The plight of community banks as the primary defense of the FHLBanks warrants still further examination. Not only is the value ascribed to the community banks via the FHLBanks overstated, but as a reason for being, it is disingenuous.
In 2023, the FHLBanks had between $800 billion and $1.2 trillion of loans out to members – at very attractive rates. Yet only about 1 in 8 (12%) of those dollars were lent to community banks. So, when the FHLBanks paid dividends of $3.5 billion to its member/borrowers last year, only about $400 million went to the cherished community banks. $3.1 Billion went elsewhere. As startling as those numbers are – they exist in all facets of the FHLB activity – low-rate advances, check, share of retained earnings, check – large banks and insurance companies overwhelmingly garner the bulk of the windfall.
The facts show more than 75% of FHLBank activity is for large banks and insurance companies. That may be justified, but currently it is ignored, and we see picture after picture of community banks doing good things in their communities. Sort of true, but not really.