The GSE Public-Private Hybrid Model Flunks Again: This Time It’s the Federal Home Loan Bank System (Part 2)

Research & Policy | March 11th 2024 | Donald H. Layton


The Federal Home Loan Bank (FHLB) System1 is a relatively unknown but important part of America’s housing and financial system, with over $1 trillion in assets. It was established by Congress in 1932 and today consists of 11 regional FHLBanks that operate as one system, cross-guaranteeing each other’s debts. It is considered one of America’s government- sponsored enterprises (GSEs), i.e., public-private hybrid corporations created by Congress and authorized to engage only in a narrowly-tailored set of activities. The private persona of a GSE is that it is owned and capitalized by the private sector, which seeks to generate profits to produce a return on its investment.  The public persona is that it is given a mission by Congress, which those narrowly-tailored activities are designed to support, along with the subsidies and privileges Congress thought needed to make it all happen. Part 1 of this two-part paper describes this more fully.  

In recent years, the System has been subject to growing criticism that it has been inadequately supporting the housing and community development mission given to it by Congress. According to its critics, the FHLBanks use their subsidies and privileges too much to generate stand-alone profit that instead benefits its financial institution owners and its executives. In response to that growing criticism plus how much has changed in markets, legislation, and regulation during the 90-plus years of the FHLBanks’ existence, its regulator – the Federal Housing Finance Agency (FHFA) – announced in 2022 that it would undertake a review of the entire System. This included nationwide listening sessions and other opportunities for public input.  

It then published its findings (the FHFA Report) in November of last year.2  Those findings included information and analysis that validated many of the criticisms. Importantly, the FHFA Report made many recommendations to address them. Additionally, other recommendations were made to update aspects of how the FHLBanks operate to reflect the current environment rather than what existed many decades ago.  

The core thesis of this two-part article is that the congressional design of GSEs has a fundamental flaw: that subsidies and privileges given to a GSE will inevitably, over time, drift to being used unduly to produce stand-alone profit to benefit their owners and executives, and too little to support its intended mission. In other words, the profit-versus-mission balance originally intended by Congress in the GSE public-private hybrid business model flunks3 in the long term, drifting towards too much of an emphasis on profit and too little on mission. In this view, this is the root cause of the distortions and problems found at GSEs, including the FHLBs.  

Part 1 of this series discussed in some detail four resulting problematic behaviors at Fannie Mae and Freddie Mac (F&F), which are much larger (with $7.5 trillion of assets) and are the most well-known and studied GSEs.  It describes how the GSE design defect had very publicly manifested itself in these institutions prior to their being taken over by the government via conservatorship in 2008. In this Part 2, I review the FHLB System with respect to those same four problematic behaviors, showing the almost instant-replay of F&F’s distortions, which should not be surprising given they have in common that very same GSE design defect. 

Together, parts 1 and 2 of the analysis are essential to understand the FHFA Report and how its proposed reforms are most definitely needed. Finally, a recommendation is provided to address the fundamental flaw in the GSE design so that it can be permanently fixed.  

The FHLB System – Déjà Vu All Over Again4

The FHLB System has evolved far from its origins. When it was set up in 1932, the explicitly stated objective was for it to act as a Federal Reserve-style discount window to provide funding in those stressful times to the thrifts and insurance companies that then provided most home mortgages. This was needed because those lenders were not then eligible to be Federal Reserve members which could access liquidity via its discount window. To ensure the funds were used to support housing, rather than something else, it was required that FHLB members provide collateral against the advances (as FHLB loans to their members are known) in the form of home mortgage loans.5  

In the subsequent 90-plus years, many changes have occurred in the markets, regulation, and legislation, which in turn have allowed the FHLB system to deviate from its original design concept. Most significantly, in 1989, in response to the savings and loan (S&L) crisis, Congress allowed commercial banks – which already were Federal Reserve members – to become FHLB members.6 This was totally inconsistent with the original design.  

