United States: Federal Home Loan Bank Advances, 1932–1941

In the years preceding the Great Depression (1929–1933), home prices and outstanding mortgage debt grew substantially. Low interest rates and lax lending standards fueled widespread real estate speculation. House prices and housing construction peaked between 1925 and 1927 and then fell rapidly as the depression deepened, unemployment grew, and household income and wealth fell, making loan repayment difficult. In the early 1930s, Congress enacted legislation creating federal agencies to stabilize the banking system, rejuvenate housing finance, and oversee securities markets. One of those federal agencies was the Federal Home Loan Bank System (FHLB System), chartered in 1932 as a wholesale bank to provide liquidity to private institutions that specialized in home mortgage loans, including savings and loan associations, mutual savings banks, and life insurance companies. The FHLB System was initially capitalized with a 125 million stock subscription from the Treasury, though FHLBank operations were also financed through stock subscriptions by member financial institutions and consolidated debt issuance. By year-end 1933, the FHLB System had consolidated loans to member institutions totaling 88. 4 million.