The most important Indiana bank you’ve never heard of
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One of the most important banks doing business in the Hoosier state doesn’t have a single retail customer, and you’ve probably never heard of it.
It’s the Federal Home Loan Bank of Indianapolis (FHLBank Indianapolis), one of 11 regional banks across the nation operated as cooperatives and owned by other banks, credit unions, insurance companies and community development financial institution (CDFI) members. Because the word “Federal” is in the name, some people confuse it with the Federal Reserve Bank, better known as the Fed. However, these two financial institutions serve quite different purposes.
While the Fed protects the nation’s economy and financial systems by managing the money supply to control inflation and prevent dangerous swings in interest rates, FHLBank Indianapolis exists to help banks like ours strengthen the communities we serve. It does that by making it possible for banks and other members to obtain the funds needed to offer mortgage loans at affordable rates. Homeownership is the bedrock of local economic health, and FHLBank Indianapolis makes it easier for us to help more people become homeowners.
Put in financial terms, FHLBank Indianapolis provides a stable and reliable source of liquidity to its members, especially when the economy and financial markets are under stress. A great example is the recent financial crisis after two California banks and one New York bank were closed and sources of additional capital became more costly. Together, the 11 FHLBanks provided more than $300 billion in funding to meet their respective members’ needs.
Another significant difference is that the Fed is a government entity whose leadership is appointed by the President with Senate confirmation. FHLBank Indianapolis is a cooperative owned by its members and managed by a Board of Directors selected by those members. (Full disclosure: I currently serve as Board Chair.) Just as important, FHLBank Indianapolis does not receive any taxpayer dollars. It only serves member banks, credit unions, CDFIs , and insurance companies in Indiana and Michigan.
Interestingly, the FHLBanks were established during the Great Depression, primarily to provide liquidity to housing lenders, but also were originally authorized to make direct loans to homebuyers. When individual borrowers were unable to meet the same standards as lenders, Congress subsequently created the Home Owners’ Loan Corporation to serve that role. At that point, the FHLBanks became banks to serve local banks.
FHLBank Indianapolis is not only owned by its hundreds of members, but those members also serve as the primary source of capital. Members may also invest their excess funds with the FHLBank Indianpolis making dollars available to other members who need capital. In addition, FHLBank Indianapolis’s size and financial strength combined with the other FHLBanks allows it to borrow funds from debt markets around the world at advantageous rates and with lower costs than individual members could obtain on their own.
Because FHLBank Indianapolis is almost exclusively owned and operated by regulated financial institutions, it does business following prudent financial management concepts. One important example is a statutory mandate to give 10 percent of net income earned through its activities to support affordable housing programs. That can be an impressive amount, but the Board of Directors is in the process of working toward an additional voluntary increase.
The leadership team at The Farmers Bank views our involvement with FHLBank Indianapolis as a critical element in serving the counties and communities where we do business. In addition to being able to make more mortgage loans — especially to people who are first-time homebuyers — our association with the FHLBank Indianapolis brings other opportunities to our area. For example, our headquarters community of Clinton County has received more than $1.5 million in additional funding to support local affordable housing programs since 2017. In the first quarter of 2023 alone, FHLBank Indianapolis pumped over $12 million in combined required and voluntary affordable housing support through our Indiana and Michigan members. That’s serious community commitment.
Commitments like these are even more important as so many Indiana communities struggle to make affordable housing available to the people working for local employers. A key component in a community’s long-term vitality is the ability for the average working person to become a homeowner, the familiar key to financial stability and wealth accumulation. When people are able to put down roots, they become part of the fabric of the community.
So even though you may not have known FHLBank Indianapolis exists, there’s a good chance it has helped one of its members help you realize your own dreams somewhere along the way.
Karen Gregerson is President & CEO of The Farmers Bank, a locally owned and operated bank with 11 banking offices in Central Indiana, and serves as the Chairperson of the Board of Directors of the Federal Home Loan Bank of Indianapolis.
