If you've left your bank recently—or your bank has left you—you're right on trend. The number of U.S. banks has almost halved in the last 20 years, primarily due to consolidation.¹ Between 2019 and 2023, California alone lost 640 bank branches, and 760,000 Americans nationwide found themselves living in a banking desert—areas with no nearby full-service bank branches.²

Amid these trends, however, the Wall Street Journal reported that banking consolidation has led to an interesting phenomenon: More Americans are switching to smaller, hometown banks and credit unions.³ Given the dramatic changes to the U.S. banking system, it's notable that consumers still have so many banks, savings institutions and credit unions to choose from—around 9,000 of them, in fact.^1,4 Compare that to 5,441 banks in the entire European Union and just 40 consumer banks and 188 credit unions in Canada.^5,6,7

One reason why the U.S. still has so much consumer choice? Something most bank and credit union customers have never heard of: the Federal Home Loan Bank system. This system of 11 separate institutions worth $1.3 trillion keeps local and regional financial services organizations thriving so Americans can continue to choose where and how they bank.

Introducing the Federal Home Loan Bank System

The 92-year-old Federal Home Loan Bank system is often unknown and misunderstood, and, to be frank, the name of the banks contributes to the confusion. The Federal Home Loan Banks are not federal agencies, nor are they funded by tax dollars. Further, they do not issue or originate home loans. And, finally, they are not a typical consumer bank. You can't open an account with a Federal Home Loan Bank. (Each bank is, however, based—as advertised—in the city in its name.)

Federal Home Loan Banks were created through an act of Congress in 1932. They operate as mission-driven cooperatives for members in their districts. At Federal Home Loan Bank of San Francisco (FHLBank San Francisco), we have over 300 member institutions spread across California, Arizona, and Nevada that borrow from us day in and day out. In addition to small and mid-sized banks, our cooperative members include credit unions, insurance companies, industrial loan providers, savings organizations, and community development financial institutions. While we do not and have never cost taxpayers a dime, the markets have perceived an implied government guarantee as a result of our status as a government-sponsored enterprise that helps enable us to get reduced costs when we issue debt in the capital markets. The ability of the 11 Federal Home Loan Banks to access capital markets and raise funds at more favorable costs connects local member lenders to the international debt markets, which ultimately brings down the cost of lending for the consumer. It's a technical and yet vitally important function of our financial services ecosphere.

This is our liquidity function—the funding to keep our members doing what they do best, which is sustained lending that serves local communities and their unique needs.

The results of that work are measurable for the consumer. A Wisconsin School of Business study found the benefits of Federal Home Loan Banks are twofold: saving mortgage borrowers around $13 billion in interest each year and helping smaller mortgage lenders stay competitive with bigger lenders.⁸

Supporting America's Banks and Communities

We are here for our members—and, by extension, the consumers they serve. During good times, we function almost like a credit card, enabling them to offer the housing construction loans, 30-year mortgages, small business funding, and personal loans that keep the wheels of America's diverse financial ecosystem turning day to day.

But we're also crucial to our members when times get tough. During the 2023 banking crisis, nearly all of our members had liquidity needs, and we were able to reliably meet those needs, providing assurance that they had the funds they needed if worried customers withdrew their cash.

We're also a vital support for members facing more ordinary business challenges. Some members have built us into their financial contingency planning for cyberattacks, natural disasters, or other emergencies. Members know we're there with a reliable supply of funding at a moment's notice, so they can maintain community lending in good times and in bad.

Beyond helping protect consumers' banking choices, we help strengthen communities through affordable housing and community development loan and grant programs. By law, every Federal Home Loan Bank must contribute 10% of the previous year's net income for affordable housing—and each bank typically gives away even more in grant and below-market loan dollars for programs that respond to pressing issues in their region, with each of the Federal Home Loan Banks committing an additional 5% of net income in recent years. To date, FHLBank San Francisco has supplied more than $1.3 billion in grants, helping deliver new affordable housing supply and preserve existing affordable housing in communities that need it most.

Protecting Consumer Banking Choices in a Changing World

Many American consumers appreciate what big banks have to offer, from credit card rewards programs to sleek apps. Some value next-generation financial services such as virtual cards and instant international money transfers. Others seek institutions where they can walk in, cash a check, open a savings account, or talk to a human being they know about a personal or business loan. Regardless of which type of banking experience each American consumer prefers, a Federal Home Loan Bank is likely behind it, ensuring the institution has the funding to continue lending—and ensuring consumers continue to have a choice about how they bank.

We're proud of our role as one of 11 Federal Home Loan Banks that have kept the U.S. banking system resilient and full of consumer choices for nearly 100 years. But we still have work to do. A rise in banking deserts across the country can drive consumers to payday lenders and check-cashing businesses or require them to drive to another town to reach a bank or credit union. Research has shown that growing up in a banking desert can mean a lifelong struggle with financial literacy and associated poor credit scores.⁹ We're committed to helping our members remain financially healthy and resilient to keep these negative impacts on our banking system and U.S. consumers at bay.

As the Federal Home Loan Bank system approaches its 100^th anniversary, our stakeholders are evaluating how we can best continue our mission to meet the needs of a changing world. As we engage with that discussion, now is the ideal time to deepen our collective understanding of Federal Home Loan Banks' critical role in the U.S. economy. Without this largely unsung system, America's hometown financial institutions would face a different financial landscape, and consumers may not have as many choices in where they bank or in the product services—and community focus—that we've come to know and expect for generations.

You can learn more about how your local lending and communities benefit from a thriving Federal Home Loan Bank System, beginning with the FHLBank San Francisco 2023 Impact Report