Additionally, a decade later in 1999, legislated changes were made that included broadening the asset types that could be used as collateral to secure FHLB advances. One such asset type was mortgage-backed securities (MBS) issued by Ginnie Mae, Fannie Mae, and Freddie Mac, collectively known in financial markets as “agency MBS.”  Before the S&L Crisis, such agency MBS was a small corner of the market. However, following quickly upon the closure of so many S&Ls, the mortgage markets heavily shifted towards the securitization business model. Today, agency MBS outstanding is about $9 trillion, two-thirds of all first-lien mortgage dollars, while bank-held mortgage loans only account for $2.6 trillion, less than one-third of that amount. As described below, the eligibility of such agency MBS as collateral was an unintended consequence that helped enable the FHLBs to redefine their long-held mission, something which is today quite controversial.7 

Over time, the same fundamental GSE design flaws that led to the problematic behaviors at F&F are also behind the current calls for FHLB System reforms. Looking at the same four distortions examined in the case of F&F, these behaviors include:

  • Growing profits by exploiting the implied guarantee. Like F&F, FHLB leadership teams are motivated to maximize profits.8 The FHLB System first exploited the implied guarantee, just like F&F, by growing the investment portfolios of the individual FHLBanks on a discretionary basis to make additional profits that stemmed from their subsidized cost of funding.  However, this ended during the Great Financial Crisis (GFC), when the System incurred billions of dollars of losses.9 As a result, the FHFA put in limits to keep the investment portfolio solely for necessary liquid asset reserves rather than the pursuit of stand-alone profits subsidized by the implied guarantee. With this avenue for growth walled off by its regulator, the FHLB System then turned towards trying to aggressively maximize how much advances (its core product) were used by its members, whether they were under funding stress or not. 

To give an example, at least one FHLB marketed advances to their members as often a cheaper source of funding compared to deposits. This cheapness was due, of course, to the subsidies provided by the implied guarantee of the FHLB and also its tax advantages. As a result, some member banks could borrow from that FHLB for that reason alone, even if they had plenty of access to normal, market-rate deposits.10 This practice was wholly inconsistent with the mission of the public-private hybrid, as it had the potential to hurt the public by having deposit rates pushed down in competition with subsidized FHLB advances. I doubt Congress ever intended such a consumer-unfriendly outcome.11  

As another example, the FHLB system unilaterally redefined its mission. Previously, the system’s long-established mission was to provide liquidity to fund home mortgages (and later community development loans) at a low cost (which reflected the subsidies given to the FHLBs). Instead, it began to advertise itself as being able to provide liquidity broadly to the banking system, essentially acting as a second central bank in competition with the Federal Reserve, often omitting to mention any nexus to housing finance or community development.12  

This redefinition was immensely aided by the fact that agency MBS became, in 1999, a valid type of collateral for FHLBanks. This works as follows. Such agency MBS, purchased in the open securities markets, is an asset commonly held by commercial banks as an alternative to Treasury securities in their reserve of liquid assets.13 This reflects that the underlying credit risk related to borrowers paying back their mortgages is directly or indirectly guaranteed by the federal government, as liquid reserves for a bank should not have significant credit risk. Thus, even if banks have no mortgage business whatsoever,14 they often still own agency MBS as an asset maintained as a reserve of liquidity.  In turn, that agency MBS can serve as valid collateral to access large amounts of FHLB subsidized advances for increased profits,15 with the accessed funds being employed in ways that have nothing to do with housing. This logic was extended by the FHLBs, which became seen as a valid “lender of last resort” (sometimes expressed as “second to last resort”) rather than that being the exclusive role of America’s central bank, the Federal Reserve. This became publicly visible in a big way when the FHLB system seemed to front-run the Federal Reserve by lending in excess of $60 billion to the large regional banks that recently failed,16 angering some members of Congress who not unreasonably believed the FHLBs’ role was instead related to supporting housing and community development. Additionally, the FHFA Report indicates this lending was done without adequate consideration of the impact of funding failing institutions, likely leading to greater losses to the FDIC insurance fund since the assets of the failing institutions must first go to pay off the FHLBs.17  

