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Celebrating FIRREA

As of December 2014, banks and credit unions together comprised more than 77 percent of the Federal Home Loan Bank of Indianapolis’ 400 members. Sometimes it’s easy to forget that wasn’t always the case. But it wasn’t until 1989 that these key players in housing finance gained admittance into FHLBI after the savings and loan crisis of the 1980s.

Congress originally established the Federal Home Loan Bank System in 1932 in response to the Great Depression. The intent: to bolster middle- and working-class homeownership through broader availability of long-term fixed-rate mortgage loans. At that time, savings and loan associations and insurance companies were FHLBI’s only members, per congressional intent.

It took another significant housing finance collapse, in the 80s, to spur Congress to adapt the FHLB System to keep its membership vital and liquid. The national savings and loan crisis, born of soaring interest rates, relaxed restrictions on savings and loans, and additional Reagan-era deregulation resulted in numerous S&L collapses and a serious threat to national housing liquidity.

President George H.W. Bush signed the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) into law in August 1989. FIRREA overhauled federal savings and loan industry regulations and expanded FHLBank membership to include commercial banks and credit unions.

During the 25 years since FIRREA’s enactment, the FHLBanks have grown into a system of 7,500 member institutions nationwide, providing all members with reliable access to liquidity in all economic cycles.

FIRREA’s other legacy was the creation of the Affordable Housing Program (AHP) and the Community Investment Program (CIP), strengthening communities across the U.S. by awarding 10% of system profits in the form of homebuilding grants and offering lower cost loans to borrowers for projects that benefit low- to moderate income families or neighborhoods each year.

Since 1989, FHLBI has awarded nearly $250 million in AHP grants and provided over $2.5 billion in low cost advances and letters of credit through the CIP that, among other things, support job creation, infrastructure and rental housing.

The 25th anniversary of FIRREA is a great reminder that the FHLBanks continue to evolve, diversify, and make a difference to communities across the country, thanks to our strong and mission-focused membership.