The 12 banks (the Banks) that make up the Federal Home Loan Bank (FHLB) System constitute one collective government-sponsored enterprise (GSE). Originally chartered by Congress to provide liquidity to the nation's predominant lenders for home mortgage loans—savings and loan associations and savings banks—the Banks have undergone a series of changes over the years as the nation's financial institutions have changed. Still a lender to lenders primarily for housing, the Banks can now lend for many other purposes as well, and have special responsibilities for low- and moderate-income housing, for debts incurred by the federal government in handling deposit insurance crises of the 1980s, and for some community development projects. The system as a whole has also grown to become essentially the same size as the other two housing-related GSEs, Fannie Mae and Freddie Mac. Congressional discussions surrounding Fannie Mae and Freddie Mac and their regulators now include the Banks and could fold their overseer into a new single regulator for all three GSEs. This report gives a short history and basic description of the Federal Home Loan Bank System, its responsibilities, and its ties to the government. It also discusses issues affecting the Banks and highlights the differences between the FHLB System and the other two housing-related GSEs. The Federal Home Loan Bank System (The System), created in 1932 by the Federal Home Loan Bank Act, was patterned on the Federal Reserve System. It comprised 12 regional, member-owned and federally chartered Banks, each with its own individual board of directors. The System was headed and overseen by the Federal Home Loan Bank Board (FHLBB), whose three members were presidential appointees. The purpose of the Banks was to provide liquidity for the main mortgage lenders of the time, the savings and loan associations. Home mortgage lending was often hampered—never more so than in the 1930s—because savings associations lacked consistent access to capital markets to replace deposits whenever large numbers of depositors withdrew their money, as would happen during periods of high unemployment. The Banks corrected this by making loans ("advances") to the federally chartered savings associations which banking law required to be members of the Banks. The Banks secured the advances by placing liens on home mortgages held by the lenders, assuring the funds were used for housing finance. The regional Banks also provided regulatory oversight for their thrift members under the guidance of the FHLBB. The Banking Act of 1935 added deposit insurance for the thrifts to the FHLBB to bolster confidence in housing finance. The System remained largely unchanged during the next three decades—the "golden years" of the savings and loan industry—until the Emergency Home Finance Act of 1970 added the Federal Home Loan Mortgage Corporation (Freddie Mac), as a wholly owned subsidiary of the Banks, to create and maintain a secondary market for system members' conventional mortgages. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) made major changes to the System in response to severe failures in the savings and loan industry. It replaced the old FHLBB, viewed as a defective, self-dealing regulatory structure dominated by the institutions it regulated, with today's Federal Housing Finance Board (FHFB). The FHFB maintained supervision of the 12 Banks, but had neither regulatory nor deposit insurance functions over the remaining savings associations, which Congress delegated to a new Office of Thrift Supervision and the Federal Deposit Insurance Corporation, respectively. In addition, FIRREA removed Freddie Mac from the Bank System and reconstituted it as a publicly owned stock corporation, a twin to Fannie Mae. The act also opened membership in the Banks to all depository institutions, so long as they engaged in significant mortgage lending, and set up two requirements for the System: a set-aside of at least 10% of each Bank's net earnings for low- and moderate-income housing programs, and repayment of part of the debt incurred in paying off insured depositors for the savings and loans that failed (REFCORP debt, please see the Appendix). The Federal Home Loan Bank System Modernization Act of 1999, Title VI of the Gramm-Leach-Bliley Act, subsequently broadened membership qualifications in the Banks by dropping minimum mortgage asset requirements, and making membership voluntary for all members, including federally chartered savings associations (who were the originally mandated members of the System). The law also required new, permanent capital standards for the Banks, and expanded the mission by allowing the Banks to make advances secured by assets other than housing loans—mainly agricultural and small business loans. It also altered and simplified the required obligation of the System's contribution to the old REFCORP debt, raising the likelihood that payments would be completed sufficient to "defease" the debt ahead of schedule. Twelve regional Banks most directly carry out the System's operations. They are