Consumers want to have choices in their banking partners: A little-known, $1.3T financial system helps keep that possible

By Tony Wong, Executive Vice President, Chief Banking Officer

If you've left your bank recently — or it's left you — you're right on trend. The number of U.S. banks has almost halved in the last 20 years, primarily due to consolidation. Between 2019 and 2023, California alone lost 640 bank branches, and 760,000 Americans nationwide found themselves living in a banking desert — an area with no nearby full-service bank branches.

Amid these trends, however, the Wall Street Journal reported banking consolidation has led to an interesting phenomenon: More Americans are switching to smaller, hometown banks and credit unions. It's notable that consumers still have so many banks, savings institutions and credit unions to choose from — around 9,000 of them. Compare that to 5,441 banks in the European Union and just 40 consumer banks and 188 credit unions in Canada.

One reason why the U.S. still has so much choice? Something most bank and credit union customers have never heard of: the Federal Home Loan Bank system. This system of 11 institutions worth $1.3 trillion keeps local and regional financial services thriving.

Introducing the Federal Home Loan Bank System

This 92-year-old system is often unknown and misunderstood. Federal Home Loan Banks are not federal agencies, nor are they funded by tax dollars. Further, they do not issue or originate home loans.

Federal Home Loan Banks were created through an act of Congress in 1932. They operate as mission-driven cooperatives for members in their districts. Federal Home Loan Bank of San Francisco (FHLBank San Francisco) has over 300 members across California, Arizona, and Nevada. In addition to small and mid-sized banks, our members include credit unions, insurance companies, industrial loan providers, savings organizations, and community development financial institutions.

While we have never cost taxpayers a dime, the markets have perceived an implied government guarantee due to our status as a government-sponsored enterprise that helps enable us to get reduced costs on debt issued in the capital markets. The ability of the 11 Federal Home Loan Banks to access capital markets connects local members to international debt markets, ultimately bringing down the cost of lending for consumers.

The results of that connection are measurable. A Wisconsin School of Business study found that Federal Home Loan Banks save mortgage borrowers around $13 billion in interest each year and help smaller mortgage lenders stay competitive.

Supporting America's Banks and Communities

Day to day, we enable our members to offer the housing construction loans, 30-year mortgages, small business funding, and personal loans that keep the wheels of America's diverse financial ecosystem turning.

But we're also crucial to our members when times get tough. During the 2023 banking crisis, nearly all of our members had liquidity needs, and we were able to reliably meet those needs, providing assurance that they had the funds needed if worried customers withdrew their cash. Some members have also built us into their financial contingency planning for emergencies like cyberattacks and natural disasters.

Beyond helping protect consumers' banking choices, we provide communities with affordable housing and community development loan and grant programs. To date, FHLBank San Francisco has supplied more than $1.6 billion in grants, helping deliver new affordable housing and preserve existing affordable housing in communities that need it most.

Protecting Consumer Banking Choices

Many American consumers appreciate what big banks have to offer, and some value next-generation financial services. Others seek institutions with local branches where they can talk to a person. Regardless of which type of banking experience consumers prefer, a Federal Home Loan Bank is likely behind it, ensuring the institution has the funding to continue lending — and consumers continue to have choices.

We've helped keep the U.S. banking system resilient and full of consumer options for nearly 100 years, and we still have work to do. A rise in banking deserts across the country can drive consumers to payday lenders and check-cashing businesses or require them to drive to another town to reach a bank or credit union. Research has shown that growing up in a banking desert can mean a lifelong struggle with financial literacy and associated poor credit scores. We're committed to helping our members remain financially healthy and resilient to mitigate these negative impacts on the U.S. banking system and consumers.

You can learn more about how your local lending and communities benefit from a thriving Federal Home Loan Bank System, beginning with the FHLBank San Francisco 2024 Impact Report.