  • Denial of the subsidy.  The FHLB System has two big subsidies: the implied guarantee on its borrowings by the U.S. government and its exemption from income taxes at the federal, state, and local levels. However, like F&F before them, they denied for years that such government support existed. More recently, as part of the FHFA’s review, its director said in public that the FHLB System did benefit from the implied guarantee, saying out loud what everyone already knew.18  

It is worth noting that the Congressional Budget Office (CBO), from time to time, estimates the value of the subsidies to the FHLB system.  It did so, for example, in 2004 to cover the budget year 2003, when its estimate was $3.2 billion.19  That was a very significant amount 20 years ago. The CBO updated this two-decade-old estimate in a report published just days ago, stating it was $6.9 billion for fiscal 2024.20 Even today, that is a very significant subsidy to deny.  

  • More political than commercial. Like F&F prior to 2008, the FHLBanks hold themselves out as competitive commercial enterprises, but the truth is that they also are not. First, they don’t have any direct competitors (other than each other to a limited degree). Second, their profits stem almost wholly from their congressionally-endowed market position, subsidies, and privileges – and not from besting others in the marketplace. And third, their expenses reflect a non-commercial orientation. Specifically, according to the FHFA Report, their annual expenses, including executive compensation, amount to $1.4 billion, or $200,000 per FHLB member.21 As almost all their members are small, and many do not routinely borrow, this figure seems to reflect tremendous expense inefficiency for an organization that mostly just does straightforward advances to their members. The FHFA Report supports this argument by going into some detail about how the 11 banks, which substantively do exactly the same things eleven different times, have not pursued sharing functions among themselves to significantly reduce expenses.22 My view is that they would have done so long ago for easy gains in efficiency if they had, in fact, been competitive companies.

The FHLBanks' denial of benefiting from government subsidies, despite all evidence to the contrary, including those CBO reports, is another marker of how political they are. A last marker of their political orientation is that they formed, a quarter-century ago, a joint organization called the Council of Federal Home Loan Banks, located in Washington, D.C., to be the System’s lobbying arm.23 The Council makes clear that it focuses solely on whatever will benefit the FHLBanks themselves.24 (Note that the Federal Reserve regional banks, after which the FHLBanks were patterned, have no such organization.) 

Beginning about one and a half years ago, when the FHFA announced their review of the FHLBs, the System has moved onto the policy front burner, no longer so anonymous and behind the scenes. In addition, the recent tremendous deterioration in housing affordability made various policymakers25 notice how little the FHLBanks were doing for affordable housing, especially when compared to the profits they make from their subsidies.26 The result of this increased scrutiny is that the FHLBs increased lobbying expenditures by 40 percent, hired a major lobbying firm, and apparently plan to fight tooth and nail against the FHFA’s proposed reforms.27 This development is perhaps the most damning evidence as to how political the FHLBanks are. Critics claiming they only seem to give lip-service attention to their mission, while their true focus appears to be solely on profits, appear more correct as a result. 

  • Excessive executive compensation.  The FHFA Report cites how the FHLBs adopted the same inappropriate method as F&F to pay inordinately high executive compensation: comparing themselves to commercial banks of equal asset size. Again, such commercial banks have multiples of the number of employees, product lines (everything from deposit products to credit cards to small business loans, etc.), and so on. All while not enjoying the subsidies and privileges held by the FHLBs per their congressional charters.

