The Federal Home Loan Bank System: The Lender of Next-to-Last Resort?

Adam Ashcraft, Morten L. Bech, and W. Scott Frame
Working Paper 2009-4
February 2009

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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.

Please address questions regarding content to Adam Ashcraft, Research Department, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045-0001, 212-720-1617,; Morten L. Bech, Research Department, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045-0001, 212-720-6935,; or W. Scott Frame, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8783,

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