Why It Matters

The House Financial Services Subcommittee on Housing and Insurance held an oversight hearing on the Federal Home Loan Banks system Tuesday, July 21, as lawmakers weigh competing proposals to reshape a trillion-dollar financial network that has faced criticism for straying from its affordable housing mission.

The Federal Home Loan Bank system, created in 1932, operates as a network of 11 federally chartered cooperative institutions that provide short-term cash loans to roughly 6,500 member banks and thrifts. The system represents a trillion-dollar financial apparatus supported by an estimated net federal subsidy of roughly seven billion dollars annually through tax exemptions, a Treasury credit line, and an implicit federal guarantee.

The Big Picture

The timing of the hearing reflects growing scrutiny of how Federal Home Loan Banks deployed advances during the March 2023 banking crisis, according to a 2026 Government Accountability Office (GAO) report. The system is overseen and regulated by the Federal Housing Finance Agency.

The GAO testimony examined how Federal Home Loan Banks responded during March 2023 when several banks experienced stress. The agency found that 97 percent of the increase in Federal Home Loan Bank borrowing during the first quarter of 2023 was driven by a small number of large banks. The report noted that Federal Home Loan Banks increased communication with regulators and began limiting exposure to troubled institutions. However, the agency identified coordination challenges between Federal Home Loan Banks and the Federal Reserve, highlighting gaps in how the two systems communicate during crises.

The hearing featured testimony from four witnesses bringing distinct perspectives to the debate: Jill M. Naamane of the U.S. Government Accountability Office; Ryan Donovan of the Council of Federal Home Loan Banks; Barry Lockard of Cornhusker Bank; Professor Kathryn Judge of Columbia University.

The Council of Federal Home Loan Banks countered that assertions about mission drift rest on an unduly narrow understanding of what that mission encompasses. The system committed more than 1.1 billion dollars to affordable housing and community development activities last year.

The Other Side

During periods of economic stress, Federal Home Loan Bank funding carries less stigma and is generally easier to access than the Federal Reserve's discount window, according to analysis from the Brownstein law firm. The Mortgage Bankers Association stated that "sensible reforms should promote safety and soundness while better reflecting the diversity of the housing finance system."

The Bottom Line

Fifteen years of inaction on Federal Home Loan Bank reform may finally be ending, but lawmakers remain divided on whether the system needs incremental adjustments or fundamental restructuring.

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