FHLB advances drop 34 percent in 2020

Advances from Federal Home Loan Banks decreased by more than one-third last year as financial institutions experienced record levels of liquidity amid the Covid-19 pandemic. 

Total advances at FHLBanks as of year-end 2020 were $422.6 billion, an approximately 34 percent decrease from $641.5 billion as of year-end 2019. Over the same period, total unpaid principal balance of eligible collateral rose to $3.26 trillion from $3.16 trillion. 

Single-family loans remained the largest single collateral category at year-end 2020, accounting for approximately 47 percent of all eligible collateral pledged across FHLBanks. Such collateral decreased by $10 billion or 0.7 percent in 2020. The changes in other categories of collateral were mixed with some experiencing year-over-year increases while others decreased. The largest increase occurred in securities collateral, which rose more than 57 percent from year-end 2019. 

Systemwide, multifamily loans accounted for 9 percent of eligible collateral pledged at the end of 2020, mainly unchanged from the previous year. The volume of eligible multifamily loan collateral increased nearly 11 percent year-over-year. 

Montana Bankers Association Board member Tom Severson said those decreases are unsurprising because banks do not have liquidity challenges and face a strong loan demand, trends he expects to continue in the coming months.

According to the American Bankers Association, banks have seen a $4 trillion increase in deposits since the beginning of 2020. Over that same time, bank lending rose only $307 billion or 3 percent. Banks have grown cash balances by $2 trillion — 118 percent — and purchased $1.5 trillion in mostly government-backed securities in the form of Government-Sponsored Enterprise mortgage-backed and U.S. Treasury securities.

Ron Haynie, Independent Community Bankers of America senior vice president of mortgage finance policy, noted such advances frequently fluctuate, and the pandemic-era shutdown of economic activity, combined with the influx of liquidity, caused the need for advances to dwindle. Once the economy fully rebounds and consumers resume normal spending levels, Haynie expects advances will again increase. 

“It’s a good, stable source of funding, and community banks depend on it,” Haynie added.

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