Most of the 11 FHLB CEOs make $2 million or more annually, with one of them earning over $3 million.28  This salary scale is dramatically out of line with that of the CEOs of other private-public hybrids, who earn well under half that amount. For example, the President of the Federal Reserve Bank of NY, the largest and most complex regional Federal Reserve Bank, which is also far larger and more complex than any FHLB, earns $430,000 annually.  Although the FHFA has raised concerns regarding the high salaries of the CEOs, it is unclear how much the FHFA can force a change in this practice, as it lacks the legal authority to fully set compensation.29   

The discussion above makes clear that the FHLB System has much in common with F&F in terms of how they have exploited their GSE status to emphasize maximizing profits.30  This validates the core thesis of this paper that Congress’ design of GSEs has a central defect that needs addressing if the right balance of mission and profit is to endure over decades of inevitable changes in markets, legislation and regulation.

Enter the FHFA 

The FHFA implemented specific reforms in past years to keep the FHLBs from straying even further from their mission and towards profit. For example, as previously described, over a decade ago it set limits on their investment portfolios to only include what is needed for liquidity reserves, instead of being able to use them also as a vehicle to increase the stand-alone profits earned from the implied guarantee subsidy. Another reform announced in 2014 closed a loophole whereby the FHLBs increased their taxpayer-subsidized advances by lending to captive insurance companies created by mortgage REITS31 (a specialty type of leveraged investment fund that is ineligible for FHLB membership), which the FHFA ruled inconsistent with the legislation that created the FHLBs.  

In undertaking its current FHLB review, the FHFA – as regulator of F&F as well as the FHLBs – knows full well that the efforts to reform F&F prior to 2008 failed. When it announced its review of the FHLB System in August 2022, it was naturally hoping to avoid a similar fate, despite expecting that the FHLBs themselves and many beneficiaries of their subsidies would, just as it happened with F&F previously, lobby furiously to protect their subsidies and privileges.  

The resulting FHFA Report has a long series of recommendations for FHLB reform. Interestingly, most of them can be implemented by the FHFA itself as the System’s regulator. However, many of those will require a time-consuming public notice and comment process, with congressional approval only being required for selected items. The success of most of the reforms, therefore, lies in how much the FHFA can withstand any pressure from members of Congress (or potentially from within the administration) that the recently increased FHLB lobbying is designed to produce.  

The discussion above of the fundamental flaw of GSE design, and how it played out historically with F&F and is today playing out with the FHLBs, highlights how much reforms are needed. It also demonstrates how, over time, the FHLBanks’ mission became heavily subordinated to profit. Outside critics of the FHLB System are recommending reforms ranging from the extreme (e.g., winding them down completely) to the much more limited (e.g., leave them in place but require more of the System’s subsidized profits to go to affordable housing). The FHLBs, in my view, will not just try to fend such things off but will likely propose that new types of borrowers (like those mortgage REITS or also independent mortgage bankers32) be approved so they can grow their advances and thus their implied-guarantee subsidized profits even more.   

As I see it, the recommendations presented in the FHFA Report are not incendiary or extreme. Rather, they seem to be relatively middle-of-the-road, designed to undo many of the distortions that have grown over time, like excessive executive compensation, and restore a proper balance between mission and profit. They also call for updates that reflect the world of the 2020s rather than the 1930s. On that basis, the FHFA’s strategy, in my opinion, can be summarized as follows: “Leave the FHLBs largely in place, fix a lot of the distortions that have arisen over time, and also dedicate more of the subsidized profits to housing and community development generally, and affordable housing specifically, through various mechanisms.” Not coincidentally, this aligns almost exactly with what has transpired at F&F inside conservatorship after such reforms were successfully stymied by them before the 2008 crisis. 

A Permanent Fix

The approach of the recommendations found in the FHFA Report is to reform the FHLBs via a series of targeted changes. Inevitably, even if all those changes effectively accomplish that task, the conflict of interest publicly articulated by Secretary Paulson in 2008 (and referenced in Part 1), would still exist. It is, therefore, likely that the FHLBs would inevitably drift again more towards profit and less towards mission in the coming decades, including through lobbying for changes in regulation and legislation.  In essence, this would start all over again the many decade-long process of drift followed by calls for reforms.  

