The Federal Home Loan Bank (FHLB) System is a large, complex, and understudied government-sponsored liquidity facility that currently has more than $1 trillion in secured loans outstanding, mostly to commercial banks and thrifts. This paper first documents the significant role played by the FHLB System at the outset of the ongoing financial crisis and then provides evidence about the uses of these funds by their bank and thrift members. We then identify the trade-offs faced by FHLB member-borrowers when choosing between accessing the FHLB System or the Federal Reserve's discount window during the crisis. We conclude by describing the fragmented U.S. lender-of-last-resort framework and finding that additional clarity about the respective roles of the various liquidity facilities would be helpful.
JEL classification: E4, E5, G21, G28
Key words: government-sponsored enterprise, lender of last resort, liquidity
Helpful comments have been provided by Nuno Cassola, Ned Prescott, Martijn Schrijvers, Larry Wall, Larry White, and seminar participants at the Banque de France and the Federal Reserve Banks of Atlanta, Boston, Dallas, New York, and Philadelphia. The authors thank Dennis Kuo for excellent research assistance. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
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