant. Housing associates
are not subject to certain provisions of the Act that are applicable to members,
such as the capital stock purchase requirements. However, they are generally
subject to more restrictive lending and collateral requirements than those applicable
to members. Housing associates that are not state housing finance agencies are
limited to pledging to the Bank as security for advances their Federal Housing
Administration (FHA) mortgage loans and securities backed by FHA mortgage loans.
Housing associates that are state housing finance agencies (that is, they are
also instrumentalities of state or local governments) may, in addition to pledging
FHA mortgages and securities backed by FHA mortgages, also pledge the following
as collateral for Bank advances: (1) U.S. Treasury and agency securities; (2)
single and multifamily mortgages; (3) AAA-rated securities backed by single
and multifamily mortgages; and (4) deposits with the Bank.
%
25.85%