The Federal Home Loan Bank System recently announced $53.9 million in grants, the latest funding awarded through its Affordable Housing Program.

Supporting grass-roots partnerships among financial institutions and community organizations, the 358 grants are funding the creation of a spectrum of housing initiatives benefiting individuals and families who, because of modest incomes or special needs, cannot afford market-rate housing.

The Federal Home Loan banks' annual commitment of at least $100 million of their profits as grants for the creation and preservation of housing is well understood by national policymakers, government officials, and housing and community development organizations. And it's no wonder why.

The Bank System has awarded $569.1 million in private-sector grants through the affordable-housing program since 1990. Its companion program, the Community Investment Program, has distributed $15.2 billion in below- market-rate loans to support efforts that help low- and moderate-income families and neighborhoods through housing, jobs, and other benefits.

The attention paid to the Federal Home Loan banks' role in community investment is not surprising. It is surprising for many people, however, that the two programs represent just a small part of the value the Federal Home Loan Bank System provides.

What is not well known or understood about the Federal Home Loan banks is our everyday role in enabling local lenders to operate more prudently and profitably. Bank System customers have access to an array of fixed- and adjustable-rate funding-from simple overnight money to complex customized structures-to help them manage their institutions' finances and interest rate risk, and compete better as providers of housing and community development credit.

The value of the Bank System is more apparent today than ever before. Advances, or loans, outstanding are at $163.4 billion-an all-time high. Federal Home Loan Bank membership is over 6,000, including more than 4,070 commercial banks that signed on during the last seven years to gain access to this new funding resource.

Demand for advances is escalating for two reasons. First, wholesale funding is a flexible balance sheet and liquidity management tool that, when prudently used, can reduce interest rate risk, improve liquidity management, enhance credit delivery, and increase profits.

There is a greater understanding of this than ever before, as more than two-thirds of the Bank System's customers regularly access their credit lines. Here are a few examples of how they put advances to work:

A commercial bank in Atlanta meets an underserved market need by developing a small-business loan program funded with long-term, fixed-rate advances.

A community bank originates nonconforming loans for residential properties in rural Montana and funds them with advances in order to manage interest rate and prepayment risk.

Identifying an unmet credit need, a savings institution in Washington State introduces a tailored loan program for small, multifamily properties and funds the loans with fixed-rate and amortizing advances.

The second force behind the growth in advances is the strong economy, which is fueling demand for credit while retail financial institutions are battling stiff competition for consumers' savings. The availability of Federal Home Loan Bank funding ensures that banks can meet community credit demands despite their retail deposit levels.

This benefit is apparent throughout all phases of the business cycle.

The Bank System's role in helping lenders with liquidity and interest rate risk management and the dependable delivery of credit doesn't grab as much attention as awarding grants for affordable housing, but it should merit the understanding of those that want America's system of community- based financial institutions to prosper into the next century.

More than ever before, communities need the local presence of financial institutions that are committed and able to consistently provide competitively priced banking services, tailored to the needs of their local markets.

The Federal Home Loan banks help local lenders do just that, and in doing so make an important contribution to the health and prosperity of our nation. u

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