The elevated borrowings are a sign that member banks, credit unions and life insurance companies—which use FHLB advances to fund their own operations—are significantly increasing their lending operations. In 2012, advances rose only 2% from the previous year.
Advances—primarily collateralized by mortgages—are the main business for the 12 district Federal Home Loan Banks, and served as a major source of liquidity for member institutions during the financial crisis. Yet growth in the borrowings had waned since outstanding advances totaled $631.2 billion at yearend 2009.
The Office of Finance report also showed a continued increase in the FHLBs’ retained earnings, and indicated that the billions of dollars in FHLB losses due to bad investments in private-label mortgage-backed securities have run their course.
The FHLBs ended 2013 with $12.2 billion in retained earnings, compared to $6 billion in 2009. They also reported just $14 million in credit losses in 2013 due to PLS investments. That was compared to $112 million in losses in 2012 and $856 million in losses in 2011.
Yet other indicators showed continued challenges for the system. Net income totaled $2.5 billion in 2013, down slightly from $2.6 billion in the prior year. Net interest income fell 16% year-over-year.
JPMorgan Chase remained the largest borrower of advances in 2013. Bank of America jumped to second from No. 5, replacing Capital One Financial in the No. 2 spot.
The other institutions among the top 10 FHLB borrowers were Citigroup, Wells Fargo, Capital One, MetLife, PNC Financial Services Group, New York Community Bancorp, Banco Santander and BBT.