To avoid this, a broader view of the problem as resulting from a design flaw of GSEs is necessary. By doing so, it will be possible to develop a solution that would keep all the GSEs properly balanced between mission and profit for the long term. How to do this can easily be discerned by answering two closely related questions. First, why did F&F, which had become very biased towards profit versus mission prior to going into conservatorship in 2008, become well-balanced while in conservatorship? Second, why did the regional Federal Reserve Banks, upon which the FHLBs are patterned, never lose their mission vs. profit balance while the FHLBs did?

The answer to both questions is that they had a government overseer office that kept them from losing their way. For F&F, that overseer was the FHFA, but only after it became conservator,33 as it then acquired total authority to direct the two companies in all respects. For the regional Federal Reserve Banks, it was the Federal Reserve Board (FRB) in Washington, which had enough authority to counter any such trend. As pure government organizations, the FHFA and FRB – and their employees – do not have any such conflict themselves between mission and profit. In particular, their employees are not able to participate in compensation beyond that allowed federal government staff.

A permanent solution to address the ongoing issues with Fannie Mae, Freddy Mac, and the Federal Home Loan Banks should, therefore, include the creation of what I will dub a “GSE Board” staffed by government employees. This board should have enough authority over F&F (post-conservatorship34) and the FHLBs to ensure that they remain permanently well-balanced between mission and profit. Ideally, the board oversight would also include the remaining and smaller GSEs.  

To flesh out the concept of a GSE Board, several important issues have to be addressed. First, what powers would it need to keep the GSEs true to their proper mission-profit balance?  As a start, it would need authority to approve executive compensation, annual budgets, and an annual Affordable Housing Plan35 of each FHLB. Additionally, it would need to be designed to be as politically independent as possible, similar to how financial regulators are usually designed.  It could be part of the FHFA or separate from it, depending upon many factors. 

To create such a board will obviously require congressional legislation.36  However, with a properly designed GSE Board in place, a public-private hybrid GSE can be a practical and reasonable vehicle to achieve public policy objectives over the long term. Without it, as history has shown earlier with F&F and currently with the FHLB System, the GSEs will likely be continually problematic, known as much for improperly exploiting their government privileges and subsidies as for achieving good and valuable public policy objectives. 


[1] I will refer to the FHLB system as the “System,” the “FHLBanks” or other variations on its name.  

[2] Federal Housing Finance Agency, “FHLBank System at 100: Focusing on the Future,”

[3] The “flunk” referred to in the title of this article refers to the problem with the business model of the GSEs being public-private hybrids with subsidies and privileges.  Separately, F&F financially failed in 2008, leading to their entering conservatorship. The cause of that financial failure, in my view, is partly related to the business model flunking but substantially also from other issues, in particular a combination of (1) the F&F-specific business model requiring them to guarantee the credit on trillions of dollars of mortgages to agency MBS investors, and (2) how they loosened their credit standards in the years prior to 2008.

[4] As per Yogi Berra.

[5] The requirement for collateral emulates what the Federal Reserve also does in its discount window. In the case of the FHLBs, the types of collateral allowed are specified in legislation. 

[6] Interestingly, I was told by one FHLB executive from that era that this change was not the result of commercial banks lobbying for access to the subsidized funding offered by the FHLBs. Instead, it reflected lobbying by FHLB management to gain a new group of customers to which the System could lend to help offset the collapse of its primary customer base of thrifts (most of which were S&Ls).  

[7] Another key change was that the original focus on housing was broadened to include community development. This, however, has not been a cause of the distortions and problems discussed herein, although the FHFA Report criticizes the FHLBanks for not putting enough effort into community development lending overall.    

