Federal Home Loan banks' profit hits high note in second quarter

Supporters say this year's banking crisis showed the important role the Federal Home Loan Bank System plays in helping banks access liquidity. But the surge in its use has also brought scrutiny over how the system's focus on housing finance has diminished.
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The Federal Home Loan Bank System's profit surged again in the second quarter to the highest level since at least 2007, bolstered by elevated demand and rising yields on assets.

Net income at the 11 Home Loan banks about tripled to $1.84 billion from $607 million a year earlier, according to a press release from the system's finance office. Profit in the first half of the year already exceeds 2022's total.

Banks' borrowings from the system soared during the banking crisis earlier this year, with total borrowing hitting a record $1 trillion at the end of March. That has since cooled, with loans outstanding at $882 billion at the end of June.

"Member demand moderated as market liquidity began to normalize," the system's finance office said. 

A "unique business model" allows the system to expand and contract based on the needs of its bank members, Ryan Donovan, the president of the Council of Federal Home Loan Banks, said in a statement. "As we have demonstrated for more than 90 years, the funding we provide helps our members maintain lower cost access to credit for consumers and small businesses across the country."

The Home Loan banks are government-chartered banks that lend to other financial institutions, which in turn own the Home Loan banks. They were created to boost home lending during the Great Depression but have morphed into a backstop for their members.

Supporters say this year's banking stress has shown the important role the system plays in helping banks access liquidity. But the surge in its use has also brought scrutiny over how the system's focus on housing finance has diminished. Of a Home Loan bank's profit, 10% must support housing affordability.

The Home Loan banks are regulated by the Federal Housing Finance Agency, which has been reviewing the system's mission since 2022. As a part of that review, the agency is considering limits on the ability of large lenders to use the Home Loan banks, Bloomberg News reported in June. The full report on the review is expected by the end of September.

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