Federal Home Loan Bank advances are “strongly associated” with higher lending across banks and credit unions, particularly following the 2008 financial crisis, according to new research by the Urban Institute.
Using data from 2000 to 2024, the Washington, D.C.-based think tank examined how FHLBank membership affected total lending as well as lending for housing, small businesses, agriculture and community development. The study’s authors said there has been relatively little research on member lending activity.
“As policymakers and regulators reassess the system’s mission and structure, understanding how advances — the collateralized loans FHLBanks provide to members — affect real-world lending is essential,” they said.
The study found that increases in advances corresponded to higher levels of lending, with larger effects following the financial crisis. A $100 increase in advances relative to assets was associated with $38 more in bank loans, rising to $48 after 2008.
“These results, together with observed quarterly changes in advances, suggest that bank advance use expands total lending by between $75.6 billion and $97.3 billion per year,” the authors said.
Housing-related lending showed “the clearest response.” A $100 increase in advances relative to assets was associated with an $18 increase in residential real estate loans over assets, and $22 after 2008. This resulted a $35.2 billion and a $45.6 billion annual overall residential real estate lending increase.
The study also found that advances were consistently linked to higher levels of small-business, small-farm and community development lending, although at lower levels than housing-related lending. For every $100 in additional advances over assets, banks increased small-business lending over assets by $2.40 and small-farm lending over assets by $1.20, with the latter showing stronger effects after 2008.