[8] Where for F&F this takes place in the format of a traditional investor-owned public corporation, for FHLBs it is in the form of a cooperative, both charging its members more or less for advances and then having less or more profit to pay out as dividends to those same members. This may seem a zero-sum game for the FHLB members who both own and borrow from their regional FHLBank, but FHLB management is understandably motivated to look for higher profit in order to justify higher compensation. 

[9] See FHFA Office of Inspector General, “An Overview of the FHLBank System’s Structure, Operations and Challenges,” which, on page 17, lists $1.9 billion of losses by just four of the FHLBs in 2009 and 2010. The FHLBs invested in particular in senior tranches of private label securities (known as PLS, meaning MBS without any government support), which declined in market value precipitously during the 2008 era financial crisis.  

[10] One former FHLB official cited this example to me based on promotional materials produced by the FHLB of Boston.            

[11] This effort may or may not have been particularly successful – there is little evidence one way or the other, but it is, at minimum, revealing of the mindset of FHLB leadership.

[12] For example, the annual report (filed with the Securities and Exchange Commission) for the FHLB of New York for calendar 2022 states that its business is “to provide liquidity for our members (primarily in the form of loans referred to as “advances”) and to provide a return on members’ investment in FHLBNY stock in the form of a dividend.”  The lack of any reference to housing or community development is telling. Note that since the announcement of the FHLB study, with the public spotlight now upon it, the System has revised many of its standard phrases to again reference housing and community development, rather than ignoring them while touting its ability to provide liquidity., Part 1, Item 1, “Business.” 

[13] The Federal Reserve, in its quantitative easing program, did the same thing – buying a mix of treasuries and agency MBS, rather than solely treasuries.  

[14] See Bloomberg article, “How a Vegas Whale, and Many More, Tap Billions Meant for US Housing,” October 20, 2023.

[15] There is an intriguing issue of whether FHLB advances secured by agency MBS pack as much social value punch – i.e., make mortgages more available or less expensive, which is core to the mission of the System – as when the collateral is a typical home mortgage loan. Given that the agency MBS has the credit risk guaranteed by the government in one form or another, it clearly packs less punch, perhaps helping to keep mortgages slightly less expensive.  However, being eligible to be collateral for FHLB advances on the same terms as home mortgages, FHLB subsidies go to it as if they packed the same social value punch. This is clearly a distortion.  

[16] The banks were: Silicon Valley Bank, Silvergate Bank, Signature Bank, and (after some delay) Republic Bank. The FHFA Report, on pages 20 to 22, goes into some detail on this matter.  

[17] This priority of being paid first is one additional privilege given to the FHLBs by Congress.  

[18] This caused the FHLBs a public relations problem, given their history of denial. One result of this was that the long-used and inaccurate language from the FHLBs’ website that previously stated that each FHLB did not receive taxpayer assistance or support was changed.  It now states that they are “not supported by congressional appropriations and taxpayers do not pay out-of-pocket expenses to keep the FHLBank System operating.” The new description is technically accurate but is carefully worded to avoid referencing both the implied guarantee and the tax exemptions as assistance from the taxpayer that just takes other forms.  

[19] See CBO letter to Senator Richard Shelby dated April 8, 2004.

[20] This is the center of a range of a plausible amount of $5.3 to $8.9 billion. This is even after netting out a legally required payment for affordable housing of $350 million. See

[21] As of June 30, 2023, the total membership of the FHLB system was 6,487 financial institutions per the FHFA Report.

[22] The Report also mentions that the recent merger of two FHLBs (where the total went from 12 to 11) produced large expense efficiencies. That is, of course, not surprising given how each FHLB does almost exactly the same thing as all the others.

[23] The Council’s website defines its function: “to represent the position and views of the Council’s member to Washington policymakers.” That means it is plainly a lobbying organization.  

