Federal Home Loan Bank Board (FHLBB) history

Founded in 1932 during the Hoover administration, the FHLBB was the first federal agency designed to oversee SAVINGS AND LOANS institutions (S&Ls). Following the pattern of the FEDERAL RESERVE, founded in 1913, the FHLBB was created to supply credit to the S&Ls on a nationwide basis. During the early years of the Depression, the health of the S&Ls was critical to the economy since they were the major providers of home mortgages.

The Federal Home Loan Bank Act created 12 Federal Home Loan Banks around the country. The individual banks raised the cash they needed initially by selling stock to the S&Ls in their districts, enabling those that did so to call themselves federally chartered. The districts were similar to those of the Federal Reserve, but the geographical lines were somewhat different. Shortly thereafter, Congress created two federal agencies designed to provide assistance to the mortgage market: the Home Owner’s Loan Association in 1933 and the Federal Housing Administration in 1934. Both institutions were designed to further assist the residential housing market and, when combined with the credit supplying ability of the FHLBB, helped stabilize the residential housing sector throughout the 1930s.

The FHLBB was authorized to fund itself by borrowing in the bond markets. Its activities were aided by the creation of the Federal Home Loan Mortgage Corporation, or Freddie Mac, created by Congress in 1970 as a federal agency designed to purchase approved mortgage loans from thrift institutions, helping to create more liquidity among the thrifts. Despite the assistance provided, in the 1980s problems began to appear among the S&Ls due to high interest rates and net withdrawals by customers while interest rates were still regulated.

Despite the DEPOSITORY INSTITUTIONS ACT passed in 1982, the problem was only temporarily remedied, and the industry again suffered a serious crisis in 1988–89. Many junk bond investments made by the S&Ls as a result of the 1982 act declined in value, and many commercial real estate ventures, also authorized by the act, also went bad, forcing the S&Ls to write off many assets. As a result of the inability of the board to effectively monitor the mortgage-granting banks, Congress passed the FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT in 1989 in order to bail out the thrift industry. The act created the Office of Thrift Supervision (OTS), which assumed the regulatory powers of the FHLBB. Congress also passed the FINANCIAL SERVICES MODERNIZATION ACT 10 years later, reforming the structure of the banking system. As part of that legislative package, the Federal Home Loan Bank System Modernization Act reorganized the system again.

Further reading

• White, Laurence. The Savings and Loan Debacle. New York: Oxford University Press, 1991. 
• Woerheide, Walter. The Savings and Loan Industry. Westport, Conn.: Quorum Books, 1984.