Three Ways Little-Known 'Banks for Banks' Lower Mortgage Costs and Help Borrowers Achieve Financial Goals

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SAN FRANCISCO, October 2, 2023 — A largely behind-the-scenes network of wholesale banks is making a difference for households from coast to coast. While borrowers may not know the name, the Federal Home Loan Bank System (FHLBank System) is very well known among the local lenders — whether it’s a commercial bank, credit union or savings institution — that consumers turn to for financial products and services.

These “Banks for Banks” are 11 independently operated, cooperatively owned, privately capitalized regional FHLBanks, each offering their member institutions reliable access to billions of dollars in low-cost funding so they can meet the changing credit needs of their customers and communities. FHLBank San Francisco is one such bank, serving Arizona, California and Nevada, and advancing that low-cost liquidity to member lenders in those communities. The dollars are deployed by the co-op’s member lenders in the form of home mortgages, business loans, commercial real estate funding and other lending, as well as for a variety of community development activities.

In fact, your local lender is likely to be an FHLBank member, since about 6,600 financial institutions nationwide hold membership in their regional FHLBank. That’s because FHLBank membership gives lenders tangible competitive advantages that benefit consumers, including first-time homebuyers and small business owners.

Here are three ways that a local lender’s FHLBank membership may be helping you save money and achieve your financial goals.

1. Lower interest rates

How much you pay for a mortgage, auto loan or personal loan is directly tied to how much the lender is paying for the dollars they lend out. To be able to lend at competitive interest rates, a lender needs access to reliable sources of appropriately priced funding. Larger financial institutions have a variety of funding sources beyond deposits, including the ability to directly borrow from the global capital markets, where the cost of funds can be most competitively priced. For most community lenders, day-to-day funding options are much more limited.

However, as an FHLBank member, your local lender can access funding from their FHLBank at a lower cost than they would be able to secure in the open market. That’s because the FHLBanks are in the capital markets daily, issuing bonds that enable individual FHLBanks to offer better pricing to all member lenders, no matter how large or how small. These member lenders can then provide their customers with more favorable rates. A study by the University of Wisconsin-Madison School of Business estimated that FHLBank System lending helped save consumers an estimated $17 billion per year in interest payments.

2. Consistent access to a diverse array of credit products

As a member of an FHLBank, a local lender has access to a prompt and reliable source of funds that helps them manage their own day-to-day funding needs, allowing dollars to be put to work in the communities they serve for a variety of purposes. When a local lender has more capital available, they can offer qualified borrowers a wider variety of products. Along with home mortgages, they can offer a host of lending products that drive community vitality, including personal and small business loans, all while effectively managing their own interest rate risk to ensure their institution can maintain its stability in changing economic environments.

3. More responsive local lenders

Because each FHLBank has a regional focus, member lenders can be confident they have a partner who understands the distinct characteristics of their markets, enabling them to be more responsive to the changing needs of the communities in which they do business.

For example, lenders with FHLBank membership can access housing and economic development grant and credit programs designed for the demands and challenges of their region. At FHLBank San Francisco, a key priority is working to address the persistent affordable housing crisis in its markets. Since 1990, FHLBank San Francisco has directed $1.3 billion to aid the development, rehabilitation or purchase of nearly 150,000 affordable homes.

FHLBank members also have members-only access to grant programs that can provide direct financial assistance to the aspiring homebuyers and nonprofits they serve. Such initiatives include WISH Program matching grants for low- to moderate-income first-time homebuyers, a Middle-Income Downpayment Assistance program, AHEAD economic development grants, and discounted credit programs. All of these programs are designed to promote long-term housing stability, expand access to homeownership and drive local economic vitality.

Supporting American dreams for over 90 years

The FHLBank System has been operating quietly behind the scenes for 91 years to the benefit of millions of Americans. Created to support mortgage lending and community investment, the FHLBanks have remained resolute in their purpose while evolving to meet the changing credit needs of their member financial institutions and the consumers and communities they serve, in all economic environments. To learn more, visit