[24] The Council’s website goes on to state one key function for its activities: “To promote enactment of laws or regulations beneficial to, oppose laws or regulations detrimental to the FHLBanks, and obtain such research as is necessary for such promotion or opposition.”  Note the complete lack of any concept of “mission” in this definition – signifying how far the FHLBanks had drifted from a balance of mission and profit. See

[25] Most prominent is Senator Cortez Masto (D-NV), who has generally stated she is looking to increase the percentage of profits that must be spent on affordable housing from 10 percent to at least 20 percent.  

[26] The just-released CBO report lists the fiscal 2024 affordable housing program spending at $350 million with the gross subsidy at $7.3 billion (or a headline subsidy, netting the two, of $6.9 billion). So, only about five percent of the subsidy makes it way to the affordable housing program. Ideally, the advances made by the FHLBanks more broadly should include subsidies that help housing affordability as well, but there is little transparency to quantify it.

[27] See previously referenced Bloomberg article.  

[28] See Bloomberg article: ”A 1.5 Trillion Backstop for Homebuyers Props Up Banks Instead,” June 4, 2023,

[29] The Federal Home Loan Bank Board, the original regulator of the FHLB System, had legal authority to approve compensation for FHLB executives. However, in 1999, this power was removed from its successor (the Federal Housing Finance Board) as part of the Federal Home Loan Bank System Modernization Act of 1999.  See So, when the FHFA eventually was created to regulate the FHLBs (and F&F) that authority had already been lost.  

[30] Given the cooperative nature of the FHLBs, this “profit” shows up in two forms: advances at below-market rates and dividends.  

[31] REIT stands for real estate investment trust.  

[32] What types of financial firms are eligible to be FHLB members is set by legislation. Media reporting on the issue has, I have found, not made this clear, leading some to inaccurately believe the FHFA can just arbitrarily allow new types of members.  

[33] While F&F are in conservatorship, Treasury has certain rights to complement the powers of the FHFA as conservator. This is an additional layer to help prevent the two companies from drifting away from mission again.  

[34] Such a GSE Board would only be needed for F&F when they exit conservatorship to keep the institutions from easily going back to their undesirable, pre-2008 ways. Among current approaches for a conservatorship exit, the leading one is based upon them being subject to utility-style regulation by the FHFA.  It is hoped such pricing approval authority by the FHFA would be sufficient to enable it to restrain F&F from reverting post-conservatorship to being overly focused on profit versus mission. But whether this hope is realistic is not at all obvious. So, a GSE Board provides a full solution to this big worry about how the two companies will operate after they exit conservatorship.

[35] This would include what types of investments could count against their legally required 10 percent of profits calculation. Currently some critics of the FHLBs believe some of the included investments are more nominal than substantive.  

[36] It is worth noting that the FHLBs were supervised by the Federal Home Loan Bank Board (FHLBB) from inception in 1932 until 1989, in a very rough emulation of the Federal Reserve Board, with powers that included things like approving executive compensation. (So, the concept of a GSE Board would not be entirely foreign to Congress, just roughly a return to what previously existed.) However, the FHLBB was eliminated by Congress in 1989 due to its failure to adequately supervise the safety and soundness of the Federal S&Ls that it also regulated. In 1999, one of its successors lost the power to approve executive compensation of the FHLBs. The FHFA, as the ultimate FHLBB successor (created in 2008), thus was a more traditional regulator, focused on safety and soundness and also mission, and never had the broader authority needed to keep the FHLBs from drifting from their intended balance of mission versus profit.  

Donald H. Layton

Donald H. Layton is a Senior Visiting Fellow from Practice. Prior to joining the NYU Furman Center, he served as a Senior Industry Fellow at Harvard’s Joint Center for Housing Studies, where he wrote extensively about the Government Sponsored Enterprises (GSE) of Freddie Mac and Fannie Mae and more broadly on housing finance. Before his stint in academia, Layton was the CEO of Freddie Mac from May 2012 until June 2019, where he championed the development of Credit Risk Transfers, one of the most significant reforms to the housing finance system in decades.

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