The Federal Home Loan Bank of Dallas is one of 11 Federal Home Loan Banks (each
individually a “FHLBank” and collectively the “FHLBanks,”
and, together with the Office of Finance, a joint office of the FHLBanks, the
“FHLBank System,” or the “System”). The FHLBanks were
created by the Federal Home Loan Bank Act of 1932, as amended (the “FHLB
Act”). Each of the 11 FHLBanks is a member-owned cooperative that operates
as a separate federally chartered corporation with its own management, employees
and board of directors. Each FHLBank helps finance housing, community lending,
and community development needs in the specified states in its respective district.
Federally insured commercial banks, savings banks, savings and loan associations,
and credit unions, as well as insurance companies and Community Development
Financial Institutions that are certified under the Community Development Banking
and Financial Institutions Act of 1994, are all eligible for membership in the
FHLBank of the district in which the institution’s principal place of
business is located. Housing associates, including state and local housing authorities,
that meet certain statutory and regulatory criteria may also borrow from the
FHLBanks.
The public purpose of the Bank is to promote housing, jobs and general prosperity
through products and services that assist its members in providing affordable
credit in their communities. The Bank’s primary business is to serve as
a financial intermediary between the capital markets and its members. In its
most basic form, this intermediation process involves raising funds by issuing
debt in the capital markets and lending the proceeds to member institutions
(in the form of loans known as advances) at rates that are slightly higher than
the cost of the debt. The interest spread between the cost of the Bank’s
liabilities and the yield on its assets, combined with the earnings on its invested
capital, are the Bank’s primary sources of earnings. The Bank endeavors
to manage its assets and liabilities in such a way that its net interest spread
is consistent across a wide range of interest rate environments. The intermediation
of its members’ credit needs with the investment requirements of the Bank’s
creditors is made possible by the extensive use of interest rate exchange agreements.
These agreements, commonly referred to as derivatives or derivative instruments,
are discussed below in the section entitled “Use of Interest Rate Exchange
Agreements.”
The Bank’s principal source of funds is debt issued in the capital markets.
All 11 FHLBanks issue debt in the form of consolidated obligations through the
Office of Finance as their agent, and each FHLBank uses these funds to make
loans to its members, invest in debt securities, or for other business purposes.
Generally, consolidated obligations are traded in the over-the-counter market.
All 11 FHLBanks are jointly and severally liable for the repayment of all consolidated
obligations. Although consolidated obligations are not obligations of or guaranteed
by the U.S. government, FHLBanks are considered to be government-sponsored enterprises
(“GSEs”) and thus have historically been able to borrow at the more
favorable rates generally available to GSEs. Consolidated obligations are currently
rated Aaa/P-1 by Moody’s Investors Service (“Moody’s”)
and AA+/A-1+ by Standard & Poor’s (“S&P”). In the
application of S&Ps Government Related Entities criteria, the ratings of
the FHLBanks are constrained by the long-term sovereign credit rating of the
United States. These ratings indicate that each of these nationally recognized
statistical rating organizations ("NRSROs") has concluded that the
FHLBanks have a very strong capacity to meet their financial commitments on
consolidated obligations. The ratings also reflect the FHLBank System’s
status as a GSE. Historically, the FHLBanks GSE status and very high credit
ratings on consolidated obligations have provided the FHLBanks with excellent
capital markets access. Deposits, other borrowings and the proceeds from the
issuance of capital stock to members are also sources of funds for the Bank.
In addition to the ratings on the FHLBanks’ consolidated obligations,
each FHLBank is rated individually by both S&P and Moody’s. These
individual FHLBank ratings apply to the individual obligations of the respective
FHLBanks, such as interest rate derivatives, deposits, and letters of credit.
Current and prospective shareholders and debtholders should understand that
these credit ratings are not a recommendation to buy, hold or sell securities
and they may be revised or withdrawn at any time by the NRSRO. The ratings from
each of the NRSROs should be evaluated independently.
All members of the Bank are required to purchase capital stock in the Bank as
a condition of membership and in proportion to their asset size and borrowing
activity with the Bank. The Bank’s capital stock is not publicly traded
and all stock is owned by members of the Bank, by non-member institutions that
acquire stock by virtue of acquiring member institutions, by a federal or state
agency or insurer acting as a receiver of a closed institution, or by former
members of the Bank that retain capital stock to support advances or other obligations
that remain outstanding or until any applicable stock redemption or withdrawal
notice period expires.
%