Atlanta, Boston, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco (the largest), Seattle, and Topeka. In addition, a jointly owned Office of Finance facilitates the Banks' borrowing. Each Bank has its own board of directors, varying in size from 14 to 19 persons. For each of the 12 Banks, the FHFB appoints six of the directors, known as public interest directors, and supervises the election of the remaining eight by the members. At least two of each Bank's appointed directors must be representatives of organizations representing consumer or community interests. The FHFB designates the chair and vice-chair of each Bank's board of directors and the geographic area of elective directorships in each district. The FHFB approves the compensation of Bank presidents and directors. System membership is limited to regulated depositories, insurance companies engaged in housing finance, and certain governmental housing finance bodies. Each member must own capital stock in its district Bank. Each Bank is thus privately owned with its own board of directors, management, and employees. Membership is voluntary. Members receive dividends on their shares of capital stock from the earnings of their respective Bank. A member must join the Bank district that serves the state in which the institution's home office or principal place of business is found. Commercial banks dominate System membership, and account for the largest share of borrowing. As of June 30, 2007, System membership totaled 8,119 institutions, with 5,861 commercial banks, 1,217 thrifts, 896 credit unions, and 145 insurance companies. The Banks' permanent capital is non-public stock, which members must purchase upon joining a Bank and which they cannot cash in without a period of notice and certain determinations by the affected Bank. Banks largely fund their activity through System "consolidated obligations" (publicly traded bonds), which are the joint and several liabilities of all the Banks and are issued through the Office of Finance. Consolidated obligations are neither obligations of, nor guaranteed by, the United States. As with other GSEs, however, financial markets infer that the federal government would back these obligations if necessary to prevent default, an inference widely referred to as an "implied guarantee." The Banks fund their day-to-day operations through earnings on their investments. The Banks also fund the regulatory operations of the FHFB, which collects assessments from the earnings of the Banks. On-budget but self-supporting, the FHFB is not subject to the congressional appropriations process. System assets were $1,037 billion as of June 30, 2007, of which $640 billion comprised advances to members. (About 70% of members use advances.) The FHLBs held $94 billion of mortgages in portfolio. Liabilities totaled $992 billion. Capital totaled $41 billion. System capital is about 4% of assets, relatively close to the regulatory minimum, yet perhaps half the level required for commercial banking companies. Much of the debt is short-term, which requires that each year the total rollover of debt be several times system assets. System obligations carry a triple-A/GSE credit rating, thus making the very low GSE costs of borrowing available to borrowing member-owners. (Individual Banks may have lower credit ratings, however.) The System's primary activity is extending secured loans (advances) to member institutions. Whole first mortgage loans and mortgage-backed securities generally collateralize advances, although other assets also qualify. Under the 1999 Modernization Act, community financial institutions may receive advances supporting their loans to small businesses, small farms, and small agribusinesses. As with all GSEs, Congress has given the System a series of special privileges and exemptions to help them in addressing their mission. These include a $4 billion line of credit with the U.S. Treasury (for the System as a whole); eligibility of debt for Federal Reserve open market purchases, unlimited investment by commercial banks and thrifts, and collateralizing public deposits; priority on collateral claims on member institutions, over any and all other creditors (the "super lien"); the use of Federal Reserve Banks as fiscal agents; exemption of earnings from federal, state, and local income tax; exemption of interest paid to investors from state income tax; and status of debt issues as government securities for purposes of the securities laws. The overall effect of these links to the federal government is that investors in System debt issuances might assume the federal government ultimately will treat the Banks as agencies, and, consequently, might not require as high a return as they would on debt of a comparable private-sector company. The Banks do borrow money at rates near to those of comparable-maturity Treasury issues. Although Bank debt does not carry the full-faith-and-credit backing of the federal government, investors generally believe that the federal government, which chartered them for their public policy mission, would not allow any Bank or its obligations to fail.