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Supervision of the Federal Home Loan Bank System

Under Section 20 of the Federal Home Loan Bank Act (12 USC 1440), FHFA is required to conduct examinations and report on the condition of the Federal Home Loan Banks (FHLBanks) at least annually. Under this authority, FHFA is responsible for ensuring the FHLBanks operate in a safe and sound manner and remain focused on providing stable and reliable liquidity to their members and supporting housing and community development. FHFA’s oversight also includes confirming each FHLBank’s implementation of an Affordable Housing Program as required by statute.

To carry out these statutory duties, FHFA’s Division of Bank Regulation (DBR) implements a program of continuous supervision that includes targeted examinations and ongoing monitoring of the FHLBanks and the Office of Finance (OF). 

A dedicated examiner-in-charge assigned to each FHLBank and the OF has primary responsibility for coordinating overall supervisory activities and assessing FHLBank board and senior management oversight and effectiveness, while teams of subject matter experts provide consistency in supervision of risk areas across the FHLBank System.

Supervisory Activities

DBR’s oversight focuses on identifying risk exposures at the FHLBanks and OF and assessing the level of risk, the direction of risk, and quality of risk management practices. DBR maintains a Supervisory Taxonomy that lists all FHLBank operations and risks of supervisory concern, which are assessed through targeted examinations and ongoing monitoring.

Targeted Examinations

DBR conducts targeted examinations of each FHLBank and the Office of Finance throughout the year. Targeted examinations are structured assessments designed to evaluate a specific risk area. Targeted examinations may be conducted onsite at an FHLBank or virtually.

Ongoing Monitoring 

Ongoing monitoring provides insight into emerging risks, operational changes, and broader trends that may affect the safety and soundness of an FHLBank. Monitoring activities include regular touchpoints with the FHLBanks and the OF, as well as reviews of routinely submitted materials. DBR also monitors debt issuance activities of the OF and tracks financial market trends. 

Assigning and Communicating Ratings

Observations from targeted examinations and ongoing monitoring provide the basis for issuing adverse findings and for the ratings assigned and communicated to each FHLBank and the OF by FHFA.

FHFA's examiners use a uniform rating system known as CAMELSO to assign a composite rating and component ratings to each FHLBank and the OF. The composite rating is based on an evaluation and individual rating of seven components: 

  • Capital
  • Asset Quality
  • Management
  • Earnings
  • Liquidity
  • Sensitivity to Mark Risk
  • Operational Risk 

Under the CAMELSO rating system, the composite and component ratings range from 1 (best - the lowest degree of supervisory concern) to 5 (worst - the highest level of supervisory concern).  See Advisory Bulletin 2012-03: FHFA Examination Rating System for more information about FHFA’s rating system, including how composite ratings are determined and how the rating system is applied at the OF.

FHFA issues a Report of Examination to each FHLBank and the OF board of directors and senior management annually. The Report communicates supervisory conclusions, summaries of adverse findings, and the composite and component ratings.

Additional Resources