A quiet phenomenon takes place every day in thousands of communities across the country. It is a daily occurrence that is unseen by most people, but nearly everyone experiences its effect. Its name: liquidity. That’s the opaque term that refers to the steady supply of funds that flows from across the globe to U.S. families and businesses. Think of it as the lifeblood of credit and capital that keeps our cities, towns, and counties vibrant and moving forward.

It doesn’t happen by accident. It works because community-based lenders belong to a system of cooperatively owned banks called the Federal Home Loan Banks (FHLBanks) which serve as their members’ link to liquidity. As a primary supplier of lendable funds for local financial institutions, FHLBanks work each day with members and partners to support housing, jobs, and community investment in every corner of the country. The core mission of the FHLBanks is to operate as Main Street’s connection to international sources of funds.

It is a responsibility that is not without its risks. Given the unpredictability of global financial markets, the daily business of handling billions of dollars requires smart and careful risk management. The FHLBanks have long been proud of their reputation as prudent managers of risk in the nation’s financial system. Their operations are known to uphold strict credit and collateral standards while providing a reliable flow of funds that are essential for local financial institutions’ ability to lend in their communities.

In fact, drawing from an independent analysis, former U.S. Comptroller of the Currency Eugene Ludwig said, “preserving the FHLBanks as a key source of liquidity is essential for derisking the banking system and supporting vital economic activities.” Ludwig added that for nearly 100 years, the FHLBanks have provided reliable, low-cost funding to financial institutions while being a model of safety and soundness.

Managing risk is not the pursuit of no risk. The goal is not to eliminate risk, but to avoid things contrary to prudent operations. In a recent study of the FHLBanks, its author Robert Barone, Ph.D. of Universal Value Advisors wrote, “The extraordinarily stable financial results delivered by the FHLBanks over the past two decades, including lending to large and small members under stress during the historic meltdown of the housing securitization market in 2007-2008, suggests that this historic collateral-based lending approach does not raise the prospect of an abnormal risk of loss at the FHLBanks.”

The financial strength of the FHLBanks has one purpose: to always be there for their members so they can lend to local customers. It keeps the banking system strong and communities vibrant.

Take, for example, credit unions, which are one of the fastest growing categories of community-based lenders gaining the benefits of FHLBank membership today. As of 2024, there are 1,623 credit unions that are members, 1,400 of which joined in just the last two decades. The credit union system's net worth increased by $14 billion in the third quarter of 2024, to $253 billion. These local lenders are among the U.S. financial institutions that the American Banker says are “clamoring” for more FHLBank funding as loan demand has increased and deposits have ebbed.

In an analysis by the Filene Research Institute titled, “The Value of Federal Home Loan Bank Membership to Credit Unions, ” researchers made key findings about credit unions that were members of FHLBanks, including that they:

• Tend to grow loans and total assets.

• Have more flexible balance sheets, with higher loan-to-share ratios, increased borrowing capacity and total borrowings;

• Experience increased access to capital markets through selling more first mortgages.

• Achieve additional growth and flexibility without changing their portfolio risk: the analysis found no statistically significant change in delinquencies or net charge-offs.

The benefits of FHLBank membership available to credit unions can be applied to all 6,500 financial institutions that belong to the System. Why is it that what’s good for them is good for everyone? Bottomline: The financial strength that local lenders derive from FHLBank membership means more credit and capital flowing to every community. It’s that simple.

And in today’s world of rapid change and global competition, the quiet phenomenon called the FHLBanks creates the certainty that consumers and enterprises need to remain resilient. Every day.