As our nation and our communities rebound from the economic devastation caused by the COVID-19 pandemic, the Federal Home Loan Banks (FHLBs) play a key role in revitalizing local economies. FHLBs work behind the scenes to provide money to community financial institutions to lend to their customers, facilitating the purchase of homes and cars as well as the creation and expansion of businesses.

Don't need the primer? Click here to jump to "WBA Member Bankers Leading FHLB"

The steady supply of lendable funds from the FHLB helps community financial institutions invest in local needs including housing, jobs, and economic growth.

The vast majority of community financial institutions—including community banks, credit unions, commercial and savings banks, insurance companies, and community development financial institutions (CDFIs)—belong to at least one FHLB. The 11 regional banks are cooperatively owned by member financial institutions in all 50 states and U.S. territories.

The 11 Regional Federal Home Loan Bank Districts
Federal Home Loan Bank of:  States Included in District:
Atlanta AL, DC, FL, GA, MD, NC, SC, VA
Boston CT, ME, MA, NH, RI, VT
Chicago IL, WI
Cincinnati KY, OH, TN
Dallas AR, LA, MS, NM, TX
Des Moines AK, GU, HI, ID, IA, MN, MO, MT, ND, OR, SD, UT, WA, WY
Indianapolis IN, MI
New York NJ, NY, PR, VI
Pittsburgh DE, PA, WV
San Francisco AZ, CA, NV
Topeka CO, KS, NE, OK

What is the FHLB? 

Created in the midst of the Great Depression, the FHLBs were designed by Congress to revive home construction and foster a market for a brand-new financial product: the long-term fixed rate mortgage. Today, the FHLBs are expected to provide a stable source of mortgage credit to banks of all sizes, but its mission has expanded to a broader support for community development. 

The international market for FHLB debt helps community institutions stay competitive in communities across the U.S. The FHLB is also a source of grants and below-market loans to members for projects such as affordable housing. In the wake of the recent pandemic, many WBA member banks received grants from the FHLB of Chicago which they then distributed in their community, benefiting organizations like food pantries, children's museums, local chambers of commerce, and other non-profits. 

Read more about WBA members' community support during and after COVID-19 here. 

Who runs the FHLBs?

Each FHLB is governed by a Board of Directors (typically made up of 14-22 Directors) responsible for overall management and oversight of the Bank, pursuant to the Federal Home Loan Bank Act. These directors are all elected by member institutions of that FHLB. The majority of directors are directors or officers of FHLB member institutions, but at least 40% of the directors are independent. 

WBA is proud to have four member bankers currently serving as Directors of the Federal Home Loan Bank of Chicago: 

FHLB Board Chair John Reinke, Chair, The Stephenson National Bank & Trust, Marinette Joe Fazio, Co-Founder and CEO, Commerce State Bank, West Bend Jim Hegenbarth, President/CEO, The Park Bank, Madison Ty Taylor, President/CEO, Waukesha State Bank

FHLB-Chicago Board Nominations Due July 22
The Federal Home Loan Bank of Chicago has announced the timeline for the 2020 election of Bank Member and Independent Directors, with nominations due on Wednesday, July 22. Wisconsin has one member director eligible to be re-elected, Joe Fazio, Co-Founder and CEO of Commerce State Bank, West Bend. In addition, there are two independent director seats available for the district. More detail and nomination forms are available here. 

How is the FHLB funded?

The FHLBs are privately capitalized, meaning they receive no taxpayer funding. Community financial institutions buy stock in their local FHLB to become members. The FHLB Office of Finance issues discount notes and term debt (consolidated obligations) in the capital markets to provide capital. The issuances are backed collectively by all banks in the system, making it a much lower-risk investment than if the banks were to back their issued debt individually. 

WBA Member Bankers Leading the FHLB

Getting to know the FHLB on a deeper, more technical level requires a peek behind the curtain. WBA reached out to our member bankers currently serving as Directors at the FHLB-Chicago for their perspectives. 

While its model may seem relatively simple, Joe Fazio, co-founder and CEO of Commerce State Bank, West Bend, says learning the intricacies of the FHLB's business is the most challenging aspect of his directorship. "It is a complex business, and I learn more every day," he said. 

"There is an incredible amount of sophisticated financial engineering required to effectively minimize or eliminate risk in every individual member transaction, and at a macro level to do the same for the FHLB's total portfolio and business," Fazio continued. "This allows it to consistently deliver competitive advances and mortgages to all the members. The FHLB is very attuned to the financial markets and the mortgage market and their respective activity."

Ty Taylor, president/CEO of Waukesha State Bank, also says he's learned a lot from being an FHLB Director, and that the banks don't get the credit it deserves for its role in the broader financial system. "The FHLB system is unappreciated in the important role it plays in supporting mortgage financing, especially for community banks," he said. 

For example, Taylor believes the FHLB is playing a key role in funding the Paycheck Protection Program loans that are serving as a lifeline for many small businesses across the country right now. In order to fund these low-cost loans (most to be converted to grants through the forgiveness process), many institutions have relied on their FHLB.

Also unspoken is the leadership role of our own Federal Home Loan Bank. "The FHLB-Chicago plays a significant leadership role in the System that goes unrecognized," said Taylor. 

Both Fazio and Taylor said their favorite aspect of serving as a Director has been the collaboration with other board members and FHLB-Chicago staff. "It is fascinating and educational to see highly competent and confident finance professionals consistently deliver for the members," Fazio said. 

The FHLB system strives to be a steady partner for its member institutions. "They want to be the lender of choice for liquidity whether we are in good or bad economic times," Fazio explained. "They will be the lender of last resort, and have never taken a loss on advances. That's impressive." 

Seitz is WBA operations manager and senior writer.